2020 (3) TMI 34 - SC - Insolvency and Bankruptcy

Interpretation of Statute - Prohibition during the moratorium period - the recovery of any property by an owner or less or where such property is occupied by or in the possession of the corporate debtor - Section 14(1)(d) of the Insolvency and Bankruptcy Code, 2016 - whether Section 14(1)(d) of the Code will apply to statutorily freeze occupation that may have been handed over under a Joint Development Agreement? - HELD THAT - MHADA Act, as its preamble states, is an Act to unify, consolidate and amend the laws relating to housing, repairing and reconstructing dangerous buildings and carrying out improvement works in slum areas. By Section 4 of the Act, the Authority, i.e. the MHADA, is to be a corporate body, and is deemed to be a local authority for the purposes of the Act. By Section 5 the Rent Act, or any corresponding laws are not to apply. By Section 66, the Competent Authority is given power to evict persons from premises under certain circumstances. There is no doubt whatsoever that important functions relating to repairs and re-construction of dilapidated buildings are given to MHADA. Equally, there is no doubt that in a given set of circumstances, the Board may, on such terms and conditions as may be agreed upon, and with the previous approval of the Authority, handover execution of any housing scheme under its own supervision. However, when it comes to any clash between the MHADA Act and the Insolvency Code, on the plain terms of Section 238 of the Insolvency Code, the Code must prevail. This is for the very good reason that when a moratorium is spoken of by Section 14 of the Code, the idea is that, to alleviate corporate sickness, a statutory status quo is pronounced under Section 14 the moment a petition is admitted under Section 7 of the Code, so that the insolvency resolution process may proceed unhindered by any of the obstacles that would otherwise be caused and that are dealt with by Section 14. The statutory freeze that has thus been made is, unlike its predecessor in the SICA, 1985 only a limited one, which is expressly limited by Section 31(3) of the Code, to the date of admission of an insolvency petition up to the date that the Adjudicating Authority either allows a resolution plan to come into effect or states that the corporate debtor must go into the liquidation. The matter had come to this Court after the Adjudicating Authority had approved of a certain resolution plan, unlike in the facts of the present case, and what was clear, on the facts of that case, was that a show cause notice of the Municipal Corporation, which preceded admission of the insolvency resolution process, made it clear that assets of MCGM could not possibly be subsumed within a resolution plan without its approval/permission - thus, it is clear that Section 14(1)(d) of the Insolvency Bankruptcy Code, when it speaks about recovery of property occupied , does not refer to rights or interests created in property but only actual physical occupation of the property. Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Interpretation of Section 14(1)(d) of the Insolvency and Bankruptcy Code, 2016.
2. Whether the Joint Development Agreement created a license or an interest in property.
3. Applicability of the moratorium under Section 14(1)(d) to the recovery of property occupied by the Corporate Debtor.
4. The clash between the provisions of the MHADA Act and the Insolvency and Bankruptcy Code.
5. The relevance of previous judgments and statutory provisions to the current case.

Issue-wise Detailed Analysis:

1. Interpretation of Section 14(1)(d) of the Insolvency and Bankruptcy Code, 2016:
The Supreme Court examined the correct interpretation of Section 14(1)(d) of the Insolvency and Bankruptcy Code, 2016. The Court highlighted that Section 14(1)(d) does not deal with the assets or legal rights or beneficial interests in such assets of the corporate debtor. Instead, it focuses on the "recovery of any property" by an owner or lessor where such property is "occupied by or in the possession of the corporate debtor." The Court emphasized that "occupied by" should be interpreted as actual physical possession or use, rather than legal possession.

2. Whether the Joint Development Agreement created a license or an interest in property:
The Court reviewed the Joint Development Agreement and the Deed of Modification, concluding that the agreement granted a license to the developer (Corporate Debtor) to enter upon the land, demolish existing structures, and construct new ones. The agreement explicitly stated that a license was granted to the developer to perform these activities, and it did not create an interest in the property.

3. Applicability of the moratorium under Section 14(1)(d) to the recovery of property occupied by the Corporate Debtor:
The Court held that the moratorium under Section 14(1)(d) applies to the recovery of property that is "occupied by" the Corporate Debtor. Since the Joint Development Agreement allowed the Corporate Debtor to occupy the land for development purposes, the property was considered to be "occupied by" the Corporate Debtor. Consequently, the recovery of this property by MHADA during the moratorium period was prohibited.

4. The clash between the provisions of the MHADA Act and the Insolvency and Bankruptcy Code:
The Court acknowledged the important functions of MHADA under the MHADA Act, including repairs and reconstruction of dilapidated buildings. However, the Court emphasized that in case of a conflict between the MHADA Act and the Insolvency and Bankruptcy Code, the latter prevails due to Section 238 of the Code, which contains a non-obstante clause. The Court reasoned that the moratorium under Section 14 is essential to facilitate the insolvency resolution process without hindrances.

5. The relevance of previous judgments and statutory provisions to the current case:
The Court distinguished the present case from previous judgments cited by the respondents. It clarified that the judgment in Municipal Corporation of Greater Mumbai vs. Abhilash Lal & Ors. dealt with a different fact situation and did not apply to the current case. Similarly, the judgment in Sushil Kumar Agarwal vs. Meenakshi Sadhu and Others, which discussed specific performance of development agreements, was found to be inapplicable as Section 14(1)(d) focuses on actual physical occupation rather than rights or interests in property.

Conclusion:
The Supreme Court allowed the appeal, set aside the impugned order of the NCLAT, and directed the NCLT to dispose of the resolution professional’s application within six weeks. The Court concluded that Section 14(1)(d) of the Insolvency and Bankruptcy Code applies to the recovery of property occupied by the Corporate Debtor, and the moratorium prohibits such recovery during the insolvency resolution process.

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