2024 (8) TMI 1413 - AT - Insolvency and Bankruptcy

Lease hold right in the Tea Gardens - control to be taken by the Resolution Professional under Section 18(f) and Section 25 of the I B Code - renewal of period of lease - non-payment of Salami as required under West Bengal Estate Acquisition Rules 1954 by the Corporate Debtor while executing the renewal of the lease deed - possession of all the Tea Estates. Whether the Corporate Debtor has lease hold right in the Tea Gardens, which are assets of the Corporate Debtor which need to be taken control by the Resolution Professional under Section 18(f) and Section 25 of the I B Code? - HELD THAT - The Tea Gardens which have been leased out to the Corporate Debtor are Tea Garden which are owned by the State of West Bengal. The Corporate Debtor does not have any Ownership Right in the Tea Garden hence the main sub-Clause (f) of Section 18 does not cover the Tea Garden. However, the definition in Section 18 (f) is inclusive definition which is apparent in the expression including occurring in the end of sub-Section (f) and sub-Clause (iv) refers to Intangible Assets including Intellectual Property. The Leasehold Rights are Intangible Assets, which is now a settled proposition of law. The present is the case where Tea Gardens are owned by State of West Bengal and the Corporate Debtor claimed possession by virtue of Contractual Arrangement i.e., Lease Arrangement. In the present case, thus whether by virtue of explanation to Section 18(1) of the IBC, Tea Gardens had to be excluded from the definition of Assets is a question to be answered. The submission which has been advanced by the Respondent is that Leasehold Rights of the Corporate Debtor had come to an end by efflux of time on the date, when CIRP commenced, hence the provision of Section 18(1)(f) and Section 25 does not empower the RP to pray for possession and custody and control of the Assets. Whether with regard to those Tea Gardens where period of lease has come to an end before commencement of the CIRP and application for renewal has been filed by the Corporate Debtor, the lease shall be deemed to be renewed since no decision has yet been taken by the State of West Bengal either accepting or rejecting the application? - HELD THAT - Case of the Appellant is that Application for renewal was filed before the expiry of the term of the Lease. The Clause 16 of the Lease as extracted above clearly indicates that Lease shall be entitled to renewal for further period of 30 Years subject to the rules and terms and conditions of the Lease and such other terms and conditions as the State Government may from time to time consider it necessary to impose and include in such renewed lease or leases - the Clause itself contemplates that renewal is not automatic nor Clause 16 contains concept of extension of the Lease. Renewal has to be made by the State in such terms and conditions as State Government may impose while renewing the Lease. The law is well settled that when original Lease Deed contemplates the renewal of the Lease, the renewal has to be in accordance with the terms of renewal as contemplated in the Lease in question. Although, renewal is contemplated for further period of 30 Years, but the said renewal is hedged by the rules and terms and conditions of the Lease and such other terms and conditions as the State Government may from time to time may impose. Whether renewal of the lease deed of Kilcott Tea Estate w.e.f. 15.11.1995 till 23.08.2025 has to be treated to be valid renewal, similarly, renewal of lease deed of Garganda w.e.f. 08.11.1996 to 18.09.2026 has to be treated as valid renewal and renewal of lease deed of Bagrakote Tea Division-I dated 19.06.1998 has to be treated as a valid renewal? - Whether non-payment of Salami as required to be paid as per West Bengal Estate Acquisition Rules 1954 by the Corporate Debtor while execution of renewal of lease deed shall make the renewal void and inoperative? - HELD THAT - At the time of renewal, it was open for the State to put terms and conditions and renewal could have been granted on such terms and conditions as the State Government may from time to time consider it necessary to impose. Admittedly, at the time of renewal, which was dated 15.11.1995, the Notification dated 01.06.1994 was already enforced, adding Clause 1-A and 1-B in the Form-1, requiring payment of Salami of Rs.15,000/- per hectare at the time of execution of lease. However, in the renewed Lease Deed, as extracted above dated 15.11.1995, it is clear that although expression Salami has been used in the Lease Deed, but no amount of Salami was mentioned and only rent was mentioned, which was @ Rs.13,180 per annum. It is further relevant to notice that renewed Lease Deed was executed on behalf of State by Additional District Magistrate Additional Collector, Jalpaiguri - the execution of Lease by Additional District Magistrate and Additional Collector, Jalpaiguri was on behalf of the Governor, who was competent to execute the lease. Earlier, original leases were also executed by District Authority of similar designation. Renewal of Lease Deed of Kilcott with effect from 15.11.1995 till 23.08.2025 and renewal of Lease Deed of Garganda, with effect from 08.11.1996 to 08.09.2026 and renewal of Lease Deed of Bagarcote from 19.06.1998 till 22.05.2028 are valid renewals and the Corporate Debtor shall have subsisting leasehold rights in the above Tea Gardens on the date of commencement of CIRP, i.e. 05.03.2020 - Non-payment of Salami as required to be paid as per West Bengal Estate Acquisition Rules, 1954 (as Amended) by the Corporate Debtor by execution of lease of renewal, does not make the renewal void and inoperative, whereas the renewal of Lease Deed also uses expression Salami , but it does not provide for payment of any Salami as condition of renewal of lease. Whether order dated 28.05.2021 passed by the Adjudicating Authority in IA No.1256/KB/2020 rejecting the application with regard to four Tea Gardens - Dhumchipara, Garganda, Tulsipara and Hantapara deserve to be set aside? - HELD THAT - The order of Adjudicating Authority dated 28.05.2021, although is liable to be affirmed with regard to rejection of Application, with regard to three Tea Gardens, namely Dumchipara, Tulsipara and Hantapara, but the Application was not liable to be rejected with regard to Garganda Tea Garden, which lease was renewed by the State of West Bengal by executing a registered renewed Lease Deed dated 08.11.1996. Thus, the order dated 28.05.2201 deserve to be partly set aside, insofar as it related to Tea Garden Garganda. It is held that RP was entitled to take custody and possession of Tea Garden Garganda, whose lease having been renewed on 08.11.1996 and the Corporate Debtor has subsisting right in the Lease Deed till 08.09.2026. Whether the Adjudicating Authority committed error in relying on order dated 28.05.2021 in IA No.1256/KB/2020 while deciding the subsequent applications filed by the Resolution Professional for taking possession of different Tea Estates? - HELD THAT - While rejecting other Applications filed by the RP for taking possession of Tea Gardens, reliance has been made on order dated 28.05.2021 passed in IA No.1256/KB/2020. It is to be noted that the possession of all four Tea Gardens, which was subject matter of IA No.1256/KB/2020 was handed over to the Merico by the Corporate Debtor under Bipartite Agreement and hence, the possession of those four Tea Gardens were handed over prior to initiation of CIRP - mechanically relying on the order dated 28.05.2021 in IA No.1256/KB/2020 is not sustainable. While passing the subsequent orders, rejecting the IAs filed by the RP, the Adjudicating Authority was required to consider the Applications. In any view of the matter, we have already considered and held above that the leasehold rights of the Corporate Debtor, subsisting in three Tea Gardens namely Garganda, Kilcott and Bagarcote. Hence, the Applications filed by the RP, insofar as above three Tea Gardens, deserve to be allowed. Whether possession taken by the Sammelan and Marico subsequent to order dated 05.03.2020 is in violation of provisions of Section 14 of the I B Code with respect to Tea Gardens except the four Tea Gardens which were subject matter of IA No.1256/KB/2020? - HELD THAT - The Corporate Debtor has subsisting rights in three Tea Gardens, i.e., Garganda, Kilcott and Bagracote-I as noticed above. Although, possession of Garganda was taken prior to enforcement of moratorium, but possession of Kilcott and Bagaracote was taken respectively on 03.11.2021 and 01.07.2021 as noticed above. The Corporate Debtor has subsisting rights in the above leases of Bagaracote and Kilcott, which were renewed. Hence, after the enforcement of the moratorium on 05.03.2020, the possession of Tea Estates of the Kilcott and Bagaracote could not have been taken. It is true that the State was the owner of Tea Estates and due to suffering of labour, the Department of Labour, Govt. of West Bengal and Labour Commissioner held various meetings to mitigate the sufferings of the labourers, the possession of different gardens were handed over to Sammelan to the aforesaid two Tea Gardens, but moratorium having enforced, taking possession of aforesaid two Tea Gardens is in clear breach of Section 14 (1) (d). With regard to other Tea Gardens whose leases have expired, State was owner of all the Tea Estates and it is a case of the Department that lease of Tea Gardens were not renewed and possession was taken. There being no subsisting right of the Corporate Debtor in the Tea Gardens, except the three Gardens, i.e. Garganda, Kilcott and Bagracote. We do not find any infirmity with regard to handing over possession to Marico and Sammelan for running other Tea Gardens after enforcement of moratorium. Thus, violation of moratorium under Section 14(1)(d) has to confine to two Tea Gardens where the Corporate Debtor has subsisting rights, i.e., Kilcott and Bagracote. Whether Appellants are entitled to be handed over the possession of all the Tea Estates for which applications were filed? - HELD THAT - It is already observed that the rejection of the Application, IA No.1256/KB/2020 is not sustainable with regard to Tea Estate of Garganda for which lease was renewed on 08.11.1996 as the Corporate Debtor had subsisting leasehold right in Garganda. Hence, the Application filed by RP, ought not to have been rejected for Tea Garden Garganda. Similarly, coming to IA No.1111/KB/2021, which was filed for possession for Nagaisuree and Kilcott Tea Gardens. We have already held that lease for Kilcott was renewed with effect from 15.11.1995 till 23.08.2025. Hence, the Application, IA No.1111/KB/2021, ought not to have been rejected with regard to Tea Garden Kilcott and the RP was entitled to take possession and custody of Tea Garden Kilcott - Coming to the Application, IA No.665/KB/2021, which was filed for taking possession of Bagracote Tea Estate Div.I, II, III and IV. We have noticed above that with regard to Bagracote Div.I, lease was renewed with effect from 19.06.1998 for 30 years, hence, the Corporate Debtor/ has subsisting right. Thus, the Application, IA No.665/KB/2021, ought not to have been rejected with regard to Bagracote Div.I. Relief, if any, to which Appellant may be entitled? - HELD THAT - The leasehold rights of the Corporate Debtor subsist in three Tea Gardens, namely- Garganda, Kilcott and Bagracote, where the lease has been renewed and valid as follows 1. Garganda valid upto 08.09.2026; 2. Kilcott valid upto 23.08.2025; and Bagarcote Div. I valid upto 22.05.2028. The orders rejecting the IAs of RP insofar as the aforesaid three Tea Gardens are concerned are unsustainable and deserve to be set aside - appeals disposed off.

Summary

Issues Involved:

1. Whether the Corporate Debtor has leasehold rights in the Tea Gardens, which are assets of the Corporate Debtor to be taken control by the Resolution Professional under Section 18(f) and Section 25 of the I&B Code?
2. Whether the leases of Tea Gardens, whose period of lease had come to an end before the commencement of the CIRP, shall be deemed to be renewed if applications for renewal were filed by the Corporate Debtor and no decision was communicated by the State?
3. Whether the renewal of the lease deed of Kilcott Tea Estate w.e.f. 15.11.1995 till 23.08.2025, Garganda w.e.f. 08.11.1996 to 18.09.2026, and Bagracote-I dated 19.06.1998 are valid renewals?
4. Whether non-payment of Salami as required under West Bengal Estate Acquisition Rules 1954 by the Corporate Debtor while executing the renewal of the lease deed makes the renewal void and inoperative?
5. Whether the order dated 28.05.2021 passed by the Adjudicating Authority in IA No.1256/KB/2020 rejecting the application with regard to four Tea Gardens - Dhumchipara, Garganda, Tulsipara, and Hantapara deserves to be set aside?
6. Whether the Adjudicating Authority committed an error in relying on the order dated 28.05.2021 in IA No.1256/KB/2020 while deciding the subsequent applications filed by the Resolution Professional for taking possession of different Tea Estates?
7. Whether possession taken by Sammelan and Merico subsequent to the order dated 05.03.2020 is in violation of provisions of Section 14 of the I&B Code with respect to Tea Gardens except the four Tea Gardens which were the subject matter of IA No.1256/KB/2020?
8. Whether Appellants are entitled to be handed over the possession of all the Tea Estates for which applications were filed?
9. Relief, if any, to which Appellant may be entitled?

Issue-wise Detailed Analysis:

Issue 1:
The Corporate Debtor's leasehold rights in the Tea Gardens are considered assets under Section 18(f) and Section 25 of the I&B Code. The leasehold rights are intangible assets, and the Resolution Professional (RP) is responsible for taking control and custody of such assets. The Hon'ble Supreme Court in 'Victory Iron Works Ltd. vs. Jitendra Lohia & Anr.' held that development rights created in favor of the Corporate Debtor constitute property within the meaning of Section 3(27) of the IBC.

Issue 2:
The leases of Tea Gardens whose period of lease had come to an end before the commencement of the CIRP do not automatically renew even if applications for renewal were filed and no decision was communicated by the State. The law requires execution of a document for renewal, and there is no concept of automatic renewal of leases. The Hon'ble Supreme Court in 'Hardesh Ores (P) Ltd. vs. Hede & Company' emphasized that renewal of an agreement or lease requires execution of a document evidencing the renewal.

Issue 3:
The renewal of the lease deed of Kilcott Tea Estate w.e.f. 15.11.1995 till 23.08.2025, Garganda w.e.f. 08.11.1996 to 18.09.2026, and Bagracote-I dated 19.06.1998 are valid renewals. The execution of these renewal lease deeds by competent authorities and their registration make them valid. The non-payment of Salami does not invalidate the renewal, although the State may demand Salami through appropriate legal channels.

Issue 4:
Non-payment of Salami as required under the West Bengal Estate Acquisition Rules 1954 does not make the renewal void and inoperative. The renewal lease deeds executed and registered are valid unless canceled by the State through due process. The State can demand Salami but cannot declare the lease deeds void solely on the basis of non-payment.

Issue 5:
The order dated 28.05.2021 passed by the Adjudicating Authority in IA No.1256/KB/2020 is partly set aside insofar as it relates to Garganda Tea Garden. The Corporate Debtor had a subsisting leasehold right in Garganda, and the RP was entitled to take custody and possession of this Tea Garden.

Issue 6:
The Adjudicating Authority committed an error in relying on the order dated 28.05.2021 in IA No.1256/KB/2020 while deciding subsequent applications filed by the RP for taking possession of different Tea Estates. The subsequent applications involved different grounds and Tea Gardens, and each case should have been considered on its own merits.

Issue 7:
The possession taken by Sammelan and Merico subsequent to the order dated 05.03.2020 violates Section 14 of the I&B Code with respect to Tea Gardens where the Corporate Debtor had subsisting rights, i.e., Kilcott and Bagracote. The enforcement of the moratorium under Section 14 prohibits recovery of property occupied by or in possession of the Corporate Debtor.

Issue 8:
The RP is entitled to be handed over the possession of Tea Gardens where the Corporate Debtor had subsisting leasehold rights, specifically Garganda, Kilcott, and Bagracote-I. The orders rejecting the IAs of RP with respect to these Tea Gardens are set aside.

Relief:
The appeals are disposed of as follows:
- Company Appeal (AT) (Insolvency) No. 672 of 2021 is partly allowed, setting aside the order dated 28.05.2021 in IA No.1256/KB/2020 concerning Garganda Tea Garden.
- Company Appeal (AT) (Insolvency) No.593 of 2022 is partly allowed, setting aside the order dated 21.04.2022 in IA No.1111/KB/2021 concerning Kilcott Tea Garden.
- Company Appeal (AT) (Insolvency) No.754 of 2022 is partly allowed, setting aside the order dated 09.05.2022 in IA No.665/KB/2021 concerning Bagracote Div.I Tea Garden.
- Company Appeal (AT) (Insolvency) No.628 of 2022 and Company Appeal (AT) (Insolvency) No.907 of 2022 are dismissed.
- The RP shall be deemed to be in possession of the Tea Gardens of Garganda, Kilcott, and Bagracote, and their operation shall be under the supervision and control of the RP till the CIRP continues.