Voluntary Surrender of Corporate Debtor's Leased Property to Lessor not barred by IBC Moratorium: Supreme Court upholds NCLT's decision [Read Judgement]

The Supreme Court upheld the ruling of National Company Law Tribunal ( NCLT) that The Insolvency and Bankruptcy Code, 2016 (IBC) moratorium does not prevent the corporate debtor from voluntarily turning over leased property to the lessors if doing so is deemed unfeasible and endorsed by the Committee of Creditors ("CoC").

Sincere Securities Private Limited & Ors, the appellant, filed the appeal under Section 62 of the Insolvency and Bankruptcy Code, 2016 , calls in question the order dated 12.11.2024 passed by the National Company Law Appellate Tribunal, Principal Bench, New Delhi , allowing Company Appeal (AT) (Insolvency) No. 1064 of 2023 filed by Chandrakant Khemka, respondent No. 1, and setting aside the order dated 07.08.2023 of the National Company Law Tribunal, Kolkata Bench , in CP(IB) No. 1377/KB/2020.

A Memorandum of Understanding was executed by and between Nandini Impex Private Limited, which became a corporate debtor under the IBC thereafter, represented by its Director, Chandrakant Khemka, on the one hand, and Noble Dealcom Private Limited along with Jodhpur Properties and Finance Private Limited, appellant Nos. 2 and 3, on the other hand, whereby Nandini Impex Private Limited availed financial assistance to the tune of 3₹ crores from them and secured the same through deposit of the title deeds relating to the rear portion of the ground floor of White House,1/18-20, Rani Jhansi Road, New Delhi.

Another Memorandum of Understanding was executed by Nandini Impex Private Limited on 15.02.2019 with Sincere Securities Private Limited, appellant No.1 herein, for availing a loan of 3 crores from it and the same was secured₹ through deposit of the title deeds of the front portion of the ground floor of White House. As Nandini Impex Private Limited failed to repay the loans, separate conveyance deeds were executed by it on 27.02.2020 transferring the title over the front and rear portions of the ground floor of White House to the appellants respectively.

However, two separate Leave and License Agreements were executed simultaneously on the same day, whereby possession of the front and rear portions of the ground floor of White House was retained by Nandini Impex Private Limited on payment of rentals of 6 lakhs per month for each portion.

While so, UCO Bank, respondent No. 3 herein, filed a petition under Section 7 of the IBC against Nandini Impex Private Limited. The same was admitted on 20.09.2022 by the NCLT, initiating the corporate insolvency resolution process against Nandini Impex Private Limited, the corporate debtor. Significantly, UCO Bank was the sole member of its Committee of Creditors. The appellants, as operational creditors, filed their respective claims before the Interim Resolution Professional appointed for the corporate debtor and the said claims were accepted in toto.

UCO Bank, constituting the CoC, deputed the Resolution Professional to visit the subject property on the ground floor of White House and decide whether there was any need to retain the same by paying huge rentals. Thereafter, at its meeting held on 06.04.2023, the CoC decided that there was no requirement to hold on to the subject property and requested the Resolution Professional to hand over the possession thereof to the appellants. Chandrakant Khemka, being a suspended director of the corporate debtor, raised objections to this move.

Interlocutory Applications came to be filed by the appellants in 2023 seeking a direction from the NCLT to return the subject property to them. By order dated 07.08.2023, the NCLT noted the decision of the CoC that the subject property was not required and directed the Resolution Professional to deliver possession of the same to the appellants. Aggrieved thereby, Chandrakant Khemka filed an appeal before the NCLAT.

The NCLAT allowed the appeal and set aside the order dated 07.08.2023 passed by the NCLT, observing that Section 14(1)(d) of the IBC barred recovery by an owner of property during the CIRP, when such property was occupied by the corporate debtor. The NCLAT remanded the matter to the NCLT to consider the issue afresh.

The Court permitted the proceedings before the NCLT to continue, subject to the final outcome of the appeal. The Court noted that the counsel appearing on advance notice for Chandrakant Khemka, respondent No. 1, conceded that he was not willing to pay the current rent or the arrears of rent, post initiation of the CIRP. This Court also recorded that the Resolution Professional did not wish to retain possession of the property in question.

Except for Chandrakant Khemka, respondent No. 1, who is a suspended director of the corporate debtor, all other parties are at consensus that the property in question need not be retained by the corporate debtor, as it is not required by it and imposes a huge financial burden on it, in terms of the lease/license rentals payable therefor.

It is, however, the case of Chandrakant Khemka that the erstwhile Resolution Professional of the corporate debtor made a factually incorrect statement before the NCLT, leading to the passing of the unreasoned order dated 07.08.2023 and, therefore, the NCLAT was justified in remanding the matter for a comprehensive adjudication afresh. It is his further case that the property in question is essential for the functioning of the corporate debtor and Section 14(1)(d) of the IBC barred its return to the appellants.

Despite all others involved in the CIRP being in favour of doing so, Chandrakant Khemka alone opposes the return of the subject property to the appellants. His lofty claim that the rent due to the appellants would stand secured by the provisions of the IBC does not stand to reason, Further, Chandrakant Khemka is himself not willing to bear the expenditure for retaining the possession of the subject property.

Section 14(1)(d) of the IBC stated that once the adjudicating authority, by order, declares a moratorium, it would prohibit, amongst other acts, the recovery of any property by an owner or lessor where such property is occupied by or is in the possession of the corporate debtor.

It was only thereafter that the appellants filed interlocutory applications before the NCLT praying for a direction to deliver possession of the subject property to them along with other reliefs. It was the CoC and the Resolution Professional who were and still are desirous of returning the possession of the property in question to the appellants, keeping in mind the adverse financial implications of retaining the same. It appears that Chandrakant Khemka, respondent No. 1, who is not willing to personally bear the expenditure for such retention, is bent upon stalling that process for some undisclosed and extraneous reasons.

A bench comprising Justices Sanjay Kumar and S.C. Sharma set aside the order dated 12.11.2024 passed by the National Company Law Appellate Tribunal, Principal Bench, New Delhi, in Company Appeal (AT) (Insolvency) and the order dated 07.08.2023 passed by the National Company Law Tribunal, Kolkata Bench is restored.

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