TaxTMI 
TaxTMI 
2019 (11) TMI 844
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....Insolvency and Bankruptcy Code, 2016 (hereafter "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.....
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....editors. It made several submissions, which indicated 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 pe....
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....rrect forms. Further, the resolution applicant is also addressing 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 ....
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....es, even before the insolvency proceedings were initiated, MCGM issued a 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 befo....
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....ly arbitrary but also prima facie vindictive. 18. It is also submitted that the resolution 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 ....
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....4. In the present case, Section 92 of the MMC Act has no bearing on the validity of the resolution 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 dec....
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....th the law. If the terms (including the terms of repayment) under the resolution plan are approved by the 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 g....
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....perative Societies Act, 1960, a public trust registered under the Bombay Public Trust Act, 1950, or a company registered under the Companies Act, 1956 3[or any person for the purposes of 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, Clear....
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.... agreement with the Corporation concerning the application, enjoyment or use of the property in a particular manner, such term, condition or obligation shall be held to be annexed to the property which is the subject­ matter of the transfer or agreement 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....
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....ch both Parties will enter into on completion of the project period. iv) The SHCL shall complete the construction of the hospital building within the project period of 60 months excluding monsoon. the MCGM shall be liable to issue the Project Completion Certificate on written application by SHCL to that effect 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 ....
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....ever is earlier and the lenders shall continue to enjoy the same rights and privileges as that of SHCL. SHCL is also hereby allowed, with prior written permission from Commissioner to sublet the whole or part thereof and/or the buildings on the Schedule Property. The SHCL shall be entitled to sublet the Schedule Property and the Building/s thereon from time to time in whole or in part for any duration (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 th....
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..... The contesting parties, including the RP and CoC were unable to point out to anything on the record to establish that a valid permission contemplated by Section 92 was ever obtained with regard to the proposal in the resolution plan. The proposal was approved by the NCLT and MCGM's appeal was rejected by NCLAT. The proposal could be approved only to the extent it did not result in encumbering the land belonging 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 neve....
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....took any such decision. It is the case of the respondents that the letter sent by the Director was his own action which had never been authorized by the Board. At any rate the proposal made by the Director never fructified as no such decision was taken by the Board and the Board never authorized the Mandi Samities (Committees) of various districts in the State to transfer the property of the Samiti in favour of the traders 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 Gujar....
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....ing for an addition of 3700 meters in addition to the existing 1100 meters waterfront, also went on to speak of developing a 700 meters berth, along with the GMB, for handling commercial cargo. Apart from this, Essar planned to build a world class container terminal and a dry dock, which would serve the shipping industry generally. It also proposed to reclaim a further 334 hectares land on the southern side with the additional dredged material. 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 apprecia....
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.... particular manner, that end can be achieved only through the prescribed mode, or not at all. 40. This Court also notices that an initial No Objection Certificate was issued by MCGM voluntarily, for creation of interest in respect of its properties. Upon its refusal to grant approval, SevenHills filed proceedings under Article 226 before the Bombay High court (W.P. No 1728 of 2011), in which the Court directed to grant issuance of certificate. At the same 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 Ba....
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.... v. Jaipur Metals & Electricals Ltd. (2019) 4 SCC 227, the correctness of a High Court's view which refused to transfer winding up proceedings pending before it and set aside the NCLT's order admitting an insolvency resolution application at the behest of a financial creditor, was in issue. This court held as follows, setting aside the judgment impugned in that case: "It is clear that Respondent No. 3 has filed a Section 7 application under the Code on 11.01.2018, on which an order has been passed 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 suc....
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.... (2018) 2 SCC 674, one of the issues was the interplay between Section 9 of the Code and provisions of the Advocates Act. It was argued that a demand notice issued through an advocate was not permissible and that the provisions of the Code overrode all other laws. This court negative the contention, holding that it is only in the case of inconsistency, that by reason of Section 238 of the Code would its provisions prevail. On a harmonious construction of the seemingly inconsistent provisions, if the court could give effect 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 signi....
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.... nugatory. The section, therefore, by conferring on Magistrates the power to record statements or confessions, by necessary implication, prohibited a Magistrate from giving oral evidence of the statements or confessions made to him. (at pp. 490­491) Following this principle, therefore, it is clear that the RBI can only direct banking institutions to move under the Insolvency Code if two conditions precedent are specified, namely, (i) that there is a Central Government authorisation to do so; and (ii) that it should be in respect of specific defaults. 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....