2022 (11) TMI 803 - Tri - Insolvency and Bankruptcy

Seeking direction to respondent to accept the claim submitted by the appellant/ Applicant - whether a Leasehold Land forms a part of the Liquidation Estate as per the provisions of Section 36 (3) read with Section 36 (4) of the Code as the Corporate Debtor is not the owner of the land? - Section 42 of the Insolvency and Bankruptcy Code, 2016 - HELD THAT - In the present case, it is noted that the leasehold land in question was allotted to Mehfil Restaurants and Hotel Limited in the year 1986 through an auction process and its name was subsequently changed to James Hotels Limited. Three different promoters bought this company by taking over the corporate debtor and changing the management. All this happened before the Liquidator came into the picture. The lease deed, through which the property was auctioned, contains express covenants regarding the transfer of property to a third party, thus signifying that the corporate debtor has the right to transfer the property to a third party and not merely the right to use the property. In the present context, the Chandigarh Administration has not raised any objection despite being informed about the liquidation proceedings and there are provisions in the lease deed regarding transfer of the property to a third party subject to certain conditions. The title to the land continues to remain with the corporate debtor, i.e. James Hotels Limited even after the successful bidder takes over the Corporate debtor. Thus, the assertion of the applicant that the lease deed is a contractual agreement, and the leased land cannot form a part of the Liquidation Estate of the Corporate Debtor is in the teeth of the provisions of Section 36(4)(a)(iv) of the Code appears misconceived - the leasehold rights of the Corporate Debtor over the land in the present case are its intangible assets within the meaning of Section 36(3)(d) of the Code and the same can be a part of the assets for E-auction as a Going Concern , especially when even after the implementation of the bid the corporate debtor continues to exist as the same corporate entity i.e. James Hotel Limited with the existing shareholders replaced by the Successful Bidder, and the existing lease deed with the Chandigarh Administration continues in its name as such. Application disposed off.

Summary

Issues Involved:
1. Acceptance of the appellant's claim of Rs. 7,33,372/- under Section 42 of the Insolvency and Bankruptcy Code, 2016.
2. Validity of the auction process and inclusion of leasehold land in the liquidation estate under Section 60(5)(c) of the Insolvency and Bankruptcy Code, 2016.

Issue-wise Detailed Analysis:

1. Acceptance of the appellant's claim of Rs. 7,33,372/-:

The appellant, who served as Chief Financial Officer and later Chief Operating and Financial Officer of the Corporate Debtor, filed an appeal under Section 42 of the Insolvency and Bankruptcy Code, 2016, against the Liquidator of James Hotel, requesting the acceptance of his claim of Rs. 7,33,372/-. The appellant had failed to submit the claim within the stipulated time and later submitted it on 28.01.2019, which was rejected by the liquidator for being late. The appellant's earlier application under Section 42 was disposed of with a direction to the liquidator to reconsider the claim, which led to a partial rejection of Rs. 2,97,149/-.

The appellant argued that his resignation was not accepted by the respondent, and thus, the claim should be accepted in full. However, the respondent contended that the appellant did not serve the required notice period and had stopped coming to the company. The Tribunal noted that the appellant's appointment letter required a two-month notice or one month's salary in lieu of notice. The Tribunal held that the respondent rightly rejected the claim of Rs. 2,97,149/- as the appellant did not serve the notice period. Consequently, the application was dismissed.

2. Validity of the auction process and inclusion of leasehold land in the liquidation estate:

The applications under Section 60(5)(c) of the Insolvency and Bankruptcy Code, 2016, were filed by the erstwhile promoter of James Hotel Limited, challenging the auction process and the inclusion of leasehold land in the liquidation estate. The applicant argued that the land owned by Chandigarh Administration could not be transferred without prior consent and that the leasehold land should not form part of the liquidation estate as per Sections 36(3) and 36(4) of the Code.

The respondent-liquidator contended that the leasehold property was part of the liquidation estate and could be auctioned. The Tribunal noted that the leasehold land was allotted through an auction process and had provisions for transfer to a third party. The Tribunal referred to various judgments, including the Hon'ble NCLAT's decision in "New Okhla Industrial Development Authority Vs. Mr. Amit Agarwal Liquidator of Boulevard Projects Pvt. Ltd.," which held that leasehold rights are intangible assets of the Corporate Debtor and can be included in the liquidation estate.

The Tribunal concluded that the leasehold rights over the land are intangible assets within the meaning of Section 36(3)(d) of the Code and can be part of the assets for e-auction as a "Going Concern." The Tribunal dismissed the applications, upholding the validity of the auction process and the inclusion of leasehold land in the liquidation estate.