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2024 Supreme(Online)(NCLAT) 436

NATIONAL COMPANY LAW APPELLATE TRIBUNAL
Justice Ashok Bhushan (Chairperson) , Hon'ble Mr. Barun Mitra (Member (Technical)) ,
Shrishti Infrastructure Development Corporation Limited – Appellant
Versus
Avishek Gupta &Anr. – Respondent
71/ND/2024 COMPANY APPEAL(AT)(INS)

Mr. Sunil Fernandes, Sr. Advocate, Mr. Sugandh Kochhor, Ms. Shrishti, Ms. Rajshree Choudhary, Ms. Diksha Dadu, Advocates; Mr. Ramji Srinivasan, Sr. Advocate with Ms. Mahima Singh, Ms. Pooja Mahajan, Ms. Shreya Mahalwan, Ms. Shruti Pandey, Advocates for R1; Mr. Abhinav Vasisht, Sr. Advocate with Mr. Raunak Dhillon, Ms. Madhavi Khanna, Mr. Nihaad Dewan, Ms. Priya Singh, Advocates for CoC; Mr. Joy Sahay, Sr. Advocate with Mr. Sidhartha Sharma, Mr. Arjun Asthana, Ms. Shalini Basu, Advocates for SRA.

Leasehold rights constitute assets under the Insolvency and Bankruptcy Code, and unregistered agreements cannot alter the rights established by registered lease deeds.

Headnote:(A) Insolvency and Bankruptcy Code, 2016 - Section 18(1)(f) - Registration Act, 1908 - Section 17 - Appeal against rejection of application to exclude leasehold rights from Corporate Insolvency Resolution Process (CIRP) - Appellant claimed lease terminated under Framework Agreement; however, the Adjudicating Authority found the Framework Agreement unregistered and thus inadmissible - Leasehold rights of Corporate Debtor deemed assets under the Code - No default in rental payments established - Appeal dismissed. (Paras 2, 4, 32)

(B) Leasehold Rights - Definition and treatment under the Insolvency and Bankruptcy Code - Leasehold rights constitute property and are assets of the Corporate Debtor - Framework Agreement not recognized due to non-registration - Rights governed by registered Lease Deed and Modification Deed. (Paras 20, 24, 25)

(C) Ipso Facto Clause - The validity of ipso facto clauses in contracts remains unresolved; however, the court held that such clauses do not apply in the present case as the Corporate Debtor is a going concern. (Paras 28, 31)

Facts of the case:
The Appellant leased 3.5 acres of land to the Corporate Debtor, which defaulted on loan repayments leading to CIRP initiation. The Appellant sought to terminate the lease based on an unregistered Framework Agreement, which was rejected by the Adjudicating Authority.

Findings of Court:
The Adjudicating Authority correctly dismissed the application as the Framework Agreement was unregistered and did not confer termination rights. The leasehold rights were deemed assets of the Corporate Debtor.

Issues: Whether the leasehold rights could be excluded from CIRP based on the Framework Agreement and the validity of the ipso facto clause.

Ratio Decidendi: The court ruled that the unregistered Framework Agreement could not be relied upon to terminate the lease, and leasehold rights are assets under the Code. The ipso facto clause was not applicable as the Corporate Debtor was a going concern.

Result: Appeal dismissed.

JUDGEMENT

(4th April, 2024) Ashok Bhushan, J. This Appeal has been filed against the order dated 04.01.2024 passed by the Adjudicating Authority (National Company Law Tribunal), Special Bench, Court-II, Kolkata in IA No. 690/KB/2022 filed by the Appellant in the Corporate Insolvency Resolution Process (CIRP) of ‘Sarga Hotel Private Limited’ (Corporate Debtor). By the impugned order, IA No.690 of 2022 filed by the Appellant has been rejected, aggrieved by which order, this Appeal has been filed.

2. Brief facts of the case to be noticed for deciding the Appeal are:-

2.1. Appellant by Registered Deed of Conveyance dated 22.03.2007 by West Bengal Housing Infrastructure Development Corporation Limited, acquired a piece and parcel of land containing an area of 8 acres situated in Street No. MAR situated within Mouza Jatragaachi in New Town within Police Station Rajarhat, District Parganas North. Appellant by a Registered Lease Deed dated 31.03.2007 demarcated portion of the above premises containing an area of 3.5 acres leased out to the Corporate Debtor for consideration of rent of Rs.20,000/- per month exclusive of the rates and taxes. Under the Lease Deed dated 31.03.2007, the Corporate Debtor was entitled to erect, construct and build on the demised land. A Share Subscription and Shareholders Agreement dated 07.08.2008 was entered between the Appellant, ‘Rishima SA Investments LLC’- the Corporate Debtor (earlier known as Shristi Hotel Private Limited) under which Rishima SA acquired 35% shareholding of the Corporate Debtor and Appellant had 65% shareholding. Corporate Debtor obtained financial assistance from the Yes Bank, on default being committed in repayment of the loan to the Yes Bank.

Yes Bank filed an application under Section 7 against the Corporate Debtor on which application, vide an order dated 11.02.2022, CIRP commenced against the Corporate Debtor. Mr. Avishek Gupta was appointed as IRP who was subsequently confirmed as Resolution Professional. The Resolution Professional issued an invitation for Expression of Interest for submission of the Resolution Plan on 28.04.2022. The Appellant filed an IA No.690 of 2022 in the CIRP of the Corporate Debtor claiming that the lease granted to the Corporate Debtor of land measuring 3.5 acres stood terminated as per Framework Agreement dated 29.03.2007, hence, the assets in question be excluded from the CIRP of the Corporate Debtor. Appellant by the application also challenged the invitation of Expression of Interest dated 28.04.2022. The Application was opposed by the Resolution Professional who filed reply to the application objecting to the prayers made in the application. Resolution Professional claimed that the lease in favour of the Corporate Debtor is still subsisting and as per Extension and Modification Deed dated 12.09.2008, lease can be terminated only on account of non- payment of rental. Rental having duly paid, there is no occasion for termination of the Lease Deed. The Framework Agreement dated 29.03.2007 as claimed by the Appellant was denied and it was stated that in the records of the Corporate Debtor no such Agreement is reflected. Rejoinder was also filed by the Appellant to the Reply. Parties have also filed their written submissions before the Adjudicating Authority. Adjudicating Authority by impugned order dated 04.01.2024 dismissed IA No. 690 of 2022, aggrieved by which order, this Appeal has been filed.

3. We have heard Shri Sunil Fernandes, Learned Senior Counsel for the Appellant, Shri Ramji Srinivasan, Learned Senior Counsel with Ms. Pooja Mahajan, Learned Counsel for the Resolution Professional, Shri Abhinav Vasisht, Learned Senior Counsel with Shri Raunak Dhillon, Learned Counsel for the CoC and Shri Joy Sahay, Learned Senior Counsel appearing for the SRA.

4. Shri Sunil Fernandes, Learned Senior Counsel for the Appellant submits that under Master Framework Agreement (MFA) dated 29.03.2007, Appellant had right to terminate the lease in event of defaul

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2024 Supreme(Online)(NCLAT) 436

NATIONAL COMPANY LAW APPELLATE TRIBUNALJustice Ashok Bhushan (Chairperson) , Hon'ble Mr. Barun Mitra (Member (Technical)) ,Shrishti Infrastructure Development Corporation Limited – AppellantVersusAvishek Gupta &Anr. – Respondent71/ND/2024 COMPANY APPEAL(AT)(INS)

Leasehold rights constitute assets under the Insolvency and Bankruptcy Code, and unregistered agreements cannot alter the rights established by registered lease deeds.

Cases Referred (1)

NATIONAL COMPANY LAW APPELLATE TRIBUNAL
Justice Ashok Bhushan (Chairperson) , Hon'ble Mr. Barun Mitra (Member (Technical)) ,
Shrishti Infrastructure Development Corporation Limited – Appellant
Versus
Avishek Gupta &Anr. – Respondent
71/ND/2024 COMPANY APPEAL(AT)(INS)