Introduction
The Hon’ble National Company Law Appellate Tribunal (‘NCLAT’), Delhi Bench, delivered a significant judgment in Lords Social Welfare Association (Home Buyers Association) v. New Okhla Industrial Development Authority[i], addressing whether a plot of land with a cancelled lease deed before the initiation of the corporate insolvency resolution process (‘CIRP’) could be included in the CD’s resolution plan (‘Plan’). The primary issue was whether the cancelled plot could have been considered an asset of the corporate debtor under the Insolvency and Bankruptcy Code, 2016 (‘IBC’) and thus be included in the Plan.
Brief Facts
In 2011, the New Okhla Industrial Development Authority (‘NOIDA’) executed a lease deed in favour of Kindle Developers Pvt. Ltd., the corporate debtor (‘CD’), for a premium of Rs. 120.75 crore, of which 10% was paid upfront. The balance, 90%, was to be paid by the lessee in the manner detailed in the lease deed, along with interest @ 11% per annum.
The CD collected deposits from homebuyers for a housing project but defaulted in lease rent and interest payments, leading to the lease cancellation in 2015.
In 2016, after the cancellation of the lease, the CD requested the restoration of the plot.
The CIRP against the CD commenced in 2018. Despite the cancellation, the adjudicating authority (‘AA’) issued a notice to NOIDA and directed them to conduct an inspection of the site and submit a report. Later, NOIDA filed an application to request the exclusion of the plot from the plan. However, the committee of creditors (‘CoC’) approved the resolution plan, which included the said plot.
The AA observed that the lease had been cancelled in 2015. Despite this, the CD's directors misled investors regarding the lease. Consequently, the AA directed the directors to file an affidavit detailing their personal assets and declined to consider the Plan.
The Resolution Professional (‘RP’) challenged this order, which was later dismissed by the Tribunal. However, the Tribunal directed the AA to reconsider the matter, considering the interests of all stakeholders, and to record clear findings regarding the cancellation of the lease after providing an opportunity for all concerned parties to be heard. Following the Tribunal’s order, the AA directed NOIDA to decide on the restoration application submitted by CD in 2016, which NOIDA subsequently rejected.
Later, on 11.01.2024, the AA held that the plot was not the CD’s asset as the lease thereon had been cancelled.
Held
The NCLAT upheld the order dated 11.01.2024 while observing that the lease cancellation was valid and the CD had no subsisting rights over the plot at the time of the initiation of the CIRP. The Tribunal ruled that s. 116 of the Transfer of Property Act, 1882 (‘TOPA’), which deals with 'tenant holding over,' was inapplicable. NOIDA neither accepted rent nor assented to the CD’s continued possession after the lease was cancelled.
Additionally, the NCLAT also clarified that s.14(1)(d) of the IBC, which imposes a moratorium on the recovery or alienation of assets during CIRP, does not extend to assets that were excluded from the Corporate Debtor's estate prior to the commencement of CIRP. The Tribunal rejected the argument that NOIDA’s failure to repossess the plot amounted to implied assent. It further emphasized the statutory powers vested in NOIDA. Accordingly, NOIDA was allowed to proceed with the repossession of assets that belonged to it and take steps to complete the project on its own as well as in the homebuyer’s interest. An order under s.33(1) of the IBC was also passed, requiring the liquidation of the CD.
Our Analysis
This judgment entails several critical principles pertaining to insolvency law and property rights. Firstly, it reaffirms that assets excluded prior to the initiation of the CIRP cannot be brought back under the moratorium provisions of s. 14(1)(d) of the IBC. Secondly, it highlights the limitations of s. 116 of the TOPA, clarifying that mere possession without rent payment or explicit assent would not constitute a tenancy by holding over. Thirdly, it establishes that statutory authorities like NOIDA retain their rights and powers under lease agreements even during insolvency proceedings.
By referencing landmark cases such as Embassy Property Developments v. State of Karnataka[ii] and Tata Consultancy Services Ltd. v. SK Wheels Pvt. Ltd.[iii], the Tribunal emphasized the importance of the RPs maintaining transparency and good faith. This judgment also serves as a cautionary tale against the improper inclusion of disputed assets in resolution plans, ensuring adherence to legal principles and safeguarding stakeholder interests.
End Notes
[i] (2024) ibclaw.in 586 NCLAT.
[ii] (2020) 13 SCC 308.
[iii] (2022) 2 SCC 583.
Authored by Shreya Manchanda, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinions.