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TMI Blog2018 (4) TMI 1818X X X X Extracts X X X X X X X X Extracts X X X X ..... e Debtor is for joint development by the Corporate Debtor and tenants therein. If it is for joint development, then it is to be understood that it is a right given for joint development not for exclusive development by the Corporate Debtor. Therefore, either by law, or by factual matrix, the possession claimed by the corporate debtor is not recognised under law. If section 18 is r/w section 25 of the Code, it is evident in section 18 (1) (f) that IRP is endowed with duty to take control custody of any assets over which Corporate Debtor has ownership right as recorded in the Balance Sheet of the Corporate Debtor or with information utility or the depository of securities or any other registry that records the ownership records, the ownership of assets of the Corporate Debtor which may or may not be in possession of the in the same section, an explanation has been given stating that assets shall not include the assets owned by third party in possession of the Corporate Debtor, held under Trust or under contractual arrangements including bailment. Assuming the agreement of licence is in force, then also the possession alleged to be lying with the Corporate Debtor cannot become ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 238 to each and every issue related to corporate debtor. Whether this Bench can ignore such situation saying that since it is Section 7 or 9 petition, it will pass an admission order thereafter to proceed with CIRP ignoring the fraud manipulated by the company through its management. There can be myriad situations such as above causing uncertainty to the rights of the parties, if section 238 is applied without taking the context involved in the case into consideration. This Bench has not found any merit in the application moved by the Resolution Professional/Petitioner - Application dismissed. - MA 96/2018 in C.P. No. 1061/I&BC/2017 - - - Dated:- 4-4-2018 - Hon'ble Mr. B.S.V. Prakash Kumar, Member (Judicial) And Hon'ble Mr. Ravikumar Duraisamy, Member (Technical) For the Petitioner: Mr. Navroz Seervai, Mr. Munaf Virjee and Ms. Etika Srivastava. For the Respondent: Mr. JanakDwarkadas, Mr. S.V. Kamdar (Sr. Adv.),Mr.Sharan Jagliani (Counsel), Mr. Shardul Singh, S.V. Deshmukh. ORDER B.S. V. Prakash Kumar, Order pronounced on 02.04.2018 It is a Miscellaneous Application (in short MA) filed by the Resolution Professional (in short RP) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion notice was given by MHADA, RP says, for duty is cast upon him to ensure that the property in possession of the Corporate Debtor is continued with the Corporate Debtor until moratorium is not lifted, the Applicant has sought the above reliefs in furtherance of clause 'd' of section 14(1) of the Code. 3. As to factual aspect is concerned, RP says if the possession of MHADA land is returned to MHADA as mentioned in the termination notice, the rights of Corporate Debtor as well as the right of more than 600 tenants will get adversely affected. To elaborate the ground position, according to RP, as per approved layout, it is divided into 13 sectors detailed as RI to R 13 earmarking RI-R5 sectors to MHADA, sector R9 to 617 tenements, Sectors R6-R8 and RIO-R13 as free sale component to the Corporate Debtor, on plot RIO Meadows Residential Project and Meadows Commercial project are developed by the Corporate Debtor itself and the remaining sectors available for free sale were sold to various developers as mentioned under: Proposed Redevelopment Scheme of Patra Chawl, Nagar, Goregaon (W) Siddharth Plot Area and Built Up Area Statemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12,790.00 17 R-7/A-10 942.00 63.74 18 R-7/B-1 Exiting Structure 3589.00 63.74 19 R-7/B-2 KBJ Developers Ltd 4539.00 13,395.78 20 R-7/B-3 RNA NG Infrastructure Development 2251.65 7,800.00 21 R-7/B-4 Fist Infra Pvt Ltd 1500.00 2,804.84 22 R-7/B-5 Exiting Structure 3235.00 63.73 23 R-8 Kiyana Ventures LLP 17458.50 65,470.00 24 R-10 Guruashish Construction Pvt Ltd 58,643.98 25 R-11 Proposed Receiving Station 904.50 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of houses for the common and the needy citizens. In this particular land mentioned above, MHADA had inducted 672 tenants by giving possession of the land to them, thereafter in view of the proposal for rehabilitation of tenants, the development agreement was entered between the Corporate Debtor and tenants and MHADA. In pursuance of the agreement entered into, the tenants vacated the premises for the development work to be carried out in the said premises as stated in the agreement with a provision of a sector (R9) to these tenants. Hoping that they would be restored soon, vacated the said premises in 2008, till date, they have not been provided flats as agreed in the development agreement and their rent agreed to be paid by the Corporate Debtor (developer) has in fact not been paid for many years. This due outstanding itself is of ₹ 35crores due to the tenants. MHADA submits that it has not parted with the possession of the land in issue at any point of time, therefore, MHADA being a statutory body, it has to be construed as remained in possession of the same by virtue of ownership (It need not be separately said that the land belonging to government shall not be held a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Debtor are not in the possession of the corporate debtor. 8. Basing on the pleading aforementioned, the Sr. Counsel appeared on either side vehemently argued, Resolution Professional side counsel submits that direction shall be given not to disturb the possession of the land lying with the Corporate Debtor, on the contrary MHADA side Counsel argues that it is an agreement of licence whereby even if it is assumed agreement has not been terminated, then also it could not be construed that the Corporate Debtor is in exclusive possession of the land in issue. 9. On hearing the submissions of either side the point for decision is as to whether MHADA land falls within the ambit of clause 'd' of section 14(1) of the Code or notRs. To dispel the case of MHADA side, Sr. Counsel Mr. Navroz Seervai appearing on behalf of RP has taken us through various material papers and to legal propositions to say that the agreement entered between the Corporate Debtor, the Co-operative Society and MHADA is a development agreement on 10.04.2008, wherein it has been mentioned in clause 1.1.4 that corpus fund of ₹ 25crores was to be paid by the developer to the tenants society and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r kept to itself, this suit is only in respect to the flat purchasers of Meadows Projects, which is as follows: Sector No(s) Purpose RI to R5 Buildings to be handed over to Defendant No. 3 (MHADA) R6 to R8 Free Sale. R9 Buildings to be handed over to Defendant No.3 for rehabilitation of tenants. R10 Free Sale portion, where the proposed building called 'The Meadows' is being constructed (defined as the said property in the plaint) ( the said Meadows Residential Project ). The Wings A to C and E to G consist of Basement plus double height stilt plus 2 to 5 podiums plus 6 to 27 upper residential floors. The Wing D consist of basement plus double height stilt plus 2 to 5 podiums plus 6 to 33 (part) upper floors. The plans are already sanctioned as per above details. The Commencement Certificate for Wings A, B and C is granted up to 17 upper floors and D to G Wings for 18 upper floors. Ril to R13 Free Sale portion. 13. As to legal proposi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and financial institutions, fraudulently sold away the free sale component for a consideration of ₹ 1,095crores, in spite of it, the projects to be handed over to the tenants and MHADA have not been completed for the last 9 years. 17. The other Sr. counsel appeared on behalf of MHADA further submits that seven third-party purchasers of the free sale component are not required to fulfil the obligation undertaken by the Corporate Debtor, since the agreement has been terminated on 12.01.2018, the Corporate Debtor will not be allowed to enter the property for the right of licence given to the Corporate Debtor is cancelled. 18. MHADA Senior Counsel further submits that prayer in the application is in the nature of specific performance of the JDA, the Corporate Debtor being a person at fault in carrying the functions mentioned in the JDA, section 16(1)(b)(c) of the Specific Relief Act bars grant of any specific relief, because the corporate debtor has committed wilful breach of the contract of which performance is sought. He further says prayer A being consequential to prayer 'B , since it is a well settled proposition that a consequential relief cannot be granted unle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ession unlawfully cannot be considered as a man having possession over the property, indeed he is called as trespasser. 21. On considering argument of either side, even if it is assumed, the Corporate Debtor has been continuing with the possession of the property basing on the JDA, such possession cannot be called as possession recognised under law. It can't be either possession on lease, or possession on mortgage with possession, or adverse possession. 22. Here, this application has been filed by the Resolution Professional through Corporate Debtor to ascertain that he is entitled to the exclusive possession of the property despite no right has been accrued to this Corporate Debtor. When the documents disclose granting licence to this Corporate Debtor for joint development, it is evident on record that this right given to the Corporate Debtor is for joint development by the Corporate Debtor and tenants therein. If it is for joint development, then it is to be understood that it is a right given for joint development not for exclusive development by the Corporate Debtor. Therefore, either by law, or by factual matrix, the possession claimed by the corporate debtor is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, the rent has not been paid for the last several years, that due outstanding has itself been accrued to ₹ 35crores. This has been clearly recorded in the order passed by Hon'ble High Court on 20.03.2017 mentioning that flats have not been made ready to be given either to tenants or to MHADA. It is a public land and meant for public use, the corporate debtor is not expected to game the system without any development for the last nine years. 24. In this given case, the property is land, since land is not owned by it cannot be said that the Corporate Debtor has ownership rights over the land. On looking at the licence agreement entered between the Corporate Debtor, tenants and MHADA, it appears a licence has been given to the Corporate Debtor for development of land. Though MHADA disputes second agreement entered between the same parties in the year 2011, for no action being taken in respect to this second agreement till date, and the agreement being entered in the year 2011 i.e. almost six years before, the argument of MHADA counsel submitting to this Bench to ignore second agreement appears to be not meritorious argument. It is trite law that giving a licence to someb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... possession of tenants and the Corporate Debtor, for that reason only when Hon'ble High Court passed an order, it has been categorically mentioned in respect to the flat purchasers of Meadows Project, MHADA is directed to execute Leasehold Rights to the flat purchasers, therefore, unless leasehold rights are transferred to the flat purchasers, they cannot even occupy those respective flats, because possessory right will come to the flat purchasers only when MHADA executes such leasehold rights in favour of the flat purchasers, that being the situation, there is no chance to conceive that the Corporate Debtor is in possession of the property. In the name of these agreements, this Corporate Debtor made money of more than in the form of loan from the banks, not only that, the Corporate Debtor directly sold free sale component to seven purchasers to develop the free sale component. 26. Even if we go by the argument of the Corporate Debtor counsel, assuming that possession has been with the Corporate Debtor, since he has not developed the area that is to come to MHADA as well as tenants, it cannot be said that development is in progress in that place. As to free sale component, ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g will not develop this area because the free sale component money has already been consumed by the Corporate Debtor. It is not a company doing some manufacturing business to say that if the company is closed, employees and other workers will be put to hardship. Either way suffering is to MHADA and tenants. This is the ground position. 29. In the backdrop of this factual situation regardless of whether licence agreement is in force or terminated, it cannot be construed that this Corporate Debtor is in possession of MHADA property, when the applicant has failed to prove that he has been in the possession of the property, therefore the Resolution Professional cannot invoke section 14(c) to wrest something from others under the cover of this provision. 30. A person can be said that he has been enjoying the possession of the property only when exclusive possession has been given to him. Here by virtue of the licence agreement, it is clear that it has been categorically mentioned that a joint possession has been given to the tenants and the Corporate Debtor. May be for this reason alone, this Resolution Professional/Applicant consciously not made tenants or their society as a part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P will take control of the assets only upon which the Corporate Debtor has ownership rights, in the same section 18, an explanation has been given saying that the assets owned by the third party in possession of the Corporate Debtor held under Trusts or under contractual agreement including bailment will not become the assets of the Corporate Debtor. The Resolution Professional will come into picture after IRP having exercised his duties u/s 18, so that being the case, IRP will hand over the custody of the assets as well as other records that have already been taken into custody to the Resolution Professional. For this reason alone, the clause (f) in section 18(1) specifically mentioned what assets the IRP can take control and custody of, therefore, by the time, it comes to section 25, it cannot be understood that Resolution Professional is entitled to take the custody of the assets not belonging to the Corporate Debtor. This makes it clear that assets and liabilities of the Corporate Debtor alone will come within the ambit of the Resolution Professional, he cannot take out somebody's property and value it for preparing Resolution Plan. It cannot be so. If that is so, there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2002; (d) the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor. (2) The supply of essential goods or services to the corporate debtor as may be specified shall not be terminated or suspended or interrupted during moratorium period. (3) The provisions of sub-section (I) shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator. (4) The order of moratorium shall have effect from the date of such order till the completion of the corporate insolvency resolution process: Time-limit for completion of insolvency resolution process. Provided that where at any time during the corporate insolvency resolution process period, if the Adjudicating Authority approves the resolution plan under sub-section (1) of section 31 or passes an order for liquidation of corporate debtor under section 33, the moratorium shall cease to have effect from the date of such approval or liquidation order, as the case may be. 36. By reading this section Moratorium prohibits institution of suits or continuation of pending suits or proceedings ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that section 238 has been introduced not to dilute other enactments or to write off the rights of the parties, indeed it has been introduced to expedite resolution or dissolution of the company, for doing so, it is an effort of this statute to have single window mechanism to resolve all credit transactions of a corporate debtor (in respect of payables as well as receivables), but not to extinguish the vested rights of the parties. That's why this section has been carefully drafted, like any other overriding clause, stating that this enactment will have overriding effect against the laws which are inconsistent with the provisions of this Code. 39. Normally, each and every business transaction that happens in a company will remain recorded from time-to-time. Therefore, there is no chance for the corporate debtor to deny the debts and obligations recorded in the books of the company. Since NCLT has been dealing with 1B Code over an year, we hardly come across any case wherein corporate debtor denying the claims filed by a Financial Creditor, likewise in the case u/s 9 as well whenever Operational Creditor makes a claim, for the legislature is conscious of the fact that there co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been held as extinguished by virtue of a legislation. In the backdrop of this, it is clear that there cannot be an omnibus application of section 238 to each and every issue related to corporate debtor except in the way as mentioned above. 42. Let us examine a hypothetical situation, where money has been fraudulently gained by a company without the consent of the person incurred loss, if that is the case, then such person will prosecute the persons indulged in fraud, and also a civil suit for restoration of the money lost, here the situation between the company and such person is not a creditor and a debtor, the person incurred loss cannot come before this Adjudicating Authority under Insolvency Bankruptcy, if any admission order is given in such a company for initiating Insolvency Resolution Process ignoring the rights of such persons, what will happen to his rights?. At least the creditor knowingly entered into an agreement to take risk if any problem comes tomorrow, but in the case of fraud, such person has not even given his consent to the corporate debtor to fritter away his money through some route which is not known to the victim. Whether this Bench can ignore su ..... 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