1. Corporate insolvency resolution process — Dispute over inclusion of development rights of a third-party owned property in the information memorandum — Third-party licensee claiming possession. (Para 3 , 4 , 5 , 6 , 11 , 12 )
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2023 Supreme(SC) 226
SUPREME COURT OF INDIA
V. RAMASUBRAMANIAN, PANKAJ MITHAL, JJ.
Victory Iron Works Ltd. – Appellant
Versus
Jitendra Lohia & Anr. – Respondent
Civil Appeal No.1782 of 2021, Civil Appeal No.1743 of 2021
Decided on : 14-03-2023
Important Points
IMPORTANT POINTS
(1) License does not create any interest in immovable property.
(2) Development rights created in favour of Corporate Debtor constitute “property” within meaning of expression under Section 3(27) of IBC.
(1) License does not create any interest in immovable property.
(2) Development rights created in favour of Corporate Debtor constitute “property” within meaning of expression under Section 3(27) of IBC.
Subject
Insolvency and Bankruptcy Code - Corporate Insolvency Resolution Process
Act Referred
INCOME TAX ACT: S.102(2)
INSOLVENCY AND BANKRUPTCY CODE: S.7, S.25, S.18(f), S.3, S.5, S.79
Insolvency Resolution Process for Corporate Persons Regulations: Reg.30, Reg.36
MINES AND MINERALS DEVELOPMENT AND REGULATION ACT: S.8(a)(6)
SECURITISATION AND RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY INTEREST ACT: S.13(12)
SECURITY INTEREST ENFORCEMENT RULES: R.8
SPECIFIC RELIEF ACT: S.14(3)(c)
INSOLVENCY AND BANKRUPTCY CODE: S.7, S.25, S.18(f), S.3, S.5, S.79
Insolvency Resolution Process for Corporate Persons Regulations: Reg.30, Reg.36
MINES AND MINERALS DEVELOPMENT AND REGULATION ACT: S.8(a)(6)
SECURITISATION AND RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY INTEREST ACT: S.13(12)
SECURITY INTEREST ENFORCEMENT RULES: R.8
SPECIFIC RELIEF ACT: S.14(3)(c)
Headnote
(A) Insolvency and Bankruptcy Code, 2016 – Sections 3(27) and 7 – Corporate Insolvency Resolution Process – License does not create any interest in immovable property – Bundle of rights and interests were created in favour of Corporate Debtor, over immovable property in question – Creation of these bundle of rights and interests was actually for a valid consideration – But for payment of such consideration, Energy Properties would not even have become owner of property in dispute – Development rights created in favour of Corporate Debtor constitute “property” within meaning of expression under Section 3(27) of IBC – Since expression “asset” in common parlance denotes “property of any kind”, bundle of rights that Corporate Debtor has over property in question would constitute “asset” within meaning of Section 18(f) and Section 25(2)(a) of IBC. (Paras 35 and 49)
(B) Insolvency and Bankruptcy Code, 2016 – Sections 18 and 25 – Sphere of jurisdiction of Authorities – Exclusion of assets owned by a third-party, but in possession of Corporate Debtor held under contractual arrangements, from definition of expression “assets”, is limited to Section 18 – Explanation under Section 18 does not extend to Section 25 – Bundle of rights and interests created in favour of Corporate Debtor may even tantamount to creation of an implied agency under Chapter-X of Indian Contract Act, 1872 and such agency may not even be amenable to termination in view of Section 202 of the Act since creation of the same in favour of the Corporate Debtor was coupled with flow of consideration. (Paras 39 and 40)
Facts of the case:
Present appeals arise out of a common Order passed by National Company Law Appellate Tribunal Principal Bench dismissing two independent appeals filed by the appellants herein, against an Order of the National Company Law Tribunal, thereby confirming an order of the Adjudicating Authority, in two applications, in the course of the Corporate Insolvency Resolution Process.
Findings of Court:
NCLT as well as NCLAT were right in holding that possession of the Corporate Debtor, of property needs to be protected. This is why a direction under Regulation 30 had been issued to local district administration.
Result : Appeals dismissed.
Legal Category Hierarchy
- insolvency and bankruptcy law
- property law
Advocates appeared:
For the Appellant(s) Mr. Jayant Mehta, Sr. Adv. Mr. Kumarjit Banerjee, Adv. Mr. Ashish Choudhury, Adv. Mr. Akash Agarwal, Adv. Mr. Anand Kamal, Adv. Mr. Arpit Choudhury, Adv. Mr. Rohit Amit Sthalekar, AOR Mr. Alok Dhir, Adv. Ms. Varsha Banerjee, Adv. Mr. Karan Grover, Adv. Mr. Karan Batura, AOR
For the Respondent(s): M/S. Ksn & Co., AOR Mr. Abhijeet Sinha, Adv. Mr. Saikat Sarkar, Adv. Mr. Siddharth Naidu, Adv. Ms. Manju Jetley, AOR Mr. Birj Kant Mishra, Adv. Mr. Hitesh Kumar Sharma, Adv. Mr. Akhileshwar Jha, Adv. Ms. Niharika Dewivedi, Adv. Mr. Amit Kumar, Chawla, Adv. Mr. Narendra Pal Sharma, Adv.
For the Appellant(s) Mr. Jayant Mehta, Sr. Adv. Mr. Kumarjit Banerjee, Adv. Mr. Ashish Choudhury, Adv. Mr. Akash Agarwal, Adv. Mr. Anand Kamal, Adv. Mr. Arpit Choudhury, Adv. Mr. Rohit Amit Sthalekar, AOR Mr. Alok Dhir, Adv. Ms. Varsha Banerjee, Adv. Mr. Karan Grover, Adv. Mr. Karan Batura, AOR
For the Respondent(s): M/S. Ksn & Co., AOR Mr. Abhijeet Sinha, Adv. Mr. Saikat Sarkar, Adv. Mr. Siddharth Naidu, Adv. Ms. Manju Jetley, AOR Mr. Birj Kant Mishra, Adv. Mr. Hitesh Kumar Sharma, Adv. Mr. Akhileshwar Jha, Adv. Ms. Niharika Dewivedi, Adv. Mr. Amit Kumar, Chawla, Adv. Mr. Narendra Pal Sharma, Adv.
Table of Contents
2. Whether development rights over third-party land constitute assets of the corporate debtor and whether the adjudicating authority has jurisdiction to protect possession against a third-party licensee. (Para 13 , 14 , 15 )
3. Development rights constitute a bundle of interests and intangible assets of the corporate debtor; the exclusion of third-party assets under Section 18 does not extend to Section 25. (Para 16 , 17 , 18 , 19 , 20 , 21 , 22 , 23 , 24 , 25 , 26 , 27 , 28 , 29 , 30 , 31 , 32 , 33 , 34 , 35 , 36 , 37 , 39 , 40 , 42 , 43 , 44 , 46 , 47 , 48 , 49 )
4. Development rights over immovable property, created for consideration, constitute property and assets of the corporate debtor under the Insolvency and Bankruptcy Code, 2016. (Para 35 , 37 )
5. Appeals dismissed — Orders of NCLT and NCLAT protecting the corporate debtor's development rights and the licensee's limited possession upheld. (Para 50 , 51 )
6. Do development rights over a property owned by a third party constitute assets of a corporate debtor under the IBC?
Yes. Development rights created for consideration constitute a bundle of rights and interests, which fall under the inclusive definition of property in Section 3(27) and are considered assets of the corporate debtor. (Para 35 , 37 )
7. Does the explanation to Section 18 of the IBC, which excludes third-party assets, apply to the duties of the Resolution Professional under Section 25?
No. The explanation to Section 18 specifically states it is for the purposes of that section, meaning the exclusion of third-party assets does not extend to the duties and powers under Section 25. (Para 39 , 40 )
8. Does the NCLT have jurisdiction to protect the possession of a corporate debtor's assets against a third-party licensee?
Yes. The NCLT and NCLAT can protect the possession of the corporate debtor's assets, including development rights, and can direct local administration to assist the Resolution Professional in this regard. (Para 50 )
JUDGMENT :
V. RAMASUBRAMANIAN, J.
1. These appeals arise out of a common Order passed by the National Company Law Appellate Tribunal1[For short, “NCLAT”] Principal Bench dismissing two independent appeals filed by the appellants herein, against an Order of the National Company Law Tribunal2[For short, “NCLT”], thereby confirming an order of the Adjudicating Authority, in two applications, in the course of the Corporate Insolvency Resolution Process3[ For short, “CIRP”].
2. We have heard the learned counsel for the parties.
Parties to the Litigation
3. The subject matter of controversy in these appeals is the land of an extent of about 10.19 acres at Ramrajatala Station Road, Howrah, West Bengal. M/s Energy Properties Private Limited4[For short, “Energy Properties”] which is the appellant in CA No.1782 of 2021 is the ostensible owner of the said property, in whose name the title stands. Avani Towers Private Limited, which is the Corporate Debtor in respect of whom CIRP has been initiated, not only provided finance to Energy Properties, for the purchase of the said property, but also holds 40% of the share capital in Energy Properties, apart from holding a Joint Development Agreement with Energy Properties in respect of the property in question.
4. M/s Victory Iron Works Ltd. 5[For short, “Victory”] which is the appellant in CA No.1743 of 2021, claims to be in possession of the property in entirety, partly by virtue of a Leave and License Agreement and partly by virtue of an oral understanding.
Brief facts leading to the above appeals
5. A financial creditor by name M/s Sesa International Limited filed an application under Section 7 of the Insolvency and Bankruptcy Code, 20166[ For short, “IBC” or “the Code”, as the case may be.], against Avani Towers Private Limited which is the Corporate Debtor herein. The company petition was admitted by the Adjudicating Authority on 15.10.2019.
6. The first meeting of the Committee of Creditors was held on 14.11.2019. Thereafter, the suspended Board of Directors of the Corporate Debtor informed the Resolution Professional that Energy Properties were forcefully removing the security guards from the property. Therefore, the Resolution Professional filed an application in CA (IB) No.1807/KB/2019 (RP Application) before the Adjudicating Authority under Section 25 of IBC read with Regulation 30 of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 20167[ For short, “the Regulations”], praying (i) for a direction to Energy Properties & Others (including Victory) not to obstruct the sole and exclusive possession of the property; and (ii) also for the issuance of direction to the local district administration to give proper assistance to the Resolution Professional in taking possession of the property so as to discharge his duties under the Code.
7. The said application was hotly contested both by Energy Properties (ostensible owner) and Victory (licensee) on the ground that an Order of eviction cannot be passed by the Adjudicating Authority under the Code and that the relationship was not amenable to the jurisdiction of the Adjudicating Authority.
8. Curiously, even while questioning the jurisdiction of NCLT to entertain an application of the nature described above, Victory also filed an independent application in CA (IB) No.146/KB/2020, seeking an injunction restraining the Resolution Professional from interfering or disturbing or intermeddling in the day-to-day business of Victory. We do not know how such an application was maintainable at the instance of Victory, when they had questioned the jurisdiction of NCLT to adjudicate the dispute between the Licensor and Licensee.
9. By an Order dated 12.02.2020, the Adjudicating Authority directed Victory and Energy Properties not to obstruct the possession and activities of the Resolution Professional and also holding at the same time that the order will not prevent Victory from carrying on their activities in the portion of the land given t
