NCLAT dismisses appeal against rent determination orders as procedural, not appealable under Section 61 I&B Code 2016

NCLAT dismissed the appeal challenging orders directing rent determination through negotiation rather than accepting appellant's rent claim. The tribunal held that since the liquidator had not yet initiated negotiations or made final determinations on rights, the orders were procedural and not appealable under Section 61 of I&B Code 2016. Additionally, NCLAT dismissed the contempt petition as no positive action was directed, finding no apparent contempt. The tribunal ruled that dismissal of contempt petitions without punishment orders is not appealable under Contempt of Courts Act, as appeals only lie when punishment is imposed.

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1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in these connected Company Appeals are:

• Whether the order of the learned NCLT dated 04.10.2024, rejecting the Appellant's claim for rent and directing that the rent be determined by negotiations, is legally sustainable.
• Whether the dismissal of the Contempt Petition No. 02/7/HDB/2024 filed under Section 60(5) of the Insolvency and Bankruptcy Code (I & B Code), 2016 read with Section 425 of the Companies Act, 2013, by the learned NCLT, was justified.
• Whether the learned NCLT erred in not considering the substantive and procedural rights of the Appellant in relation to the claim for use and occupation charges for land occupied by Phase III assets.
• Whether the orders impugned are appealable under Section 61 of the I & B Code, 2016, and whether the dismissal of the Contempt Petition is appealable under the Contempt of Courts Act.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Legality of the NCLT order dated 04.10.2024 directing rent determination by negotiation

Relevant legal framework and precedents: The Insolvency and Bankruptcy Code, 2016 governs the Corporate Insolvency Resolution Process (CIRP) and liquidation proceedings. Section 7 deals with initiation of CIRP by Financial Creditors. Section 33 permits liquidation if no resolution plan is available. Section 60(5) empowers the Adjudicating Authority to pass appropriate orders. The NCLT's role includes overseeing liquidation and sale of assets, and resolving disputes arising in the process.

Court's interpretation and reasoning: The Tribunal observed that the land in question, measuring 40 acres and occupied by Phase III assets, was sold as part of the Corporate Debtor's assets to a third party (the Successful Auction Purchaser). The issue of rent for use and occupation of this land was left open for negotiation as per the earlier unchallenged NCLT order dated 02.08.2023 (IA(IBC) No. 1221/2023). The order of 04.10.2024 merely reiterated that the rent was to be determined by negotiation between the parties, with the Liquidator acting as an umpire. The Tribunal emphasized that this order did not decide the rights of the parties on merits but was a procedural direction to facilitate negotiation.

Key evidence and findings: The Appellant claimed rent of Rs. 1.50 Crores per month from 01.07.2023 for use of land by Respondent No. 1. Despite several communications, no agreement was reached. The Liquidator confirmed the sale of the Corporate Debtor as a going concern and issued sale certificates, thereby transferring ownership. The NCLT's order of 02.08.2023 left the rent determination open to negotiation, which was yet to be implemented.

Application of law to facts: Since the NCLT had already passed an order leaving the rent issue to be resolved by negotiation, the subsequent order of 04.10.2024 was consistent and procedural in nature. It did not adjudicate on the substantive entitlement to rent or fix its quantum. The Tribunal held that no final adjudication had been made to warrant interference under Section 61 of the I & B Code.

Treatment of competing arguments: The Appellant argued that the NCLT failed to appreciate his substantive rights and that the order adversely affected him. The Respondents contended that the Liquidator was the rightful owner post-sale and that rent determination was pending negotiation. The Tribunal accepted the Respondents' position that the matter was still open and procedural directions were appropriate.

Conclusions: The Tribunal concluded that the impugned order did not decide the rights of the parties on the rent claim, but only directed negotiations to resolve the dispute. Hence, it was not a final order appealable under Section 61 of the I & B Code.

Issue 2: Dismissal of Contempt Petition No. 02/7/HDB/2024

Relevant legal framework and precedents: Section 60(5) of the I & B Code allows the Adjudicating Authority to punish for contempt in relation to its orders. Section 425 of the Companies Act, 2013 confers contempt powers akin to those of High Courts under the Contempt of Courts Act. Appeals against contempt orders are maintainable only if there is an order of punishment.

Court's interpretation and reasoning: The Tribunal noted that the Contempt Petition alleged non-compliance with the order dated 02.08.2023. The learned NCLT dismissed the petition on the ground that no positive act of contempt or violation of directions was made out. The order of 02.08.2023 had left the rent determination to negotiation, and the subsequent order of 04.10.2024 further directed the same. Therefore, no contemptuous act was established.

Key evidence and findings: The Appellant's claim of non-compliance was based on the Respondent's failure to pay rent. However, the Respondents had not refused negotiation or payment outright, and the Liquidator was to act as umpire. The NCLT found no willful disobedience or breach of court order.

Application of law to facts: Since the orders did not impose any immediate obligation to pay rent without negotiation, failure to pay rent at this stage did not amount to contempt. The Tribunal upheld the NCLT's dismissal of the Contempt Petition as legally sound.

Treatment of competing arguments: The Appellant contended that non-payment was contemptuous. The Respondents argued that the rent issue was unresolved and pending negotiation. The Tribunal sided with the latter, emphasizing the procedural nature of the orders and absence of any contemptuous conduct.

Conclusions: The dismissal of the Contempt Petition was justified, and no appeal lies against dismissal of contempt proceedings under Section 19 of the Contempt of Courts Act.

Issue 3: Maintainability of the Appeals under Section 61 of the I & B Code and Contempt of Courts Act

Relevant legal framework and precedents: Section 61 of the I & B Code provides for appeals against orders passed by the Adjudicating Authority. However, only final or appealable orders are subject to appeal. Section 19 of the Contempt of Courts Act restricts appeals against dismissal of contempt petitions unless punishment is imposed.

Court's interpretation and reasoning: The Tribunal found that the order dated 04.10.2024 was not a final adjudication on the rent claim but a procedural direction to negotiate. Hence, it was not appealable under Section 61. Similarly, the dismissal of the Contempt Petition without punishment was not appealable under the Contempt of Courts Act.

Key evidence and findings: Both orders left substantive issues open for negotiation and resolution. There was no final determination of rights or imposition of punishment.

Application of law to facts: Since no final rights were determined and no punishment imposed, the appeals lacked maintainability and were liable to be dismissed.

Treatment of competing arguments: The Appellant sought appellate intervention on grounds of adverse findings and procedural lapses. The Tribunal rejected these, emphasizing the absence of finality and appealable orders.

Conclusions: Both appeals were held not maintainable and dismissed accordingly.

3. SIGNIFICANT HOLDINGS

"Accordingly, the order in IA(IBC)/1221/2023 is to be interpreted that rent is to be determined by way of negotiations and while doing so, the parties are to take into consideration factors already discussed in arriving at the settlement. It is expected that the Liquidator will play the role of umpire instead of changing the goalpost to resolve the issue. Therefore, there is no merit in the application." (Para 38)

"Since, the Impugned Order is not deciding the right, which was yet left open to be considered on merits by the Liquidator, it may not be made appealable under Section 61 of I & B Code, 2016, as all contentions are still left open to be considered by the learned Adjudicating Authority."

"The learned Adjudicating Authority found that there is no apparent contempt and has rejected the application. Since, the Contempt Petition has been rejected, in view of Section 19 of the Contempt of Courts Act, no Appeal would lie as against the dismissal of the Contempt Petition."

Core principles established include:

• Orders directing negotiation without final adjudication on rights are procedural and not appealable under Section 61 of the I & B Code.
• Dismissal of Contempt Petitions without punishment is not appealable under the Contempt of Courts Act.
• The Liquidator's role as an umpire in resolving disputes post-sale is recognized and upheld.
• Parties must engage in negotiations as directed before seeking adjudication on disputed claims arising from liquidation proceedings.

Final determinations:

• The order dated 04.10.2024 directing rent determination by negotiation is upheld as valid and not appealable.
• The dismissal of the Contempt Petition is upheld as proper and not appealable.
• Both Company Appeals are dismissed for lack of merit and maintainability.

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