2020 (5) TMI 325 - Tri - Insolvency and Bankruptcy

Permission to applicant to take possession of fixed assets and all documents avaliable in the office and other premises of the Corporate debtor - mortgage of the property - HELD THAT - As per Section 65-A(2)(c) of the Transfer of Property Act, 1882 as amended from time to time, no lease shall contain a covenant for 'renewal'. In the lease agreement of the Corporate Debtor, in a related party transaction with Marathe Hospitality, the total rent for a huge Commercial property measuring about 2310 sq. mtr. along with two-storeyed building structure, is only ₹ 25,000 per month with no increase in rental for a period of 10 years. In addition, as per the Lease Agreement, there is a provision for further extension at the sweet will of Lessee. In view of this, the Lease Agreement entered into between Phadnis Resorts and Spa India Limited and Marathe Hospitality is illegal as per the relevant provisions of the Transfer of Property Act, 1882 - the lease agreement entered into between Corporate Debtor and Marathe Hospitality in 2016 without the consent of Union Bank of India who are having First charge on the property is mala fide and is invalid. It is also clear that the Union Bank of India, after going through all records and title report of the property, have financed the Corporate Debtor and, therefore, the property which was acquired in 2004 has not been acquired by the Corporate Debtor fraudulently. The attachment of the assets of the Corporate Debtor by the Economic Offences Wing will hamper the claim of the Creditors of the Corporate Debtor and therefore to protect the interest of the Bank and the present Creditors, this Bench directs the Economic Offences Wing and other Government Departments to release the property and assets of the Corporate Debtor currently attached with them so that the Corporate Insolvency Resolution Process of the Corporate Debtor could be conducted in the substantial public interest. Thus, in terms of Section 238 of IBC and considering the overriding effect of IBC u/s 238 of the Code this Bench is of the considered view that the attachment order of the Economic Offences Wing is a nullity and non-est in law and therefore will not have any binding force. The Resolution Professional who is the Applicant in this Miscellaneous Application to take possession of fixed assets and all documents available in the office and other premises of the Corporate Debtor - application allowed.

Summary

Issues:
1. Application by IRP for directions regarding possession of assets and documents, actions by resolution professional, assistance from past directors, public announcement, meetings with director in jail, release of attachment by EOW, cancellation of lease agreement.
2. Submissions by IRP regarding property mortgaged to UBI, attempts to contact directors, attachment of registered office, unavailability of essential details, fraudulent execution of lease, preferential transaction, undervalued lease rent.
3. Submissions by Respondent No.4 regarding registered lease agreement, seeking prior permission, knowledge of agreement by UBI, applicability of Code provisions on preferential transactions.
4. Findings on lease agreement terms, association of parties involved, illegal provisions in lease agreement, mortgage deed clauses, validity of lease agreement, protection of creditors' interests, non-obstante clause under Section 238 of the Code.
5. Directives issued by the Bench for possession of assets, meetings with ex-director, release of attachment, declaration of lease agreement as null and void.

Analysis:
1. The IRP filed an application seeking various directions related to the Corporate Debtor's assets and documents, actions by the resolution professional, assistance from past directors, public announcement, meetings with a director in jail, release of attachment by the Economic Offences Wing, and cancellation of a lease agreement. The IRP highlighted issues such as the property mortgaged to UBI, fraudulent execution of the lease, preferential transactions, and undervalued lease rent, emphasizing the need for consent from UBI for such transactions.

2. The Respondent No.4 submitted details regarding a registered lease agreement, the necessity of seeking prior permission, UBI's knowledge of the agreement, and the applicability of the Code provisions on preferential transactions. The findings of the Bench focused on the terms of the lease agreement, the association of parties involved, illegal provisions in the lease agreement, clauses in the mortgage deed, and the protection of creditors' interests, emphasizing the non-obstante clause under Section 238 of the Code.

3. The Bench issued directives for the IRP to take possession of assets and documents, conduct meetings with the ex-director, release the attachment by the Economic Offences Wing, and declare the lease agreement as null and void due to its fraudulent execution without UBI's consent. The judgment emphasized the protection of creditors' interests and the overriding effect of the Code under Section 238, ensuring the resolution process proceeds in the substantial public interest.