2025 (3) TMI 1143 - AT - IBC

NCLAT upholds NCLT jurisdiction over lease termination during moratorium period under Section 14 IBC

NCLAT held that NCLT had jurisdiction to entertain RP's application against GIDC's lease termination during moratorium period under Section 14 IBC. The ... Termination of lease during the moratorium period imposed under Section 14 of the Insolvency and Bankruptcy Code, 2016 (IBC) - jurisdiction of NCLT to entertain the application filed by the Resolution Professional (RP) against the termination of the lease by GIDC - HELD THAT:- There is no dispute between the parties that Resolution Plan came to be approved by the CoC with requisite majority in 17th CoC Meeting held on 10.02.2020 and Letter of Intent was issued to SRA, who has also submitted Performance Bank Guarantee. An IA was filed by the RP for approval of Resolution Plan being IA No.159 of 2020 immediately after approval of the Resolution Plan, which remained pending. The Resolution Plan could not be considered at an earlier point of time on account of certain litigations with respect to eligibility of SRA. The Adjudicating Authority has also extended the time for completion of CIRP. In IA No.461 of 2022 filed by the RP challenging the order dated 07.04.2022 issued by GIDC, by which lease was terminated and further Show Cause Notice was issued for eviction of the CD. Both these orders were challenged in IA No. 461 of 2022. There is no dispute between the parties that moratorium which commenced on admission of Section 7 Application in the year 2019, continued to operate. The Resolution Plan, which was approved, for which IA No.159 of 2020 was filed, remained pending before the Adjudicating Authority. Thus, order dated 07.04.2022 was passed during continuance of the moratorium. The Hon’ble Supreme Court in Embassy Property Developments Pvt. Ltd. vs. State of Karnataka and Ors. [2019 (12) TMI 188 - SUPREME COURT] recorded its conclusion that NCLT did not have jurisdiction to entertain an application against the Government of Karnataka for a direction to execute supplemental lease deeds for the extension of the mining lease. The application for approval of Resolution Plan was pending consideration during which period GIDC had issued an order, terminating the lease and issuing Show Cause Notice for eviction of the CD. We are of the view that action of the GIDC by issuing Show Cause Notice of terminating the lease dated 07.04.2022 was clearly hit by Section 14 of the IBC and the Adjudicating Authority committed error in not allowing the IA, which was filed by the RP being IA No.461 of 2022. Although, interim order was passed by Adjudicating Authority for maintaining the status quo, but Adjudicating Authority directed the RP to approach the Appellate Authority of GIDC. When order passed by GIDC is clearly hit by Section 14(1), it was well within the jurisdiction of NCLT within the meaning of Section 60, sub- section (5) (c) of the IBC to entertain the application. Conclusion - When order passed by GIDC is clearly hit by Section 14(1), it was well within the jurisdiction of NCLT within the meaning of Section 60, sub-section (5) (c) of the IBC to entertain the application. Challenge to order of the Adjudicating Authority remanding the Resolution Plan to the CoC - HELD THAT:- Learned Counsel for the Financial Creditor is correct in its submission that Adjudicating Authority has not returned any finding that Resolution Plan submitted by SRA was not in compliance of sub- section (2) of Section 30. No such shortcomings in the Resolution Plan has been pointed out, due to which the Resolution Plan suffers from any infirmity as required by Section 30, sub-section (2). The law is well settled, the Adjudicating Authority in paragraph-17 has already noticed the judgment of the Hon’ble Supreme Court K. Sashidhar vs. Indian Overseas Bank and Ors. [2019 (2) TMI 1043 - SUPREME COURT], where it was observed that Adjudicating Authority has ample power to remit the Resolution Plan for reconsideration by the CoC when there is violation of Section 30, sub-section (2) of the IBC. There can be no quarrel to the above proposition that Resolution Plan can be sent back for reconsideration of the CoC, if there is violation of Section 30, sub-section (2). Any violation of Section 30, sub-section (2) gives ample jurisdiction to NCLT to interfere with the decision of CoC approving the Resolution Plan or remit the Plan for making it compliant with Section 30, sub-section (2). But in the present case, there is no finding by the Adjudicating Authority with regard to non-complaint of Resolution Plan as per Section 30, sub-section (2). Conclusion - Without recording a finding of non- compliant of Section 30, sub-section (2), the Resolution Plan could not have been returned back to the CoC for reconsideration. Appeal allowed. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment are:1. Whether the actions taken by the Gujarat Industrial Development Corporation (GIDC) to issue a Show Cause Notice and terminate the lease during the moratorium period imposed under Section 14 of the Insolvency and Bankruptcy Code, 2016 (IBC) were valid.2. Whether the National Company Law Tribunal (NCLT) had jurisdiction to entertain the application filed by the Resolution Professional (RP) against the termination of the lease by GIDC.3. Whether the NCLT was correct in remitting the Resolution Plan back to the Committee of Creditors (CoC) for reconsideration without finding a violation of Section 30(2) of the IBC.ISSUE-WISE DETAILED ANALYSISIssue 1: Validity of GIDC's Actions During MoratoriumRelevant Legal Framework and Precedents: Section 14 of the IBC imposes a moratorium on actions such as the termination of leases during the insolvency resolution process. The Supreme Court's judgment in Rajendra K. Bhutta vs. Maharashtra Housing and Area Development Authority was cited, emphasizing that the moratorium aims to maintain the status quo to facilitate corporate resolution.Court's Interpretation and Reasoning: The Tribunal found that GIDC's actions to terminate the lease and issue a Show Cause Notice during the moratorium were invalid under Section 14 of the IBC. The moratorium was intended to prevent such actions to allow the resolution process to proceed without hindrance.Key Evidence and Findings: The Tribunal noted that the lease termination and Show Cause Notice were issued during an active moratorium period, which started with the admission of the insolvency application in 2019.Application of Law to Facts: The Tribunal applied Section 14 of the IBC to conclude that GIDC's actions were invalid during the moratorium period.Treatment of Competing Arguments: GIDC argued that Section 14 was not applicable as they were the landowners. However, the Tribunal rejected this, stating that leasehold rights are considered assets of the Corporate Debtor (CD) and are protected during the moratorium.Conclusions: The Tribunal held that the actions of GIDC were invalid under the moratorium imposed by Section 14 of the IBC.Issue 2: Jurisdiction of NCLTRelevant Legal Framework and Precedents: Section 60(5)(c) of the IBC grants NCLT jurisdiction over matters related to the insolvency process. The Tribunal referred to the Supreme Court's judgment in Embassy Property Developments Pvt. Ltd. vs. State of Karnataka, which discussed the limits of NCLT's jurisdiction.Court's Interpretation and Reasoning: The Tribunal concluded that NCLT had jurisdiction to entertain the RP's application as it related to the insolvency process and the leasehold rights of the CD, which were part of the Resolution Plan.Key Evidence and Findings: The Tribunal found that the leasehold rights were integral to the CD's assets and were addressed in the Resolution Plan, justifying NCLT's jurisdiction.Application of Law to Facts: The Tribunal applied Section 60(5)(c) of the IBC to affirm NCLT's jurisdiction over the matter.Treatment of Competing Arguments: GIDC contended that NCLT lacked jurisdiction, but the Tribunal disagreed, citing the connection between the leasehold rights and the insolvency process.Conclusions: The Tribunal held that NCLT had jurisdiction to entertain the application filed by the RP.Issue 3: Remittance of Resolution Plan to CoCRelevant Legal Framework and Precedents: Section 30(2) of the IBC outlines the requirements for a Resolution Plan. The Tribunal referred to judgments allowing NCLT to remit plans to CoC if they do not comply with these requirements.Court's Interpretation and Reasoning: The Tribunal found that the NCLT did not identify any specific non-compliance with Section 30(2) in the Resolution Plan, which would warrant sending it back to the CoC.Key Evidence and Findings: The Tribunal noted that the NCLT's decision to remit the plan was influenced by its earlier order regarding the GIDC lease termination, which was found unsustainable.Application of Law to Facts: The Tribunal concluded that without specific findings of non-compliance, the Resolution Plan should not have been remitted to the CoC.Treatment of Competing Arguments: The Tribunal considered the arguments regarding compliance with Section 30(2) and found no evidence of shortcomings in the Resolution Plan.Conclusions: The Tribunal held that the NCLT's decision to remit the Resolution Plan was unsustainable.SIGNIFICANT HOLDINGSThe Tribunal made the following significant holdings:- The actions of GIDC to terminate the lease and issue a Show Cause Notice during the moratorium were invalid under Section 14 of the IBC.- NCLT has jurisdiction to entertain applications related to the insolvency process, including those involving leasehold rights integral to the Resolution Plan.- Without specific findings of non-compliance with Section 30(2) of the IBC, the Resolution Plan should not have been remitted to the CoC.Verbatim Quotes of Crucial Legal Reasoning:'The statutory freeze that has thus been made is, unlike its predecessor in the SICA, 1985 only a limited one, which is expressly limited by Section 31(3) of the Code, to the date of admission of an insolvency petition up to the date that the adjudicating authority either allows a resolution plan to come into effect or states that the corporate debtor must go into liquidation.''When order passed by GIDC is clearly hit by Section 14(1), it was well within the jurisdiction of NCLT within the meaning of Section 60, sub-section (5) (c) of the IBC to entertain the application.'Final Determinations:1. The Tribunal allowed Company Appeal (AT) (Ins.) No.1103 of 2024, quashing the termination order and Show Cause Notice issued by GIDC.2. The Tribunal allowed Company Appeal (AT) (Ins.) No.1084 of 2024, setting aside the NCLT's order to remit the Resolution Plan to the CoC and reviving the application for fresh consideration.