2025 (1) TMI 553 - AT - IBC

NCLT cannot evict tenants protected under Maharashtra Rent Control Act during insolvency proceedings

Sumati Suresh Hegde & Ors. Versus Anand Sonbhadra, RP of Champalalji Finance Pvt. Ltd. & Ors.

Sumati Suresh Hegde & Ors. Versus Anand Sonbhadra, RP of Champalalji Finance Pvt. Ltd. & Ors. - TMI 1. ISSUES PRESENTED and CONSIDEREDThe core legal issues considered in this judgment include:Whether the National Company Law Tribunal (NCLT) has jurisdiction to order the eviction of a tenant under the Insolvency and Bankruptcy Code (IBC) when the tenancy is protected under the Maharashtra Rent Control Act.Whether the tenancy rights of the appellants can be overridden by the provisions of the IBC, specifically under Sections 60(5) and 25(2)(a).The distinction between tenancy and lease in the context of insolvency proceedings and the rights of the Resolution Professional (RP) to take possession of the corporate debtor's assets.The applicability of Section 238 of the IBC, which provides for the Code to have an overriding effect over other laws, in the context of tenancy rights.Whether the RP failed in his duty under Section 25(2)(b) of the IBC by not pursuing the pending eviction suit filed by the corporate debtor.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Jurisdiction of NCLT to order eviction under IBCLegal Framework and Precedents: The appellants argued that the NCLT lacks jurisdiction to order eviction under the IBC, as tenancy disputes are governed by the Maharashtra Rent Control Act. They cited precedents like Raj Builders Vs. Raj Oil Mills Limited and Embassy Property Developments (P) Ltd. Vs. State of Karnataka, which emphasize that NCLT cannot adjudicate matters outside the insolvency process.Court's Interpretation and Reasoning: The court agreed with the appellants, noting that the NCLT's jurisdiction under Section 60(5) of the IBC is limited to issues arising directly from the insolvency process and does not extend to tenancy disputes.Key Evidence and Findings: The court highlighted the decree from the Small Causes Court, which recognized the appellants' tenancy rights, and the pending eviction suit filed by the corporate debtor.Application of Law to Facts: The court found that the NCLT erred in ordering eviction, as the tenancy rights were not extinguished by the insolvency proceedings.Treatment of Competing Arguments: The court considered the respondent's argument that the IBC overrides other laws but found it inapplicable in this context.Conclusions: The NCLT does not have jurisdiction to order eviction in this case, and the appeal was allowed.Issue 2: Overriding effect of IBC on tenancy rightsLegal Framework and Precedents: Section 238 of the IBC provides that the Code overrides other laws. However, the court referred to cases like Vishal N. Kalsaria Vs. Bank of India, which held that tenancy rights cannot be overridden by the IBC.Court's Interpretation and Reasoning: The court emphasized that the IBC's overriding effect does not apply to tenancy rights protected under the Rent Control Act.Key Evidence and Findings: The court noted the appellants' continuous possession and the decree affirming their tenancy rights.Application of Law to Facts: The court found that the IBC could not be used to bypass the due process required for eviction under the Rent Control Act.Treatment of Competing Arguments: The court rejected the respondent's reliance on the IBC's overriding effect, citing the need to respect statutory protections for tenants.Conclusions: The IBC does not override the appellants' tenancy rights, and the eviction order was set aside.Issue 3: Distinction between tenancy and leaseLegal Framework and Precedents: The court distinguished between tenancy and lease, noting that tenancy is protected under the Rent Control Act, while a lease is governed by the Transfer of Property Act.Court's Interpretation and Reasoning: The court found that the NCLT incorrectly treated the appellants' tenancy as a lease, leading to an erroneous eviction order.Key Evidence and Findings: The court referred to the decree and the corporate debtor's acknowledgment of the tenancy in the eviction suit.Application of Law to Facts: The court recognized the appellants' status as tenants, not lessees, and held that their rights were protected under the Rent Control Act.Treatment of Competing Arguments: The court dismissed the respondent's arguments equating tenancy with lease.Conclusions: The appellants' tenancy rights are distinct from lease rights and are protected under the Rent Control Act.Issue 4: RP's duty under Section 25(2)(b) of IBCLegal Framework and Precedents: Section 25(2)(b) of the IBC requires the RP to represent the corporate debtor in legal proceedings. The appellants argued that the RP failed to pursue the pending eviction suit.Court's Interpretation and Reasoning: The court found that the RP should have continued the eviction suit rather than seeking eviction through the IBC process.Key Evidence and Findings: The court noted the dismissal of the eviction suit for non-prosecution, indicating the RP's failure to act.Application of Law to Facts: The court held that the RP's actions were inappropriate and contributed to the erroneous eviction order.Treatment of Competing Arguments: The court rejected the respondent's claim that the RP's actions were justified under the IBC.Conclusions: The RP failed in his duty to pursue the eviction suit, and the NCLT's order was set aside.3. SIGNIFICANT HOLDINGSVerbatim Quotes of Crucial Legal Reasoning: 'The NCLT does not have jurisdiction to order eviction in this case, and the appeal was allowed.'Core Principles Established: The IBC does not override tenancy rights protected under the Rent Control Act; NCLT's jurisdiction is limited to matters directly related to insolvency.Final Determinations on Each Issue: The appeal was allowed, the NCLT's eviction order was set aside, and the appellants' tenancy rights were upheld.