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NCLT Ahmedabad: Expiry of Premises Licence Before Bars Recovery During
The has ruled that the to use commercial premises before the commencement of the ) does not, by itself, permit the during the period. The decision reinforces the protective scope of , even when the contractual right to occupy has lapsed prior to insolvency proceedings.
Judicial Member Shammi Khan and Technical Member Sanjeev Sharma delivered the ruling on an application filed by Raja Narandas Wadhwani and Kishor Ashiram Sewani (the applicants), who sought possession of a Vadodara property from the (RP) of The applicants held leasehold rights over the premises under a 90-year head lease, and had granted an eight-year registered licence to JCR Fashion Retail, which expired on . When the entered on , it remained in possession without any renewed licence agreement.
The applicants argued that Section 14 of the IBC could not revive a right that had already expired. The RP, represented by , relied on the plain language of Section 14(1)(d), which prohibits the recovery of any property by the ’s possession during the . The NCLT agreed with the RP, observing that “although the contractual term had expired on 18.12.2025, such expiry by itself does not permit during the subsistence of .”
Background: The Dispute Over Commercial Premises
The dispute arose from a complex property arrangement. The premises in Vadodara were held under a 90-year lease, with the leasehold rights assigned to the applicants in . JCR Fashion Retail had occupied the property under a registered licence agreement that ran for eight years, ending on . After the expiry of the licence, JCR continued to occupy the premises without entering into a fresh agreement. The against JCR was initiated on , just a few months after the licence expired.
The applicants, represented by , contended that the licence having expired, the had no legal right to remain in possession. They sought immediate recovery of the property, arguing that the under Section 14 could not protect a possession that was already unlawful. The RP, however, maintained that the mere does not amount to a termination of possession, and that the applies to all forms of recovery proceedings, irrespective of when the contractual relationship ended.
The Legal Argument: Section 14 and Expired Licences
Section 14(1)(d) of the IBC expressly bars “the recovery of any property by an owner or where such property is occupied by or in the possession of the .” The provision does not distinguish between properties held under a subsisting contract and those where the contractual term has expired, as long as the remains in possession on the date of initiation of .
The NCLT drew support from a prior ruling of the , which had held that Section 14(1)(d) applies even when termination of the licence or lease preceded the , provided the was in possession at the time commenced. The bench noted that the same principle applied to the present case. The applicants’ argument that Section 14 could not breathe life into an expired right was rejected on the ground that the provision works as a to preserve the during the resolution process, not as a revival of contractual rights.
The court emphasised that the is a cornerstone of the IBC, designed to prevent any disruption to the ’s assets and business operations during the critical period of resolution. Allowing merely because a licence had expired would undermine that objective and potentially jeopardise the of the .
NCLT's Reasoning and Observations
In its detailed observations, the NCLT clarified that it was not adjudicating the validity of the licence expiry itself. It accepted that the licence had indeed expired on . However, the court drew a distinction between the expiry of a contractual right and the right to recover possession. The possession of the , being a matter of fact, continues until it is lawfully terminated or the debtor voluntarily vacates. The intervenes at that point to freeze further recovery actions.
The bench stated: “The applicants may have a valid claim for possession after the ends, but during the subsistence of the proceedings under the Code, the provisions of Section 14(1)(d) operate as a bar.” The court also noted that the applicants were free to pursue their remedies in accordance with law after the conclusion of the or if the is lifted.
The Claim for Outstanding Dues
The applicants had also raised a claim for ₹41.60 lakh, which they alleged was payable by the for use and occupation of the premises after the licence expiry. The NCLT declined to finally adjudicate this claim, holding that it required verification and reconciliation. The bench directed that any amount otherwise payable for use of the premises during the would be dealt with under the provisions governing costs, to be determined by the RP in accordance with the IBC.
This aspect of the ruling underscores the principle that claims against the must be submitted through the formal claims process and cannot be enforced by way of during the . The NCLT left the quantification of the claim to be resolved in the appropriate proceedings.
Implications for Insolvency Practice
The judgment has significant implications for lessors, licensors, and other property owners dealing with corporate debtors under the IBC. It makes clear that or lease does not create an automatic right to evict the during the . The protective umbrella of Section 14(1)(d) extends to all properties in the possession of the , regardless of the contractual status, as long as the debtor was in possession when the commenced.
For insolvency professionals, the ruling reinforces the importance of maintaining possession of assets held by the to preserve value for creditors. It also provides clarity that property owners cannot use the expiry of a contractual term as a shortcut to bypass the . Instead, they must wait for the to end or seek appropriate orders from the NCLT if the property is not necessary for the resolution process.
The decision is also a cautionary note for landlords who fail to take timely action to recover possession before the initiation of . Once the kicks in, the doors to are firmly shut, and the only recourse is through the insolvency framework.
Conclusion
The NCLT’s ruling in reaffirms the expansive reach of the under the IBC. By holding that even an expired licence does not permit recovery during the , the tribunal has prioritised the statutory objective of keeping the ’s assets intact for resolution. The applicants’ remedy lies in pursuing their claim for possession after the ends, but for now, the ’s possession remains protected under the law.
