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2022 (10) TMI 931 - AT - Insolvency and BankruptcyRemoval of the Leasehold Land from the pull of Assets of the Corporate Debtor - right to terminate the Lease Deed - Section 61 of the Insolvency and Bankruptcy Code 2016 - HELD THAT - In the instant case Noida has never taken any steps to revoke the lease. It was vehemently argued by the Learned Counsel for the Respondent that it was never the case of the Corporate Debtor that it had Ownership Right over the said Plot. It is only their case that if the Plot along with the development which has taken place thereon is a right to be taken out of pool of Assets of the Corporate Debtor it would amount to violation of Section 14(1)d of the Code - In the present case Leasehold Rights have already been created under the Lease Deed in favour of the Corporate Debtor by the Appellant as per the mandate of Section 14 of the Code. The Learned Adjudicating Authority in the Impugned Order has observed that the Assets referred to in the explanation given to Section 18 of the Code are only Assets of such kind which had come to the Corporate Debtor for rendering some services. It is significant to mention that the Hon ble Supreme Court in a catena of Judgements has held that Lease Rentals arising out of the execution of such Lease Deeds are not Financial Leases but in fact the amount claimed under such leases would construe Operational Debt and not Financial Debt - the Leasehold Rights is an Asset under Intangible Assets falling within the ambit of Section 18(f)(iv). It is the consistent stand of the Respondent that the said Plot is not owned by the Corporate Debtor but it has only Leasehold Rights over it. The Leasehold Rights accrued to the Corporate Debtor vide the Lease Deed is a right vested with the Corporate Debtor and is an Intangible Assets and the ownership is only to the extent of these Leasehold Rights based on which the Corporate Debtor can be continued as a Going Concern. It is also significant to mention that the Appellant has never initiated any proceedings or chosen to exercise their rights to invoke any of the Clauses of the Lease Deed for cancellation of the subject Deed - the Leasehold Right is an Intangible Asset of the Corporate Debtor and that the Resolution Professional is empowered under Section 18(f) of the Code to take control and custody of any Asset over which the Corporate Debtor has the Ownership Right. Appeal disposed off.
Issues Involved:
1. Applicability of Section 18(f) of the Insolvency and Bankruptcy Code, 2016. 2. Ownership and leasehold rights of the corporate debtor. 3. Interpretation of "assets" under Section 18 of the Code. 4. The impact of the moratorium under Section 14 of the Code. 5. Classification of leasehold rights as intangible assets. Issue-wise Detailed Analysis: 1. Applicability of Section 18(f) of the Insolvency and Bankruptcy Code, 2016: The primary issue revolves around whether the Interim Resolution Professional (IRP) or Resolution Professional (RP) can take control and custody of leasehold land under Section 18(f) of the Insolvency and Bankruptcy Code, 2016. The Tribunal clarified that Section 18(f) deals with the duties of the IRP and does not confer rights to take control of assets not owned by the corporate debtor. The Tribunal emphasized that Section 18 is procedural and does not create or remove rights. The Tribunal concluded that since the leasehold land was in possession of the corporate debtor from the beginning, Section 18(f) is not relevant for deciding the removal of the asset from the pool of assets. 2. Ownership and Leasehold Rights of the Corporate Debtor: The appellant argued that the corporate debtor was merely a lessee and not the owner of the leasehold land. The Tribunal noted that the lease deed, executed for 90 years, did not transfer ownership rights but only leasehold rights. The appellant retained ownership and had the right to terminate the lease deed upon breach of conditions. The Tribunal referenced legal precedents, including the Supreme Court's decision in 'Mohd. Noor & Ors. Vs. Mohd. Ibrahim & Ors.' and the Delhi High Court's decision in 'Hotel Queen Road P. Ltd. Vs. Union of India & Ors.', to assert that a lease, regardless of its duration, does not confer ownership rights on the lessee. 3. Interpretation of "Assets" under Section 18 of the Code: The Tribunal examined the definition of "assets" under Section 18 of the Code, which excludes assets owned by third parties in possession of the corporate debtor. The Tribunal concluded that the leasehold rights did not fall within the category of assets owned by third parties held under trust or contractual arrangements. The Tribunal emphasized that the leasehold rights were vested in the corporate debtor and were not analogous to assets mentioned in the explanation to Section 18. 4. The Impact of the Moratorium under Section 14 of the Code: The Tribunal highlighted the significance of the moratorium under Section 14 of the Code, which prohibits the recovery of any property by an owner or lessor where such property is occupied by or in possession of the corporate debtor. The Tribunal referenced the Supreme Court's decision in 'Rajendra K. Bhutta Vs. Maharashtra Housing and Area Development Authority' to underscore that the moratorium aims to preserve the value of the corporate debtor's assets during the insolvency resolution process. The Tribunal concluded that removing the leasehold land from the pool of assets would violate Section 14(1)(d) of the Code. 5. Classification of Leasehold Rights as Intangible Assets: The Tribunal determined that leasehold rights constitute intangible assets under Section 18(f)(iv) of the Code. The Tribunal referred to the Income Tax Act, 1961, and Indian Accounting Standards to define intangible assets, which include leaseholds. The Tribunal concluded that the leasehold rights vested in the corporate debtor are intangible assets and can be taken control and custody of by the RP. The Tribunal emphasized that the leasehold rights are essential for the corporate debtor to continue as a going concern. Conclusion: The Tribunal dismissed the appellant's application to remove the leasehold land from the pool of assets of the corporate debtor. The Tribunal affirmed that the leasehold rights are intangible assets of the corporate debtor and can be taken control and custody of by the RP under Section 18(f) of the Code. The Tribunal emphasized the importance of preserving the value of the corporate debtor's assets during the insolvency resolution process and upheld the moratorium under Section 14 of the Code. The appeal was disposed of with these observations.
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