Kashi Viswanathan Sivaraman ... vs New Okhla Industrial Development ...

[Arising out of order dated 11.01.2024 passed by the Adjudicating Authority, National Company Law Tribunal, New Delhi Bench (Court-II) in I.A. No. 1592/ND/2019 in C.P. (IB)-470(ND)/2017]

IN THE MATTER OF:

Kashi Viswanathan Sivaraman Resolution Professional Kindle Developers Private Limited Having office address at E-10A, Kailash Colony, Greater Kailash-I New Delhi-110048. ...Appellant

Versus

New Okhla Industrial Development Authority Main Administrative Building, Sector 6, Noida. ...Respondent

Present:

Appellant: Ms. Ritika Gaur, Mr. Niraj Chamiyal, Mr. Dhananjaya Sud, Ms. Swechcha Mishra, Advocates. For Respondents: Mr. Rachit Mittal and Mr. Adarsh Srivastava, Advocate for R-1.

JUDGMENT

[Per: Barun Mitra, Member (Technical)]

The present appeal filed by the Appellant arises out of the order dated 11.

01. 2024 (hereinafter referred to as 'Impugned Order') passed by the

Adjudicating Authority (National Company Law Tribunal, New Delhi Bench,

Company Appeal (AT) (Insolvency) No. 574 of 2024 2

Court-II) in IA No. 1592/ND/2019 in CP (IB) No. 470 (ND)/2017. By the impugned

order, the Adjudicating Authority has made certain observations about the

Resolution Professional ('RP' in short) in the conduct of the Corporate Insolvency

Resolution Process ('CIRP' in short) of the Corporate Debtor-Kindle Developers

Private Limited. Aggrieved by the observations contained in the impugned order

relating to conduct of CIRP by the Appellant/RP, the present appeal has been

preferred.

2. Making his submissions, the Learned Counsel for the Appellant submitted

that the Corporate Debtor was admitted into CIRP on 09.03.2018. The RP had

submitted the resolution plan which had been approved by the Committee of

Creditors ('COC' in short) with a voting percentage of 92.39% before the

Adjudicating Authority for approval at which stage an application was filed by the

Respondent-Noida authority vide I.A. No. 1592/2019, seeking exclusion of plot

number SC-01/D1, Sector 79, Noida ('subject plot' in short) from the resolution

plan. Exclusion of the subject plot was sought on the ground that the lease of the

subject plot with the erstwhile management of the Corporate Debtor was cancelled

by them on 13.08.2015 which date clearly preceded the initiation of the CIRP of

the Corporate Debtor and hence could not be made part of the resolution plan.

3. Submission was pressed by Learned Counsel for the Appellant that since

the Respondent had not taken back the possession of the subject plot from the

Corporate Debtor, the lease deed is deemed to have continued with the Corporate

Debtor. It was also asserted that the Noida authority had preferred the application

before the Adjudicating Authority to exclude the subject plot from the resolution

plan of the Corporate Debtor after five years of cancellation of the lease. Under

Company Appeal (AT) (Insolvency) No. 574 of 2024 3

such circumstances, when the Respondent had not taken possession of the land

even after alleged cancellation of the lease deed, the Appellant did not commit any

error in holding that this amounted to a tenancy at holding under the provisions

of Section 116 of the Transfer of Property Act, 1882. Furthermore, non-

enforcement of cancellation of the lease deed by the Noida authority resulted in

the creation of third-party rights over the said property in favour of home buyers.

It is also the contention of the Appellant that with the commencement of CIRP of

the Corporate Debtor, moratorium had come into force and hence the Corporate

Debtor was prohibited from transferring, encumbering, alienating, or disposing of

any legal right or beneficial interest. The moratorium also put a prohibition on

the Noida authority to recover, any part of the subject plot which was under the

occupation of the Corporate Debtor.

4. Refuting the contentions raised by the Appellant, the Learned Counsel for

the Respondent submitted that the lease deed of the subject land had been

terminated by the Noida authority prior to the commencement of the CIRP of the

Corporate Debtor. The lease deed had been cancelled on 13.08.2015. In terms of

the policy of Noida authority, a cancelled plot can be restored only if the

restoration application is made within 90 days from the date of cancellation.

However, the request for restoration was made after more than 300 days on

14.06.2016 and was rejected by Noida authority on 10.11.2020. In view of this

cancellation, the subject lease land could not have been dealt in the resolution

plan of the Corporate Debtor.

5. It was also asserted that the Adjudicating Authority while considering the

I.A.No. 1592/2019 had correctly held that the RP in spite of being fully conscious

Company Appeal (AT) (Insolvency) No. 574 of 2024 4

and aware of the fact that cancellation of the lease of the subject plot had taken

place, yet the RP continued to take all action including preparation of the

Information Memorandum projecting the cancelled lease of the subject land as an

asset of the Corporate Debtor and for inviting Expression of Interest ('EOI' in

short) to obtain resolution plans from prospective resolution applicants.

Submitting that the RP acted irresponsibly in getting approval of the resolution

plan from the COC as if the said plot of land existed with the Corporate Debtor,

it was contended that the observations of the Adjudicating Authority that the RP

was attempting to justify the wrong and fraudulent action of the suspended

management of the Corporate Debtor that the lease over the land was still

subsisting was justified.

6. We have duly considered the arguments advanced by the Learned Counsel

for the parties and perused the records carefully.

7. At the outset we may take notice of the reliefs prayed for by the Appellant

which are as follows:

"a) Allow the present Appeal;

b) Set aside the observations my by the Ld. Adjudicating Authority as against the Appellant in Paras 28 & 30 in Impugned Order dated 11.01.2024 passed by the Hon'ble National Company Law Tribunal, New Delhi Bench-II in I.A. No. 1592 of 2019;

c) Pass any other Order which this Hon'ble Tribunal deems fit."

8. The Appellant has fleshed out the observations made by the Adjudicating

Authority in the impugned order at pages 32-33 of the Appeal Paper Book which

is also reproduced below for easy reference:

Company Appeal (AT) (Insolvency) No. 574 of 2024 5

"28......Thus, what emerges is that the CD/its promoters got the RERA registration of the project done on 15.08.2017 by falsely claiming the legal title over the land whereas the same was cancelled by Noida as back as on 13.08.2015. Even otherwise, the fact of RERA registration of the project ipso facto does not establish that the lease of Plot No. SC-01/D-1, Sector 79 Noida, which was cancelled by Noida Authority vide letter dated 13.08.2015, was subsisting or stood revived. Hence, this plea made by the Respondent/RP does not hold water, rather it is an attempt by the RP to justify the wrong/fraudulent action of the ex-management of the Corporate Debtor.

30. However, before parting with the order, we observe that this is a classic case where, not only the ex-Directors/promoters, despite being fully aware of the cancellation of the "project land" by the Noida Authority as back as on 13.08.2015 (much before the commencement of the CIRP) due to non-payments of land dues by them, continued to accumulate money thereby duping the homebuyers, who nurtured the hope of getting a roof over their head and invested their hard earned life savings but also the IRP/RP too, (despite being fully conscious of the fact of cancellation of the "project land" as evident from the CIRP order dated 09.03.2018, RP's own averments in C.A. No. 479 of 2019 filed by him against G.S. Buildwell Pvt. Ltd. & Ors. and also, in IA-3202 of 2020), continued to take all actions including preparation of Information Memorandum (IM), projecting the cancelled "project plot" as the asset of the Corporate Debtor, inviting EOIs and getting approval of a Resolution Plan from the COC as if the said plot existed with the Corporate Debtor."

9. It is the case of the RP that though the Respondent/Noida authority had

issued the lease cancellation letter dated 13.08.2015, the project engineer of

Noida authority did not take back the possession of land from the Corporate

Debtor after 30 days of the cancellation which it was required to do. Neither did

the Noida authority take proper steps to resume the land as per Sections 13 and

14 of the UP Industrial Area Development Act, 1976. No forfeiture letter was also

issued by the Noida authority following cancellation of the lease. Respondent had

Company Appeal (AT) (Insolvency) No. 574 of 2024 6

not taken back the possession of the subject land from the Corporate Debtor.

Instead, it allowed the lease premium and lease rental to accumulate in its books.

Moreover, Noida authority had never objected to the UP RERA registration of

15.08.2017 and this had resulted in creation of third-party rights over the subject

plot. It was only on 10.11.2020 that the Noida authority rejected the request for

restoration of the plot of land by which time moratorium under Section 14 of IBC

had come into place.

10. In defence of its diligent conduct of the CIRP proceedings, the RP has

stated that several meetings were facilitated between the suspended management

of the Corporate Debtor and the Noida authority so as to resolve the dispute as

regards the subsistence of the lease. Since these efforts remained inconclusive,

the Information Memorandum prepared by the Appellant also expressly stated

that the lease was cancelled by the Noida authority due to non-payment of dues

by way of a letter dated 13.08.2015. It has also been submitted that the resolution

plan that was approved by the COC clearly provided that the lease deed was

cancelled by the Noida authority while also noting that the disputed asset is in

the possession of Corporate Debtor. Hence it was emphatically asserted that the

Appellant had maintained complete transparency with members of the COC as

regards the subject plot.

11. In support of the right earnest demonstrated by the RP, attention was

drawn to the filing of I.A. No.3202/2020 under Section 66 of the IBC stating that

the RERA registration carried out by the suspended management was illegal and

that Noida authority was a mute spectator to the said registration. It is contended

by the Appellant that they never attempted to justify the wrongdoing of the

Company Appeal (AT) (Insolvency) No. 574 of 2024 7

suspended management of the Corporate Debtor. It has also been contended that

the RP had filed a complaint with the EOW wing of the Delhi police against the

suspended management of the Corporate Debtor on 20.05.2020. It has also been

submitted that post-commencement of the CIRP of the Corporate Debtor, the RP

had sent a letter on 14.08.2018 to the Noida authority to file its claim. However,

Noida authority took no steps to file the claims. Further the resolution plan had

duly dealt with payment to the Noida authority. However, the Adjudicating

Authority without according due consideration towards these pro-active steps

taken by the RP in the discharge of his duties, instead recorded their unsavoury

observations on the functioning of the RP.

12. Coming to our analysis and findings, we are of the view that material on

record clearly show that the lease of the subject plot was cancelled by Noida

authority on 13.08.2015. Nothing has been placed on record to show that the

lease deed of the said plot was restored to the Corporate Debtor except that an

application had been filed by the suspended management after a gap of 305 days

before the Noida authority seeking restoration. It is also an undisputed fact that

Noida authority had not taken any decision on the said representation and that

a decision was taken thereon by the Noida authority on the directions of the

Adjudicating Authority which was passed on 12.10.2020. The Noida authority on

10.11.2020 had sent a detailed reply stating that the restoration application is

rejected in view of violation of the terms of the lease deed dated 24.10.2011. In

the present case, the Adjudicating Authority has correctly held that since the

lease deed had been cancelled much before the commencement of the CIRP, the

Corporate Debtor had lost the right to possess the subject plot before the initiation

Company Appeal (AT) (Insolvency) No. 574 of 2024 8

of CIRP. Since the subject plot ceased to be an asset of the Corporate Debtor with

effect from 13.08.2015, the provision of moratorium in terms of Section 14 of the

IBC will not get attracted in the present case.

13. There is nothing on record to show that post cancellation of the lease deed,

the Noida authority was paid any lease rent or there is any written permission or

assent of the Noida authority for restoration or continuation of the said lease.

Simply by having filed an application for restoration of the said plot of land, the

deemed subsistence or continuation of the lease deed cannot be presumed. The

lease having been cancelled on 31.08.2015 for want of deposit of necessary lease

rent/charges in terms of the allotment, the lease land could not have been made

a part of the resolution plan of the Corporate Debtor. Even the UP RERA

registration had been obtained by falsely claiming the legal title over the lease

land. It is also the case of the Noida authority that it could not object to the UP

RERA registration since the project was registered by the erstwhile Corporate

Debtor without prior information to the Noida authority and that the registration

was obtained by making a false statement before the UP RERA that the Corporate

Debtor had legal title to the subject lease land. Basis this wrongful obtaining of

RERA registration, it cannot be rightfully claimed by the RP that the lease was

subsisting or stood revived. We also notice that the Noida authority in their reply

to I.A. 3202/2020 had mentioned that that UP RERA authorities were informed

on 27.01.2021 during the CIRP period to cancel the RERA registration.

14. The CIRP admission order of the Corporate Debtor also clearly noted that

the Noida authority had cancelled the lease of the subject plot. Hence this fact

was clearly in the knowledge of the RP right from the time of commencement of

Company Appeal (AT) (Insolvency) No. 574 of 2024 9

CIRP proceedings. Furthermore, the RP in their counter affidavit in CA No 479 of

2019 in the matter of G.S. Buildwell Pvt. Ltd. & Ors. had admitted that it was

aware of the cancellation of the lease and this has been reflected in the impugned

order as below:

"22. It is submitted that the NOIDA Authority cancelled the allotment of the Land vide its notification dated 13.08.2015 for non- payment of the amount due and in accordance with the provisions of the Lease Deed between NOIDA and the Corporate Debtor, the allotment was cancelled and the deposit amount was forfeited. It is submitted that as the land allotment has been cancelled, the Corporate Debtor lost its title as 'lessee' and the ensuing rights thereof and therefore the Respondent Company and/or the Respondents have no good title over the land on which the constructions/development work has taken place. A copy of the cancellation notification dated 13.08.2015 is annexed as Annexure

7."

15. Despite knowing that the lease had been cancelled by the Noida authority,

merely on the pretext that the cancellation of the lease was not followed up with

other measures by the Noida authority, the RP should not have treated the subject

plot to be in the possession of the suspended management. Given this set of facts,

RP should have been more circumspect and should not have agreed to make the

housing project of suspended management on the subject plot a part of the

resolution plan. Instead, the RP continued to take all actions including

preparation of the IM projecting the cancelled plot as the asset of the Corporate

Debtor and getting approval of the resolution plan from the COC as if the said

plot existed with the corporate debtor. Such a resolution plan which is premised

on the basis that the land belonged to the Corporate Debtor could not have been

considered by the COC. In the adjudication of I.A. No. 1592 of 2019, the

Adjudicating Authority on 20.02.2020 had noted that the Noida authority had

Company Appeal (AT) (Insolvency) No. 574 of 2024 10

apprised the Bench that the lease of the subject land which constituted the

substratum of the housing project of the Corporate Debtor was cancelled and not

subsisting. The Adjudicating Authority had therefore correctly raised the question

of how it could consider a resolution plan when the lease of the allotted land had

already been cancelled by the Noida authority in 2015. The Adjudicating

Authority in its order dated 20.02.2020 had directed the RP to file a complaint

with the EOW cell of Delhi police and this again shows that RP had not taken this

action on his own volition but was goaded into action by the RP.

16. We also notice that this order of the Adjudicating Authority was challenged

by the RP by filing CA (AT) (Ins) No. 605 of 2020 before this Tribunal on the basis

of response to RTI query which it had obtained in that the amount of rent was

outstanding from the Corporate Debtor in respect of the lease deed. This Tribunal

had observed on 27.07.2020 as follows:

"The Adjudicating Authority will record a clear finding in regard to cancellation/subsistence of the lease after providing opportunity and hearing all concerned parties before passing order in regard to approval or otherwise of the Resolution Plan. It is expected that the Adjudicating Authority will accord top priority to the matter keeping in view the timelines and decide the matter expeditiously. The Appeal is disposed of with aforesaid direction."

17. The above directions of this Tribunal have been complied with and after

giving an opportunity to the RP, CoC and SRA to arrive at a settlement qua the

Noida authority, the Adjudicating Authority has come to well-reasoned out

conclusion that the subject plot cannot be made part of the resolution plan of the

Corporate Debtor and the RP has been directed to exclude the same from the

resolution plan. In the same breath, the Adjudicating Authority has passed

Company Appeal (AT) (Insolvency) No. 574 of 2024 11

certain observations on the conduct of the RP. There is no quarrel that during the

CIRP process, RP is expected to play a pivotal role, so as to effectively assume

control of the corporate debtor's management and become responsible for

overseeing all aspects of CIRP. RP's underlying mandate is to ensure efficiency,

transparency, and accountability within the insolvency resolution process

marked by a nuanced equilibrium among creditor rights, stakeholder concerns,

and procedural equity. In the present case, the Adjudicating Authority has rightly

noted that the role of the RP has leaned towards justifying the wrongful action of

the suspended management. We find no error in the findings arrived at by the

Adjudicating Authority and affirm the observations made in respect of the

unbecoming and unfair conduct of the RP.

18. In the result, given the sequence of events and the facts and

circumstances of the case, for the reasons discussed above, we find no reasons

to interfere with the impugned order in particular with regard to the observations

made on the role of the RP. We find no merit in the appeal. The appeal is

accordingly dismissed. No order as to costs.

[Justice Ashok Bhushan] Chairperson

[Barun Mitra] Member (Technical)

[Arun Baroka] Member (Technical)

Place: New Delhi Date: 01.05.2024 Ashok Kumar

Company Appeal (AT) (Insolvency) No. 574 of 2024