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Judgment
Under consideration is the Interlocutory Application filed by the Applicant/Resolution Professional ("RP") under section 60(5) of the Insolvency and Bankruptcy Code, 2016, read with Rule 11 of the National Company Law Tribunal Rules, 2016. The applicant prays for the following reliefs:
a. To pass an order restraining the Municipal Corporation of Greater Mumbai ("MCGM") from taking coercive measures under the Contract Agreement or otherwise including any action to terminate the Contract Agreement and/or take over the possession of MCGM Land and/or the Mumbai hospital and
b. To pass ex-parte/ad interim orders in terms of (a) above.
The Applicant contends that:
The Corporate Debtor (CD) was granted permission to construct and subsequently operate the Mumbai Hospital in accordance with the Agreement, and was given possession of the MCGM Land by a letter of possession dated July 12, 2004. Thereafter, the MCGM and the CD executed the Contract Agreement on December 20, 2005, detailing the terms for constructing and operating the Mumbai Hospital on the MCGM Land. Despite the absence of a formal lease deed as stipulated in the Agreement, the MCGM has demanded lease rentals from the CD effective from April 29, 2013, which is calculated as 60 months from the Agreement date, excluding the monsoon period.
Multiple show-cause notices were sent by MCGM to the CD on May 9, 2014, June 20, 2014, September 3, 2017, April 17, 2016, and August 28, 2017, all of which were duly responded to by the CD. On January 23, 2018, MCGM issued a final show-cause notice (the "Final SCN"), alleging a breach of the Agreement. In accordance with the Final SCN, MCGM demanded from the CD an explanation within a two-month period known as the "Cure Period" as to why the Agreement should not be terminated. The Final SCN further stated that if the CD failed to comply, MCGM intended to take further steps, including taking over possession of the MCGM Land, taking control of the Mumbai Hospital, and terminating the Contract Agreement.
However, prior to the expiry of the Cure Period, this Tribunal, by its order dated March 13, 2018, initiated the Corporate Insolvency Resolution Process (CIRP) against the CD and imposed a moratorium in terms of Section 14 of the Insolvency and Bankruptcy Code, 2016. Since then, both the RP and the Committee of Creditors (CoC) have been taking steps towards the timely resolution of the insolvency of the CD by maximizing the value of its assets, reorganizing its business, and protecting its stakeholders, including the employees and creditors of the CD..
In order to facilitate resolution of the Mumbai Hospital, MCGM was invited as a special attendee to the CoC meetings and has been privy to all related discussions and communications since the 3rd CoC meeting held on 09.05.2018. During the first round of the CIRP of the CD, the RP had published Form G inviting Expression of Interests (“EOI”) for resolving CD as a whole on 14.05.2018. Thereafter, on 04.09.2018 the CoC unanimously approved a resolution plan submitted by Dr. BRS Shetty through his entity, Shetty’s New Medical Centre Private Limited (“SNMC”). Under this plan, SNMC had proposed to pay the entire dues of INR 140.88 Crores towards lease rentals, penalty etc. to MCGM. The same was also approved by the Adjudicating Authority vide order dated 26.07.2019 and upheld by the NCLAT vide order dated 07.08.2019.
However, considering the objections raised by MCGM, the resolution plan of SNMC was rejected by the Hon’ble Supreme Court, vide its order dated 15th November 2019 , on the grounds that MCGM’s prior approval would be required in terms of Section 92 and 92A of the Mumbai Municipal Corporation Act, 1888 (“MMC Act”).
In view of the aforesaid, RP initiated a fresh process for inviting resolution plans and again published Form G inviting EOIs on 25.12.2019 for the CD in accordance with the IB Code and the SC Judgment ("Second round of CIRP"). It is a matter of fact that the CD is engaged in the business of providing healthcare services through 2 (two) hospitals owned by it, one in Visakhapatnam and the other in Mumbai. The Mumbai Hospital of the CD is situated on land that is owned by the MCGM (MCGM Land). 2.7 While the aforesaid Second round of CIRP was ongoing, due to the outbreak of COVID-19, the MCGM, in March 2020, requisitioned the Mumbai Hospital and started using the same as a 'Dedicated Covid Hospital' in terms of the relevant provisions of the Disaster Management Act, 2005 read with Notification no. Corona-2020/CR-58/Aarogya-5 dated 14th March 2020. In the meantime, the CIRP of the CD has been extended by the Adjudicating Authority from time to time. 2.8 Pertinently, MCGM's representative who was present in the 16th, 17th and 21st CoC meetings of the CD stated that it would facilitate instructions and approvals from MCGM as required for the resolution process of the CD. In fact, MCGM also met the potential resolution applicants on 27th April 2020 wherein inter alia stated that it would support and facilitate any resolution plan for the CD that met its requirements, as recorded in the minutes of the meeting also approved by MCGM.
MCGM's representative of the CoC has also maintained its stand in the 31st, 32nd, 33rd and 34th CoC Meeting that :
a. That the Applicant may write to the Commissioner/ Assistant Municipal Commissioner of the MCGM seeking meetings with the Applicant as well as potential resolution applicants, after which such meetings would be set up. The Applicant has accordingly written to the MCGM time and again.
b. That no definite decision had been made yet on when the Mumbai hospital would be released from being utilized as a 'Dedicated COVID Hospital'. However, MCGM would provide 3 months' notice to the Applicant before closing its operations at the Mumbai hospital.
c. That MCGM has no objection to the Applicant resuming and completing the CIRP while the Mumbai hospital is being utilized by the MCGM as a 'Dedicated COVID Hospital'.
d. That MCGM be made a party to all relevant legal proceedings/processes related to the CIRP in order to facilitate MCGM's participation in the CIRP and the ultimate resolution of the CD.
Contrary to its stand in the CoC meetings, on the 12th December 2022, MCGM issued the Letter of Interest (LOI) inviting law firms for evaluating the possibility of terminating the Contract Agreement and reclaiming the Mumbai Hospital. During the 34th CoC Meeting, the RP inquired with MCGM's representative regarding the intention behind issuing the LOI. MCGM's representative responded by stating that MCGM had passed a resolution earlier to terminate the Contract Agreement, basis which the SCN dated 23rd January 2018 had also been issued to the CD. The LOI was being issued by MCGM now to understand the options available to MCGM in this regard. However, MCGM's representative denied that this meant that MCGM was withdrawing its support from the CIRP of the CD.
In response to the RP's request then to set up a meeting with the Commissioner/Assistant Municipal Commissioner to discuss the next steps on the CIRP, MCGM's representative sought time till 5th January 2022 and asked the Applicant to write another letter. The RP duly issued an email dated 24th December 2022 to the MCGM, seeking a meeting.
Given that the debts owned by the CD is secured by a charge over the MCGM Land and Mumbai Hospital. Any steps by MCGM to terminate the Contract Agreement or recover the possession of the MCGM Land would be entirely contrary to the representation made and assurances held out by MCGM during the COC meetings and it will result in value destruction for all stakeholders in the resolution process as the Mumbai Hospital is intrinsically linked to and essential for the successful resolution of the CD. The Applicant and CoC have always been led to believe that this asset would be part of the assets of the CD for its resolution and that the benefit of the contract agreement would be available to the Successful Resolution Applicants as and when a resolution plan is approved by this Tribunal. It is therefore now not open to MCGM to renege upon the promise and representations made by it. Further, the MCGM must be held to the bargain and estopped from acting contrary to or inconsistent with its own past conduct and representations.
The 1st Respondent/MCGM in its counter states that:
The interim order dated 12.01.2023 granted by this Bench is in direct contravention of the findings of the Hon'ble Supreme Court vide order dated 15.11.2019 in the case of Municipal Corporation of Greater Mumbai Vs. Abhilash Lal & Ors. (Civil Appeal No. 6350 of 2019). This interim order has placed restrictions on the Respondent, inhibiting its ability to exercise its rights and fulfil its public duties under the Mumbai Municipal Corporation Act, 1888 (MMC Act). Specifically, it imposes limitations on how the Respondent can manage its own property.
The RP's contention that MCGM's issuance of a LOI to legal firms constitutes a preclude to imminent termination is premature. The LOI serves the purpose of exploring legal avenues and does not inherently imply a definitive decision to terminate the Contract Agreement. MCGM is within its rights to assess its legal position and potential courses of action, including termination, without committing to any specific course of action at this stage. Therefore, the RP's assumption of impending coercive measures, such as termination or reclamation of possession of the Hospital, lacks substantiation. Consequently, seeking an order to restrain MCGM from undertaking any actions, whether contract-related or otherwise, based solely on speculative grounds is unjustified.
The applicability of the moratorium under Section 14 of the IBC is disputed in this case, as the payment of dues by the CD is deemed essential for the moratorium's protection, as outlined in Explanation 14(1) of the IBC. Given the CD's default in settling CIRP dues to the Respondent, including penalties under the Contract Agreement amounting to Rs. 95,72,87,901 and property taxes totalling Rs. 45,21,99,207 (as per notified Rules and Regulations of the Respondent as of January 30, 2023), Section 14(1) may not apply. Consequently, the relevant authority would be within its rights to terminate any associated rights, permits, licenses, etc.
CD is not in possession of the Mumbai Hospital. Though all licenses, permits and accounts are legally in the name of the CD, from March 2020 to till date the Respondent No.1/MCGM is managing, operating, supervising and funding the Hospital due to financial inability expressed by the Applicant. Therefore, for the purpose of section 14 (1) (d) of the code, the CD is neither in "possession of" nor in "occupation of" the BMC Land and the Mumbai Hospital. Further submitted that if the moratorium is held to be applicable, the Respondent is entitled to be paid CIRP costs by the Applicant.
The interim order dated 12th January, 2023, conflicts with the public duties and rights of the Respondent No.1 under the MMC Act, Disaster Management Act, 2005 (DM Act), and The Epidemic Diseases Act, 1897. Pursuant to section 61(gg) of the MMC Act, the Respondent is obligated to take lawful measures, including establishing and maintaining public hospitals and dispensaries, for public medical relief. Any restriction on the Respondent contravenes the Apex Court's understanding of the MMC Act's relationship with the IBC. Hence, this Tribunal lacks jurisdiction to adjudicate on MMC Act, DM Act, 2005, and The Epidemic Diseases Act, 1897 issues, and the interim order should be vacated.
The Respondent No.2/COC in its counter while supporting the contention of the Applicant, stated that the Mumbai Hospital is the largest and most valuable asset of the CD. Any action by Respondent No.1/MCGM to terminate the Contract Agreement and/or take possession of the MCGM Land and/or Mumbai Hospital will directly prejudice the going concern status and commercial viability of the CD and this would be in direct violation of the scheme and provisions of the Code, more specifically Section 14.
Rejoinder filed by the applicant to the counter of the 1st respondent/MCGM states that:
The Interim Order dated 12.01.2023 is not in violation of the Order of the Hon’ble Supreme Court or provisions of the MMC Act, DM Act or Epidemic Diseases Act, 1987. The Hon’ble Supreme Court held that the resolution plan which provided for creation of fresh interest in the MCGM Land, could not have been approved by the Adjudicating Authority without prior approval in terms of section 92 of the MMC Act and did not adjudicate upon the issue of termination of the Contract Agreement and specifically left this issue open because no finding had been made by this Tribunal or Hon’ble NCLAT. MCGM is prevented by its own conduct and the Principle of Promissory Estoppel from taking any steps towards terminating the Contract Agreement or recovering the possession of the MCGM Land from the CD.
That the expenses which were incurred by MCGM for utilizing the hospital as a COVID-19 centre under the aegis of the DM Act, 2005 and in the interest of public health, without charging any revenue from COVID patients. Therefore, such costs cannot be said to have been incurred for running the CD as a going concern and would not qualify as CIRP costs under the code and other CIRP costs will be paid by the CD as per the code.
MCGM is barred under Section 14 of the Code from recovering possession of the Mumbai Land. According to section 14 (1) (d) of the code, where a property is in possession or occupation of the CD, recovery of the property by an owner or lessor is expressly barred during CIRP. It is settled law by the Hon’ble Supreme Court that the terms ‘possessed’ and ‘occupied’ have different meanings. While the former refers to legal/constructive possession, the latter is construed as the actual/physical possession of the property.
In the light of the contest as afore mentioned, the points that emerges for my consideration are:
POINTS:
Whether this Tribunal has no jurisdiction to restrain the 1st Respondent/ MCGM, from taking coercive measures under the Contract Agreement or take over the possession of MCGM Land and/or the Mumbai hospital from the Applicant/Corporate debtor, in light of the rulings of the Hon’ble Supreme Court in TCS vs. Vishal Ghisulal and Gujarat Urja vs. Amit Gupta?
Whether after initiation of Corporate Insolvency Resolution Process and enforcement of ‘Moratorium’ under Section 14 of IB Code, the 1st Respondent/MCGM is precluded under law from terminating the Contract Agreement and take possession of the property in question during Corporate Insolvency Resolution Process?
I have heard, Mr. S. Niranjan Reddy, learned Senior Counsel for Applicant/ Resolution Professional, Mr. Vivek Reddy, learned Senior Counsel for 1st Respondent/MCGM, and Mr. R. Sankaran Narayanan, learned Senior Counsel for 2nd respondent / CoC. Perused the record, the written submissions and the case laws.
Point.1.
Whether this Tribunal has no jurisdiction to restrain the 1st respondent/ MCGM, from taking coercive measures under the Contract Agreement or take over the possession of MCGM Land and/or the Mumbai hospital from the applicant/Corporate debtor, in light of the rulings of the Hon’ble Supreme Court in TCS vs. Vishal Ghisulal and Gujarat Urja vs. Amit Gupta?
The crux of the submissions.
Mr. S. Niranjan Reddy, Ld. Sr. Counsel for the Applicant/Resolution Professional, at the outset, contended:
a. That the Gujarat Urja and TCS judgments do not apply to this case, as the said ruling has not addressed the issue of contract termination leading to a violation of the moratorium under Section 14 of the IB Code. Ld. Counsel further contends that terminating the Contract Agreement, in this case would violate Sections 14(1) (a), 14(1) (b), and 14(1) (d) of the IB Code. According to the Ld. Sr. Counsel, it is undisputed that when Section 14 provisions are violated, this Tribunal has the jurisdiction to address such violations. Therefore, this Tribunal has the jurisdiction/authority to prevent the termination of the Contract Agreement by the 1st respondent.
b. Ld. Sr. Counsel also relied on the NCLT judgment in Maharashtra Industrial Development Corporation v. Santanu T. Ray (2022) SCC Online NCLAT 180, which involved the termination of a lease agreement, wherein it was held that,
"24.The last judgment of the Hon'ble Supreme Court relied by the Counsel for the Respondent is "Tata Consultancy Services Limited vs. SK Wheels Private Limited, Resolution Professional, Vishal Ghisulal Jain- (2022) 2 SCC 583". In the above case, the Appellant had issued termination notice to the Corporate Debtor under a facility agreement, Corporate Debtor was obliged to provide its premises with certain specifications and facilities to the Appellant. The Hon'ble Supreme Court had held that Section 14 is not applicable to the facts of that case ...
"27.The purpose and object of Moratorium is to temporarily freeze all actions as contemplated under Section 14 to enable the Corporate Debtor to resolve its Insolvency and to revive it. Prohibition on action against the Corporate Debtor is only to preserve the status quo as it exists on the date of initiation of CIRP so that all claims against the Corporate Debtor on the date of initiation of CIRP be collated and dealt with to take steps to revive by approving appropriate Resolution Plan, if any, to bring it back. All the institution of suits or continuation of pending suits and proceedings against the Corporate Debtor are prohibited under Section 14(l)(a) of the Code with the object that status quo regarding Corporate Debtor be maintained and further proceedings against the Corporate Debtor be not permitted during the continuance of the CIRP to preserve the Corporate Debtor from any financial assault or other proceeding to stop off its current situation for purpose of Resolution. Similarly, under Section 14(l)(d), recovery of any property by any owner or lessor which is occupied by the Corporate Debtor is prohibited."
"29.After considering the facts on the record and arguments of the parties, we are of the considered opinion that in view of the fact that Moratorium has kicked in w.e.f. 11.03.2019 due to currency of Moratorium, the Appellant could not have taken possession of the leased property by virtue of restrain under Section 14(l)(d). Further continuation or initiation of any other proceeding under Section 14(l)(a) which also prohibited the Appellant to cancel the lease during currency of the Moratorium. Although after CIRP is over, there is no fetter on the right of the Appellant to take proceeding for breach of terms of the lease by the Corporate Debtor."
c. According to the Ld. Sr. Counsel, Hon'ble NCLAT, in view of the above ruling, this Tribunal, can exercise jurisdiction for injuncting proceedings for termination of a contract when such termination is in violation of Section 14 of the IB Code and proceedings for termination of the lease agreement would be in violation of Section 14(1) (a) and 14(l) (d).
Mr. Vivek Reddy, Learned Senior Counsel for 1st Respondent/ MCGM, while vehemently refuting the above submissions and heavily harping on the judgments of Hon'ble Supreme Court in Gujarat Urja Vikas Nigam Ltd vs. Amit Gupta & Ors and TCS vs. SK Wheels Pvt. Ltd., supra, emphasized that NCLT's jurisdiction is not applicable if termination is not connected to insolvency. According to the Ld. Sr. Counsel in cases where termination is related to insolvency, NCLT's intervention applies on whether such termination directly causes the corporate debtor's dissolution or corporate death. Therefore, according to the Ld. Sr. Counsel, NCLT's jurisdiction is warranted only if termination unequivocally leads to corporate demise, whereas if termination results solely dilute the value of the Corporate Debtor without corporate demise, NCLT's intervention is precluded. Ld. Sr. Counsel further contends that in the present case, the show cause notices for termination did not cite insolvency as a reason; rather, termination was sought due to breaches of the Contract Agreement by the Corporate Debtor, which occurred five years prior to the commencement of the CIRP. Ld. Sr. Counsel, further contends that terminating the Contract Agreement doesn't necessarily lead to the Corporate Debtor's demise, especially when Corporate Debtor also owns another functional and profitable hospital in Visakhapatnam. Therefore, invoking NCLT's jurisdiction in this context would contravene the established legal precedent set forth by the Supreme Court.
Mr. R. Sankarnarayanan, Ld. Sr. Counsel for the 2nd respondent/COC, while supporting the submissions made on behalf of the 1st respondent, additionally contended that:
a. The MCGM issued notices prior to the final Show Cause Notice, for short, 'SCN', which were duly responded to by the Corporate Debtor. Notably, the allegations in the notice dated 28th August 2017 were refuted by the Corporate Debtor in its reply dated 11th October 2017, where the Corporate Debtor also highlighted its persistent requests for executing the lease deed. MCGM neither responded to this reply nor took further action. Instead, MCGM issued the final SCN in January 2018. It is understood that the Corporate Debtor did not respond to this SCN due to the ongoing moratorium. Therefore, the allegations of breaches (allegedly since 2013) cannot be considered, especially since MCGM appeared satisfied with the Corporate Debtor's earlier responses.
b. Ld. Sr. Counsel further argues that the termination in this case is intrinsically linked to reclaiming possession, which is barred under Section 14(1) (d) of the IB Code. According to the Ld. Sr. Counsel, Hon'ble Supreme Court in Gujarat Urja Vikas Nigam Limited vs Amit Gupta & Ors. [(2021) 7 SCC 209] limited its findings to cases where termination does not violate Section 14 and involves no lenders' rights. The termination of the Contract Agreement violates moratorium under Section 14 and NCLT has complete jurisdiction. Therefore, according to the Ld. Sr. Counsel, this Tribunal can restrain MCGM from taking coercive measures, including reclaiming MCGM land or Mumbai Hospital during the CIRP of the Corporate Debtor.
c. Additionally, Ld. Sr. Counsel has drawn my attention to the observations of Hon'ble Supreme Court, in Gujrat Urja and TCS, supra, and submitted that the said rulings, have distinguished 'the termination of a contract' which "dilutes" the value of a corporate debtor from the 'termination of a contract' which would lead to its "corporate death". According to the Ld. Sr. Counsel, Hon'ble Supreme Court, has categorically held that the latter is not permissible.
d. The Ld. Sr. Counsel further contended that the Mumbai Hospital is the central asset of the Corporate Debtor and that substantial public monies have been expended by creditors on the strength of this asset. The termination of the Contract Agreement would render the Corporate Debtor devoid of its central asset, thereby satisfying the threshold laid down in Gujarat Urja, and leaving no scope for the resolution of the Corporate Debtor.
My analysis & findings:
Upon thorough consideration of the arguments presented by the Ld. Sr. Counsel for 1st Respondent, referencing the cases of Gujarat Urja Vikas Nigam Ltd vs. Amit Gupta & Ors and TCS vs. SK Wheels Pvt. Ltd., it is essential to address the counterpoint articulated in the judicial pronouncements within these judgments, as emphasized by the Ld. Sr. Counsels representing the Resolution Professional and Committee of Creditors, these judgments highlight the critical distinction between contract terminations affecting the value of the Corporate Debtor and those leading to its corporate demise. Hon’ble Supreme Court, in the afore stated rulings has unequivocally stated that terminations resulting in corporate death or demise are impermissible. The relevant paragraphs of these judgments are hereby reproduced for comprehensive examination and analysis.
Gujarat Urja Vikas Nigam Limited (Supra)
176.Given that the terms used in Section 60(5) (c) are of wide import, as recognized in a consistent line of authority, we hold that the NCLT was empowered to restrain the appellant from terminating the PPA. However, our decision is premised upon a recognition of the centrality of the PPA in the present case to the success of the CIRP, in the factual matrix of this case, since it is the sole contract for the sale of electricity which was entered into by the Corporate Debtor. In doing so, we reiterate that the NCLT would have been empowered to set aside the termination of the PPA in this case because the termination took place solely on the ground of insolvency. The jurisdiction of the NCLT under Section 60(5) (c) of the IBC cannot be invoked in matters where a termination may take place on grounds unrelated to the insolvency of the corporate debtor. Even more crucially, it cannot even be invoked in the event of a legitimate termination of a contract based on an ipso facto clause like Article 9.2.1(e) herein, if such termination will not have the effect of making certain the death of the corporate debtor. As such, in all future cases, NCLT would have to be wary of setting aside valid contractual terminations which would merely dilute the value of the corporate debtor, and not push it to its corporate death by virtue of it being PART K 133 the corporate debtor's sole contract (as was the case in this matter's unique factual matrix).
177.The terms of our intervention in the present case are limited. Judicial intervention should not create a fertile ground for the revival of the regime under section 22 of SICA which provided for suspension of wide-ranging contracts. Section 22 of the SICA cannot be brought in through the back door. The basis of our intervention in this case arises from the fact that if we allow the termination of the PPA which is the sole contract of the Corporate Debtor, governing the supply of electricity which it generates, it will pull the rug out from under the CIRP, making the corporate death of the Corporate Debtor a foregone conclusion.
TCS vs SK Wheels Pvt. Ltd (supra)
30.While in the present case, the second issue formulated by this Court has no bearing, we would like to issue a note of caution to the NCLT and NCLAT regarding interference with a party's contractual right to terminate a contract. Even if the contractual dispute arises in relation to the insolvency, a party can be restrained from terminating the contract only if it is central to the success of the CIRP. Crucially, the termination of the contract should result in the corporate death of the Corporate Debtor.
31.The narrow exception crafted by this Court in Gujarat Urja (supra) must be borne in mind by the NCLT and NCLAT even while examining prayers for interim relief. The order of the NCLT dated 18 December 2019 does not indicate that the NCLT has applied its mind to the centrality of the Facilities Agreement to the success of the CIRP and Corporate Debtor's survival as a going concern. The NCLT has merely relied upon the procedural infirmity on part of the appellant in the issuance of the termination notice, i.e., it did not give thirty days' notice period to the Corporate Debtor to cure the deficiency in service. The NCLAT, in its impugned judgment, has averred that the decision of the NCLT preserves the 'going concern' status of the Corporate Debtor but there is no factual analysis on how the termination of the Facilities Agreement would put the survival of the Corporate Debtor in jeopardy".
It is further observed by the Hon'ble Supreme Court in Gujarat Urja Vikas Nigam Limited (supra) that the Resolution Professional is empowered to approach the NCLT for the adjudication of disputes directly associated with the Insolvency Resolution Process. I quote the said observation, hereunder.
72.Therefore, we hold that the RP can approach the NCLT for adjudication of disputes that are related to the insolvency resolution process. However, for adjudication of disputes that arise dehors the insolvency of the Corporate Debtor, the RP must approach the relevant competent authority. For instance, if the dispute in the present matter related to the non-supply of electricity, the RP would not have been entitled to invoke the jurisdiction of the NCLT under the IBC. However, since the dispute in the present case has arisen solely on the ground of the insolvency of the Corporate Debtor, NCLT is empowered to adjudicate this dispute under Section 60(5) (c) of the IBC.
In my considered view, the above observation, reinforces the role of this Tribunal, in overseeing and intervening in contractual terminations that could potentially disrupt the insolvency resolution process and lead to the corporate death of the debtor.
While acknowledging that the judgments in Gujarat Urja and TCS did not directly address situations involving contract terminations that might breach the moratorium under Section 14 of the IBC, I profitably, refer to the judgment of Hon’ble NCLAT, Delhi in Maharashtra Industrial Development Corporation v. Santanu T. Ray (2022) SCC Online NCLAT 180, relied on by the Ld. Sr. Counsels for the Resolution Professional and also by the Ld. Sr. Counsel for the Committee of Creditors. The relevant paragraphs of the said judgment are as below;
“24.The last judgment of the Hon’ble Supreme Court relied by the Counsel for the Respondent is “Tata Consultancy Services Limited vs. SK Wheels Private Limited, Resolution Professional, Vishal Ghisulal Jain-(2022) 2 SCC 583”. In the above case, the Appellant had issued termination notice to the Corporate Debtor under a facility agreement, Corporate Debtor was obliged to provide its premises with certain specifications and facilities to the Appellant. The Hon’ble Supreme Court had held that Section 14 is not applicable to the facts of that case ...
“27.The purpose and object of Moratorium is to temporarily freeze all actions as contemplated under Section 14 to enable the Corporate Debtor to resolve its Insolvency and to revive it. Prohibition on action against the Corporate Debtor is only to preserve the status quo as it exists on the date of initiation of CIRP so that all claims against the Corporate Debtor on the date of initiation of CIRP be collated and dealt with to take steps to revive by approving appropriate Resolution Plan, if any, to bring it back. All the institution of suits or continuation of pending suits and proceedings against the Corporate Debtor are prohibited under Section 14(l)(a) of the Code with the object that status quo regarding Corporate Debtor be maintained and further proceedings against the Corporate Debtor be not permitted during the continuance of the CIRP to preserve the Corporate Debtor from any financial assault or other proceeding to stop off its current situation for purpose of Resolution. Similarly, under Section 14(l) (d), recovery of any property by any owner or lessor which is occupied by the Corporate Debtor is prohibited.”
“29.After considering the facts on the record and arguments of the parties, we are of the considered opinion that in view of the fact that Moratorium has kicked in w.e.f. 11.03.2019 due to currency of Moratorium, the Appellant could not have taken possession of the leased property by virtue of restrain under Section 14(l) (d). Further continuation or initiation of any other proceeding under Section 14(l)(a) which also prohibited the Appellant to cancel the lease during currency of the Moratorium. Although after CIRP is over, there is no fetter on the right of the Appellant to take proceeding for breach of terms of the lease by the Corporate Debtor.” (Emphasis is mine)
In light of this precedent, I am of the opinion that this Tribunal, possesses jurisdiction to prevent proceedings for contract termination when such termination contravenes Section 14 of the IB Code, specifically Sections 14(1) (a) and 14(1) (d). This Tribunal, therefore, is empowered to exercise its jurisdiction to safeguard the assets of the Corporate Debtor and ensure the continuation of the Corporate Insolvency Resolution Process. In the present circumstances, the termination of the Contract Agreement is intrinsically linked to the taking over the possession of the property, which constitutes a violation of Section 14(1) (d) of the Code.
Furthermore, the termination of the Contract Agreement by MCGM in this case has the potential to result in the corporate demise of the Corporate Debtor. This is primarily due to the critical importance of the MCGM Land and Mumbai Hospital in ensuring the successful execution of the Corporate Insolvency Resolution Process of the Corporate Debtor. The assets in question are vital to the Corporate Debtor's operations and its ability to continue as a going concern. Additionally, the creditors of the Corporate Debtor have extended substantial public monies on the strength of this asset. Termination of the agreement would deprive the Corporate Debtor of its central assets, leaving no scope for its resolution. Consequently, the termination of the Contract Agreement, under these circumstances, would undermine the core objective of the Corporate Insolvency Resolution Process, which is to preserve and maximize the value of the Corporate Debtor's assets.
The Hon'ble Supreme Court in Gujarat Urja and TCS clarified that NCLT cannot intervene if termination is unrelated to insolvency. However, if the termination is linked to insolvency and could lead to the Corporate Debtor's demise, as in the present case, the termination of the Contract Agreement would lead to the potential death of the Corporate Debtor, undermine the Corporate Insolvency Resolution Process and abstain the lenders from their right to recover the monies lent, the NCLT is within its rights to prevent such termination. The distinction made by the Supreme Court between terminations that dilute value and those that cause corporate death further highlights the necessity for NCLT's jurisdiction in this matter. Taking to account the observations of that the Hon'ble Supreme Court in Gujarat Urja Vikas Nigam Limited, supra that the Resolution Professional is empowered to approach the NCLT for the adjudication of disputes directly associated with the Insolvency Resolution Process of the Corporate Debtor.
Based on the precedent set by the Supreme Court in Gujarat Urja and TCS and the NCLAT in Santanu T. Ray, and considering the critical importance of the assets in question to the corporate debtor's ability to continue as a going concern, it is evident that this Tribunal has jurisdiction to prevent the termination of the Contract Agreement, as it would undermine the core objective of the Corporate Insolvency Resolution Process and potentially lead to the corporate debtor's demise and the termination of the Contract Agreement is fundamentally linked to the taking over of the possession which violate the moratorium under Section 14 of Insolvency Bankruptcy Code. The point is answered accordingly.
Point (2)
Whether after initiation of Corporate Insolvency Resolution Process and enforcement of 'Moratorium' under Section 14 of IB Code, the 1st Respondent/MCGM is precluded under law from terminating the Contract Agreement and take possession of the property in question during Corporate Insolvency Resolution Process?
The crux of the submissions.
Learned Senior Counsel for the Applicant/Resolution Professional, emphatically contended that, after initiation of CIRP and enforcement of 'Moratorium' under Section 14 of Insolvency Bankruptcy Code, MCGM is precluded under law from terminating the Contract Agreement and take possession of the property in question during CIRP, stating that:
a. As per Section 14(1) (d) of the IBC, the recovery of any property by the owner or lessor which is occupied by the Corporate Debtor is prohibited. In the present case, the termination is intrinsically linked with the recovery of the possession of the Mumbai Hospital, which is currently in the possession of the Corporate Debtor. To substantiate this contention, Ld. Sr. Counsel, relied on the ruling of Hon’ble Supreme Court, in Rajendra K. Bhutta vs. MHADA and Anr. (2020) 13 SCC 208, wherein it was held that:
14.A bare reading of Section 14(1) (d) of the Code would make it clear that it does not deal with any of the assets or legal right or beneficial interest in such assets of the corporate debtor. For this reason, any reference to Sections 18 and 36, as was made by NCLT, becomes wholly unnecessary in deciding the scope of Section 14(1) (d), which stands on a separate footing. Under Section 14(1) (d) what is referred to is the "recovery of any property". The "property" in this case consists of land, admeasuring 47 acres, together with structures thereon that had to be demolished. "Recovery" would necessarily go with what was parted by the corporate debtor, and for this one has to go to the next expression contained in the said sub-section.
15.One thing is clear that "owner or lessor" qua "property" is then to be read with the expression "Occupied or in the possession of". One manner of reading this clause is to state that whether recovery is sought by an owner or lessor, the property should either be occupied by or be in the possession of the corporate debtor. The difficulty with this interpretation is that a "lessor" would not normally seek recovery of property "occupied by" a tenant having leased the property, a transfer of property has taken place in favour of a tenant, "possession" of which would then have to be recovered. This is where the Latin maxim reddendo singula singulis comes in. Where a sentence in a statute contains several antecedents and several consequences, they are to be read distributively, that is to say, each phrase or expression is to be referred to its appropriate object.
18.When recovery of property is to be made by an owner under Section 14(1) (d), such recovery would be of property that is "occupied by" a corporate debtor.
b. The final Show Cause Notice, provided a two month cure period to the Corporate Debtor in terms of Clause 26(k) of the Contract Agreement, to remedy any alleged breaches. However, the Corporate Debtor's CIRP commenced on 13th March 2018, before the cure period expired, preventing the Corporate Debtor from addressing the breaches. Therefore, as the cure period never elapsed, there is no basis for terminating the Contract Agreement.
c. The Explanation to Section 14, which MCGM relied on to support the termination, is not applicable to the present case. The categories outlined in the Explanation pertain to non-proprietary rights and do not encompass contracts that establish proprietary rights in favour of the Corporate Debtor. As regards the 'Explanation' contained in section 14 of IB Code, Ld. Sr. Counsel submits that the 'Explanation' in a provision serves a clarificatory purpose and cannot diminish the protection provided by the provision itself.
Ld. Senior Counsel for 1st Respondent /MCGM, strongly rebutted the aforementioned contentions by asserting that:
a. As per the Explanation to Section 14(1) (d) of the IB code, termination of the Contract Agreement is restricted only if the suspension or termination is based on insolvency grounds and there is no default in the payment of current dues. In the present case, the termination of the contract is not linked to the insolvency of the Corporate Debtor but rather arises from a breach of the contract that occurred before the initiation of the CIRP. Furthermore, the Corporate Debtor failed to fulfil its obligation to pay current dues during the pendency of the CIRP.
b. MCGM cannot be restrained from taking possession of the Mumbai Hospital, as it is essential for MCGM to fulfil its statutory mandate of protecting public health.
c. The IBC cannot preclude MCGM from performing its statutory duties under the MMC Act. Furthermore, the Hon'ble Supreme Court in MCGM vs. Abhilash Lal recognized the paramount importance of MCGM's duty to protect public health and held that the MMC Act overrides Section 238 of the IB Code.
d. The Ld. Sr. Counsel argues that the Corporate Debtor has no rights over the superstructure. As per Clause 19(j) of the Contract Agreement, in case of a breach by the Corporate Debtor, the Agreement stipulates the automatic vesting of the superstructure constructed by the Corporate Debtor with MCGM, without any cost. Since the Corporate Debtor failed to complete the construction within the agreed timeframe and committed various breaches, the superstructure vested automatically with MCGM on the date of the Contract Agreement breach, i.e., 24th March 2013.
Ld. Sr. Counsel for the 2nd respondent/COC, while sailing with the submissions made on behalf of the Applicant/RP, additionally contended that:
a. The Mumbai Hospital is the central asset of the Corporate Debtor, and the creditors, primarily public banks, have extended substantial public funds based on the value of this asset. Consequently, the termination of the Agreement would deprive the Corporate Debtor of its core asset, meeting the threshold established in Gujarat Urja, and precluding any possibility of resolving the Corporate Debtor's insolvency. Such termination would be detrimental to the interests of the lenders and would inevitably lead to the corporate demise of the Corporate Debtor.
b. MCGM's claim that the Corporate Debtor has been in breach of the Agreement since 2013 is misleading and unsupported by the records, as earlier notices were duly responded to by the Corporate Debtor, and no further action was taken by MCGM until the Final SCN in January 2018, which was not addressed due to the moratorium under Section 14 of the IB Code. The alleged breaches do not justify termination during the moratorium, as such action would violate Section 14(1)(d) by removing the Corporate Debtor's essential assets, leading to its corporate demise, which the Supreme Court has ruled impermissible in Gujarat Urja and TCS. Therefore, the NCLT has jurisdiction to prevent termination to protect the Corporate Debtor's viability and the interests of its creditors.
c. MCGM's claim that the Subject Hospital will automatically vest with them upon issuance of the SCN, based on Clause 19(j) of the Agreement, is incorrect. Clause 19(j) requires reading in conjunction with Clause 26(k), which mandates a two-month notice period to cure breaches. The Agreement was valid and binding at the commencement of the CIRP on 13th March 2018, and remains in force due to the moratorium under Section 14 of the IB Code. The alleged breaches in the SCN were not addressed due to the moratorium, and MCGM cannot claim termination or automatic vesting without proving the SCN’s contents and following due process.
My analysis & finding
At the outset, I wish to address the plea that, the right to terminate the Contract Agreement has not accrued in favour of the 1st respondent as the two-month cure period provided under Clause 26(k) of the Contract Agreement to remedy the alleged breach did not lapse. In this context, it is essential to note that the moratorium under Section 14 of IB Code in the case on hand has commenced on 13th March 2018, with the initiation of the Corporate Insolvency Resolution Process against the Corporate Debtor, i.e. before the expiration of the aforementioned two months cure period. As a result, the Corporate Debtor was precluded by law, from curing the alleged breaches due to the constraints on account of moratorium, which included the transfer of control over the Corporate Debtor to the Resolution Professional. Given the cure period provided in the SCN, never expired due to the imposition of the moratorium, the right to terminate the Contract Agreement did not crystallize. Here, I wish to refer to clause 26(k), which says that,
26(K) “In the event of breach of any of the terms and conditions of this agreement by SHCL, the Commissioner or any other officer appointed on their behalf shall give two months to SHCL to rectify the breach/breaches. Failure on the part of SHCL to rectify the breach within two months period will cause the commissioner to terminate the agreement between SHCL and the Owner and forfeit all deposits, premia, fees, charges paid by the SHCL including taking over possession of Hospital premises, etc., In such an unlikely event, while the right of ownership will remain with the owner, the leasehold rights to the property will remain free from encumbrances and dedicated to the lenders during the currency of loan or lease period whichever is earlier.” Therefore, under these circumstances, the submission of the Ld. Sr. Counsel for the petitioner that, cause of action for the termination of the Contract Agreement has not accrued in the case on hand in view of the reasons stated above, hence any attempt to terminate the contract at this juncture would be premature and legally untenable, in my considered opinion is tenable.
However, even if we go on an assumption that the right to terminate the Contract Agreement has accrued in favour of the 1st respondent/MCGM, the point for consideration would be whether the MCGM can assume control or take possession of the MCGM Land and/or Mumbai Hospital, post initiation of Corporate Insolvency Resolution Process on March 13, 2018, and the enforcement of the moratorium under Section 14 of the Insolvency and Bankruptcy Code. For proper analysis, I usefully refer herein Section 14 of IB Code, which is as follows:
14 (1) Subject to provisions of sub-sections (2) and (3), on the insolvency commencement date, the Adjudicating Authority shall by order declare moratorium for prohibiting all of the following, namely:-
(a)the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority;
(b)transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein;
(c)any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002);
(d)the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor.
1[Explanation.--For the purposes of this sub-section, it is hereby clarified that notwithstanding anything contained in any other law for the time being in force, a license, permit, registration, quota, concession, clearances or a similar grant or right given by the Central Government, State Government, local authority, sectoral regulator or any other authority constituted under any other law for the time being in force, shall not be suspended or terminated on the grounds of insolvency, subject to the condition that there is no default in payment of current dues arising for the use or continuation of the license, permit, registration, quota, concession, clearances or a similar grant or right during the moratorium period;]
(2)The supply of essential goods or services to the corporate debtor as may be specified shall not be terminated or suspended or interrupted during moratorium period.
1[(2A) Where the interim resolution professional or resolution professional, as the case may be, considers the supply of goods or services critical to protect and preserve the value of the corporate debtor and manage the operations of such corporate debtor as a going concern, then the supply of such goods or services shall not be terminated, suspended or interrupted during the period of moratorium, except where such corporate debtor has not paid dues arising from such supply during the moratorium period or in such circumstances as may be specified;]
2[(3) The provisions of sub-section (1) shall not apply to--
3[(a) such transactions, agreements or other arrangements as may be notified by the Central Government in consultation with any financial sector regulator or any other authority;]
(b)a surety in a contract of guarantee to a corporate debtor.].
In the light of the factual matrix of this case, it is essential to evaluate the implications and consequences of Section 14(1) (d). Hon'ble Supreme Court in "Rajendra K. Bhutta vs. Maharashtra Housing and Area Development Authority and Another - (2020) 13 SCC 208.", having extensively reviewed the effects of a 'Moratorium' set out in its various precedents and upon a thorough examination of the provisions of the Code, Court, in paragraphs 14, 15 and 18, articulated the following principles:
"14.A bare reading of Section 14(1) (d) of the Code would make it clear that it does not deal with any of the assets or legal right or beneficial interest in such assets of the corporate debtor. For this reason, any reference to Sections 18 and 36, as was made by NCLT, becomes wholly unnecessary in deciding the scope of Section 14(1) (d), which stands on a separate footing. Under Section 14(1) (d) what is referred to is the "recovery of any property". The "property" in this case consists of land, admeasuring 47 acres, together with structures thereon that had to be demolished. "Recovery" would necessarily go with what was parted by the corporate debtor, and for this one has to go to the next expression contained in the said sub-section.
15.One thing is clear that "owner or lessor" qua "property" is then to be read with the expression "Occupied or in the possession of". One manner of reading this clause is to state that whether recovery is sought by an owner or lessor, the property should either be occupied by or be in the possession of the corporate debtor. The difficulty with this interpretation is that a "lessor" would not normally seek recovery of property "occupied by" a tenant having leased the property, a transfer of property has taken place in favour of a tenant, "possession" of which would then have to be recovered. This is where the Latin maxim reddendo singula singulis comes in. Where a sentence in a statute contains several antecedents and several consequences, they are to be read distributively, that is to say, each phrase or expression is to be referred to its appropriate object.
18.When recovery of property is to be made by an owner under Section 14(1) (d), such recovery would be of property that is "occupied by" a corporate debtor."
Thus, it is evident that the underlying objective of a moratorium, as delineated in Insolvency Bankruptcy Code, is to temporarily suspend all actions, thereby affording the corporate debtor the opportunity to address its insolvency concerns. Notably, while Section 14(1) (a) prohibits the initiation or continuation of legal proceedings against the corporate debtor, Section 14(1) (d) specifically prohibits the recovery of any property by an owner or lessor that is currently occupied by the Corporate Debtor. This prohibition on actions against the Corporate Debtor serves to maintain the status quo as of the commencement of the Corporate Insolvency Resolution Process, facilitating the consolidation of all claims against the Corporate Debtor for resolution in a manner conducive to its revival through the approval of a suitable resolution plan.
Notably, at the time of commencement of the moratorium, the Contract Agreement remained un-terminated, and Corporate Debtor retained possession of the hospital. This undeniable fact, is critical in understanding the implications of Sections 14(1) (d) and 14(1) (a) of the Insolvency Bankruptcy Code, in the case on hand. Section 14(1) (d) prohibits property recovery during the moratorium if occupied by the Corporate Debtor. Additionally, Section 14(1) (a) bars legal actions against the Corporate Debtor during the moratorium. As the Contract Agreement continued at the time of commencement of moratorium, any termination attempts by MCGM would breach these provisions, violating the essence of law and letter. Thus, such actions are impermissible under the IB Code.
Here I wish to address the submission of the Learned Senior Counsel for 1st Respondent/MCGM, regarding Clause 19(j) of the Contract Agreement, which addresses the automatic vesting of the superstructure, which is as below.
"19(J): SHCL shall develop the plot for sanctioned user and obtain B.C.C. from E.E.B.P or any other Competent Authority appointed by the Commissioner. In case of failure in completing the Project within the time period for any breach of SHCL, the EMD as well as deposit, fees, premium paid while approval to the plans, lease rent, if any paid till that time shall be forfeited by the owner and the project work as completed shall vest with the Corporation free of cost subject to the mortgage in favour of the Lenders. The Owner shall not be liable to pay compensation or damage to SHCL. However, in case of situation beyond control of SHCL and Force Majeure, the Commissioner, may consider the extension of time, on submission of the unconditional request to that effect by SHCL."
In my considered view, Clause 19(j) necessitates a contextual interpretation in conjunction with Clause 26(k), which outlines a mandatory two-month notice period for rectifying breaches, failure of which could potentially lead to the termination of the Agreement.
It is trite to say that, 'holistic' interpretation of an agreement is emphasized, 'isolationist' interpretations of its clauses disallowed. It is undisputed that the subject Contract Agreement, as of the commencement of the Corporate Insolvency Resolution Process of the Corporate Debtor on 13th March 2018, was valid, subsisting, and binding upon the parties. A comprehensive analysis of Clauses 19(j) and 26(k) within the Agreement, inclusive of provisions barring termination during a moratorium under section 14 of the IB Code, elucidates that the vesting of rights shall not occur consequent to the breach of terms. Therefore, a contextual interpretation of these clauses is necessary to fully understand their implications and the rights and obligations of the parties involved. The 1st respondent/MCGM claims that the superstructure vested to their ownership automatically on April 24, 2013, when the Corporate Debtor failed to meet the project timeline. On a detailed analysis, I find that Clauses within the Contract Agreement 26(K) and Section 14(1) (d) of the IB Code support the Corporate Debtor's rights over the Mumbai Hospital premises, as such the 1st respondent's claim of automatic vesting of the superstructure on the MCGM lacks merit. I, therefore, hereby dismiss the Respondent's claim regarding the automatic vesting of the superstructure on the MCGM, affirming the Corporate Debtor's rights over the Mumbai Hospital premises.
Now, adverting to the argument put forth by the Ld. Sr Counsel for 1st respondent /MCGM, highlighting the essential nature of the Mumbai Hospital for MCGM's fulfilment of its statutory obligation to safeguard public health, alongside the Hon'ble Supreme Court's precedent in MCGM vs Abhilash Lal, which highlights the precedence of the MMC Act over the IB Code, I wish to say that, the said plea has been meticulously examined by this bench, vide Order IA No. 159/2023 dated February 2nd, 2024. As the 1st respondent is the petitioner in the said IA, and the point has already been extensively deliberated upon and addressed in said order, I abstain from revisiting the same discussion in the present context, however by quoting the relevant paragraphs, which are extracted hereunder:
27... Therefore, in the light of my discussion as above, I am not willing to concur with the submission of the Ld. Sr. Counsel for the applicant, that inclusion of the MCGM land and the Superstructure raised therein in the RFRP, is in violation of the order of Hon’ble Supreme Court, supra,”.
... It is quite clear that sections 92 and 92A of the BMC Act, prevail over section 238 of I&B Code, is concerned, indeed, the Judgment upheld that primacy of Section 92 of the MMC Act over Section 238 of the IBC. However, a holistic examination of the facts that lead to the passing of the said judgement, namely the failure on the part of the corporate debtor in complying the terms and conditions of the contract agreement and the consequences thereof on the rights of the corporate debtor under the said contract agreement alone were considered and the rights of the lender Banks which have lent public money to the corporate debtor were not at all dealt with, while making the said observation. That apart, in re, MCGM, the primary ground for dismissal of the Resolution Plan earlier approved by this Tribunal and also by Hon’ble NCLT, stemmed from the resolution professional’s failure to obtain requisite approvals from the Applicant as mandated by Sections 92 and 92A of BMC Act. Furthermore, the ruling is conspicuously, silent on exclusion of Mumbai Hospital from the CIRP or the entitlements concerning the superstructure. Pertinently, Section 92 of BMC Act, only outlines the stipulated procedure for the disposal of MCGM’s properties, highlighting the imperative need of prior approval of the Corporation for leasing or establishing any other interest. Even in the event that a resolution plan is accepted by this Tribunal, wherein the subject property forms a part thereof, it is imperative to highlight that, in light of MCGM, supra, the acceptance of such a plan would remain conditional upon the subsequent acceptance by MCGM. So much so, inclusion of the assets of the corporate debtor in the RFRP of the corporate debtor will no way 'undermine' the 'supremacy' of sections 92 and 92A of BMC Act.
Moreover, the termination of the subject Contract Agreement can only take place if the Mumbai Hospital is excluded from the Corporate Insolvency Resolution Process. This Bench, vide Order dated 2nd February 2024 in IA No. 159/2023 filed by the MCGM, seeking to declare the Mumbai Hospital as 'belonging to MCGM' and to 'exclude the Mumbai Hospital from the Corporate Insolvency Resolution Process of the Corporate Debtor', upheld that the 'bundle of rights' that the Corporate Debtor holds over the MCGM land and superstructure constitutes an "asset" within the meaning of Section 18(f) and Section 25(5) (a) of the IB Code. Furthermore, the same order also upheld the rights and interests of the lender banks, who have admittedly extended substantial public funds on the strength of this asset. The lenders, by virtue of their mortgage rights over the MCGM's land and the superstructure developed by the Corporate Debtor, are secured creditors. This confers upon them a legitimate and enforceable claim to recover the debts owed by the Corporate Debtor. The public duty of the lenders to recover the lent public funds, by exercising all legitimate rights, including those against the mortgaged property, is a duty that cannot be disregarded. Consequently, under law, these rights are required to be considered as essential components in the Corporate Insolvency Resolution Process and if the termination of the Contract Agreement is allowed and the property in question is taken over by the MCGM, it would jeopardize the lenders' rights and the entire Corporate Insolvency Resolution Process of the Corporate Debtor. The below are the relevant extracted paragraphs from the orders of IA No. 159/2023.
“28.Here it also pertinent to note that, the applicant under the contract agreement enabled creation of ‘mortgage’ ‘charge’ over both MCGM land and the superstructure raised therein, in favour of the lenders of the corporate debtor for availing financial assistance by the corporate debtor. The Lenders Banks which have rendered financial assistance to the corporate debtor, have invoked the provisions of IB Code, seeking initiation of corporate insolvency resolution process against the borrower/corporate debtor, as the corporate debtor/borrower defaulted in repayment of their debt. The money that was lent by the 2nd respondent was undoubtedly the public money and the lender banks have a duty to recover the same till the last pie. The lenders herein have strongly, asserted that they are the secured creditors by virtue of their ‘mortgage right’ in the property of the applicant i.e. MCMG land as well as of the corporate debtor i.e. the super structure raised there in by the corporate debtor. Therefore, the ‘public duty’ of the lenders to recover the debt by exercising all their legitimate rights not only against the borrower but also on the property mortgaged for the due discharge of the debt by the corporate debtor and thus, protect the ‘Public interest’ cannot be merely over looked.
29.In fact, Hon’ble Supreme Court, in paragraph 47 of the order in MCGM v Abhilash Lal, supra, clearly emphasised not only about public duty but also about the need to protect the property rights of third parties, as is event from the following observations, “in the opinion of this court, Section 238 cannot be read as overriding the MCGM’s right indeed its public duty to control and regulate how its properties are to be dealt with. That exists in Sections 92 and 92A of the MMC Act. The his court is of opinion that Section 238 could be of import ance when the properties and assets are of a debtor and not when a third party like the MCGM is involved”.
Here, I wish to clarify that, my discussion above is confined to the limited aspect of finding how far the decision rendered in re, MCGM (supra), by Hon’ble Supreme Court, basing on the facts of that particular case can be extended to a third party and deprive the third party its legitimate rights under a contract agreement, and not to enter into any discussion on whether or not the judgement in, MCGM v Abhilash Lal, in the light of the ruling in Indus Biotech (P) Ltd. v. Kotak India Venture (Offshore) Fund, delivered by the three Judge Bench of Hon’ble Supreme Court, on November 23, 2021, i.e. subsequent to the Judgement in re, MCGM, wherein it was held that; “The position of law that the IB Code shall override all other laws as provided under Section 238 of the IB Code needs no elaboration”, can be followed or not, in this case.
Therefore, in the light of my discussion as above and by drawing on the insights from the Victory Iron Works, supra, I have no hesitating in holding that, the rights possessed by the Corporate Debtor including the possession, developmental rights etc., and the mortgage right of the lenders under the contract agreement in respect of MCGM land and the superstructure raised there in, are ‘Assets’ within the meaning of Section 18 (1) (f) and Section 25 (2) (a) of I&B Code, hence under law the same are required to be considered essential components in the CIRP of the Corporate Debtor enabling a thorough and equitable resolution process, adhering to the established legal framework and ensuring a just outcome for all the stake holders.”
Therefore, the above MCGM Land and Hospital “assets”, are entitled to protection under Section 14 of the Insolvency Bankruptcy Code. As such, the proceedings for the termination of the Contract Agreement and the subsequent taking over of the Mumbai Hospital and reclaiming of possession are clearly in violation of the moratorium imposed under Section 14 and in light of the Judgment passed by the Hon’ble Supreme Court in Rajendra K. Bhutta, Supra. Needless to say, that, ‘moratorium’ in terms of section 14 of IB Code, is intended to preserve the assets of the Corporate Debtor and ensure the uninterrupted progression of the Corporate Insolvency Resolution Process. Therefore, any action aimed at terminating the Contract Agreement and reclaiming possession of the Mumbai Hospital is in direct contravention of the moratorium, which is prohibited under section 14(1) (d) of the code and undermines the core objective of the IBC to maximize the value of the corporate debtor’s assets for the benefit of all stakeholders.
Point is answered accordingly.
Therefore, in the light of my discussion above and taking the submissions of the learned Sr. Counsels representing both the sides besides the case law into consideration, I am of the firm opinion that, the applicant has made out a strong prima facie, case in its favour besides the balance of convenience is also in favor of the applicant and the lender Banks, who are supporting the application. Hence I hereby, pass an order, restraining the 1st Respondent/MCGM and its officials, from taking any coercive measures under the subject Contract Agreement, including any action to terminate the Contract Agreement or take over the Possession of the MCGM Land and/or Mumbai Hospital.
Accordingly I.A 10/2023 in TCP 32/7/AMR/2019 is allowed and disposed of. No costs.