The New Delhi bench of the National Company Law Appellate Tribunal ( NCLAT ) held that a liquidator does not create sub-leases over public land without adhering to the statutory requirements. Further ruled that Section 238 of the Insolvency and Bankruptcy Code (IBC) 2016 cannot override a public body’s statutory authority to regulate its properties.
Prabhat Jain, Liquidator of Narmada Cereal Pvt. Ltd, the Corporate Debtor under liquidation under 61(1) of the Insolvency & Bankruptcy Code, 2016 (‘Code’) challenged the Impugned Order passed by National Company Law Tribunal, New Delhi Bench (‘Adjudicating Authority’), whereby the Adjudicating Authority rejected the plea of the Appellant to allow the Appellant to sub-lease the factory of the Corporate Debtor to M/s Maa Yashoda Food Grains.
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MP Industrial Development Corporation Limited (MPIDCL) is the statutory authority of Government of MP who had given the said land on lease to the Corporate Debtor and the Respondent No. 1 herein.
Punjab National Bank (PNB) is the Sole Financial Creditor of the Corporate Debtor who is the Respondent No. 2 herein.
The Corporate Insolvency Resolution Process (CIRP) was commenced against Narmada Cereal Private Ltd. After the CIRP’s failure, the National Company Law Tribunal, New Delhi (NCLT) ordered liquidation against Narmada Cereal and appointed Mr Prabhat Jain (Liquidator) as the liquidator. The Liquidator tried to sell Narmada Cereal as a growing concern.
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Since no buyer emerged, the Liquidator entered into a temporary sub-lease with M/s Maa Yashoda Food Grains (Yashoda Foods) to operate Narmada Cereal’s factory and reduce expenses. However, this land was leased by MP Industrial Development Corporation Limited (MPIDCL) to Narmada Cereal and Punjab National Bank (PNB) was its sole financial creditor. Therefore, the MPIDCL issued notices against the Liquidator for a lease breach and approached the NCLT against it.
It was contended that the sub-lease agreement’s purpose was to maintain Narmada Cereal as a going concern without violating the lease terms. Further argued that his actions were in line with Section 35 of the Insolvency and Bankruptcy Code, 2016 (IBC) and Regulation 32A of the IBBI Liquidation Regulations, which prioritize the maximization of asset value. He also contended that MPIDCL’s actions amounted to the initiation of ‘legal proceedings’ against the corporate debtor, which was barred under Section 33(5) of the IBC.
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The NCLT dismissed the Liquidator’s plea and held that there was indeed a lease breach. It allowed MPIDCL to reclaim the premises after refunding the land premium paid by Narmada Cereal at the time of execution of lease deeds. Feeling aggrieved, the Liquidator filed an appeal before the National Company Law Appellate Tribunal, New Delhi (NCLAT).
The NCLAT perused the clauses of the lease deed entered between MPIDCL and Narmada Cereal. Clause 12 of the lease deed mentioned that the lessee cannot sub-let, assign or transfer the land or any constructed building without prior written permission from the lessor or its authorized officer. It was observed that the plant and machinery could not operate without the involvement of the building.
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The bench of Justice Rakesh Kumar Jain (Judicial Member), Naresh Salecha (Technical Member) and Mr Indevar Pandey (Member) held that the liquidator proceeded with the sub-lease without obtaining prior written approval and therefore, violated Clause 12 of the lease deed.
While dismissing the appeal, the NCLAT upheld the decision of the NCLT and held that the Liquidator breached the lease conditions by sub-letting the land without obtaining prior permission from the lessor. The MPIDCL was directed to refund the lease amount to Narmada Cereal to facilitate the liquidation process.
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