2025 (6) TMI 539 - AT - IBC

Appellant cannot continue hotel possession after agreement expiry despite CIRP moratorium under Section 14

Nazru S Basheer Versus Pancard Clubs Limited

The NCLAT dismissed an appeal concerning possession of 'MB International' hotel. The appellant sought to continue possession beyond the six-year term of a ... Direction to hand over the possession of a certain hotel building that goes by the name ‘MB International’ - entitlement to continue possession of the hotel property beyond the stipulated six-year term under the Conducting Agreement dated 03.07.2017 - HELD THAT:- This Tribunal has little difficulty in spotting the fallacy of the arguments advanced on behalf of the appellant. Admittedly the Conducting Agreement was executed on 03.07.2017. And, the CIRP against the CD under whom the appellant claims right to be in possession of the hotel property, has commenced in 2022, and with it has become operational the moratorium under Section 14. Moratorium, per se imply that there shall be in place a status quo viz the affairs of corporate debtor. And, inasmuch as under Section 14 the property of corporate debtor after the commencement of moratorium, cannot be evacuated the very expectation, even if any, of the appellant that the agreement period would be extended in terms of clause 28 thereof, is both misplaced and misconceived. It is not in dispute that the term of the agreement has expired on 07.08.2023, wherein after the appellant ceased to have any lawful right to be in possession. Necessarily he is liable to be evicted and hence this Tribunal does not consider that the line of reasoning of the Adjudicating Authority is flawed. Appeal dismissed. 1. ISSUES PRESENTED and CONSIDERED- Whether the appellant was entitled to continue possession of the hotel property 'MB International' beyond the stipulated six-year term under the Conducting Agreement dated 03.07.2017, especially in light of Clause 28 which contemplates possible extension of the agreement period.- Whether the Adjudicating Authority (NCLT) had jurisdiction under Section 60 of the Insolvency and Bankruptcy Code (IBC) to entertain the application seeking delivery of possession of the property during the Corporate Insolvency Resolution Process (CIRP).- Whether the moratorium under Section 14 of the IBC operated to maintain status quo and prevent eviction or termination of possession rights during the CIRP.- Whether the approval of the Resolution Plan terminated the jurisdiction of the Adjudicating Authority to entertain the application for possession.- Whether the Adjudicating Authority erred in dealing separately with two applications (I.A.3958 of 2023 and I.A.4136 of 2023) filed by the Resolution Professional (RP) concerning overlapping issues.- Whether the appellant's claim of investment and delayed possession (possession handed over only in 2021 despite agreement dated 2017) raised disputed questions of fact precluding summary eviction.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Entitlement to Possession Beyond the Stipulated Period under the Conducting AgreementLegal Framework and Precedents: The Conducting Agreement dated 03.07.2017 granted the appellant the right to operate the hotel for six years, with Clause 28 providing that the owner (Corporate Debtor) may inform the appellant if the agreement period is to be extended beyond six years. The CIRP was initiated in 2022 under Section 7 of the IBC, triggering moratorium under Section 14.Court's Interpretation and Reasoning: The Tribunal observed that the term of the agreement expired on 07.08.2023. The appellant's contention that the agreement continued due to non-communication of refusal to extend (per Clause 28) was rejected. The Tribunal held that the moratorium under Section 14 mandates maintaining status quo regarding the property of the Corporate Debtor, precluding any expectation of extension or continuation of possession rights beyond the stipulated period.Key Evidence and Findings: The agreement's expiry date was undisputed. The appellant's possession was handed over only in 2021, but the agreement's term was fixed from 2017. The Resolution Professional's communications and legal notices demanding possession and payment of dues further established the Corporate Debtor's position.Application of Law to Facts: The Tribunal applied the moratorium provisions to hold that the appellant's possession right ceased upon expiry of the agreement. No vested right in possession survived post 07.08.2023, and the appellant was liable to deliver vacant possession.Treatment of Competing Arguments: The appellant's argument about Clause 28 and investment in the hotel business was found misplaced as the moratorium prevents any unilateral extension or continuation of possession rights without explicit approval. The Tribunal did not accept the presumption of automatic extension.Conclusions: The appellant was not entitled to possession beyond the agreement term. The Adjudicating Authority's order directing delivery of possession was upheld.Issue 2: Jurisdiction of the Adjudicating Authority under Section 60 IBC to Entertain Possession ApplicationLegal Framework and Precedents: Section 60 of the IBC empowers the Adjudicating Authority to adjudicate disputes arising during the CIRP. The appellant relied on precedents including Jhanvi Rajput Automotive Pvt. Ltd. and Sumati Suresh Hegde, arguing that once the Resolution Plan is approved, the Adjudicating Authority loses jurisdiction, and that possession disputes involve factual questions unsuitable for summary adjudication.Court's Interpretation and Reasoning: The Tribunal held that the Adjudicating Authority retains jurisdiction under Section 60 to deal with possession issues arising after termination of lease or agreement. It referred to the ratio in Jhanvi Rajput case affirming the authority's power to order eviction of unauthorized occupants post expiry of lawful possession rights.Key Evidence and Findings: The Resolution Plan was approved on 25.04.2024, but the possession dispute pertained to a period after agreement expiry on 07.08.2023 and during CIRP. The Adjudicating Authority continued to prosecute the application post approval.Application of Law to Facts: The Tribunal found no error in the Adjudicating Authority entertaining the application for possession delivery. The approval of the Resolution Plan did not oust jurisdiction over possession disputes arising during CIRP.Treatment of Competing Arguments: The appellant's contention that the application became infructuous post Resolution Plan approval was rejected. The Tribunal distinguished the scope of I.A.3958 (possession) from I.A.4136 (avoidance of preferential transactions), holding separate adjudication appropriate.Conclusions: The Adjudicating Authority had jurisdiction to entertain and decide the possession application under Section 60 IBC.Issue 3: Effect of Moratorium under Section 14 IBC on Possession RightsLegal Framework and Precedents: Section 14 imposes a moratorium prohibiting transfer, alienation, or eviction of property of the Corporate Debtor during CIRP to maintain status quo.Court's Interpretation and Reasoning: The Tribunal emphasized that moratorium prevents eviction or disturbance of possession during CIRP. However, possession rights that expire by efflux of time (agreement expiry) do not survive moratorium. The moratorium does not create or extend rights beyond contractual term.Key Evidence and Findings: The appellant's possession right expired on 07.08.2023. The moratorium was operational from CIRP initiation in 2022, but did not prevent enforcement of expiry of possession rights.Application of Law to Facts: The moratorium preserved the status quo but did not validate or extend possession beyond expiry. The appellant had no lawful right to continue possession post expiry.Treatment of Competing Arguments: The appellant's expectation of extension was held to be misconceived as moratorium does not imply automatic renewal or extension of agreements.Conclusions: Moratorium under Section 14 did not protect the appellant's possession beyond the agreement term.Issue 4: Treatment of Overlapping Applications and Jurisdictional CompetenceLegal Framework and Precedents: The RP filed two applications: I.A.3958 (possession delivery) and I.A.4136 (avoidance of preferential transactions under Sections 45 and 48 IBC). The appellant argued that dealing with these separately was flawed.Court's Interpretation and Reasoning: The Tribunal held that the scope and relief sought in the two applications were distinct and unrelated. I.A.4136 concerned avoidance of preferential transactions, while I.A.3958 concerned possession delivery.Application of Law to Facts: Separate adjudication was appropriate and did not prejudice any party.Conclusions: No error in treating the applications separately.Issue 5: Disputed Questions of Fact Regarding Possession and InvestmentLegal Framework and Precedents: The appellant contended that possession was handed over only in 2021 and that substantial investment was made, raising disputed facts unsuitable for summary eviction.Court's Interpretation and Reasoning: The Tribunal found that the key fact-expiry of agreement term-was undisputed and determinative. The investment argument did not create a lawful right to possession beyond the agreement term.Conclusions: No jurisdictional bar or factual dispute precluded eviction order.3. SIGNIFICANT HOLDINGS'The Conducting Agreement was executed on 03.07.2017 and the term expired on 07.08.2023. The moratorium under Section 14 IBC mandates maintenance of status quo but does not extend or renew possession rights beyond the stipulated period. The appellant ceased to have any lawful right to possession post expiry and is liable to be evicted.''The Adjudicating Authority under Section 60 IBC retains jurisdiction to entertain applications for delivery of possession arising during the CIRP, even after approval of the Resolution Plan.''Separate adjudication of applications concerning possession and avoidance of preferential transactions is appropriate where the reliefs sought are distinct and unrelated.''The appellant's expectation of extension of the Conducting Agreement by silence or non-communication under Clause 28 is misplaced and misconceived in the context of moratorium and expiry of the agreement.''Disputed questions of fact regarding investment and delayed possession do not preclude the Adjudicating Authority from ordering delivery of possession where the term of agreement has expired.'Final determinations:- The appeal challenging the order directing delivery of possession was dismissed.- The appellant was held not entitled to possession beyond 07.08.2023.- The Adjudicating Authority's jurisdiction to entertain the possession application was affirmed.