Kalpana G vs Sri Bhagawan Mahaveer Educational & Cultural Trust & Anr.

PER: BENCH

This is an application filed by the Resolution Professional of ‘M/s Kranthi Edifice Private Limited’ (hereinafter also referred as ‘Corporate Debtor’) under Section 60(5) of ‘The Insolvency and Bankruptcy Code, 2016’ hereinafter referred as ‘IBC’) read with section 424(3) of the Companies Act, 2013 and Rule 56 of National company Law Tribunal Rules, 2016 seeking the following reliefs:

The Corporate Debtor was admitted into Corporate Insolvency Resolution Process (CIRP) by this Tribunal vide orders dated 27.06.2022 in C.P. (IB) No.109/7/HDB/2020. The Applicant herein was appointed as the Interim Resolution Professional (IRP) and a moratorium was declared in terms of Section 14 of IBC. The IRP issued a public announcement for inviting claims and on verifying the claims, the Committee of Creditors (CoC) was constituted under Section 21 of IBC.

It is stated that the corporate debtor owns a property located at Survey No. 187, Kondapur Village, Serilingampally Municipality, R.R. District, Hyderabad, Telangana, and the same was leased to Respondent No. 1 vide lease deed No. 5855/2009 dated 04.11.2009 at a monthly rent of Rs. 4,00,000/- for a period of 5 years. That the Respondent No.1 currently operates a school named ‘Jain Heritage - A Cambridge School’, on the leased premises. As the Corporate Debtor is undergoing CIRP, the Resolution Professional is required to take over the control and custody of all the assets of Corporate Debtor which also includes the lease rentals owed by Respondent No. 1 to the Corporate Debtor.

The Applicant in the capacity of the Resolution Professional communicated about the admission of the corporate debtor in to CIRP to the respondent no. 1 and informed the respondent no. 1 to deposit the outstanding lease rentals payable to the corporate debtor into the TRA account of the corporate debtor. The Respondent No. 1 issued a reply dated 20-10-2022 stating that the lease rentals from June, 2022 to September, 2022 were paid to the owner of the lease premises i.e., Respondent No. 2.

It is stated that the Suspended Board of Directors challenged the CIRP admission order before the Hon'ble NCALT, Chennai. Upon dismissal of the same, an appeal was preferred before the Hon'ble Supreme Court vide Civil Appeal No. 7121 of 2022. The said appeal before the Hon’ble Supreme Court was initially stayed but eventually, dismissed vide orders 11.05.2023.

Then again, the application vide communication dated 06.06.2023, reminded the Respondent No. 1 to deposit the lease rentals pending from June 2022, asserting that any payments made to the personal account of the Respondent No. 2 are invalid, as the property belongs to the corporate debtor which is undergoing CIRP. Additionally, the Applicant through email dated 20-10-2022 reminded the Respondent No. 2 to transfer the rent received from Respondent No. 1 into the TRA account of the corporate debtor. But the respondent no. 2 failed to respond and comply with the same.

Despite several reminders, the respondents failed to pay the rents payable to the corporate debtor. Accordingly, the Applicant filed an application vide I.A. No. 1116 of 2023 and the same was allowed by this Tribunal vide orders dated 19.04.2024, the relevant portion is extracted hereunder;

The above order was duly communicated to the Respondents by way of an email dated 30.04.2024 (order was made available on 29.04.2024). Additionally, a follow-up reminder was also sent on 21.05.2024. That the Respondent No. 1 issued a reply dated 23.05.2024 stating that due to the summer vacation of the school, there was a delay in compliance of the order and requested an extension until 1^st June, 2024. In response, the Applicant reminded the Respondent No. 1 via email dated 24.05.2024 that the lease rentals must be deposited immediately, regardless of the closure of the school since the property is still in use. The resolution professional also mentioned that similar situation was faced by the respondent no. 1 during the prior summer vacation in April-May, 2022, however, payments were made. The resolution professional further informed to the respondent no. 1 that sufficient time has already been provided and also warned that further delay could lead to contempt proceedings. It is further stated that the Applicant issued another reminder on 14.06.2024 through email reiterating the demand for payment of dues as per the order of this Tribunal, but that the Respondents failed to comply with the same.

In light of the above, the Applicant filed the present application seeking intervention of this Tribunal with a prayer to direct attachment of the bank accounts of Respondents till the amounts are paid as per the directions of this Tribunal in the orders dated 19.04.2024 in I.A. No. 1116 of 2023.

Though the respondent no. 1 has e-filed a counter to this application on 22.10.2024 but no physical copy of the counter is filed till date. In view of the same, the filing of the counter cannot be treated as complete. The respondent no.1 has reiterated the same points in this counter which was putforth in the IA. No. 1116 of 2023 which has already been decided. We find that the respondent no. 1 has again raised the same issues in this application which are already adjudicated upon in IA. No. 1116 of 2023 vide orders dated 19.04.2023. Some of the points which are raised by the respondent no.1 are as under;

The Respondent No. 1 submitted that it has invested Rs. 10 crores in developing the said property, a development undertaken with the knowledge and consent of the corporate debtor. It is contended that the corporate debtor agreed to deduct the investment of Rs. 10 crores from the payable rent. Further, as per the lease agreement, the Respondent No. 1 was entitled to retain rental payments against the development investment and the lease rentals were to be retained w.e.f. December, 2021. However, due to COVID-19 related financial strains, the Respondent No. 2 requested for the payments to continue. Accommodating this request, the respondent No. 1 paid the rents until September 2022.

The Respondent No. 1 contended that the rents are not payable with effect from October 2022 as the respondent no. 1 has invested an amount of Rs. 10 crores for school infrastructure development, until recovery of payments by the corporate debtor. Furthermore, it is stated that the respondent was regularly paying the rentals until September 2022, after which payments ceased due to difficulties in the investment cost.

It is stated that due to the rent related dispute, Respondent No. 1 filed a civil suit (O.S. No. 110 of 2024) in the Learned Civil Court, Kukatpally to resolve the question of whether rental obligations could be offset by the investment. On 22.02.2024, the Civil Court issued an interim order in I.A. No. 58 of 2024, notifying both the corporate debtor and Respondent No. 2, while acknowledging the complexity of enforcing rights in insolvency cases. It is further stated that the Respondent No. 1 appealed this order in the Hon’ble High Court of Telangana, which directed the Civil Court to proceed on merits and emphasized that observations made in the interim order should not influence the final decision.

Meanwhile, the application IA No. 1116 of 2023 filed by Resolution Professional was allowed by this Tribunal vide order dated 19.04.2024, ordering Respondent No. 1 to deposit the outstanding rent, notwithstanding their investment claim. It is stated that aggrieved by the said order, the Respondent No. 1 appealed before the Hon’ble NCLAT, which remains pending.

As per the proof of service filed by the resolution professional, it was noted by this Tribunal that the respondent no. 2 was served with the notice but the same was returned with an endorsed “refused”. In view of the same, this Tribunal held the service of notice to the respondent no. 2 as sufficient. The respondent no. 2 did not contest.

We find that the applicant filed a memo dated 14.08.2024 enclosing additional details of the bank accounts of the respondent no. 1 and 2, the same are extracted hereunder;

ii) Back Account Details of Respondent no. 2 M. Suresh Kumar Reddy:

a. Medipalli Suresh Kumar Reddy (Additional details) A/c No. 41732955668 State Bank of India #8-2-293/82/NG/PLOT NO 40, RD NO 69, Nandagiri Hills, Jubilee Hills, Hyderabad, TG- 500033.

b. A/c. No.30362010072440, Canara Bank, Malakpet Branch, Hyderabad

The application file another memo dated 27.11.2024 enclosing further details of the bank account of the respondent no. 1, the following table records the said details;

Name: Sri Bhagawan Mahaveer Educational & Cultural Trust Bank: Axis Bank Customer Id: 733000872 PAN: AABTS1497G

In the light of the contentions aforementioned, the point that arises for our consideration is:

Whether the relief as sought by the applicant to create a lien/attachment over the bank accounts of the respondent can be granted in terms of section 424(3) of The Companies Act, 2013?

We have heard Ms. Mummaneni Vazra Lakshmi, learned counsel for applicant and Ms. Bokaro Lokeshwar Reddy, learned counsel for the respondent no. 1 and perused the record.

Whether the relief as sought by the applicant to create a lien/attachment over the bank accounts of the respondent can be granted in terms of section 424(3) of The Companies Act, 2013?

The Ld. counsel submitted that this Tribunal, by its order dated 19.04.2024 in I.A. No. 1116 of 2023, directed Respondent No. 1 to deposit outstanding lease rentals totalling Rs. 1,07,02,986 and all future rentals into the account of the corporate debtor within 20 days. The Respondent No. 2 was also directed to return the rents received from Respondent No. 1. Despite repeated reminders, the Respondents failed to comply, citing reasons such as school vacations. Additionally, the Respondent No. 1 sought relief before civil and higher courts, attempting to circumvent the directions of this Tribunal. The Applicant filed the present application seeking attachment of the bank accounts of the Respondents to enforce compliance with the order of this Tribunal.

Per contra, The Ld. Counsel for Respondent No. 1 submitted that the respondent, a registered trust operating "Jain Heritage – A Cambridge School" on the leased premises, had entered into a lease deed with the corporate debtor in 2009, later extended through an unregistered lease deed in 2016. The Respondent No. 1 asserted that they had invested Rs. 10 crores in developing the leased property with the consent of the corporate debtor and both agreed to adjust the investment against the rent payable. While the respondent continued to pay rent until September 2022, payments were stopped thereafter due to financial constraints and the pending recovery of the investment. Subsequently, a civil suit (O.S. No. 110 of 2024) was filed in the Learned Civil Court, Kukatpally, to resolve the dispute regarding rental obligations and investment adjustments. Wherein, the Learned Civil Court and subsequently the Hon’ble High Court of Telangana acknowledged the complexity of enforcing such claims in insolvency but directed proceedings to continue on merits.

The Ld. Counsel contended that rent disputes fall under the exclusive jurisdiction of Civil Courts, as held in Embassy Property Developments Pvt. Ltd. vs. State of Karnataka (2020) and similar NCLT cases. The Learned counsel argued that the present application for attachment of bank accounts is beyond the jurisdiction of the NCLT and is not maintainable. It is also submitted that an appeal against the order of this Tribunal in IA. No. 1116 of 2024 is pending before the Hon’ble NCLAT.

Before addressing the case at hand, we find it proper to refer to the order in IA. No. 1116/2023 on 19.04.2024, the relevant portion is extract hereunder;

We find that the contentions raised by Respondent No. 1 in the present matter are identical to those raised in IA No. 1116 of 2023. This Tribunal has already adjudicated upon these issues in its order dated 19.04.2024 in IA No. 1116 of 2023. In the said order, Respondent No. 1 was explicitly directed to pay the pending rental dues within 20 days from 19.04.2024. However, the respondent has failed to comply with this directive.

We also highlight that an interim order was passed in the present application on 14.08.2024, the relevant portion is extracted below;

Instead of adhering to the directions of this Tribunal, Respondent No. 1 has sought relief by initiating proceedings before the learned Civil Court and subsequently before the Hon’ble High Court of Telangana, indirectly seeking exemption from the payment of pending rental dues. It stated by the respondent no. 1 that an appeal was preferred before the Hon’ble NCLAT against the order dated 19.04.2024 in IA No. 1116 of 2024. Further, on 05.12.2024 the resolution professional also submitted that an appeal is preferred before the Hon’ble NCLAT. We find it necessary to highlight that we have not been provided with any details of the said appeal pending before the Hon’ble NCLAT.

We find it proper to refer to the decision of the learned civil court and the Hon’ble High court of Telangana, the relevant portion of the decisions is extracted as under:

We observe that during the moratorium period, as stipulated under the Insolvency and Bankruptcy Code, 2016 (IBC), any legal proceedings initiated or continued against the corporate debtor are deemed invalid. This principle is rooted in the objective of the moratorium to ensuring a fair and unimpeded resolution process. In this regard, it becomes essential to examine Section 101 of the IBC, which explicitly outlines the scope and effect of the moratorium period. The provision is reproduced below for reference:

It is clear that the respondents are well aware of the order dated 19.04.2024 in IA No. 1116/2023 for the Respondent no. 1 to deposit the outstanding lease rent of Rs 1,07,02,986.00/- from June 2022 till March 2024 and to pay those pending rental dues payable to the corporate debtor. Further the Respondent No. 2 to return the lease rent received by him from respondent no. 1 to the resolution professional. We also note that the appeals filed against the said order has already been dismissed by the Hon’ble NCLAT and Hon’ble Supreme Court. Admittedly, the order of this Tribunal had attained finality, and the respondents have not complied the said order.

In support of our findings, we refer to Section 424 of the Companies Act, 2013, the same is extracted hereunder;

Therefore, in the light of the above facts and provisions, supra, the applicant herein is entitled for the relief as prayed for. The Tribunal is authorized to proceed with enforcement measures, including issuing attachment or recovery warrants as necessary, to ensure that the respondents fulfil their obligations under the order dated 19.04.2024 in IA No. 1116/2023.

Accordingly, the present application is allowed with the following directions:

Medipalli Suresh Kumar Reddy, A/c No. 41732955668, State Bank of India, #8-2-293/82/NG/PLOT NO 40, RD NO 69, Nandagiri Hills, Jubilee Hills, Hyderabad, TG- 500033^.

A/c. No.30362010072440, Canara Bank, Malakpet Branch, Hyderabad