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2023 (12) TMI 1147 - AT - Insolvency and BankruptcyCIRP - Termination of Development Agreement and Supplemental Agreement and Power of Attorney executed between Kolkata Municipal Corporation and Bengal Shelter Housing Development Limited - Respondent No.1 - The Respondent No.1 engaged Respondent No.2- Barnaparichay Book Mall Pvt. Ltd. , a wholly owned subsidiary of Respondent No.1 for implementing the said Development Agreement. An Application under Section 7 was filed by Asset Reconstruction Company India Ltd. against Respondent No.2 (herein after referred to as Corporate Debtor) on which application by an order dated 09.08.2019 CIRP commenced under the order of the Adjudicating Authority. HELD THAT - From the materials on record, it is clear that the Appellant who was owner of the premises and only right for development of the premises was given to Respondent No.1. Respondent No.1 having failed to carry out the development as per the terms and conditions, Kolkata Municipal Corporation has every jurisdiction to cancel the agreement. The cancellation of the agreement being outside the insolvency process, Respondent No.3 could not have brought issue of cancellation of the agreement before the Adjudicating Authority by filing the application IA No.138 of 2022. Respondent No.1 whose Development Agreement was cancelled was free to take such legal proceeding against the Appellant as may be permissible. It is relevant to notice that no proceedings were initiated by Respondent No.1 questioning the termination of agreement dated 17.01.2022. The Kolkata Municipal Corporation who is owner of the premises by Development Agreement gave right of development of the premises to the Respondent No.1 and Respondent No.1 has unauthorisedly without prior approval of the Appellant as alleged Assignment Agreement dated 06.03.2008 has given to the Corporate Debtor. The possession of the premises has to be of Respondent No.1 who was given possession by the Appellant. In event, the Respondent No.1 illegally transferred the possession to Respondent No.2 contrary to the Development Agreement for protection of such possession, Section 14(1)(d) cannot be relied on. The Adjudicating Authority has come to a wrong conclusion that the Assignment Agreement dated 06.03.2008 is lawful and valid without looking to the terms and conditions of the Development Agreement which was made by the Kolkata Municipal Corporation in favour of the Respondent No.1 dated 24.02.2006. No valid right could flow to Respondent No.2 in pursuance of the Arrangement Agreement dated 06.03.2008, hence, no right or interest created by Corporate Debtor by virtue of Arrangement Agreement dated 06.03.2008 which was neither obtained with the consent of the Appellant nor the said Arrangement Agreement even communicated to the Appellant by Respondent No.1. The Corporate Debtor had no right to be in possession of the premises nor its possession was lawful. The Respondent No.1 has brought its 100% subsidiary, Respondent No.2 without there being any consent or permission of the Appellant and in the CIRP of the Respondent No.2, the assets are sought to be included whereas the assets premises are not the assets of the Corporate Debtor - The premises, in question, cannot be subject matter of the CIRP of the Corporate Debtor. Adjudicating Authority committed error in directing the Appellant to handover the possession of the premises to the Resolution Professional. The order passed by the Adjudicating Authority setting aside the order dated 17.01.2022 terminating Development Agreement, Supplemental Agreement and Power of Attorney cannot be sustained. The order dated 17.11.2022 passed by the Adjudicating Authority is set aside - appeal allowed.
Issues Involved:
1. Validity of the termination of the Development Agreement by Kolkata Municipal Corporation. 2. Possession rights and obligations under the Development Agreement. 3. Applicability of Section 14 of the Insolvency and Bankruptcy Code (IBC) regarding moratorium and possession. Summary: 1. Validity of the Termination of the Development Agreement: The Kolkata Municipal Corporation (KMC) terminated the Development Agreement with Bengal Shelter Housing Development Limited (Respondent No.1) on 17.01.2022 due to breach of contract. The termination was challenged by the Resolution Applicant (Respondent No.3) but not by Respondent No.1. The tribunal found that the termination was lawful and in accordance with the Development Agreement, which prohibited assignment of rights without prior approval from KMC. The assignment to Respondent No.2 (Corporate Debtor) was unauthorized and void. 2. Possession Rights and Obligations: The Development Agreement stipulated that KMC would remain the owner of the premises and structures, and Respondent No.1 was only given development rights. The tribunal held that Respondent No.2 was in unlawful possession of the premises as the assignment was without KMC's consent. The tribunal concluded that Respondent No.1 had no right to assign the development rights to Respondent No.2, making the possession by Respondent No.2 illegal. 3. Applicability of Section 14 of the IBC: The tribunal examined whether the moratorium under Section 14 of the IBC, which prohibits recovery of property occupied by the Corporate Debtor, applied. It found that the premises were owned by KMC and not the Corporate Debtor, thus Section 14(1)(d) did not protect the possession of the Corporate Debtor. The tribunal emphasized that the assets in question were not part of the Corporate Debtor's assets and hence not subject to the moratorium. Conclusion: The tribunal set aside the Adjudicating Authority's order dated 17.11.2022, which had annulled KMC's termination of the Development Agreement. It was concluded that the termination was lawful, and the Corporate Debtor had no right to the premises. The appeal by KMC was allowed, and the IA filed by Respondent No.3 was rejected.
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