Luxury Perks for Promoters? NCLAT Puts an End to "Shadow" Occupancy in CIRP Proceedings

The National Company Law Appellate Tribunal (NCLAT), led by Chairperson Justice Ashok Bhushan and Member (Technical) Mr. Barun Mitra, has delivered a stern verdict regarding the limits of promoter control in distressed companies. In the matter of Raman Khangura vs. Navneet Gupta , the bench upheld an order forcing ex-directors and their family members to vacate the premises of a luxury hotel, dismissing claims of "occupancy rights" as essentially fabricated efforts to avoid insolvency mandates.

A Case of "Convenient" Memory

The dispute centers on Majestic Hotels Limited, the owner of the "Hotel Majestic Park Plaza" in Ludhiana. When the hotel entered the Corporate Insolvency Resolution Process (CIRP) in 2024, the newly appointed Resolution Professional (RP) moved to secure the hotel's assets. He discovered, however, that the hotel's 8th and 9th floors were occupied by the former directors and their extended family, who refused to leave.

When the RP demanded they vacate, the occupiers pulled a rabbit from the hat: a 2015 Memorandum of Understanding (MoU) and a 2019 "Arbitral Award" claiming perpetual residential rights in the hotel, allegedly originating from the auction of their personal Chandigarh residence by Punjab & Sind Bank years prior.

The Arguments: Rights vs. Reality

The Appellants, led by Raman Khangura and Jagpal Singh Khangura, argued that their residential status was protected by a valid contractual arrangement. They contended that because an Arbitrator had purportedly awarded them these rights, the Adjudicating Authority (NCLT) had no jurisdiction to evict them or question the validity of the award without a formal challenge under the Arbitration & Conciliation Act.

Conversely, the Resolution Professional and the Committee of Creditors (CoC) dismantled this defense by highlighting a glaring lack of transparency. The RP pointed out that the "MoU"—a related-party transaction involving the Managing Director and his wife—was never disclosed in the company’s statutory records, annual reports, or balance sheets. The RP argued that the existence of such a lucrative "perk" surfaced only after the initiation of insolvency, suggesting it was a collusive, post-facto creation designed to frustrate the resolution process.

Legal Analysis: The Overriding Power of the IBC

The NCLAT’s analysis cut through the procedural smoke. Relying on the precedent set in Jhanvi Rajpal Automotive P. Ltd. vs. R.P. of Rajpal Abhikaran P. Ltd. (affirmed by the Supreme Court) and Gir Vanvaso Resort v. Pancard Clubs Ltd. , the Tribunal reiterated that the Code is a time-bound, statutory mechanism.

The Court observed that: 1. Related party disclosures: As directors and shareholders, the Appellants had a duty to disclose such arrangements under Section 188 of the Companies Act, 2013 . Their failure to do so rendered the document inherently suspicious. 2. Statutory Duty: Under Section 18(1)(f) of the IBC , the RP is mandated to take control of all assets over which the Corporate Debtor has ownership rights. Neither an unregistered "MoU" nor an unenforceable "Arbitral Award" can override the statutory duty to maximize the value of the Corporate Debtor for all creditors. 3. No Special Status for Promoters: The Court emphasized that proponents responsible for a company's financial failure cannot pivot and demand "special treatment" that supersedes the claims of genuine financial creditors.

Key Observations

The judgment is particularly sharp in its commentary on the integrity of the insolvency process:

• "They are among the ones responsible for the failure of the Corporate Debtor... Accordingly, R1 and R4 either individually or jointly cannot claim to be treated at par with third party creditors."
• "The occupancy rights in any immovable property can be claimed by means of a lease/license in the property. The MoU being an unregistered agreement, no right of occupancy can be claimed by an unregistered document."
• "Had there been any MoU or Arbitral Award as claimed by Mrs. Raman Khangura in existence, there was no reason as to why the same could not have been disclosed at the first opportunity."

Final Decision: The Law Takes Control

The NCLAT dismissed both appeals, finding them meritless and an attempt to obstruct the resolution process. The Tribunal granted the Appellants one final grace period of two weeks to vacate the premises. Failure to comply will authorize the Resolution Professional to request direct assistance from the Commissioner of Police, Ludhiana, to secure the hotel for the benefit of the company's creditors.

This ruling sends an unequivocal message to promoters: the IBC is not a vehicle for preserving personal luxuries at the expense of stakeholders. When a company hits the wall of insolvency, the "promoter perquisite" evaporates.