Chandrakant Khemka vs Santanu Bhattacharjee

(Arising against the impugned order dated 07.08.2023 passed by the Hon'ble National Company Law Tribunal, Kolkata Bench in CP (IB) No. 1377/KB/2020)

IN THE MATTER OF:

Chandrakant Khemka, Member of Suspended Board of Directors of Nandini Impex Private Limited, Residing at Ballygunge Park, Kolkata, Pin - 700019. ...Appellant Email id: ckhemka@hotmail.com

Versus

Santanu Bhattacharjee, Resolution Professional of Nandini Impex Private Limited, Martin Burn House, Office No. 303,1, RN Mukherjee Road, 3rd Floor, Kolkata, ...Respondent No. 1

Pin- 700001. Email Id: Neeljanai@gmail.com

Sincere Securities Private Limited, 12, B.B.D. Bagh (East), 1st Floor, Kolkata, Pin - 700001.

Email id: sinceresecurities96@gmail.com ...Respondent No. 2

Noble Dealcom Private Limited, Office No. 303, 1, RN Mukherjee Road, 3rd Floor, Kolkata, Pin - 700001.

Email id: nobledealcom@gmail.com ...Respondent No. 3

Jodhpur Properties and Finance Private Limited, 88A, Madan Mohan Burman Street, Room No. 29, 4th Floor, Kolkata.

Pin - 700007.

Email id: Jodhpurproperties1994@gmail.com ...Respondent No. 4

UCO Bank 10, B T M Sarani, Kolkata - 700 001 West Bengal ...Respondent No. 5 Email id: calind@ucobank.co.in

Cont'd..../ -2-

Present: For Appellant: Mr. Abhijeet Sinha, Sr. Advocate, Mr. Aman Gupta & Mr. Akarsh Pandey, Advocates. For Respondents: Mr. Rishav Banerjee & Mr. Saurav Jain, for R-1/RP. Mr. Gaurav Mitra, Mr. Ashish Chaudhury & Mr. Abhishek Arora, for R-2 to 4.

Mr. Rachit Mittal & Mr. Parish Mishra, for R-5/CoC.

J U D G M EN T (12th November, 2024)

INDEVAR PANDEY, MEMBER (T)

This appeal is filed by Sh Chandrakant Khemka (Appellant) who is

Ex-promoter Director of M/s Nandini Impex Private Limited/Corporate Debtor

(in short CD) under section 61(1) of the Insolvency and Bankruptcy Code, 2016

(in short Code) challenging the impugned Order dated 07.08.2023 passed by the

Learned National Company Law Tribunal, Kolkata Bench (in short AA) in respect

of two applications being IA (IBC)/1082(KB)2023 Noble Dealcom Private Limited

(Respondent No.3) v. Sree Santanu Bhattacharjee (Resolution

Professional/Respondent No.1) and IA (IBC)/1083(KB)2023 Sincere Securities

Private Limited (Respondent No.2) v. Sree Santanu Bhattacharjee preferred in

CP (IB) No. 1377/KB/2020, UCO Bank (Financial Creditor) v. Nandini Impex

Private Limited under Section 7 of IBC, 2016.

2. The Adjudicating Authority passed the following order in the IA

(IBC)/1082(KB)2023 and IA (IBC)/1083(KB)2023 in the CP (IB) No.

1377/KB/2020:

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"a) When these IAs were taken up for hearing today, it was stated by the Ld. Counsel appearing for the Resolution Professional that in terms of resolution passed by the CoC at Page No.38 of the Reply in I.A. (I.B.C.) No. 1082(KB)2023 and Page No.39 of the Reply in I.A. (I.B.C.) No. 1083(KB)2023, the property as mentioned in relief (Para-a) in both the IAs is not required to be held and the same shall be handed over to the Applicant.

(b) In view of this statement made by Ld. Counsel appearing for the Resolution Professional, prayer-(a) in both the IAs is disposed of with a direction to the Resolution Professional to hand over this property, if already not handed over, within two weeks from the date of this order.

(c) As far as other reliefs in the nature of payment of occupational charges is concerned, post these IAs for hearing on 04.09.2023."

It is this order of AA which is under challenged in this appeal.

3. The brief facts of the case are as follows:

i. Respondent Nos. 2 to 4 agreed to provide loans totaling Rs. 6 crores to CD

under two Memoranda of Understanding (MOU), with each loan amounting

to Rs. 3 crore, secured by mortgaging the part of White House Property

which is the corporate office of the CD. The first MoU was executed on

13.02.2019 between the CD and Respondents Nos. 3 and 4, and the

second MoU on 15.02.2019 between the CD and Respondent No. 2.

Following alleged defaults in repayment by the CD, two conveyance deeds

dated 27.02.2020 were executed, resulting in the sale of portions of the

White House Property to Respondent Nos. 2 to 4 for a total of Rs. 6 crores.

On 27.02.2020, two separate Leave and License Agreements were

executed, leasing the White House Property to the CD for an 11-month

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term, with Respondent No. 2 leasing the front portion and Respondent

Nos. 3 and 4 leasing the rear. On 08.05.2020, Respondent Nos. 2 to 4

issued legal notices terminating these agreements and demanded that the

CD vacate the premises.

ii. On 04.09.2020, two civil suits were filed against the CD and its director,

Mr. Suraj Kumar Gupta, in the District Judge, Commercial Court at Tis

Hazari, New Delhi. The cases--M/s. Sincere Securities Pvt. Ltd. (CS

Comm. No. 1290/2020) and M/s. Noble Dealcom Pvt. Ltd. (CS Comm. No.

1292/2020)--involve claims for recovery of possession of the White House

Property and lease arrears. The Commercial Court denied a summary

judgment for dispossession.

iii. In the case of Nandini Impex Private Limited v. Sincere Securities

Private Limited & Ors., the Ld. Commercial Court, on 09.12.2021,

ordered the CD to pay Rs. 6 lakh per conveyance deed as interim lease

rental, with an interest return policy if the plaintiffs were found not

entitled. The CD challenged this in two revision petitions. The Delhi High

Court ordered the CD to deposit Rs. 12 lakh for arrears from June 2020 on

21 and 22 March 2022, but dismissed the petitions for non-compliance on

08.08.2022. Subsequently, on 30.08.2022, the Commercial Court allowed

an amendment recognizing the White House Property's value exceeding

Rs. 6 crore. The relevant portion of the order dated 30.08.2022 is extracted

below:

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"Let the plaintiff to file the amended plaint with due

changes in the valuation clause paragraph as ordered

above along with necessary court fees by next date and

thereafter plaint will be returned to plaintiff for filing before

Hon'ble High Court as this court has jurisdiction only upto

Rs. 2 crores and due to amendment of the plaintiff as

sought by plaintiff, the suit had gone beyond the

jurisdiction of this court."

iv. Respondent No. 2 to 4 have filed an application seeking review of the

aforesaid order dated 30.08.2022 with the Commercial Court Tis Hazari

and the same is still pending.

v. In the meantime, UCO Bank filed a petition for initiating CIRP against CD

under Section 7 of the Code which was admitted on 20.09.2022 by NCLT

Kolkata Bench (AA). Accordingly, CP (IB) No. 1377/KB/2020 was admitted

by AA and Respondent No. 1 was appointed as Resolution Professional.

vi. During the pendency of CIRP, Respondent No. 2 (Sincere Securities Pvt.

Ltd.) and Respondents Nos. 3 and 4 (Noble Dealcom Pvt. Ltd. and Jodhpur

Properties and Finance Pvt. Ltd. respectively) filed eviction applications

IA (IBC)/1083(KB)2023 and IA (IBC)/1082(KB)2023) concerning two office

spaces in the "White House" property, which is currently occupied by the

CD. The AA ordered the RP to hand over possession of the property within

two weeks.

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Submission of the Appellant:

4. The counsel for the appellant contests the NCLT's ruling on two eviction

applications (IA (IBC)/1082(KB)2023 and IA (IBC)/1083(KB)2023) in CP (IB) No.

1377/KB/2020, on 07.08.2023, which directed the CD to vacate two office

spaces in the White House Property in Delhi which functions as the corporate

office of the CD. The appellant argues that this order breaches Section 14 of the

Code by neglecting protections against eviction during the CIRP.

5. The Appellant contests this order, claiming it lacks adequate reasoning

and asserting that recovery is barred under Section 14(1)(d) of the Code, which

prohibits third parties from reclaiming possession while the matter is sub-judice.

Furthermore, the AA did not issue formal notices to relevant stakeholders,

including the Appellant, regarding the eviction applications.

6. The counsel for the appellant stated that in the impugned order, the AA

noted that the RP's counsel had referenced a resolution from the CoC suggesting

that the property was unnecessary for the CIRP and should be returned to the

applicant. Relying on this, the AA directed the RP to vacate the property within

two weeks. The issue of occupational charges was set for a later date,

04.09.2023. However, the appellant claims the AA's decision was based on a

false statement by the RP about vacating the property and failed to address the

clear restriction on eviction under Section 14(1)(d) of the IBC.

7. He further stated that this Appellate Tribunal had noted that prayers (b)

and (c) in the order dated 07.08.2023, related to occupational charges, remain

Company Appeal (AT) (Ins.) No. 1064 of 2023 -7-

undecided. These issues will be resolved in further hearings and will depend on

the outcome of the appeal. If Respondents No. 2-4 succeed in the appeal, no

payments will be made until its resolution. This Appellate Tribunal had also

directed that IA No. 1412 of 2023, filed by the Appellant seeking dismissal of the

Eviction Applications, be considered by the AA. Additionally, this Appellate

Tribunal observed that the AA's impugned order failed to provide reasoning for

the direction to vacate the White House Property, despite submissions by the

Appellant, and did not address the applicability of Section 14(1)(d) of the Code

to the property.

8. The appellant has cited para 19 of the Hon'ble Supreme Court Judgment

in Raj Kishore Jha vs State of Bihar 2003 (11) SCC 519 and stated that

Hon'ble SC has time and again observed that reason is the heartbeat of every

conclusion and without the same, it becomes lifeless. Recording of reasons is a

part of fair procedure. Reasons are harbinger between the mind of maker of the

decision in the controversy and the decision or conclusion arrived at. They

substitute subjectivity with objectivity. Failure to give reasons amounts to denial

of justice. The para 19 of the Judgment (supra) is extracted below:

Para 19

"Before we part with the case, we feel it necessary to indicate

that non-reasoned conclusions by appellate courts are not

appropriate, more so, when views of the lower court are differed

from. In case of concurrence, the need to again repeat reasons

Company Appeal (AT) (Ins.) No. 1064 of 2023 -8-

may not be there. It is not so in case of reversal. Reason is the

heartbeat of every conclusion. Without the same, it becomes

lifeless."

9. The appellant has further cited the Para 9 of Judgment of Hon'ble Supreme

Court in M/s. Mangalore Ganesh Beedi Works vs The Commissioner of

Income Tax, Mysore 2005 (2) SCC 329) that Failure to assign any reason

warrants that the matter be remanded before the lower court, which in this case

is the NCLT. This is more so when some of the prayers made in the Eviction

Applications continue to be decided by the NCLT. The para 9 of the Judgment

(Supra) is extracted below:

Para 9

"Recording of reasons is a part of fair procedure. Reasons are

harbinger between the mind of maker of the decision in the

controversy and the decision or conclusion arrived at. They

Substitute subjectivity with objectivity. As observed in Alexander

Machinery (Dudley) Lid. v. Crabtree? failure to give reasons

amounts to denial of justice".

10. The appellant stated that the respondents had filed eviction applications

concerning the White House Property before a final decision was made on

vacating it. Respondents Nos. 2 to 4 filed replies with the Tribunal, and in the

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5th CoC meeting on 17.05.2023, members discussed handing over the Delhi

office to its owner due to high maintenance costs, though a final decision was

postponed pending approval from higher authorities. The application by

respondent claims the handover topic arose in the 3rd CoC meeting and was

delayed by objections from the suspended board, while rent dues remain

contested with pre-CIRP claims admitted for final resolution. The application

seeks a decision from the AA and notes that no vote was held on the vacation

resolution in the 5th meeting, with further discussion scheduled for the 6th CoC

meeting on 20.06.2023. Respondent No. 5's response indicates no final decision

on vacating the property, challenging the AA's order dated 07.08.2023, which

the applicants argue should be set aside and reconsidered by the AA. Separately,

civil suits regarding possession recovery and lease rent, filed by Respondents

Nos. 2 to 4 in Tis Hazari Court, were transferred to the Delhi High Court after

jurisdictional issues. Despite the suits pending when insolvency commenced on

20.09.2022, the RP admitted the claims of Respondents Nos. 2 to 4, stating CoC

approval, though this is disputed. The appellants argue that the impugned order

was premature and that vacating the property without a CoC resolution

contravenes the Code and CIRP Regulations, specifically Sections 14 and 74,

which outline necessary CoC approval for property possession recovery and set

penalties for violations.

11. The appellant has argued that CoC of the CD could not have passed a

resolution acting against Section 14 (1) (d) of the Code. It is pertinent to note

that Section 14 (1) (d) of the Code is mandatory in nature and not merely a

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directory provision. In this regard, the appellant has cited the para 23 of

Judgment of Hon'ble Supreme Court in Rajendra K. Bhutta v. MHADA, (2020)

13 SCC 208 which is extracted below:

(Para 23)

"The conspectus of the aforesaid judgments would show that the

expression "occupied by" would mean or be synonymous with being

in actual physical possession of or being actually used by, in

contradistinction to the expression "possession", which would

connote possession being either constructive or actual and which,

in turn, would include legally being in possession, though factually

not being in physical possession."

The counsel stated that therefore, Section 14 (1) (d) of the Code is absolute

and covers property which is in possession of the CD or which has been occupied

by the CD. This is further evinced from a reading of Regulation 31(b) of the CIRP

Regulations, which states that the amounts due to a person whose rights are

effected under Section 14(1)(d) shall be treated as CIRP costs, the said provision

reads as under: 31. "Insolvency resolution process costs" under Section 5(13)(e)

shall mean (b) amounts due to a person whose rights are prejudicially affected

on account of the moratorium imposed under section 14(1)(d)."

12. The counsel stated that the appellant is a former promoter-director of the

CD managed the CD until the initiation of CIRP on 20.09.2022. Acting on behalf

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of the CD, the Appellant executed agreements concerning the White House

Property, where the CD's corporate office is located and statutory documents are

stored. As a suspended board member, the Appellant attended CoC meetings,

signed the CD's balance sheet for FY ending 31.03.2023, and invested Rs. 65

crores in the CD through personal and affiliated entities - claims which were

fully accepted by the RP. The Appellant also showed interest in settling with UCO

Bank and documented these discussions. Contending that the Impugned Order

lacks adequate reasoning, the Appellant seeks a remand to the NCLT for a

reasoned ruling on the Eviction Applications and IA No. 1412 of 2023.

Submission of Respondents:

13. The counsel for Respondent No.1/RP stated that CoC of the Corporate

Debtor, with 100% voting rights in their commercial wisdom has decided to

handover the Delhi property of the Corporate Debtor. In this regard he cited the

decision of first CoC meeting wherein he was asked to visit the property as a

huge rental amount of Rs. 12 lakhs per month was payable for the same.

14. The counsel stated that during his inspection the Respondent No.1 found

only 8 to 9 people working in such a huge space. He duly informed the same to

CoC. Thereafter, in the third CoC meeting the CoC, with 100% voting rights, in

its commercial wisdom further discussed and decided that it is apparently not

required or feasible to hold this office in such a huge amount of rental expense

and directed the Respondent No. 1 to take steps to handover the possession as

early as possible.

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15. In this regard, the counsel cited that as held by Hon'ble Supreme Court of

India in serval Judgments, the commercial wisdom of the CoC is paramount and

non-justiciable. Further, he cited Hon'ble Supreme Court Judgment in

K.Sashidhar v. Indian Overseas Bank and Essar Steel Judgment.

16. The RP has also raised the issue about the locus of the appellant to

challenge the decision of the CoC taken in their commercial wisdom. In this

regard he has cited decisions of the CoC in 4th and 5th CoC meetings. The counsel

further stated that it is the admitted position that the asset (corporate office in

Delhi) does not belong to the CD and the ownership of the asset lies with

Respondents No. 2 to 4. As such the appellant has does not have any locus to

file this appeal and the appeal is required to be dismissed on this ground alone.

17. The final submission of counsel for Respondent No. 1 is that the decision

of the CoC to hand over Delhi office is not required to be approved by the CoC

by way of any resolution of the CoC as the same is not contemplated under

Section 28 (1) of IBC, 2016.

18. The Counsel for Respondent No. 2 to 4 stated that appeal challenges the

NCLT order dated 07.08.2023, which directed the RP to return the property at

1/18-20 M.M. Road, New Delhi, used as the CD corporate office, to Respondents

2-4. This property was licensed to the CD by Respondents 2-4 for a license fee

of Rs. 6 lakhs for each portion, but due to non-payment, the license was

terminated on 08.05.2020. Despite termination, the CD continued occupying the

property, even after the insolvency process began, and the unpaid license fees

were accounted as part of the CIRP costs. As of 31.08.2023, the license fees owed

Company Appeal (AT) (Ins.) No. 1064 of 2023 -13-

to each respondent stood at Rs. 73,51,300, with an additional Rs. 1,63,72,900

accruing until August 2024, totalling Rs. 3,27,45,800 excluding GST. Due to

high maintenance costs and the CD's reduced need for the office space, the CoC

unanimously resolved to return the property to Respondents 2-4 to maximize

asset value. This decision was upheld by the NCLT, based on the CoC's

commercial judgment. Additionally, on 13.02.2019, the CD had executed

Memoranda of Understanding (MoUs) with Respondents 2-4 for financial

assistance secured by mortgages. When the CD defaulted, conveyance deeds

were executed on 27.02.2020, transferring the property to Respondents 2-4, who

then licensed it back to the CD. Persistent non-payment led to eviction suits in

September 2020, while subsequent appeals and criminal complaints by the CD

were dismissed, with the CD acknowledging the conveyance deeds. Ultimately,

the CoC re-evaluated and re-ratified the property handover in meetings, resulting

in the NCLT order on 07.08.2023, which was implemented on 09.08.2023.

19. The counsel further stated that Respondent No. 2 and Respondent No. 3-

4 are the registered owners of the Corporate Office of CD, as evidenced by

separate Deeds of Conveyance dated 27.02.2020. A registered document is

presumed valid, and the burden of proof lies with those challenging it to provide

substantial evidence rather than just arguments, as established in Ratan Singh

& Ors. v. Nirmal Gill & Ors. (2021) 15 SCC 300. The CD has not initiated any

civil proceedings or filed a counterclaim against the conveyance deeds in the

eviction suit filed by Respondent No. 2-4. Additionally, the CD's balance sheet

for the year ending March 31, 2020, does not list the front and rear properties

Company Appeal (AT) (Ins.) No. 1064 of 2023 -14-

as assets of the CD, and this balance sheet was signed by the Appellant.

According to Explanation (a) to Section 18(1), assets owned by a third party but

in the CD's possession do not qualify as assets of the CD.

Section 14(1) generally prohibits the recovery of possession of premises by an

owner or lessor, when the CD is occupying the premises during the moratorium

period. However, Section 14(1)(d) allows the CoC to use its discretion to hand

over possession of the property if it is in the best interest of the CD. This principle

was demonstrated in the case of Sangita Fiscal Services Pvt. Ltd. v. Duncan

Industries Company Appeal (AT)(Ins.) No. 1522 of 2022, where the Tribunal

permitted the CoC/Resolution Professional (RP) to hand over possession as the

office space was not required by the CD.

20. The corporate office license for the CD was terminated on 08.05.2020 due

to pre-insolvency non-payment, although the CD continued occupying the office.

After insolvency commenced, the license fee for this period was recognized as

CIRP costs, acknowledged by the Appellant. The outstanding license fees from

the insolvency start date to 31.08.2023 amount to Rs. 73,51,300, payable to

Respondents No. 2-4, with additional fees up to August 2024 totalling Rs.

3,27,45,800 (excluding GST). Given the high fees and the CD's lack of need for

the office, the Committee of Creditors (CoC) unanimously decided to return the

office to Respondents No. 2-4. Despite the Appellant's objections, the CoC's

decision was consistently supported in CoC minutes, and through NCLT and

NCLAT proceedings. As a suspended board member with no property ownership,

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the Appellant lacks legal standing and appears to be obstructing the CIRP

process. Thus, dismissal of the appeal with exemplary costs is recommended.

21. The counsel for Respondent No. 5/CoC stated that the appeal challenges

an NCLT order dated August 7, 2023, directing the RP to hand over possession

of certain property to Respondents No. 2-4 within two weeks. Respondents No.

2-4 own different portions of the ground floor of the "White House" building,

leased to the CD for a monthly fee of 6 lakhs per portion. Although the lease was

terminated on May 8, 2020, the CD continued to occupy the space. The CoC with

100% voting approval, resolved to return the properties, concluding they were

not CD assets and the high fees were an unnecessary CIRP cost, especially given

that only limited accounting work was being conducted on the premises by a

small staff. The properties had been conveyed to Respondents No. 2-4 in

February 2020 by registered deeds, and they filed eviction suits later that year.

While the Tis Hazari Court initially ordered CD to pay monthly occupation

charges, this order was stayed by the High Court but later reinstated due to CD's

non-compliance. Despite the Appellant's objections, the CoC reaffirmed its

decision across multiple meetings, supporting the return of the properties to

reduce costs. Ultimately, the NCLT upheld this view and ordered the RP to

comply with its decision.

22. He further stated that the Corporate Office is not an asset of the CD and

cannot be included in its asset pool. Respondent No.2 owns the front property,

and Respondents No.3-4 own the rear property, both via registered Deeds of

Conveyance dated 27.02.2020. The term 'assets' does not include third-party

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assets in possession of the CD, as per Section 18(1), and the Supreme Court

ruling in Embassy Property Developments Pvt. Ltd. v. State of Karnataka,

2019. Respondent No.5, the sole CoC member with 100% voting rights, decided

to hand over possession of the Corporate Office. The Leave and License

agreements for the front and rear properties were terminated on 08.05.2020 due

to non-payment of license fees of Rs. 6 lakhs each, as detailed in the agreements

and supported by the Tis Hazari Court's order of 09.12.2021. The appellant

admitted that the license fee during the CIRP period constitutes CIRP costs, per

Regulation 31(b) of IBBI regulations. In the first CoC meeting, the CoC directed

the RP to evaluate the necessity of retaining the Corporate Office due to high

rental costs. The RP visited the property on 21.03.2023 and found minimal

operations, just accounting by 8-9 employees. Subsequently, in the 3rd and 5th

CoC meetings, the CoC decided there was no need to retain the office and

instructed the RP to hand it over. Despite objections from the suspended board

of directors, the CoC reaffirmed its decision to vacate the office to maximize the

CD's asset value. The CoC's final decision was recorded in its reply, with a

majority vote supporting the handover, though delays were caused by repetitive

objections.

23. The counsel argued that the property in question is not an asset of the

CD and is unnecessary for its operations, as only 8-9 employees used it for

accounting tasks that could be performed at the CD's registered address. The

high license fee for the property is unsustainable, as the CD does not generate

sufficient income to cover it, and incurring such costs during CIRP would only

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increase expenses and hinder the resolution efforts. Although Section 14(1) of

the Code prohibits recovery of possession during the moratorium, it does not

prevent the CoC or RP from voluntarily relinquishing possession of non-asset

properties, as established in Sangita Fiscal Services Pvt. Ltd. v. Duncan

Industries. The CoC's decision to hand over the property was made after

evaluating the CD's financial situation and is protected from judicial review,

according to K. Sasidhar v. Indian Overseas Bank. Additionally, the appellant,

a suspended director, lacks standing to appeal since the property was conveyed

before the insolvency commencement and the leave and license had already been

terminated. Thus, the appellant has no grounds to challenge the CoC's decision

regarding the property.

Analysis and Findings:

24. We have heard the Learned counsels of all the parties in detail and gone

through the records of the case including the written submissions made by the

parties.

25. The main contention of the appellant is that impugned order is completely

unreasoned and non-speaking in nature and only a part of the application has

been decided. The appellant's case is that under Section 14 (1) (d) of the code.

There is an absolute bar on recovery of any property by an owner or lessor where

such property is occupied by or in the possession of the Corporate Debtor.

26. The Respondents on the other hand have contended that the impugned

order has been passed based on the decision of CoC to let go of the said property

Company Appeal (AT) (Ins.) No. 1064 of 2023 -18-

due to high cost of rental. Their contention is that the commercial wisdom of the

CoC is supreme and that the CoC has taken the decision with 100% voting rights.

The Respondents have also referred to various decisions of Hon'ble Supreme

Court in particular K. Sasidhar V. Indian Overseas Bank [(2019) 12 SCC

150] and Essar Steel Judgment to highlight the supremacy of CoC's wisdom.

27. Respondents have also argued that the corporate office is not an asset of

the CD and cannot formed part of the pool of assets of the CD. Regarding

embargo under Section 14 1 (d) of the code for handing over the property, they

have submitted that the said Section does not prohibit the RP or the CoC in its

commercial wisdom to handover possession of a property with the CD to keep

the CD as a going concern. In this regard, they have cited the Judgment of this

Tribunal in Sangita Fiscal Services Pvt. Ltd. v. Duncan Industries, Company

Appeal (AT) (Ins.) No. 1522 of 2022. Respondents have also question locus of

the appellant in the present appeal.

28. They have also argued that the appellant has no locus in the case as the

matter is between CD and third parties.

29. There are two issues which need to be decided in this appeal:

(i) Whether the application of the appellant is maintainable;

(ii) Keeping in mind the provisions of Section 14 (1) (d) of the code, whether

CoC can take a decision to hand over the property in possession of CD to

third parties and whether AA has powers to allow such advice of CoC?

30. We first examine the locus of the appellant in the instant matter. The

appellant is former Promoter Director of the CD and he also has filed a claim

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with RP as a Creditor which has been accepted by the RP. Hon'ble Supreme

Court has held in GLAS Trust Company LLC v. BY JU Raveendran & Ors.

(Civil Appeal No. 9986 of 2024) that insolvency proceedings under the Code

become proceedings in-rem from the date of admission by the Adjudicating

Authority. This inter alia means that the claims/applications of all the affected

parties have to be adjudicated by the AA. In this case, the appellant is an affected

party as erstwhile promoter Director of CD and a Creditor of CD, so his

application is very much maintainable and is covered by the Judgment of Hon'ble

SC in GLAS Trust supra. Therefore, we answer this question in affirmative.

31. The second issue relates to resolution of the CoC to handover the property

White House, which is the corporate headquarter of the CD to respondent 2,3 &

4. It is the submission of the appellant that there was no clear decision of the

CoC in this regard as the matter was left undecided as seen from the relevant

extracts of minutes of the 3rd 5th & 6th CoC meetings. The relevant extract of 3rd

meeting of CoC is extracted below:

"Agenda 5 (iv)

The undersigned also informed that he visited the corporate office of

Corporate Debtors Delhi office at Front Portion and Rear Portion at

Ground Floor of premises No. -1/18-20, Rani Jhansi Road, White

House, New Delhi-110055 as on 21st March, 2023, as this office is

under leave and license agreement and lease rental of around 12.00

Lacs. After assessing the need it is informed that it is not feasible to

kept the office as only 8 to 9 staffs are there and the revenue which

is generating not capable of pay off the same. The CoC discussed

Company Appeal (AT) (Ins.) No. 1064 of 2023 -20-

the matter and Intimate RP to hand-over the possession as early as

possible and decided that there is no requirement apparently to hold

the office spending such huge amount of lease rental."

32. The CoC in this meeting decided to handover possession of the registered

office in Delhi as early as possible, but there was no voting on this agenda.

33. The matter regarding the vacation of Registered office of the CD was

further discussed in the 5th meeting of CoC. The relevant extracts of the meeting

are extracted below:

(Agenda-5)

To discuss the steps taken by the Resolution Professional as a part

of the corporate insolvency resolution process and report/status

thereto:-

The undersigned began the discussion regarding the main agenda

of meeting i.e., issue relating to the handover of the Delhi office of

Corporate Debtors located at Front Portion and rear Portion at

Ground Floor of premises No. -1/18-20, Rani Jhansi Road, White

House, New Delhi - 110055. In the 3rd COC meeting on 6th April,

2023 & 4th COC meeting which was held on 11th may, 2023 it was

decided by COC to vacate the possession of Delhi office as early as

possible but after discussing with Mr. Chandra Kant Khemka,

suspended director in the last meeting submitted the legal opinion

of advocate Mr. Tamoghna Saha and also he requested for 2 to 3

days of time for submitting another legal opinion from M/s KHAITAN

& Co. and he submitted the legal opinion of Mr. Aman Gupta few

Company Appeal (AT) (Ins.) No. 1064 of 2023 -21-

hours before this CoC meetings and in the 5th COC meeting

undersigned shared the legal opinion of Advocate Aman Gupta with

the COC member.

After that RP asked the representative of Corporate Debtor i.e., Mr.

S. Mitra, Advocate to express his opinion regarding the handover of

the Delhi office matter and he started with that the CIRP is about to

end in 3 to 4 months of time and questioning the decision to divest

the Corporate Debtor principal's office at this juncture as all the

corporate operations are carried out from there only. He also stated

that the change at this stage will affect the going concern and

smooth operation of the business. At this juncture Form-G has been

Published and RFRP has been issued to PRA'S. As this matter

concerned with pre CIRP and claim has been lodged and also there

was a direction from Tis Hazari Court which was modified by

Honorable High Court and High Court order will be revised, so

whether this Cost of shifting or acquiring a new office or due

diligence done for this will affect the whole purpose of the resolution

that CD gets back to his position. At this Stage having such a big

office and suddenly moving to a small office with very few staffs

would not promote the going concern and business operations rather

affecting the moral of employees but may also create panic among

them. Until the RP finds anything which concrete evidence for vacate

the Delhi Office. The main point ask by RP that rent is to be paid or

not to the concern person. the advocate represented by suspended

director's clear answer was that if it is treated as part of CIRP Cost

Company Appeal (AT) (Ins.) No. 1064 of 2023 -22-

and it will be paid from present funds or after resolution plan or

liquidation stage so for that Company should operate as a going

concern, but again asked by RP whether the rent is to paid or not,

he said that it was the decision of RP himself. As per section 5(13) if

it is the RP Contention that rent was CIRP Cost and important for

going Concern status then it may have to be paid but after giving the

office would also harm the going concern status as it is RP's foremost

duty to run the office not to close down. As Law inherits the third

party for recovering and as this is the property of CD and It should

be there with the CD only. Keeping in mind the stage of CIRP will

end in 3 to 4 months why take away such a valuable property which

was in prime locality which will detract company from going concern

status. As per section 14 (1) the whole object is to keep the property

is in place. As if prime properties was vacate it will affect the

investors and companies financial position. He also said it was a

matter of Pre CIRP and fraud case has been filed against landlord

so it was not a matter to discussed now. After that Mr. S. Mitra has

ended his speech.

The undersigned asked to Mr. Chandrakant Khemka, the

suspended Director to share his view and he replied that the matter

is sub-judice. The Court order is very Specific as per Tis Hazari court

no possession should be given, so if you are relying on one document

so in finality Tis Hazari court has told that they have no jurisdiction

the matter should be referred to the high court. As they have not paid

any stamp duty or past or future money 5) payable and they are

Company Appeal (AT) (Ins.) No. 1064 of 2023 -23-

under criminal investigation of police. As there is only 3 to 4 months

left for the entire process (CIRP) and can closed the main office, as

our Plant & Machinery spread all over India in various states & In

various sites as you are telling to vacate the office in 2 to 3 days and

it became very difficult to control and manage. Another unwanted

situation may arise with various contracts made by the company

with various parties for the business operations and a panic

situation may arise whether their contracts will continue or not.

The undersigned asks Mr. Manoj Kumar Singhee, Director of Nobel

Dealcom Private Limited and Mr. Bhagwandas Agarwal,Director of

Sincere Securities Private Limited [Operational Creditor] to expresses

his views and he referred the order of the court CS (COMM) No

1291/20 dated 01.10.2022 and as on 01.11.2022. He briefs the

facts of the case before COC members. The another operational

creditors representing B.D. Agarwal representing Sincere Securities

Private Limited who is one of the owner of the Delhi office repeatedly

questioning "how can one hold office without payment of

occupational charges" and expresses his opinion similar to other

operational creditor i.e., Mr. Manoj Kumar Singhee and after that

COC member takes the note of it.

After that COC members express their opinion that there is Specific

rules and regulation that has to be followed by each and every one.

Every decision of the COC is being taken after the recommendation

of the COC and by the RP, so COC members with 100% voting shares

have taken the decision that Delhi office should be vacated in the

Company Appeal (AT) (Ins.) No. 1064 of 2023 -24-

last meeting/and they may take various legal opinions at various

sources but the legal opinion presented by M/s. Nandini Impex

Private Limited can force COC members to take the decision or

impose on Us. As this is not a court proceeding it is only a COC

meeting where decision will be taken by RP on the recommendation

of COC and COC has given consent for, vacation of the premises

instead of spending so much in lease rent in order to maximize the

valve of the assets of the Corporate Debtor/if any party is having

any grievances relating to the decision they can approach to the

appropriate authority and/or forum as they think fit. After that

undersigned take a note of it and placed the following resolution for

voting :-

"RESOLVED THAT handover of the Delhi office i.., Front Portion and

rear Portion at Ground Floor of premises No. -1/18-20, Rani Jhansi

Road, White House, New Delhi - 110055 to the owner of the premises

as there is no requirement to hold the office premises spending huge

amount of lease rental."

(Agenda-8)

To ratify and approve other expenses for the period from 11.05.2023

to till date incurred/to be incurred as insolvency resolution process

costs:

Since the next COC meeting will be held in the next week the

ratification of other expenses will be done in the next meeting and/or

later on as per the decision of the COC."

(emphasis supplied)

Company Appeal (AT) (Ins.) No. 1064 of 2023 -25-

34. We can see from the minutes of the 5th CoC meeting that there is a

resolution for handover of Delhi office which was supposed to be voted upon but

the same has not been voted upon in the 5th CoC meeting. Voting only related to

CIRP expenses in this meeting.

35. In the 6th CoC meeting the matter relating to vacation of the building was

discussed under the agenda item "Any other matter with the permission of the

chair"- Agenda 10.

(Agenda-10)

To discuss such other matters with the permission of majority of

Members of the Committee of Creditors as may be deemed

necessary for the smooth functioning of the corporate insolvency

resolution process:

Since all the discussions had been made as per the items mentioned

in the agenda. Hence there was no requirement to take up any other

agenda.

During the meeting the issue with respect to the vacation of

registered office was pointed out by the COC. Since the agenda was

not in the list, the undersigned with the permission of the COC, put

the agenda in any other matter. The COC has informed that they are

in a process of seeking legal opinion from the advocate till then the

voting with respect to the same could not be done. It was further

discussed that Nobel Dealcom and Sincere securities has also

moved an application before the Hon 'ble NCLT. The undersigned

was requested to appear and take necessary steps."

(Emphasis supplied)

Company Appeal (AT) (Ins.) No. 1064 of 2023 -26-

36. It is seen from the extract of minutes of the 6th CoC that the CoC was

seeking legal opinion from the advocate regarding vacation of the registered

office, and till then the voting with respect to the same could not be done. It was

further discussed that in view of applications filed by Nobel Dealcom and Sincere

Securities before the AA, the RP should appear and take necessary steps. It is

clear from the above, that there was no final decision of the CoC with proper

voting, with regard to vacation of the registered office of the CD.

37. In our view the CoC does not appear to have taken a decision about

vacation of registered office even in the 6th CoC meeting after which RP gave a

statement in Court that the property is not required to be held based on which

AA passed the impugned order. CoC at this stage also stated that they are in

process of seeking legal opinion and till such time voting on the agenda could

not be done. It is clear from the above that the decision to release the property

by the RP was his own decision, which was not confirmed by CoC. The

submission of CoC at this stage, that such decision was taken with 100% voting

right does not seem to be based on records.

38. We finally consider the most critical issue in this matter relating to

application of Section 14 (1) (d) of the code. The submission of the appellant is

that there is absolute bar on handing over possession of such property and CoC/

RP were not competent to take a decision in this regard.

Section 14 (1) (d) of the code reads as follows:

"14 Moratorium :-- Subject to provisions of sub -section (2) and (3) on the

insolvency commencement date the adjudicating authority shall by order

declare moratorium for prohibiting all of the following namely:--

Company Appeal (AT) (Ins.) No. 1064 of 2023 -27-

(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."

39. The Moratorium under Section 14 is probably the most important Section

in the code which tries to ensure that during the CIRP process the CD is

insulated from any proceedings claims etc. and at the same time CD can be

operated as a going concern. The Section makes it binding upon AA to declare

moratorium for prohibiting actions under Clauses (a) to (d) of sub-section 1.

40. The language of Section 14 (1) (d) makes it absolutely clear that no owner

or lessor of a property, which is occupied by or is in possession of Corporate

Debtor can recover such property from the CD. It is an express provision in the

Code and there are no exceptions from the same.

41. In the present case the I.As filed by Respondent No. 2 , 3 & 4 are for

recovery of property from the possession of the CD have been allowed by AA on

the basis of submissions by RP. It has been stated that the submission of RP

was based on the decision of the CoC. We have seen in the paragraphs above

that CoC had not taken any decision to release the property before the RP made

his submissions before AA allowing release of property by the AA to Respondents

No. 2 to 4.

42. It is the submission of respondents that Section 14 (1) (d) does not prohibit

the RP or the CoC in its commercial wisdom to handover possession of a property

belonging to the 3rd party in possession of CD in the best interest of keeping CD

as a going concern. In this regard they have cited the order of this Tribunal in

Company Appeal (AT) (Ins.) No. 1064 of 2023 -28-

Sangita Fiscal Services Pvt. Ltd. v. Duncan Industries (supra). The order in the

instant case is reproduced below:

"04.01.2023: Heard Learned Counsel for the Appellant.

2. This Appeal has been filed against the Order dated 14th

September, 2022 passed by the Adjudicating Authority in I.A. No.

557(KB)2021. The Application was filed by the Lessor seeking the

possession of the Flat which was in the possession of the Corporate

Debtor and now in the possession of the Resolution Professional. A

reply was filed to the said I.A. in which Resolution Professional

made a statement in paragraph 9 which has been extracted by the

Adjudicating Authority in paragraph 3(b) which is to the following

effect:

"b. In para 9 of this Affidavit reads as "It is submitted

that the said property has not been included in the pool

of assets of the Corporate Debtor by the Resolution

Professional. Hence, the Resolution Professional shall not

transfer the possession of the property and/or create any

third party rights on the said property during the course

of the Corporate Insolvency Resolution Process of the

Corporate Debtor."

3. The Adjudicating Authority after noticing the aforesaid statement

made, directed the Resolution Professional to hand over the

possession of flat within four weeks.

4. Learned Counsel for the Appellant submits that a suit has already

been filed for eviction which is pending in City Civil Court.

Company Appeal (AT) (Ins.) No. 1064 of 2023 -29-

5. Be that as it may, when the asset does not belong to the Corporate

Debtor and as submitted by the Learned Counsel for the Appellant

that earlier in the premises, there was office of the Corporate Debtor

which is now shifted, we are of the view that the directions passed

by the Adjudicating Authority for vacating the premises cannot be

faulted. The Resolution Professional can incur liability in the CIRP if

there is any requirement. Unnecessary incurring expenses and costs

is unnecessary burden which need to be paid as CIRP Cost. Thus,

we see no reason to interfere with the Impugned Order, the Appeal

is dismissed."

43. There are two distinguishing features between the present case and

Sangita Fiscal supra. Firstly, in the Sangita Fiscal matter there is no pleading

relating to application of Section 14 (1) (d) of the Code. And secondly the premises

to be handed over was vacant and not being used by the CD.

44. We have also seen the prayer made by Respondent No. 2 in I.A. No. 1083

and Respondent No. 3 & 4 in I.A No. 1081. The main prayer in these applications

are identical and are reproduced below:

"I.A. No. 1083

(a) An order be made for delivery of possession of the said premises

situated at the Ground Floor (part of front portion) comprising of 2400

sq. ft. of property at 1/18, 1/19 and 1/20, Ward No. XV at M.M.

Road (Eastern Rear Portion) bearing municipal no.1/ 18-20, White

House, Rani Jhansi Road, New Delhi-110055 by the Respondent

No.1 to the applicant forthwith

I.A. No. 1082

Company Appeal (AT) (Ins.) No. 1064 of 2023 -30-

(a) An order be made for delivery of possession of the said premises

situated at the Ground Floor (part of rear portion) comprising of 2400

sq. ft. of property at 1/18, 1/19 and 1/20, Ward No. XV at M.M.

Road (Eastern Rear Portion) bearing municipal no.1/ 18-20, White

House, Rani Jhansi Road, New Delhi-110055 by the Respondent

No.1 to the applicants forthwith."

45. The main prayer in the I.A filed by the Respondents relates to recovery of

possession. Section 14 (1) (d) of the code specifically prohibits the recovery of any

property by the owner of lessor where such property is occupied by or in the

possession of the CD. In such a situation, where there is a prohibition on

recovery of property, can the owner/lessors even file an application before the

AA for recovery of such property? In our view, such application before AA is not

maintainable in terms of Section 14 (1) (d).

46. The situation might have been different, if such a prayer was made by the

RP with express consent of Committee of Creditors.

47. The respondents have also referred to explanation to Section 18 (1) of the

Code to argue that the term 'assets' does not include the assets owned by a third

party but in possession of the CD. They have argued that the corporate office is

not an asset of the CD and cannot form part of the pool of the asset of the CD.

The explanation to Section 18 (a) is extracted below:

"Explanation- For the purposes of this [Section], the term "assets"

shall not include the following, namely:-

Company Appeal (AT) (Ins.) No. 1064 of 2023 -31-

(a) Assets owned by a third party in possession of the corporate

debtor held under trust or under contractual arrangements

including bailment;"

48. It should be mentioned that this definition of asset is in the context of

duties of Interim Resolution Professional under Section 18 and such definition

of 'asset' is specific to Section 18 only. It is not connected to Section 14 (1) (d) in

any manner. It is an admitted fact that the corporate office of the CD is the

property of 3rd parties and that's why it attracts Section 14 (1) (d).

49. We have seen in the above paragraphs that moratorium under Section 14

binds the AA also by the use of the word "shall by order declare moratorium for

prohibiting all of the following" inter alia meaning that it is a mandatory action

on the part of AA. The AA should have first examined, whether it is possible to

allow such applications in view of express provisions in Section 14 (1) (d) even if

such applications are supported by CoC. Prima facie the Code does not seem to

provide such discretion to AA. In any case AA should have examined the issue

in detail with regard to provision of Section 14 (1) (d) before passing a non-

speaking order merely on the basis of consent of RP to release of property based

on application by owner/lessor.

50. We have also seen that AA has done part adjudication in this matter and

It had not adjudicated on the prayer (b) and (c) of the I.As. In this regard we refer

to para 9 of the order dated 02.04.2024 passed by this Bench in I.A. No. 305 of

2024 which is extracted below:

"9. We have heard Counsel for the parties and after examining the record are of the considered opinion that prayers (b) and (c) were not

Company Appeal (AT) (Ins.) No. 1064 of 2023 -32-

decided by the Tribunal by way of the impugned order dated 07.08.2023 because it has been observed in the said order that "as far as other reliefs in the nature of payment of occupational charges is concerned, post these IAs for hearing on 04.09.2023". Therefore, the Tribunal shall continue with the decision of the applications regarding prayers (b) and (c) and decide the same but the decision of the applications regarding prayers (b) and (c) shall be subject to the outcome of the present appeal and in case prayers made by the Applicant (Respondent No. 2 -4) is allowed then no payment shall be made to the applicant till the decision of this appeal. It is needless to mention that the Tribunal shall also consider the application i.e I.A. No. 1412 of 2023 filed by the Appellant. The application is disposed of accordingly."

51. The following emerges from the discussion above:

i. the appellant has locus to file this appeal

ii. The order of AA in the I.A No. 1083 filed by Respondent No.2 and I.A. No.

1082 filed by Respondent No. 3 to 4 has been passed on the prayer of

owner/lessor. The RP has only supported the contention of Respondents

No. 2 to 4. The AA has not examined the maintainability of such

application by owner/lessor in view of express provision under Section 14

(1) (d) of the Code.

iii. The issue of supremacy of commercial wisdom of CoC could not be

considered at this stage as the prayer in the I.As was filed by

owners/lessors and not by RP/ Respondent No.1 acting with express

consent of CoC.

Company Appeal (AT) (Ins.) No. 1064 of 2023 -33-

iv. The order of AA does not give detailed reasons for allowing the main prayer

in I.As without considering the provisions of Section 14 (1) (d) of the Code.

52. In view of discussion above, the appeal is allowed. We remand the case

back to the AA to examine and decide the issues in a comprehensive manner

including the application of the appellant in I.A. No. 1412 of 2023 preferably

within four weeks. The Adjudicating Authority may decide in accordance with

law without being influenced by anything contained herein above. Parties are

directed to appear before the Tribunal on 26.11.2024.

[Justice Rakesh Kumar Jain] Member (Judicial)

[Mr. Naresh Salecha] Member (Technical)

[Mr. Indevar Pandey] Member (Technical)

sa

Company Appeal (AT) (Ins.) No. 1064 of 2023