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Judgment
Barun Mitra, Member (Technical)]
The present appeal filed by the Appellant arises out of the order dated 11.01.2024 (hereinafter referred to as ‘Impugned Order’) passed by the Adjudicating Authority (National Company Law Tribunal, New Delhi Bench, Court-II) in IA No. 1592/ND/2019 in CP (IB) No. 470 (ND)/2017. By the impugned order, the Adjudicating Authority has made certain observations about the Resolution Professional (‘RP’ in short) in the conduct of the Corporate Insolvency Resolution Process (‘CIRP’ in short) of the Corporate Debtor-Kindle Developers Private Limited. Aggrieved by the observations contained in the impugned order relating to conduct of CIRP by the Appellant/RP, the present appeal has been preferred.
Making his submissions, the Learned Counsel for the Appellant submitted that the Corporate Debtor was admitted into CIRP on 09.03.2018. The RP had submitted the resolution plan which had been approved by the Committee of Creditors (‘COC’ in short) with a voting percentage of 92.39% before the Adjudicating Authority for approval at which stage an application was filed by the Respondent-Noida authority vide I.A. No. 1592/2019, seeking exclusion of plot number SC-01/D1, Sector 79, Noida (‘subject plot’ in short) from the resolution plan. Exclusion of the subject plot was sought on the ground that the lease of the subject plot with the erstwhile management of the Corporate Debtor was cancelled by them on 13.08.2015 which date clearly preceded the initiation of the CIRP of the Corporate Debtor and hence could not be made part of the resolution plan.
Submission was pressed by Learned Counsel for the Appellant that since the Respondent had not taken back the possession of the subject plot from the Corporate Debtor, the lease deed is deemed to have continued with the Corporate Debtor. It was also asserted that the Noida authority had preferred the application before the Adjudicating Authority to exclude the subject plot from the resolution plan of the Corporate Debtor after five years of cancellation of the lease. Under such circumstances, when the Respondent had not taken possession of the land even after alleged cancellation of the lease deed, the Appellant did not commit any error in holding that this amounted to a tenancy at holding under the provisions of Section 116 of the Transfer of Property Act, 1882. Furthermore, non-enforcement of cancellation of the lease deed by the Noida authority resulted in the creation of third-party rights over the said property in favour of home buyers. It is also the contention of the Appellant that with the commencement of CIRP of the Corporate Debtor, moratorium had come into force and hence the Corporate Debtor was prohibited from transferring, encumbering, alienating, or disposing of any legal right or beneficial interest. The moratorium also put a prohibition on the Noida authority to recover, any part of the subject plot which was under the occupation of the Corporate Debtor.
Refuting the contentions raised by the Appellant, the Learned Counsel for the Respondent submitted that the lease deed of the subject land had been terminated by the Noida authority prior to the commencement of the CIRP of the Corporate Debtor. The lease deed had been cancelled on 13.08.2015. In terms of the policy of Noida authority, a cancelled plot can be restored only if the restoration application is made within 90 days from the date of cancellation. However, the request for restoration was made after more than 300 days on 14.06.2016 and was rejected by Noida authority on 10.11.2020. In view of this cancellation, the subject lease land could not have been dealt in the resolution plan of the Corporate Debtor.
It was also asserted that the Adjudicating Authority while considering the I.A.No. 1592/2019 had correctly held that the RP in spite of being fully conscious and aware of the fact that cancellation of the lease of the subject plot had taken place, yet the RP continued to take all action including preparation of the Information Memorandum projecting the cancelled lease of the subject land as an asset of the Corporate Debtor and for inviting Expression of Interest (‘EOI’ in short) to obtain resolution plans from prospective resolution applicants. Submitting that the RP acted irresponsibly in getting approval of the resolution plan from the COC as if the said plot of land existed with the Corporate Debtor, it was contended that the observations of the Adjudicating Authority that the RP was attempting to justify the wrong and fraudulent action of the suspended management of the Corporate Debtor that the lease over the land was still subsisting was justified.
We have duly considered the arguments advanced by the Learned Counsel for the parties and perused the records carefully.
At the outset we may take notice of the reliefs prayed for by the Appellant which are as follows:
“a) Allow the present Appeal;
b) Set aside the observations my by the Ld. Adjudicating Authority as against the Appellant in Paras 28 & 30 in Impugned Order dated 11.01.2024 passed by the Hon’ble National Company Law Tribunal, New Delhi Bench-II in I.A. No. 1592 of 2019;
c) Pass any other Order which this Hon’ble Tribunal deems fit.”
The Appellant has fleshed out the observations made by the Adjudicating Authority in the impugned order at pages 32-33 of the Appeal Paper Book which is also reproduced below for easy reference:
“28……Thus, what emerges is that the CD/its promoters got the RERA registration of the project done on 15.08.2017 by falsely claiming the legal title over the land whereas the same was cancelled by Noida as back as on 13.08.2015. Even otherwise, the fact of RERA registration of the project ipso facto does not establish that the lease of Plot No. SC-01/D-1, Sector 79 Noida, which was cancelled by Noida Authority vide letter dated 13.08.2015, was subsisting or stood revived. Hence, this plea made by the Respondent/RP does not hold water, rather it is an attempt by the RP to justify the wrong/fraudulent action of the ex-management of the Corporate Debtor.
However, before parting with the order, we observe that this is a classic case where, not only the ex-Directors/promoters, despite being fully aware of the cancellation of the “project land” by the Noida Authority as back as on 13.08.2015 (much before the commencement of the CIRP) due to non-payments of land dues by them, continued to accumulate money thereby duping the homebuyers, who nurtured the hope of getting a roof over their head and invested their hard earned life savings but also the IRP/RP too, (despite being fully conscious of the fact of cancellation of the “project land” as evident from the CIRP order dated 09.03.2018, RP’s own averments in C.A. No. 479 of 2019 filed by him against G.S. Buildwell Pvt. Ltd. & Ors. and also, in IA-3202 of 2020), continued to take all actions including preparation of Information Memorandum (IM), projecting the cancelled “project plot” as the asset of the Corporate Debtor, inviting EOIs and getting approval of a Resolution Plan from the COC as if the said plot existed with the Corporate Debtor.”
It is the case of the RP that though the Respondent/Noida authority had issued the lease cancellation letter dated 13.08.2015, the project engineer of Noida authority did not take back the possession of land from the Corporate Debtor after 30 days of the cancellation which it was required to do. Neither did the Noida authority take proper steps to resume the land as per Sections 13 and 14 of the UP Industrial Area Development Act, 1976. No forfeiture letter was also issued by the Noida authority following cancellation of the lease. Respondent had not taken back the possession of the subject land from the Corporate Debtor. Instead, it allowed the lease premium and lease rental to accumulate in its books. Moreover, Noida authority had never objected to the UP RERA registration of 15.08.2017 and this had resulted in creation of third-party rights over the subject plot. It was only on 10.11.2020 that the Noida authority rejected the request for restoration of the plot of land by which time moratorium under Section 14 of IBC had come into place.
In defence of its diligent conduct of the CIRP proceedings, the RP has stated that several meetings were facilitated between the suspended management of the Corporate Debtor and the Noida authority so as to resolve the dispute as regards the subsistence of the lease. Since these efforts remained inconclusive, the Information Memorandum prepared by the Appellant also expressly stated that the lease was cancelled by the Noida authority due to non-payment of dues by way of a letter dated 13.08.2015. It has also been submitted that the resolution plan that was approved by the COC clearly provided that the lease deed was cancelled by the Noida authority while also noting that the disputed asset is in the possession of Corporate Debtor. Hence it was emphatically asserted that the Appellant had maintained complete transparency with members of the COC as regards the subject plot.
In support of the right earnest demonstrated by the RP, attention was drawn to the filing of I.A. No.3202/2020 under Section 66 of the IBC stating that the RERA registration carried out by the suspended management was illegal and that Noida authority was a mute spectator to the said registration. It is contended by the Appellant that they never attempted to justify the wrongdoing of the suspended management of the Corporate Debtor. It has also been contended that the RP had filed a complaint with the EOW wing of the Delhi police against the suspended management of the Corporate Debtor on 20.05.2020. It has also been submitted that post-commencement of the CIRP of the Corporate Debtor, the RP had sent a letter on 14.08.2018 to the Noida authority to file its claim. However, Noida authority took no steps to file the claims. Further the resolution plan had duly dealt with payment to the Noida authority. However, the Adjudicating Authority without according due consideration towards these pro-active steps taken by the RP in the discharge of his duties, instead recorded their unsavoury observations on the functioning of the RP.
Coming to our analysis and findings, we are of the view that material on record clearly show that the lease of the subject plot was cancelled by Noida authority on 13.08.2015. Nothing has been placed on record to show that the lease deed of the said plot was restored to the Corporate Debtor except that an application had been filed by the suspended management after a gap of 305 days before the Noida authority seeking restoration. It is also an undisputed fact that Noida authority had not taken any decision on the said representation and that a decision was taken thereon by the Noida authority on the directions of the Adjudicating Authority which was passed on 12.10.2020. The Noida authority on 10.11.2020 had sent a detailed reply stating that the restoration application is rejected in view of violation of the terms of the lease deed dated 24.10.2011. In the present case, the Adjudicating Authority has correctly held that since the lease deed had been cancelled much before the commencement of the CIRP, the Corporate Debtor had lost the right to possess the subject plot before the initiation of CIRP. Since the subject plot ceased to be an asset of the Corporate Debtor with effect from 13.08.2015, the provision of moratorium in terms of Section 14 of the IBC will not get attracted in the present case.
There is nothing on record to show that post cancellation of the lease deed, the Noida authority was paid any lease rent or there is any written permission or assent of the Noida authority for restoration or continuation of the said lease. Simply by having filed an application for restoration of the said plot of land, the deemed subsistence or continuation of the lease deed cannot be presumed. The lease having been cancelled on 31.08.2015 for want of deposit of necessary lease rent/charges in terms of the allotment, the lease land could not have been made a part of the resolution plan of the Corporate Debtor. Even the UP RERA registration had been obtained by falsely claiming the legal title over the lease land. It is also the case of the Noida authority that it could not object to the UP RERA registration since the project was registered by the erstwhile Corporate Debtor without prior information to the Noida authority and that the registration was obtained by making a false statement before the UP RERA that the Corporate Debtor had legal title to the subject lease land. Basis this wrongful obtaining of RERA registration, it cannot be rightfully claimed by the RP that the lease was subsisting or stood revived. We also notice that the Noida authority in their reply to I.A. 3202/2020 had mentioned that that UP RERA authorities were informed on 27.01.2021 during the CIRP period to cancel the RERA registration.
The CIRP admission order of the Corporate Debtor also clearly noted that the Noida authority had cancelled the lease of the subject plot. Hence this fact was clearly in the knowledge of the RP right from the time of commencement of CIRP proceedings. Furthermore, the RP in their counter affidavit in CA No 479 of 2019 in the matter of G.S. Buildwell Pvt. Ltd. & Ors. had admitted that it was aware of the cancellation of the lease and this has been reflected in the impugned order as below:
“22. It is submitted that the NOIDA Authority cancelled the allotment of the Land vide its notification dated 13.08.2015 for non-payment of the amount due and in accordance with the provisions of the Lease Deed between NOIDA and the Corporate Debtor, the allotment was cancelled and the deposit amount was forfeited. It is submitted that as the land allotment has been cancelled, the Corporate Debtor lost its title as ‘lessee’ and the ensuing rights thereof and therefore the Respondent Company and/or the Respondents have no good title over the land on which the constructions/development work has taken place. A copy of the cancellation notification dated 13.08.2015 is annexed as Annexure 7.”
Despite knowing that the lease had been cancelled by the Noida authority, merely on the pretext that the cancellation of the lease was not followed up with other measures by the Noida authority, the RP should not have treated the subject plot to be in the possession of the suspended management. Given this set of facts, RP should have been more circumspect and should not have agreed to make the housing project of suspended management on the subject plot a part of the resolution plan. Instead, the RP continued to take all actions including preparation of the IM projecting the cancelled plot as the asset of the Corporate Debtor and getting approval of the resolution plan from the COC as if the said plot existed with the corporate debtor. Such a resolution plan which is premised on the basis that the land belonged to the Corporate Debtor could not have been considered by the COC. In the adjudication of I.A. No. 1592 of 2019, the Adjudicating Authority on 20.02.2020 had noted that the Noida authority had apprised the Bench that the lease of the subject land which constituted the substratum of the housing project of the Corporate Debtor was cancelled and not subsisting. The Adjudicating Authority had therefore correctly raised the question of how it could consider a resolution plan when the lease of the allotted land had already been cancelled by the Noida authority in 2015. The Adjudicating Authority in its order dated 20.02.2020 had directed the RP to file a complaint with the EOW cell of Delhi police and this again shows that RP had not taken this action on his own volition but was goaded into action by the RP.
We also notice that this order of the Adjudicating Authority was challenged by the RP by filing CA (AT) (Ins) No. 605 of 2020 before this Tribunal on the basis of response to RTI query which it had obtained in that the amount of rent was outstanding from the Corporate Debtor in respect of the lease deed. This Tribunal had observed on 27.07.2020 as follows:
“The Adjudicating Authority will record a clear finding in regard to cancellation/subsistence of the lease after providing opportunity and hearing all concerned parties before passing order in regard to approval or otherwise of the Resolution Plan. It is expected that the Adjudicating Authority will accord top priority to the matter keeping in view the timelines and decide the matter expeditiously. The Appeal is disposed of with aforesaid direction.”
The above directions of this Tribunal have been complied with and after giving an opportunity to the RP, CoC and SRA to arrive at a settlement qua the Noida authority, the Adjudicating Authority has come to well-reasoned out conclusion that the subject plot cannot be made part of the resolution plan of the Corporate Debtor and the RP has been directed to exclude the same from the resolution plan. In the same breath, the Adjudicating Authority has passed certain observations on the conduct of the RP. There is no quarrel that during the CIRP process, RP is expected to play a pivotal role, so as to effectively assume control of the corporate debtor's management and become responsible for overseeing all aspects of CIRP. RP's underlying mandate is to ensure efficiency, transparency, and accountability within the insolvency resolution process marked by a nuanced equilibrium among creditor rights, stakeholder concerns, and procedural equity. In the present case, the Adjudicating Authority has rightly noted that the role of the RP has leaned towards justifying the wrongful action of the suspended management. We find no error in the findings arrived at by the Adjudicating Authority and affirm the observations made in respect of the unbecoming and unfair conduct of the RP.
In the result, given the sequence of events and the facts and circumstances of the case, for the reasons discussed above, we find no reasons to interfere with the impugned order in particular with regard to the observations made on the role of the RP. We find no merit in the appeal. The appeal is accordingly dismissed. No order as to costs.
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