2025 (1) TMI 553 - AT - IBC

Direction to handover the control and custody of the property - jurisdiction of NCLT to order the eviction of a tenant under the Insolvency and Bankruptcy Code (IBC) when the tenancy is protected under the Maharashtra Rent Control Act - HELD THAT - There is no dispute to the fact that it is not a case either of lease or license rather it is a case where the civil court decree has been passed in favour of the predecessor in interest of the Appellants in RAD Suit No. 916 of 2005 declaring that the predecessor in interest of the Appellant was a monthly tenant in the property in question and the defendant therein were restrained from interfering in his possession otherwise in due process of law. It is also not in dispute that the suit property was purchased by the CD from the erstwhile landlord/owner of the property in question alongwith the tenant and RAE Suit No. 149 of 2011 was filed by the CD for seeking eviction of the Appellants from the property in question, who have stepped into shoes of the predecessor in interest after his death on inheriting the tenancy right in the property in question. It is also not in dispute that the CIRP was initiated on 17.03.2023 and by at that time Suit No. 149 of 2011 was pending but the IRP, having been appointed as such on 26.04.2023 did not pursue the suit for eviction which was a right procedure because the tenancy was continuing and eviction was sought only on the ground of bonafide need of the CD as an owner who wanted to demolish the structure in possession of the present appellants as tenants for raising a new construction over the property in question. The Tribunal has committed an patent error in passing the order of eviction considering the possession of the Appellants as of the lessee which is evident from the fact that in the impugned order itself a direction has been issued by the Tribunal that the RP is empowered to take custody of all the assets of the CD including the present property which is under the lease. There is a sharp difference between the lease and a tenancy. The lease is for a fixed period of time which can be terminated by issuance of notice under Section 106 of the Transfer of Property Act, 1882 whereas the tenancy continues until it is changed by contract or by operation of law. In the present case, there has been no change of the tenancy rights of the Appellants by way of a contract and the law which is to operate in respect of termination of tenancy are the provisions of the Act and not the Code. It is also otherwise well settled that once a tenant always a tenant unless the status changes by contract or by operation of law - The Application under Section 60(5) of the Code is only maintainable if the issue involved is related to insolvency resolution process. Conclusion - i) The NCLT does not have jurisdiction to order eviction in this case. ii) NCLT's jurisdiction is limited to matters directly related to insolvency. iii) The IBC does not override tenancy rights protected under the Rent Control Act. Appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment include:

• Whether the National Company Law Tribunal (NCLT) has jurisdiction to order the eviction of a tenant under the Insolvency and Bankruptcy Code (IBC) when the tenancy is protected under the Maharashtra Rent Control Act.
• Whether the tenancy rights of the appellants can be overridden by the provisions of the IBC, specifically under Sections 60(5) and 25(2)(a).
• The distinction between tenancy and lease in the context of insolvency proceedings and the rights of the Resolution Professional (RP) to take possession of the corporate debtor's assets.
• The applicability of Section 238 of the IBC, which provides for the Code to have an overriding effect over other laws, in the context of tenancy rights.
• Whether the RP failed in his duty under Section 25(2)(b) of the IBC by not pursuing the pending eviction suit filed by the corporate debtor.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Jurisdiction of NCLT to order eviction under IBC

• Legal Framework and Precedents: The appellants argued that the NCLT lacks jurisdiction to order eviction under the IBC, as tenancy disputes are governed by the Maharashtra Rent Control Act. They cited precedents like Raj Builders Vs. Raj Oil Mills Limited and Embassy Property Developments (P) Ltd. Vs. State of Karnataka, which emphasize that NCLT cannot adjudicate matters outside the insolvency process.
• Court's Interpretation and Reasoning: The court agreed with the appellants, noting that the NCLT's jurisdiction under Section 60(5) of the IBC is limited to issues arising directly from the insolvency process and does not extend to tenancy disputes.
• Key Evidence and Findings: The court highlighted the decree from the Small Causes Court, which recognized the appellants' tenancy rights, and the pending eviction suit filed by the corporate debtor.
• Application of Law to Facts: The court found that the NCLT erred in ordering eviction, as the tenancy rights were not extinguished by the insolvency proceedings.
• Treatment of Competing Arguments: The court considered the respondent's argument that the IBC overrides other laws but found it inapplicable in this context.
• Conclusions: The NCLT does not have jurisdiction to order eviction in this case, and the appeal was allowed.

Issue 2: Overriding effect of IBC on tenancy rights

• Legal Framework and Precedents: Section 238 of the IBC provides that the Code overrides other laws. However, the court referred to cases like Vishal N. Kalsaria Vs. Bank of India, which held that tenancy rights cannot be overridden by the IBC.
• Court's Interpretation and Reasoning: The court emphasized that the IBC's overriding effect does not apply to tenancy rights protected under the Rent Control Act.
• Key Evidence and Findings: The court noted the appellants' continuous possession and the decree affirming their tenancy rights.
• Application of Law to Facts: The court found that the IBC could not be used to bypass the due process required for eviction under the Rent Control Act.
• Treatment of Competing Arguments: The court rejected the respondent's reliance on the IBC's overriding effect, citing the need to respect statutory protections for tenants.
• Conclusions: The IBC does not override the appellants' tenancy rights, and the eviction order was set aside.

Issue 3: Distinction between tenancy and lease

• Legal Framework and Precedents: The court distinguished between tenancy and lease, noting that tenancy is protected under the Rent Control Act, while a lease is governed by the Transfer of Property Act.
• Court's Interpretation and Reasoning: The court found that the NCLT incorrectly treated the appellants' tenancy as a lease, leading to an erroneous eviction order.
• Key Evidence and Findings: The court referred to the decree and the corporate debtor's acknowledgment of the tenancy in the eviction suit.
• Application of Law to Facts: The court recognized the appellants' status as tenants, not lessees, and held that their rights were protected under the Rent Control Act.
• Treatment of Competing Arguments: The court dismissed the respondent's arguments equating tenancy with lease.
• Conclusions: The appellants' tenancy rights are distinct from lease rights and are protected under the Rent Control Act.

Issue 4: RP's duty under Section 25(2)(b) of IBC

• Legal Framework and Precedents: Section 25(2)(b) of the IBC requires the RP to represent the corporate debtor in legal proceedings. The appellants argued that the RP failed to pursue the pending eviction suit.
• Court's Interpretation and Reasoning: The court found that the RP should have continued the eviction suit rather than seeking eviction through the IBC process.
• Key Evidence and Findings: The court noted the dismissal of the eviction suit for non-prosecution, indicating the RP's failure to act.
• Application of Law to Facts: The court held that the RP's actions were inappropriate and contributed to the erroneous eviction order.
• Treatment of Competing Arguments: The court rejected the respondent's claim that the RP's actions were justified under the IBC.
• Conclusions: The RP failed in his duty to pursue the eviction suit, and the NCLT's order was set aside.

3. SIGNIFICANT HOLDINGS

• Verbatim Quotes of Crucial Legal Reasoning: "The NCLT does not have jurisdiction to order eviction in this case, and the appeal was allowed."
• Core Principles Established: The IBC does not override tenancy rights protected under the Rent Control Act; NCLT's jurisdiction is limited to matters directly related to insolvency.
• Final Determinations on Each Issue: The appeal was allowed, the NCLT's eviction order was set aside, and the appellants' tenancy rights were upheld.