2024 (3) TMI 1292 - AT - Insolvency and Bankruptcy

Ownership of leasehold rights over the subject plot - demand for enhanced land cost was raised much before initiation of CIRP - Applicability of clean slate principle - Seeking quashing of demand notice - direction to to issue No Objection Certificate (NOC) for the subject plot - whether in the factual matrix of this case, the successful resolution applicant can be granted ownership of leasehold rights over the subject plot without payment of dues to the respondent? HELD THAT - Hon ble Supreme Court in the MUNICIPAL CORPORATION OF GREATER MUMBAI (MCGM) VERSUS ABHILASH LAL ORS. 2019 (11) TMI 844 - SUPREME COURT has held that the provisions of Section 238 of IBC, 2016 do not override the rights of Municipal Corporation of Greater Mumbai (MCGM) to control and regulate how its properties are to be dealt with. It is public duty of MCGM to control and regulate how its properties are dealt with. The provisions of Section 238 could be of importance when the properties and assets are of debtor and not when a third party like MCGM are involved and therefore in the absence of approval in the terms of Sections 92 and 92-A of the Mumbai Municipal Corporation Act, 1880 (MMC), the Adjudicating Authority under IBC, 2016 cannot create a fresh interest in respect of MCGM s property and lands. From the perusal of the aforesaid judgment, it follows that the rights of the Public Sector/ State Land Development Authorities on assets owned by them cannot be overridden by provisions of IBC, 2016 and any transfer to the successful Auction Purchaser or Successful Resolution Applicant has to be in accordance with the terms and conditions of the original allotment or lease deed or policy of the Authority. The demand for enhanced land cost was raised much before initiation of CIRP and evidently, it was not brought to the notice of the IRP or the CoC. Even the pending litigation before Civil Judge (Senior Division), Ludhiana regarding the subject plot was not brought to the notice of the CoC and the successful Resolution Applicant. The protective umbrella of IBC, 2016 for CIRP cannot be extended to an extent that public authorities are asked to part with their assets without full payment of their dues or without compliance to terms and conditions of the sale or lease deed or their transfer policy. The clean slate principle will not apply to the factual matrix of the present case, where there was prior demand from public sector land authority which was also not disclosed during CIRP to the IRP or the CoC. The Adjudicating Authority in the impugned order has rightly noted that the payment demanded by the respondent is to clear the defect in the title of the land itself, and is not linked to the CIRP proceedings. There are no reason to interfere in the order of the Adjudicating Authority - appeal dismissed.

Summary

Issues Involved:
1. Condonation of Delay
2. Quashing of Demand Notice and Issuance of No Objection Certificate (NOC)
3. Applicability of the 'Clean Slate Principle'
4. Rights of Public Sector Undertakings in Insolvency Proceedings

Summary:

Condonation of Delay:
The appellant filed IA No.2447/2022 seeking condonation of a 7-day delay in filing the present appeal. The cause shown was deemed sufficient, and the delay was condoned. IA No.2447 of 2022 was disposed of accordingly.

Quashing of Demand Notice and Issuance of NOC:
The appellant sought to set aside the impugned order dated 03.06.2022, quash the demand notices dated 05.03.2022 and 27.06.2022, and direct the respondent to issue a 'No Objection Certificate' (NOC) for the subject plot. The appellant argued that the respondent, being an Operational Creditor u/s 5(20) of IBC, 2016, did not file any claim during the CIRP and hence cannot raise belated claims. The demand raised by the respondent does not form part of the approved resolution plan, and past dues stand extinguished as per Clause-6 of the approved resolution plan. The appellant relied on several judgments, including Ghanshyam Mishra and Sons Pvt. Ltd. v. Edelweiss Assets Reconstruction Company Limited and Committee of Creditors of Essar Steel India Limited Through Authorised Signatory vs. Satish Kumar Gupta & Ors.

Applicability of the 'Clean Slate Principle':
The appellant contended that the 'clean slate principle' enunciated in various judgments and encoded in Section 31(1) of IBC, 2016, should apply, meaning the new management cannot be saddled with unexpected claims. However, the tribunal noted that the subject asset was allotted on a leasehold basis for 99 years, with specific conditions regarding the enhancement of land cost. The respondent had raised demands for enhanced land cost much before the initiation of CIRP, and these demands were not disclosed to the IRP or CoC by the Corporate Debtor. The tribunal concluded that the 'clean slate principle' would not apply to this case, as public authorities cannot be asked to part with their assets without full payment of dues or compliance with the terms of the lease deed or transfer policy.

Rights of Public Sector Undertakings in Insolvency Proceedings:
The tribunal referred to several judgments, including Municipal Corporation of Greater Mumbai vs. Abhilash Lal and Ors. and Maharashtra Industrial Development Corporation Vs. Santanu T. Ray & Ors., to emphasize that the rights of public sector undertakings or state land development authorities on assets owned by them cannot be overridden by the provisions of IBC, 2016. Any transfer to the successful resolution applicant must be in accordance with the terms and conditions of the original allotment or lease deed or policy of the authority.

Conclusion:
The tribunal found no reason to interfere with the order of the Adjudicating Authority, which had rightly noted that the payment demanded by the respondent was to clear the defect in the title of the land and was not linked to the CIRP proceedings. The appeal was dismissed, and all pending IAs were closed. No orders as to costs were made.