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TMI Blog2023 (3) TMI 699X X X X Extracts X X X X X X X X Extracts X X X X ..... aw Tribunal For short, "NCLT", thereby confirming an order of the Adjudicating Authority, in two applications, in the course of the Corporate Insolvency Resolution Process For short, "CIRP" . 2. We have heard the learned counsel for the parties. Parties to the Litigation 3. The subject matter of controversy in these appeals is the land of an extent of about 10.19 acres at Ramrajatala Station Road, Howrah, West Bengal. M/s Energy Properties Private Limited For short, "Energy Properties" which is the appellant in CA No.1782 of 2021 is the ostensible owner of the said property, in whose name the title stands. Avani Towers Private Limited, which is the Corporate Debtor in respect of whom CIRP has been initiated, not only provided finance to Energy Properties, for the purchase of the said property, but also holds 40% of the share capital in Energy Properties, apart from holding a Joint Development Agreement with Energy Properties in respect of the property in question. 4. M/s Victory Iron Works Ltd. For short, "Victory" which is the appellant in CA No.1743 of 2021, claims to be in possession of the property in entirety, partly by virtue of a Leave and License Agreement and partly b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g at the same time that the order will not prevent Victory from carrying on their activities in the portion of the land given to them under the Leave and License Agreement. The operative portion of the order of the Adjudicating Authority reads as follows:- "The respondents (or any other person acting through them in CA(IB) No. 1807/KB/2019) shall not obstruct RP's possession and his activities relating to CIRP of the corporate debtor, until further orders, failing which the local police are directed to give every assistance to the RP for completion of CIRP of the corporate debtor effectively. ii) Our order dated 09.01.2020 shall not affect the activities of Victory Iron Works Ltd. in piece of land in their possession on the basis of leave and licence agreement dated 11.08.2011 untill the original owner of the property decides further course of action as far as leave and licence agreement is concerned. Hence, this application, i.e. CA(IB) 146/KB/2020 stands disposed off." 10. Aggrieved by the said order of the Adjudicating Authority, two independent appeals were filed, one by Victory and one by Energy Properties, before the NCLAT. The appeals were dismissed by NCLAT by an Ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to tide over a crisis. The consideration for the Corporate Debtor providing financial assistance to Energy Properties, both for the purchase of the aforesaid property and for overcoming a crisis, was actually two-fold, namely, (i) that 40% of shareholding in Energy Properties should be transferred to the Corporate Debtor; and (ii) the Corporate Debtor was to be given the exclusive right of development of the property. (ii) Simultaneously with the execution of the aforesaid MoU, 40% of the total shares of Energy Properties was transferred to the Corporate Debtor. (iii) With the funds so provided by the Corporate Debtor, Energy Properties purchased the land in question from UCO Bank, under a Sale Certificate dated 29.01.2008. The total sale consideration indicated in the Sale Certificate was Rs.2,97,03,484/- (Rupees Two Crore Ninety-seven Lakhs Three Thousand Four Hundred and Eighty-four only). (iv) On 16.06.2008, Energy Properties entered into an agreement with the Corporate Debtor, whereby the Corporate Debtor was conferred exclusive rights of development of the property. The actual physical possession of the property was also handed over under this agreement to the Corp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered by the Leave and License Agreement. But at the same time both NCLT and NCLAT refused to acknowledge that Victory is in possession of the entire extent of land of 10.19 acres. Therefore, NCLT and NCLAT thought that the development rights that the Corporate Debtor has over the remaining extent of land is to be preserved and included in the Information Bulletin. This is what both Energy Properties and Victory are opposing in these two appeals. Rival Contentions 13. It is contended on behalf of Victory, (i) that the asset in question, namely, the land of the extent of 10.19 acres is owned by Energy Properties and not by the Corporate Debtor; (ii) that under Section 25(2)(a) of IBC, the Resolution Professional is entitled to take custody and control only of the assets of the Corporate Debtor and not the assets of a third party; (iii) that under Regulation 30 of the Regulations, the Resolution Professional is entitled to seek the assistance of the local district administration only for discharging his duties under the Code and hence the very application moved by the Resolution Professional under Regulation 30 was misconceived, in the light of the circumspection indicated in Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of a property is an intangible asset of the developer and it is especially so when this development project was shown in the balance sheets of the Corporate Debtor year after year; and (vi) that, therefore, the impugned orders do not warrant any interference. Discussion and Analysis 16. From the rival contentions, it appears that two issues arise for our consideration. They are, (i) what is the nature of the right or interest that the Corporate Debtor has over the property in question, for the purpose of deciding the inclusion of the same in the Information Memorandum prepared by the Resolution Professional under Regulation 36 of the Regulations?; and (ii) whether NCLT and NCLAT have exercised a jurisdiction not vested in them in law by seeking to recover/protect the possession of the Corporate Debtor? Issue No.1 17. The IBC is divided into five parts, with Part-I containing the preliminaries, Part-II containing provisions dealing with Insolvency Resolution and Liquidation for Corporate Persons, Part-III dealing with Insolvency Resolution and Bankruptcy for Individuals and Partnership Firms, Part-IV dealing with Regulation of Insolvency Professionals, Agencies and Inform ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... porate debtor for determining the financial position of the corporate debtor, including information relating to- (i) business operations for the previous two years; (ii) financial and operational payments for the previous two years; (iii) list of assets and liabilities as on the initiation date; and (iv) such other matters as may be specified; (b) receive and collate all the claims submitted by creditors to him, pursuant to the public announcement made under sections 13 and 15; (c) constitute a committee of creditors; (d) monitor the assets of the corporate debtor and manage its operations until a resolution professional is appointed by the committee of creditors; (e) file information collected with the information utility, if necessary; and (f) take control and custody of any asset over which the corporate debtor has ownership rights 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 of assets including- (i) assets over which the corporate debtor has ownership rights which may be located in a foreign country; (ii) assets that may or m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all resolution plans at the meetings of the committee of creditors; (j) file application for avoidance of transactions in accordance with Chapter III, if any; and (k) such other actions as may be specified by the Board." 22. It may be noticed from Sections 18 and 25 that the word "asset" and not the word "property" is what is used in these provisions, though the word "property" is defined in Section 3(27). But the said word "asset" used in Sections 18 and 25 is not defined in the IBC. We have seen from Section 3(37) that it makes a reference to seven different enactments, to which one can take recourse, for finding the definition of words and expressions used but not defined in the Code. Therefore, let us find out whether those seven enactments will be of any assistance to find out the meaning of the word "asset" used, but not defined in IBC. 23. The Indian Contract Act, 1872 does not define either of the expressions "asset" or "property". The Indian Partnership Act, 1932 also does not define either of these two expressions. The Recovery of Debts and Bankruptcy Act, 1993 does not define the word "asset" but defines the word "property" in Section 2(jb) as follows: "2. Def ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertificate dated 29.01.2008; (iv) Development Agreement dated 16.06.2008; (v) Memorandum Recording Possession dated 02.03.2010 executed by the shareholders of Energy Properties; (vi) Memorandum Recording Possession dated 24.06.2010 executed by Energy Properties; and (vii) Leave and License Agreement dated 19.08.2011. Let us now see the story as revealed by each of these documents. 29. The first of these documents is the Memorandum of Understanding dated 24.01.2008, entered into between three parties namely, (i) Energy Properties; (ii) the Corporate Debtor; and (iii) the shareholders of Energy Properties. By this MoU, the Corporate Debtor agreed to provide financial accommodation to the total extent of Rs.12 crores to Energy Properties, for the purpose of enabling them to purchase the land in question (by utilizing a sum of Rs. 2.70 crores) and for the purpose of tiding over a crisis (by utilizing the balance of Rs.9.30 crores). The covenants contained in the MoU indicate- That the Corporate Debtor was required to pay the amount of Rs.2.70 crores directly to UCO Bank and the Sale Certificate issued by the Bank along with the original title deeds (parent documents) held by the Ban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. The Development Agreement contemplated the handing over of khas and vacant possession of the entire property to the Corporate Debtor. The Corporate Debtor was imposed with the obligation to develop a housing complex in the said property as per the specifications provided in the Fifth Schedule to the Agreement, at their own cost. One of the covenants contained in the Development Agreement is that Energy Properties will not let-out, lease, mortgage and/or charge the said property without the consent in writing of the Corporate Debtor. 33. After the execution of the Development Agreement, two memorandums (titled as Memorandums Recording Possession) were also executed respectively on 02.03.2010 and 24.06.2010, the first one by the shareholders of Energy Properties and the second by Energy Properties themselves. Under these two memorandums, the shareholders of Energy Properties, as well as the Company Energy Properties, handed over possession of the property to the Corporate Debtor. These two memorandums contained specific clauses to the effect that the Corporate Debtor shall be in exclusive possession of the property. 34. After more than a year of such handing over of possession, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ows:- "19. ...An essential incident of ownership of land is the right to exploit the development potential to construct and to deal with the constructed area. In some situations, under a development agreement, an owner may part with such rights to a developer. This in essence is a parting of some of the incidents of ownership of the immovable property..." 37. Therefore, it is not very difficult to conclude, that a bundle of rights and interests were created in favour of the Corporate Debtor, by a series of documents such as (i) the MoU dated 24.01.2008; (ii) the shareholders agreement dated 24.01.2008; (iii) the flow of the consideration from the Corporate Debtor to the UCO Bank and to Energy Properties; (iv) the Development Agreement dated 16.06.2008; (v) the Memorandum Recording Possession dated 02.03.2010 executed by the original shareholders of Energy Properties; (vi) the Memorandum Recording Possession dated 24.06.2010 executed by Energy Properties in favour of the Corporate Debtor; and (vii) the Leave and License Agreement primarily executed by the Corporate Debtor in favour of Victory, which was merely confirmed by Energy Properties as a confirming party. Some of these b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and Regulation) Act, 1957. Raising the question of jurisdiction of the NCLT to issue such a direction, the Government of Karnataka approached the High Court by way of a writ petition, instead of filing a statutory appeal to NCLAT. The jurisdiction of the High Court to entertain the said writ petition and also grant interim stay, was what was questioned before this Court in the said decision. The right to have a mining lease granted by the Government, was neither a statutory right nor a contractual right. A person applying for a mining lease may at the most be entitled to have his application considered along with the applications of others and to a fair treatment. Once a mining lease is granted, the terms and conditions of such grant may be subject to the covenants contained in the grant as well as the statutory provisions. Therefore, the ratio laid down in Embassy Property Developments Private Limited (supra) may not go to the rescue of the appellants in a case of this nature where Energy Properties became the owner only on account of the money paid by the Corporate Debtor and a bundle of very valuable rights and interests in immovable property was created thereafter in favour o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. 47. Having seen the legal position, let us now come back to the facts of the case to see whether NCLT and NCLAT addressed the issue correctly or not. 48. As we have seen earlier, two applications were filed before NCLT. One was by the Resolution Professional and the other was by Victory. A careful look at the application filed by Victory in C.A. (IB) No.146 of 2020 would show that there was no whisper about Victory occupying any land in excess of what they were permitted to occupy under the Leave and License Agreement. Under the Leave and License Agreement, Victory was allowed to occupy only 10000 sq. ft. of land, upon payment of a monthly license fee of Rs.5,000/-. If at all, a vague averment was made in paragraph VII (c) of their application to the effect that inasmuch as the Corporate Debtor was unable to commence any development activity in the subject land, the owner and the developer, with their full consent, had decided to allow the applicant to run its business in the usual course from the subject land, because the subject land could not have been left vacant for any substantial period of time. 49. The fact that there were security guards posted in the property is bor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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