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TMI Blog2025 (4) TMI 1411X X X X Extracts X X X X X X X X Extracts X X X X ..... case necessary to be noticed for deciding the appeals are : i. Corporate debtor owns the piece and parcel of land building survey number 60/1/1, admeasuring 1000 sq. mt. along with factory shed/building consisting of ground floor and first floor situated at village Amli of Union Territory of Dadra and Nagar Haveli. ii. An application for initiation of Corporate Insolvency Resolution Process (CIRP) against the corporate debtor M/s. Desimran Cartons Private Ltd. was filed by Jalgaon Janta Sahakari Bank Ltd. under Section 7 of the Insolvency and Bankruptcy Code (for shot the 'Code' or the 'IBC') on 08.05.2019. iii. On 07.06.2019, corporate debtor entered into Leave and License Agreement dated 07.06.2019 with the appellant at the rent of Rs.5,000 for a term of 12 years up to 31.05.2031. The bank had existing mortgage on the assets, consent of which bank was required for transferring the assets. iv. CIRP against the corporate debtor commenced on 28.03.2022. No resolution plan having been received, on order dated 28.03.2022 was passed by the adjudicating authority directing liquidation of the corporate debtor. v. Liquidator informed the appellant about the liquidation proceedin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt has also given refundable security deposits of Rs.60 lakhs between 06.05.2019 to 07.06.2019. It is submitted that two separate orders were passed by Ld. Technical Member and Judicial Member. Ld. Member Technical has found the Leave and License Agreement to be onerous contract, whereas Ld. Judicial Member has not found the Leave and License Agreement as an onerous contract rather Ld. Judicial Member has only held that contract is unprofitable. It is submitted that thee being divergent opinion between the decision of both the Members, application filed by liquidator being I.A. No. 2012/2022 could not have been allowed. It is submitted that reference of illustration 10 as by Member Judicial is not part of Regulation 10 of the Liquidation Regulation, 2016. Ld. Member Judicial has not provided any reason as to why the Leave and License Agreement allegedly is unprofitable contract. Appellant having paid an amount of Rs.60 lakhs + Rs.50 lakhs i.e., Rs.1,15,00,000/- in furtherance of agreement of sale dated 06.04.2019 and Leave and License Agreement dated 07.06.2019, the Leave and License Agreement could not be held to be onerous agreement. Learned counsel for the appellant submits that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansaction is fully covered by Regulation 10 of the Liquidation Regulation, 2016, hence deserves to be disclaimed by the liquidator. 6. We have considered the submissions of counsel for the parties and perused the records. 7. In the present case, the application was filed by the liquidator being I.A. No.2012/2022 both under Section 45 of the IBC as well as Regulation 10 of the Liquidation Regulations, 2016. The prayers made in the I.A. No.2012/2022 has been extracted by the adjudicating authority in paragraph 1 of the order, which is as follows: "a) To disclaim the Leave and License Agreement dated 07 June 2019 which was registered at the Serial No 2930 of 2019 at the office of Sub-registrar of Dadar & Nagar Haveli, Silvassa as being in the nature of an onerous contract in terms of Regulation 10 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulation, 2016; b) To classify the transactions undertaken under the said Agreement as being undervalued in terms of Section 45(1) of the IBC, 2016; c) To direct the Respondent to make contributions to the assets of the Corporate Debtor by directing the Respondents to pay the amount of Rs.2,51,73,573/- in terms ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is allowed and the Liquidator is allowed to disclaim, from the date of disclaimer notice issued to Sarla, the leave and license agreement as 'onerous property' (unprofitable contract) under Regulation 10 of the Liquidation Regulations. Further, the licensee, i.e. Sarla Performance Fibers Limited is directed to vacate the said premises within a period of 30 days from the date of this order." 11. Ld. Judicial Member also has proceeded to consider the application of the liquidator seeking declaration of the transaction as onerous. Judicial Member has also come to the conclusion that transaction is unprofitable transaction and is covered by Regulation 10 of the Liquidation Regulations, 2016. 12. As noted above, two principal submissions have been advanced by the appellant challenging the impugned order; firstly, there is no divergence of the opinion between the parties holding the transaction as onerous under Regulation 10 of the Liquidation Regulations, 2016, hence the order allowing the I.A. No.2012/2022 is unsustainable; and secondly, the Regulation 10 of the Liquidation Regulations, 2016 is beyond the provisions of the IBC and ultra vires to IBC, hence is an unenforceable. 13. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gent liabilities and in dealing with contingent assets, except: (a) those resulting from financial instruments2 that are carried at fair value; (b) those resulting from executory contracts, except where the contract is onerous; Explanation: (i) An 'onerous contract' is a contract in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it. Thus, for a contract to qualify as an onerous contract, the unavoidable costs of meeting the obligation under the contract should exceed the economic benefits expected to be received under it. The unavoidable costs under a contract reflect the least net cost of exiting from the contract, which is the lower of the cost of fulfilling it and any compensation or penalties arising from failure to fulfil it. (ii) If an enterprise has a contract that is onerous, the present obligation under the contract is recognised and measured as a provision as per this Standard. The application of the above explanation is illustrated in Illustration 10 of Illustration C attached to the Standard. Illustration C Illustration 10: An Onerous Contract An enterprise operates p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h can be basis for disclaimer of onerous property. We, thus do not accept the submission of the appellant that there is divergence of opinion between Technical Member and Judicial Member. Ld. Judicial Member has given detailed reason, including the conduct of the corporate debtor and come to the conclusion that the transaction 07.06.2019 was not bona fide and good faith transaction. In paragraph 19 of the judgement following has been observed by the Ld. Judicial Member: "19. Thus, considering facts and circumstances in its entirety and also in view of the fact that Sarla also wanted to take over the management of the Corporate Debtor by submitting EoI and also persuaded the Liquidator to sell the said Premises to Sarla, it is apparent that the Corporate Debtor did not act in good faith while executing the said L&L Agreement of the premises which is the substantial asset of the Corporate Debtor." 16. Ultimately, in paragraph 24, Ld. Judicial Member has also expressed its opinion that it is appropriate to terminate the Leave and License Agreement dated 07.06.2019 i.e., to allow the disclaimer under Regulation 10. Paragraph 24 of the order of the Judicial Member is as follows: " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quidation of the obligation to comply with covenants, puts the party in whose favour the covenants are, to serious disadvantage. The Court must therefore, be fully satisfied that there are onerous covenants, covenants which impose a heavy burden upon the company in liquidation, before giving leave to disclaim them." 19. Now the question need to be considered as to whether power vested in the liquidator by Regulation 10 of the Liquidation Regulations, 2016, is beyond the IBC. We need to notice Section 34(2), which provides that all powers of board of directors key managerial personnel and partners of the corporate debtor shall vest in the liquidator. Section 34(2) is as follows: "34. Appointment of liquidator and fee to be paid (2) On the appointment of a liquidator under this section, all powers of the board of directors, key managerial personnel and the partners of the corporate debtor, as the case may be, shall cease to have effect and shall be vested in the liquidator." 20. Section 35 of the IBC provides for powers and duties of the liquidator. Section 35(1)(d) & Section 35(1)(o) are as follows: "35. Powers and duties of liquidator. (1) Subject to the directions of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the IBC. We, thus do not find any substance in the submission of the appellant that Regulation 10 is beyond the provisions of IBC. We, thus do not find any substance in any of the submissions raised by the counsel for the appellant challenging the impugned order, insofar as the application filed by the appellant, I.A.672/2023, the auction having already been held for Rs.4.2 crore, the said application has rightly been rejected by adjudicating authority. Insofar as I.A. No.2897/2023, questioning the decision of the liquidator rejecting the claim, adjudicating authority in paragraph 29.8 issued following directions, while allowing I.A. No.2897/2023:
"29.8 Thus, we direct the Liquidator to re-consider the claim of Rs. 1,15,00,00 submitted by Sarla and decide on the same after due verification. Sarla is directed to submit its claim in the prescribed format along with proof of claim within 30 days from the date of this order. Accordingly, IA/2897/2023 is allowed."
24. We, thus do not find any error in the order passed by the adjudicating authority while deciding the aforesaid three applications.
There is no merit in the appeals. Appeals are dismissed. X X X X Extracts X X X X X X X X Extracts X X X X
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