Lease Termination During Moratorium Invalid u/s 14: NCLAT Quashes GIDC’s Action, Sets Aside NCLT Order Remitting Resolution Plan [Read Order]

The National Company Law Appellate Tribunal (NCLAT), Principal Bench, Delhi, has ruled that Gujarat Industrial Development Corporation’s (GIDC) lease termination against GPT Steel Industries Ltd. during the moratorium was invalid under Section 14 of the IBC. The Tribunal also set aside the NCLT’s order sending the approved resolution plan back to the CoC, holding that there was no violation of Section 30(2).

These appeals arose from the insolvency proceedings of GPT Steel Industries Ltd., where two interlinked orders of the NCLT, Ahmedabad Bench, dated 8 April 2024, were under challenge. In one order, the AdjudicatingAuthority refused to quash the termination of the corporate debtor’s lease by the Gujarat Industrial Development Corporation (GIDC) during the moratorium, directing the Resolution Professional (RP) to approach GIDC’s appellate authority instead.

In the connected order, the NCLT remitted the approved resolution plan back to the Committee of Creditors (CoC) for reconsideration, observing that the dues payable to GIDC needed resolution before the plan could be approved.

The CIRP against GPT Steel commenced in May 2019 on a Section 7 petition. During the process, GIDC filed a claim of ₹3.96 crore, of which ₹1.54 crore was admitted by the RP. Despite the ongoing moratorium, GIDC issued a show-cause notice and termination order on 7 April 2022, cancelling the 99-year lease of plots allotted to the company in Bhuj for non-payment of rent and charges.

Aggrieved, the RP, Divyesh Desai, filed an application before the NCLT seeking to quash the lease termination as void under Section 14 of the Insolvency and Bankruptcy Code, 2016. However, the NCLT directed him to pursue a remedy before GIDC’s own appellate authority, declining to interfere.

Simultaneously, the Asset Reconstruction Company (India) Ltd. (ARCIL)—representing the CoC—challenged the NCLT’s decision to send the resolution plan back for reconsideration, arguing that no statutory violation under Section 30(2) had been established.

Counsel for the RP argued that the GIDC’s termination of the lease was squarely hit by Section 14(1)(d) of the IBC, which bars any recovery or repossession by an owner or lessor during the moratorium. Since the leasehold rights of GPT Steel formed part of the corporate debtor’s assets, their termination was unlawful. The RP further emphasised that GIDC’s dues were already addressed in the approved resolution plan, which proposed payment to operational creditors, including GIDC.

ARCIL supported the RP’s case, contending that the NCLT had erred in both orders—first, by failing to uphold the moratorium and, second, by remitting the plan without finding any non-compliance with Section 30(2). It was argued that the Adjudicating Authority had exceeded its jurisdiction and undermined the CoC’s commercial wisdom.

GIDC argued that it retained ownership over the leased plots and had the statutory right to cancel the lease for non-payment of dues, irrespective of the moratorium. It contended that Section 14 of the IBC could not curtail such proprietary rights and that the NCLT rightly refrained from adjudicating what was essentially a property and contractual dispute governed by state law.

The Appellate Bench comprising Ashok Bhushan (Chairperson), Barun Mitra, and Arun Baroka (Technical Members) rejected GIDC’s arguments, holding that the termination of the lease during moratorium violated Section 14 of the IBC. The Tribunal observed that the moratorium is a statutory freeze meant to protect the corporate debtor’s assets and ensure a smooth resolution process.

Relying on the Supreme Court ruling in Rajendra K. Bhutta v. Maharashtra Housing and Area Development Authority [(2020) 13 SCC 208], the NCLAT emphasised that once a moratorium is imposed, “all proceedings and recovery actions must remain in abeyance.” The Tribunal distinguished GIDC’s reliance on Embassy Property Developments Pvt. Ltd. v. State of Karnataka [(2020) 13 SCC 308], explaining that Embassy dealt with lease renewal under public law. In contrast, GPT Steel’s case concerned termination during a subsisting moratorium, directly governed by Section 14.

The NCLAT held that GIDC’s action of terminating the lease and initiating eviction proceedings was “clearly hit by Section 14” and that the NCLT had jurisdiction under Section 60(5)(c) of the IBC to adjudicate such disputes. It noted that the leasehold rights formed an essential part of the resolution plan and could not be stripped away during the CIRP.

Addressing ARCIL’s appeal, the NCLAT found that the NCLT had no valid basis to remit the approved resolution plan back to the CoC. The AdjudicatingAuthority had not recorded any finding of non-compliance with Section 30(2), which mandates that resolution plans conform to legal requirements and ensure equitable treatment of stakeholders.

The Bench cited the Supreme Court’s decision in K. Sashidhar v. Indian Overseas Bank (2019), reaffirming that judicial review of the CoC’s commercial decisions is limited to verifying statutory compliance. Without identifying a violation of Section 30(2), the NCLT could not interfere with the CoC’s approval of the plan.

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