In a significant case, the National Company Law Appellate Tribunal ( NCLAT )has held that the Corporate Debtor has absolute rights over property forming part of the liquidation estate. The Tribunal ruled that the petitioner did not acquire any rights over the contested area as a result of payments made toward sub-letting charges.
On September 8, 1998, the Maharashtra Industrial Development Corporation ( MIDC ) signed a 95-year lease agreement in favor of Wockhardt Life Sciences Limited ( Appellant No. 2 ) for Plot No. B-15/2 in Waluj Industrial Area, Aurangabad. On 08.10.1998, the lease was registered.
Wockhardt Life Sciences Limited, the appellant sold its operations to Baxter ( India ) Pvt. Ltd. in 2002 through a Deed of Assignment (17.07.2002) and a Business Transfer Agreement (06.03.2002). The assignment was made when MIDC issued a consent order on March 13, 2002, allowing the assignor to transfer its leasehold rights.
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Baxter subleased roughly 13,000 square feet of the site to Wockhardt Ltd. in a Sub-Leasing Agreement dated July 17, 2002, pending MIDC approval. In 2016, with MIDC’s approval, Baxter surrendered its leasehold rights to Eurolife Healthcare Pvt. Ltd. (Corporate Debtor) by a Deed of Assignment (27.03.2018) and a Business Transfer Agreement (13.10.2016).
On May 9, 2023, the NCLT launched CIRP against Eurolife Healthcare Pvt. Ltd. On August 31, 2023, MIDC sent Eurolife a demand notice for Rs. 1.65 cr in sub-letting fees, which Eurolife paid on September 14, 2023. In an application submitted to the NCLT in Mumbai, the appellants sought to have the 13,000-square-foot Cephalosporin Facility excluded from Eurolife’s liquidation proceedings. The application was denied by NCLT on April 24, 2024. The appellant, who was upset, challenged the contested order in the appeal.
The appellant’s senior counsel, Shri Arun Kathpalia, argued that following the execution of the Lease Deed dated 08.09.1998, the 13,000 square foot property on which the Wockhardt Cephalosporin Facility is situated was not owned by the Corporate Debtor. The Corporate Debtor consented to sublease the facility space to Wockhardt in accordance with these agreements. The disputed region was never included in the Corporate Debtor’s assets. The appellant has paid sub-letting charges to the MIDC, according to the counsel. The appellant has been granted permission by MIDC to subdivide Plot No. B-15/2.
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According to the Senior Counsel for the Respondents, Shri Krishnendu Datta, the Corporate Debtor was granted the full 64,925 square meters of Plot No. B-15/2 by a registered Assignment Deed dated 27.03.2018. The entire space, including the 13,000 square feet in dispute, is still under the Corporate Debtor’s leasehold rights. He said that MIDC had not previously given its approval to sublease the space. The lease forbade subletting or assignment without MIDC’s prior consent. No rights were granted to the appellant by any purported sub-letting in the appellant’s favor. The whole 64,925 square meter Cephalosporin Facility space was part of the liquidation estate.
The court was asked to decide whether the Wockhardt Cephalosporin Facility, which occupied 13,000 square feet of the larger property, was not the Corproate Debtor’s property and therefore be removed from the Corporate Debtor’s liquidation estate.
The Tribunal cited Kota vs. Shukla and Brothers [ (2010) 4 SCC 785 ], in which it was noted that “Courts should record reasons for their conclusions to enable the appellate or higher courts to exercise their jurisdiction appropriately and in accordance with law.” Kota was the Assistant Commissioner, Commercial Department, Works Contract and Leasing.
The chairperson, Justice Ashok Bhushan, and the technical member, Barun Mitra, ruled that a court or tribunal cannot use its judicial authority unless the explanation is recorded. According to the Tribunal, the NCLT documented its reasoning for concluding that the Coprorate Debtor had complete ownership of the property and that the 13,000 square foot space cannot be excluded from the liquidation estate.
It was found that the property that is a component of the liquidation estate is entirely owned by the corporate debtor. The Tribunal ruled that the petitioner did not acquire any rights over the contested area as a result of payments made toward sub-letting charges. The appeal was denied by the Tribunal.
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