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TaxTMI 
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2019 (11) TMI 844
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....fter "IBC" or "the Code") against the order of the National Company Law Appellate Tribunal (hereafter variously "NCLAT" and "the Appellate Tribunal"), rejecting its plea the respect to a resolution plan approved by the National Company Law Tribunal ("NCLT") under the provisions of that Code. 2. MCGM owns inter alia, Plot Nos. 155­156, 162 and 168 (all plots hereafter called "the lands") in village Marol, Andheri (East) Mumbai. By a contract (dated 20th December, 2005) SevenHills Healthcare (P.) Ltd. (the company facing insolvency proceedings, hereafter "SevenHills") agreed to develop these lands (which were to be leased to it for 30 years) and construct a 1500 bed hospital. MCGM stipulated several conditions, including that 20% of the beds had to be reserved for use by the economically deprived, and that SevenHills had to complete the construction in 60 months (excluding monsoons). The sixty­month period ended on 24th April, 2013; the project however, was not completed. In terms of Clause 15(g), the lease deed had to be executed within a month after completion. However, the deed was not executed as the project was not completed. Further, SevenHills had to pay lease rent at....
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....ed that subject to stipulations with respect to completion of the hospital project in a timebound manner, and subject to SNMC providing 20% beds in the completed hospital, for use by the economically weaker sections (and at the disposal of MCGM) and, lastly subject to clearing its (MCGM's) claims to the tune of Rs. 140.88 crores, it was agreeable to the resolution plan. However, later during the proceedings, it opposed the resolution plan, arguing that being a public body as well as a planning authority, it had to comply with the provisions of the Mumbai Municipal Corporation Act, 1888 ("MMC Act"), which meant that all action and approval had to be taken by the Improvement Committee of the Corporation. It was also stated that the show cause notice ("SCN") dated 23rd January, 2018 had been already issued by MCGM proposing to terminate the contract (with SevenHills) to which there was no response and that in the absence of a lease, the provisions of Section 14(1)(d) of the Code could not prevent the MCGM from terminating the agreement. Another argument made was that the period of CIRP in the case began on 13th March, 2018 when the petition was admitted and the period of 270 days expi....
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....ing the dues payable to MCGM as stated in the resolution plan. Further, that NCLT observed that on comparison of the amount offered in the resolution plan with Form­ H submitted by the RP, it was seen that the amount proposed in the plan was more than that of the value of liquidation of the Corporate Debtor. It accordingly approved the plan. 8. Aggrieved by NCLT's order, MCGM approached the Appellate Tribunal, before which several grounds were urged, including that since the conditions stipulated in the contract (with SevenHills Healthcare) had not been complied with, there was no lease deed and consequently no interest inured in the land, in favour of the Corporate Debtor. It was also urged that the resolution applicant was aware that the property belonged to MCGM, and had not vested in the Corporate Debtor. Despite these circumstances, the proposal and revised proposal incorporating encumbrances of the lands were made contrary to law. It was also specifically urged that mandatory provisions of the MMC Act requiring express authorization by the corporation for transfer or creation of any interest in land had not been complied with and resultantly, the proposal and revised....
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.... show cause notice proposing to terminate the contract. It was further emphasised that since the terms of the contract were infringed, in fact, there was no subsisting lease which could have been dealt with by the revised proposal and later by the Adjudicating Authority. It was submitted that the impugned order has completely noted these salient aspects. 13. On behalf of the RP (who has been arrayed as the first respondent) it is argued by Mr. C.A. Sundaram, learned senior counsel that MCGM had categorically consented to the resolution plan in writing before the NCLT and the Appellate Tribunal. He points out that in the written submissions dated 28th November, 2018, 29th April, 2019 and 14th May, 2019 MCGM categorically stated that the resolution plan be approved and its application before the NCLT ought to be disposed of in terms of the commitment given by the resolution applicant/SNMC. It is pointed out that the Appellate Tribunal, after hearing the submissions of MCGM that it had no objections to the resolution plan, affirmed it. MCGM, counsel submitted, has not refuted that such a statement was made before the NCLAT. It is therefore the undisputed position that MCGM had no obj....
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....esolution plan is absolutely unconditional in nature and in no manner contingent on the resolution of the dispute with MCGM. It is submitted that such unconditionality is the most fundamental aspect of the resolution plan. This unconditional nature is recorded in the minutes of meetings of the 8th meeting of the CoC held on 20th August 2018. MCGM participated in the meetings of the CoC, including the 8th CoC meeting, and was provided a copy of the minutes contemporaneously. These minutes record SNMC's categorical statement that the negotiations with MCGM are in progress and that the resolution plan is unconditional and in no manner dependent on the outcome of such negotiations. Further, there is no provision in the resolution plan (and none has been cited by MCGM) which suggests that the plan is conditional on settlement with it (i.e. MCGM). 19. It is also submitted that any dispute with MCGM in relation to the lease of the underlying land has no bearing on the validity of the resolution plan, under Section 31 of the Code. Having been approved by the CoC and the NCLT on merits, the plan attained finality and binds MCGM as a stakeholder in the Corporate Debtor. MCGM therefore, cann....
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....on plan, the approval order or the impugned order. Section 92 of the MMC Act mandates and prescribes the manner in which disposal of land belonging to the appellant would take place. However, the resolution plan does not contemplate any disposal of the said land or creation of any additional rights and obligations of MCGM or the Corporate Debtor in relation to the lands. It is merely the shareholding of the Corporate Debtor which undergoes a change pursuant to the resolution plan. MCGM cannot place any embargo on such shareholding changes by resorting to proceeding under the Code. 25. It was urged that SNMC does not acquire any interest in the said land and only acquires managerial control over the Corporate Debtor by way of holding equity shares in the Corporate Debtor. Therefore, there arises no question of Section 92 of the MMC Act being violated through the resolution plan. Discussion regarding the insolvency process and relevant provisions of the MMC Act 26. On admission of an insolvency application preferred by a financial creditor/operational creditor, a moratorium is declared on the continuation and initiation of all legal proceedings against the debtor. The NCLT appoint....
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....committee of creditors, it has to be further approved by the NCLT, which is the adjudicating authority. 29. In this case, it is not the provisions of the IBC which this court has to primarily deal with; it is rather whether the process and procedure adopted by the NCLT and later the NCLAT, in overruling MCGM's concerns and objections with regard to the treatment of its property (i.e. the lands) is in accordance with law. The relevant provisions of the Municipal Corporation of Greater Mumbai Act, 1888 are extracted below: Provisions governing the disposal of municipal property: Section 92. With respect to the disposal of property belonging to the corporation other than property vesting in the corporation for the purposes of the Brihan Mumbai Electric Supply and Transport Undertaking, the following provisions shall have effect, namely: - (a) the Commissioner may, subject to the regulations made in this behalf, dispose of, by sale or otherwise, any movable property belonging to the corporation not exceeding in value, in each instance, five lakh rupees, of grant a lease of any immovable property belonging to the corporation, including any right of fishing or of gathering and taki....
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....provision of public latrines, urinals and similar conveniences or construction of a plant for processing excrementitious and other filthy matters of garbages] or to a person who is dishoused as a result of the implementation of any Development Scheme of the Corporation or to a Co­operative Housing Society formed exclusively by the persons who are dishoused as a result of the implementation of any Development Scheme of the Corporation, at such rent, which may be less than the market value of the premium, rent, or other consideration, for the grant of such lease, and subject to such conditions, as may be provided by the bye­laws made under section 461; (ddd) notwithstanding anything contained in this section, the Commissioner may, with the sanction of the Corporation, and with the approval of the State Government, grant a lease for a period not exceeding 60 years, of municipal land which is declared as a slum area under the provisions of the Maharashtra Slum Areas (Improvement, Clearance and Re­development) Act, 1971 to a co­ operative society of slum dwellers occupying such land, at such rent, which may be less than the market value of the premium, rent, or other c....
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....reement and shall be enforced against the transferee or owner and all persons deriving title or interest under or through him, notwithstanding- (a) any law for the time being in force, and (b) that the Corporation are not in possession of or interested in any immovable property for the benefit of which, the term, condition or obligation was agreed to, entered into or imposed." 30. At this stage, it would be relevant to notice certain conditions in the contract. Clause 2(i) stipulates the minimum lease rent as Rs. 10.40 crores for which SHCL agreed to pay 0.1% over and above the minimum lease rent. Clause 5 of the agreement permitted SevenHills to mortgage and/or create charge of the schedule property. The conditions read as follows: "5. The Owner hereby agrees to permit and allow the SHCL on the terms and conditions to be approved by the Owner which permission/approval shall not be unreasonably withheld, to mortgage and/or create charge on the Schedule Property and/or SHCL's leasehold right thereon with or without the Buildings on the Schedule property during the lease period or prior thereto i.e. during the project period) in any manner whatsoever either in whole or in ....
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....ect after completion of the project. xxxxxx xxxxxx xxxxxx e) Penalty for delay: i) SHCL shall complete the entire Project and open the facility to public use within the approved time limit. SHCL shall submit the work programme with defined milestones. the progress of the work shall be strictly as per the programme of construction submitted by SHCL and approved by the Commissioner. In case SHCL fails to complete the Project as aforesaid within the said Project Period of 60 (sixty) months excluding monsoon from issuance of Commencement Certificate, and unless such failure is due to force Majeure conditions, penalty for delay shall be charged for the period of delay which will be equivalent to 25% of Lease Rent which SHCL would have paid to the Owner for that period, had the Project been completed within the Project Period and this shall be in addition to lease rent. ii) SHCL shall have to separately pay the compensation for delay to the Owner at the end of notice period. iii) However, in case any delay occurs because of circumstances beyond the control of SHCL only suitable extension in the period of the Project without imposing penalty or demand for compensation for dela....
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....ation (not beyond the lease period) to any other Party/ies (sub­lessee/s) on such terms and conditions, as may be agreeable to SHCL within the frame work of the tender and this Agreement and for the same or similar purposes for which agreement is intended, by means of duly registered Deed/s. SHCL shall have to apply for permission to Municipal Commissioner two months in advance and if the approval is not received within two months from the date of receipt of such a request by the Commissioner, it shall be deemed as approved." 32. A cumulative reading of the stipulations reveals that the contract/agreement contemplates that the lease deed was to be executed after the completion of the project. The contract reveals that (a) the project period was for 60 months starting from the date excluding the monsoon period; (b) by Clauses 5 and 17, SevenHills could mortgage the property for securing advances from financial institutions for the construction of the project and thereafter towards its working. Such mortgage/charge or interest was subject to approval by MCGM. In the event the contract was to be terminated, it was agreed that MCGM would not in any manner be liable towards the mor....
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.... to MCGM. 36. It is evident from a plain reading of Section 92(c), that the Commissioner (of MCGM) is empowered to, with the sanction of the corporation, "lease, sell or otherwise convey any immovable property belonging to the corporation." It is not in dispute that the original contract entered into on 20­12­2005 contemplated the fulfilment of some important conditions, including firstly, the completion of the hospital project within a time frame; and secondly, timely payment of annual lease rentals. It is a matter of record that the hospital project was scheduled to be completed by 24th April, 2013. MCGM cites Clause 15(g) of the contract to urge that within a month of this event, i.e. completion of the hospital, a lease deed had to be executed. This event never took place. Therefore, the terms of the contract remained, in the opinion of the court, an agreement to enter into a lease; it did not per se confer any right or interest, except that in the event of MCGM's failure or omission to register the lease (in the event SevenHills had complied with its obligations under the contract), it could be sued for specific performance of the agreement, and compelled to execute a ....
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....of agricultural produce who had been allotted the shops, godowns and sheds by the Mandi Parishad. In this view of the matter, the appellants have no legal right to claim that the property be given to them on hire­purchase basis." 38. In Essar Bulk Terminal Limited & Anr. v. State of Gujarat & Ors. (2018) 3 SCC 750, again, this court held as follows: "16. Despite this, what is clear from the record is that the Appellants appear to have actually dredged the channel to a depth of 14 meters and appear to have reclaimed an area of 164 hectares plus 170 hectares to the south of the mangroves, without any permission at all. When this was pointed out to Shri Mihir Joshi, the answer given was that when permission is granted Under Section 35(1) of the Gujarat Maritime Board Act, a letter granting such permission specifically says that it is permission that is granted Under Section 35(1) and for this purpose, a letter dated 2nd August, 2008 was referred to. According to him, therefore, the letter dated 14th June, 2007, which referred only to an NOC for reclamation, could not be given the status of permission Under Section 35(1). According to the learned Counsel, therefore, if Section 3....
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....rial. A perusal of this letter would leave no doubt about the fact that despite Essar Steel's production being at much less than what was projected, the Appellants' continued demands would show that the real motive was to go beyond a captive jetty and to develop a commercial port which, as we have seen, cannot be done without a global tender under the Gujarat Infrastructure Development Act. 18. As stated hereinabove, as many as three MOUs were executed between the Appellants, the GMB and the State Government, which MOUs were valid only for a period of 12 months and were stated not to have granted any right to the Appellants, who would incur all the expenditure for the same. This being the case, it is a little difficult to appreciate Shri Joshi's contention that any legitimate expectation could be based on any of the aforesaid expired MOUs. The High Court is correct in its conclusion that no such expectation could possibly have arisen out of the aforesaid MOUs or the correspondence between the Appellants and the GMB referred to. 19. It is also important to note from the correspondence between the Appellants and the GMB, that the Appellants were clearly told that the ....
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....time, the High Court observed as follows: "11. ...... It is, however, required to be noted here that the Corporation is nor borrowing any amount for its purpose....If the petitioners want financial assistance from the Bank, naturally, it cannot mortgage only the superstructure but the entire property is required to be mortgaged. Aprart from that even if there is a defect in the title in the matter of creating mortgage, the Corporation is not going to suffer in any manner and it is for the concerned Bank to consider the same while giving financial assistance. The Corporation is not going to get any financial assistance from the Bank and, therefore, whatever documents which the petitioners may execute in favour of the Bank, the Corporation is not bound by the same....The said NOC can be granted by the Corporation without prejudice to its rights and contentions that the land in question belongs to them and, therefore, no mortgage could have been created for the same. It is always open to the Corporation to ascertains right to the extent that they are not bound by execution of such documents with the Bank....However, such grant of NOC, would be without prejudice to the rights and con....
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.... admitting such application by the NCLT on 13.04.2018. This proceeding is an independent proceeding which has nothing to do with the transfer of pending winding up proceedings before the High Court. It was open for Respondent No. 3 at any time before a winding up order is passed to apply under Section 7 of the Code. This is clear from a reading of Section 7 together with Section 238 of the Code which reads as follows: "238. Provisions of this Code to override other laws. - The provisions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law." 18. Shri Dave's ingenious argument that since Section 434 of the Companies Act, 2013 is amended by the Eleventh Schedule of the Code, the amended Section 434 must be read as being part of the Code and not the Companies Act 2013, must be rejected for the reason that though Section 434 of the Companies Act, 2013 is substituted by the Eleventh Schedule of the Code, yet Section 434, as substituted, appears only in the Companies Act, 2013 and is part and parcel of that Act. This being so, if there is any inc....
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....to both, it would do so. 46. Dharani Sugars & Chemicals Ltd. v. Union of India & Ors. (2019) 5 SCC 480 is a relevant recent decision of this court. The question which arose in that case was the legality and constitutionality of directions issued by the Reserve Bank of India, through a circular of 12th February, 2018 regulating resolution of stressed assets of debtors. This court elaborately dealt with provisions of the Banking Regulation Act, 1949 and the Reserve Bank of India Act, 1934 and held that the power to issue directions regarding initiation of insolvency proceedings vested in the RBI, subject to the approval of the Central Government. The court significantly held that the power was contained "within the four corners" of Section 35AA and observed as follows: "A conspectus of all these provisions shows that the Banking Regulation Act specifies that the Central Government is either to exercise powers along with the RBI or by itself. The role assigned, therefore, by Section 35AA, when it comes to initiating the insolvency resolution process under the Insolvency Code, is thus, important. Without authorisation of the Central Government, obviously, no such directions can be i....
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....ts. The Section, therefore, by necessary implication, prohibits this power from being exercised in any manner other than the manner set out in Section 35AA." 47. In the opinion of this court, Section 238 cannot be read as overriding the MCGM's right - indeed its public duty ­ to control and regulate how its properties are to be dealt with. That exists in Sections 92 and 92A of the MMC Act. This court is of opinion that Section 238 could be of importance when the properties and assets are of a debtor and not when a third party like the MCGM is involved. Therefore, in the absence of approval in terms of Section 92 and 92A of the MMC Act, the adjudicating authority could not have overridden MCGM's objections and enabled the creation of a fresh interest in respect of its properties and lands. No doubt, the resolution plans talk of seeking MCGM's approval; they also acknowledge the liabilities of the corporate debtor; equally, however, there are proposals which envision the creation of charge or securities in respect of MCGM's properties. Nevertheless, the authorities under the Code could not have precluded the control that MCGM undoubtedly has, under law, to deal with its properti....