Kolkata Municipal Corporation vs Barnaparichay Book Mall Private ...

[Arising out of Order dated 17.11.2022 passed by the Adjudicating Authority (National Company Law Tribunal), Kolkata Bench, Court-I in IA No.138/KB/2022 in CP (IB) No.1219/KB/2018]

In the matter of:

Kolkata Municipal Corporation ...Appellant Vs.

Bengal Shelter Housing Development Ltd. & Ors. ...Respondents For Appellant: Mr. Abhijeet Sinha, Mr. Kunal Chatterji, Ms. Maitrayee Banerjee, Mr. Saikat Sarkar, Mr. Rohit Bansal, Ms. Kshitij Singh, Mr. Soham Sahu, Advocates. For Respondents: Mr. Praveen Chaturvedi, Ms. Jyoti Chaturvedi, Advocates for R-2. Mr. Amar Vivek, Ms. Damini Srestha, Advocates for R-4

JUDGMENT

(22nd December, 2023)

Ashok Bhushan, J.

This Appeal has been filed by the Kolkata Municipal Corporation

challenging the order dated 17.11.2022 passed by the Adjudicating

Authority (National Company Law Tribunal), Kolkata Bench, Court-I in IA

No.138/KB/2022 in CP (IB) No.1219/KB/2018. By the order impugned,

Adjudicating Authority has set aside order dated 17.01.2022 issued by

Kolkata Municipal Corporation terminating the Development Agreement and

Supplemental Agreement and Power of Attorney executed between Kolkata 2

Municipal Corporation and 'Bengal Shelter Housing Development Limited'-

Respondent No.1.

2. Brief facts necessary to be noticed for deciding this Appeal are:

2.1. 'Kolkata Municipal Corporation' is a statutory body governed under

Kolkata Municipal Corporation Act, 1981. There were premises known as

College Street Market consisting of land about 13 bighas with a two storied

brick built building and structures thereon which had municipal market

consisting of different shops. Kolkata Municipal Corporation decided to

improve the College Street Market premises for which purpose a

Development Agreement was executed on 24.02.2006 between the 'Kolkata

Municipal Corporation' and 'Bengal Shelter Housing Development Limited'-

Respondent No.1 herein. Agreement contains various terms and conditions

for carrying out development. A Supplemental Agreement was also executed

on 12.06.2006 between the 'Kolkata Municipal Corporation' and 'Bengal

Shelter Housing Development Limited' providing for certain Supplemental

terms and conditions between the parties. On 01.01.2007, the Scheme of

the project was approved by the Kolkata Municipal Corporation, according

to which, the project would consist of three blocks i.e. A, B and C, out of

which the allocated portion of the Respondent No.1 was 70% and the

remaining 30% of the building plan belonged to the Appellant. The

Respondent No.1 engaged Respondent No.2- 'Barnaparichay Book Mall Pvt.

Ltd.', a wholly owned subsidiary of Respondent No.1 for implementing the

said Development Agreement. An Application under Section 7 was filed by

'Asset Reconstruction Company India Ltd.' against Respondent No.2 (herein

Company Appeal (AT) (Insolvency) No. 81 of 2023 3

after referred to as Corporate Debtor) on which application by an order

dated 09.08.2019 CIRP commenced under the order of the Adjudicating

Authority.

2.2. In the Corporate Insolvency Resolution Process (CIRP), Respondent

No.4 was appointed the Resolution Professional who prepared Information

Memorandum. On 10.07.2020, during the CIRP, the Corporate Debtor got

itself registered under the MSME Act, 2006. Respondent No.3- 'Ramayana

Promoters Pvt. Ltd.', a subsidiary of Corporate Debtor submitted a

Resolution Plan in the CIRP of the Corporate Debtor. As per the

Development Agreement and Supplemental Agreement, the Respondent No.1

was to complete the project within 54 months. Respondent No.1 failed to

complete the project within time. Letter dated 14.07.2020 was sent by the

Appellant calling upon the Respondent No.1 to remedy the breach and

remove the default failing which the Appellant would be constrained to take

steps as may be available under law. Respondent No.1 sent a reply dated

12.08.2020 giving various reasons for delay in execution of the development

work. Resolution Plan was submitted by Respondent No.3 (hereinafter

referred to as Resolution Applicant) on 14.08.2020 which plan was initially

rejected, however, under the order of the Adjudicating Authority revised plan

was submitted which was considered and approved by the CoC on

01.09.2021 with 77.33% vote. Despite several reminders when the

Respondent No.1 failed to complete the project, a show-cause notice dated

12.11.2021 was issued by the Appellant invoking clause 9(g) of the

Development Agreement. In reply to the show-cause notice, Respondent

Company Appeal (AT) (Insolvency) No. 81 of 2023 4

No.1 vide his letter dated 19.11.2021 listed out reasons for the delay in

completion of work. In the said letter, Respondent No.1 for the first time

brought to the knowledge of the Appellant that a CIRP is ongoing with

respect to the Corporate Debtor in which Resolution Plan has been

submitted. By an order dated 17.01.2022, Appellant cancelled the

Development Agreement by an order of the same date. Appellant issued

notice to the Respondent No.1 to take over the College Street Market

Premises in consequence of the Development Agreement being terminated

and resumed the property. The Resolution Applicant- Respondent No.3 filed

an IA No.138 of 2022 before the Adjudicating Authority in which application

Respondent No.3 prayed for following reliefs:-

"a. Declaration that the said two letters bearing Nos. CM (M)/L/057/2021-22 and CM (M)/L/059/2021- 22 both dated 17th January 2022 terminating the said Development Agreement and Supplemental Agreement and Power of Attorney and calling upon the Respondent No. 2 to hand over possession of the said property are illegal, null and void;

b. Declaration that the forceful physical possession of the said Property by the Kolkata Municipal Corporation is illegal, null and void:

c. Order quashing and setting aside the said two letters bearing Nos. CM (M)/L/057/2021-22 and CM (M)/L/059/2021-22 both dated 17th January 2022 terminating the said Development Agreement and Supplemental Agreement and Power of Attorney and

Company Appeal (AT) (Insolvency) No. 81 of 2023 5

calling upon the Respondent No. 2 to hand over possession of the said property:

d. Order directing the Respondent No. 3 to forthwith remove its padlocks and security guards from the said property;

e. Order directing the Respondent No. 3 to hand over possession of the said Property to the Respondent No.1 Resolution Professionals forthwith;

f. Injunction restraining the Respondent No. 3 and/or its men, servants and agents from taking any step or further steps whatsoever with regard to the sale, encumbrance, transfer, development or alienation of the said Property in any manner whatsoever."

2.3. On 16.02.2022, Adjudicating Authority directed the Appellant to stay

its hand with respect to the communications dated 17.01.2022 and not to

take any coercive action in the matter. Adjudicating Authority further

directed the Appellant to handover the physical possession of the same to

the Resolution Professional, in pursuance of which the Resolution

Professional took possession of the premises. The Application filed by the

Respondent No.3 was resisted by the Appellant. It was submitted that the

termination of agreement by order dated 17.01.2022 was issued by

Appellant in accordance with the relevant clauses of agreement. It is stated

that as per the agreement, Appellant was the owner of the premises and the

structures. It was further stated that under clause 13(b) of the Development

Agreement, neither party had right to assign or part with any of its rights

and obligations under the Agreement to any third party. The Respondent

Company Appeal (AT) (Insolvency) No. 81 of 2023 6

No.1 had no right to assign the right of the development to the Corporate

Debtor. It was prayed by the Appellant that the Company Petition filed by

the Corporate Debtor deserves to be dismissed. Adjudicating Authority

heard the parties including the Appellant and by impugned order dated

17.11.2022 allowed IA No.138 of 2022 and set aside the order dated

17.01.2022 issued by the Appellant cancelling the Development Agreement

entered with Respondent No.1. The order passed by the Adjudicating

Authority in paragraph 7.13 is as follows:-

"7.13 In light of the above facts and circumstances, we hereby pass the following orders:

a. The said two letters bearing Nos. CM (M)/L/057/2021-22 and CM (M)/L/059/2021-22 both dated 17th January 2022, intended to terminate the said Development Agreement and Supplemental Agreement and Power of Attorney and intended to call upon the Respondent No. 2 to hand over possession of the said property, are declared a nullity;

b. The possession of the said property shall rest with the RP till the approval/rejection of the Resolution Plan by this Adjudicating Authority;

c. Respondent No. 3 is restrained from taking any further coercive action with regard to the sale, encumbrance, transfer, development or alienation of the said Property in any manner whatsoever, till the approval/rejection of the Resolution Plan by this Adjudicating Authority, or without the leave of the Adjudicating Authority."

Company Appeal (AT) (Insolvency) No. 81 of 2023 7

2.4. Aggrieved by the impugned order, this Appeal has been filed by the

Kolkata Municipal Corporation.

3. We have heard Learned Counsel for the Appellant, Counsel appearing

for Respondent Nos. 1 to 3 and Counsel appearing for Resolution

Professional.

4. Learned Counsel for the Appellant challenging the impugned order

submits that the Adjudicating Authority erroneously set aside the order

dated 17.01.2022 issued by the Appellant cancelling the Development

Agreement with Respondent No.1. It is submitted that the termination order

dated 17.01.2022 has not been challenged by Respondent No.1 with whom

the agreement was entered. Under the agreement, the Respondent No.1 had

no right to assign its development rights to any other entity without

approval of the Appellant. Alleged assignment in favour of the Respondent

No.2 by the Corporate Debtor in the year 2008 is void and without any

jurisdiction. It is submitted that the Corporate Debtor cannot claim any

right on the basis of an illegal assignment by Respondent No.1 which was

done without consent of the Appellant. The Respondent No.2 i.e. Corporate

Debtor was incorporated only on 07.05.2007 and by alleged assignment

dated 06.03.2008 without any consent and intimation of the Appellant,

development rights were transferred to Respondent No.2. Application filed by

Respondent No.3 who was a Resolution Applicant and subsidiary of

Respondent No.2 was wholly unauthorised. It is submitted that there is no

Company Appeal (AT) (Insolvency) No. 81 of 2023 8

privity of contract with the Appellant and the Respondent No.3. Application

filed by Respondent No.3 is wholly misconceived and deserves to be rejected.

The Adjudicating Authority committed error in issuing interim direction to

handover the possession to the Resolution Professional. It is the Appellant

who is the owner of the premises in question and continues to be the owner

of premises in question as per the Development Agreement dated

24.02.2006. The Resolution Professional has no jurisdiction to take over the

possession of assets which was owned by the Appellant under Section 18 of

the IBC. Neither the Respondent Nos.2 and 3 can claim any right in the

premises nor the Adjudicating Authority could have directed to handover

possession to the Resolution Professional by the Appellant. The order passed

by the Adjudicating Authority setting aside the termination agreement is

without jurisdiction and beyond the jurisdiction of the Adjudicating

Authority. Order dated 17.01.2022 terminating the Development Agreement

does not arise out of insolvency process of the Corporate Debtor and could

not be made subject matter of any dispute before the Adjudicating

Authority. The order passed by the Adjudicating Authority is wholly without

jurisdiction and deserves to be set aside in this Appeal. Development

Agreement executed in favour of the Respondent No.1 was terminated

lawfully by the Kolkata Municipal Corporation which could not have been

interfered with by the Adjudicating Authority. Termination was in

accordance with the Development Agreement dated 24.02.2006 and could

not have been quashed. Termination was also not affected by Section 14 of

the IBC. The Corporate Debtor had no interest in the premises and premises

were owned by Appellant. When the premises were owned by the Appellant,

Company Appeal (AT) (Insolvency) No. 81 of 2023 9

the Moratorium was not applicable. Corporate Debtor entered into unlawful

possession of the premises on the basis of illegal and unauthorised

assignment by the Respondent No.1 without consent of the Appellant.

5. Learned Counsel appearing for the Respondent Nos.1 to 3 supporting

the order impugned submits that under the Development Agreement and

Supplemental Agreement, the Respondent No.1 was fully entitled to part

with its development rights and assignment in favour by Respondent No.1

was not illegal. Respondent No.2 having assigned the development rights,

Respondent No.2 was proceeded to carry out the process. It is submitted

that under the Agreement between the Appellant and the Respondent No.1,

70% of the constructed shops were to be allotted to Respondent No.1 and

only 30% were to be given to the Appellant. Shops constructed to the extent

of 30% has already been allotted to the Appellant. It is submitted that the

Corporate Debtor being in possession of the premises, the Appellant even if

the owner of the premises could not recover the possession from the

Corporate Debtor by virtue of Section 14 of the IBC. It is submitted that the

premises were the only assets of the Corporate Debtor which are relevant for

the Resolution Plan, hence, Respondent No.3 was entitled to file its

application before the Adjudicating Authority to protect its right.

6. Learned Counsel for the Resolution Professional submits that under

clause 7(c) of the Development Agreement, Respondent No.1 was entitled to

appoint, engage and employ according to law such consultants, marketers,

contractors, sub-contractors, engineers, labourers, caretakers etc.

Respondent No.1 sub-contracted the Corporate Debtor vide Arrangement

Company Appeal (AT) (Insolvency) No. 81 of 2023 10

Agreement dated 06.03.2008 for development of the project. On application

filed by 'Asset Reconstruction Company', CIRP of the Corporate Debtor

commenced on 09.08.2019 and Moratorium was imposed due to which

possession of the premises could not have been taken by the Appellant.

Corporate Debtor had been in the possession of the said property.

Resolution Professional in discharge of its duty has taken steps to protect

the premises. Appellant who had opportunity to file a claim with the

Resolution Professional has not filed any claim.

7. We have considered the submissions of the Counsel for the parties

and perused the record.

8. The Development Agreement was entered between the Appellant and

the Respondent No.1 on 24.02.2006 which was basic document for

Respondent No.1 to develop the College Street Market premises. Agreement

also confers certain rights to Respondent No.1 contained under the heading

'Bengal Shelter's Rights' under which the Bengal Shelter shall hold the

possession of College Street Market Premises. Clauses (a) and (d) of 'Bengal

Shelter's Rights' are as follows: -

"7. BENGAL SEHLTER'S RIGHTS:

(a) Bengal shelter shall hold the possession of College Street Market Premises, as the Developer having the right under this Agreement to construct Comprehensive Market Complex by construction of buildings in accordance with the Scheme and plan approved by KMC.

xxx xxx xxx

Company Appeal (AT) (Insolvency) No. 81 of 2023 11

(d) Bengal Shelter shall be entitled to do all lawful works required for implementation of Comprehensive Market Complex either by itself and/or by other contractors appointed by it and/or in any other manner it considered fit and proper. None of the Contractors and/or the persons engaged in connection therewith shall have any claim of any nature whatsoever against KMC and Bengal Shelter shall be solely responsible for payment of all amounts, including compensation for injuries to such workman and/or other persons engaged by them and/or due for anything done by Bengal Shelter in pursuance hereof."

9. Agreement in clause 9 (c) of the Development Agreement further

provides that on completion of the project, it is KMC who shall execute lease

deed(s). Clause 9(c) is as follows: -

"9. BENGAL SHELTER AND KMC BOTH HEREBY AGREE UNDERTAKE AND DECLARE AS FOLLOWS:-

c) On completion of the Project and at the request of Bengal Shelter KMC shall execute lease Deed(s) in favour of the end-users of stalls, spaces and/or units to be allotted-retained, as the case may be, out of the Bengal Shelter's Allocation and such Leases shall be for a period of 30 years with an option for period or periods, as any by agreed between KMC and Bengal Shelter provided however the and were will be the Lessee under KMC and shall be liable to pay lease rent and maintenance charges to KMC provided further however Bengal Shelter shall be entitled to receive from the end-users such amount or amount as and by way of premises/cost/price as it may determine and KMC shall not have any right and/or claim whatsoever in respect of the same."

Company Appeal (AT) (Insolvency) No. 81 of 2023 12

10. Clause 9(g) of the Development Agreement which has been relied by

the Appellant for issuing show-cause notice to the Respondent No.1 is as

follows: -

"9. BENGAL SHELTER AND KMC BOTH HEREBY AGREE UNDERTAKE AND DECLARE AS FOLLOWS:-

(g) In the event of there being any breach on the part of any of the parties hereto to perform and observe its obligations and/or duties, as contained in this agreement, including payment of any amount or amounts on due date(s) by Bengal Shelter to KMC, as stated above, the aggrieved party will give to the other party a notice in writing calling upon the other party to remedy such breaches and remove default within a period of one month or so, from the date of service of such notice, on the other party and in the event of the other party failing to remedy the breaches or remove the defaults the other party shall be entitled to take such steps, as may be available to it under the law for the time being in force."

11. It is further relevant to notice clause (h) of the Development

Agreement which provides that KMC shall always remain the owner of the

premises and the structure after its completion by Bengal Shelter. Clause 9

(h) is as follows:-

"9. BENGAL SHELTER AND KMC BOTH HEREBY AGREE UNDERTAKE AND DECLARE AS FOLLOWS:-

Company Appeal (AT) (Insolvency) No. 81 of 2023 13

(h) It is specially agreed by and between the parties hereto that save and except the rights conferred on Bengal Shelter, under these presents, KMC shall always remain the owner of the premises and the structure after its completion by Bengal Shelter at its cost and the new structures created -- also automatically vest in KMC absolutely without any claim, charge or lien by any parties."

12. Under Clause 13, there was prohibition against both the parties that

none of the parties shall seeing or part with any of its rights and obligations

under the agreement to any third party without the prior approval in writing

of the other party. Clause 13(b) is as follows:-

"13. MISCELLANEOUS:-

(b) Neither party shall seeing or part with any of its rights and obligations under this agreement to any third party without the prior approval in writing of the other party."

13. Supplemental Agreement contains certain modifications of the

Development Agreement. Clause 3(ii) of the Supplemental Agreement is as

follows:-

"3. In further modification of Bengal Shelter's Rights under the Principal Development Agreement:-

xxx xxx xxx

(ii) Bengal Shelter shall be entitled to Aise necessary finance for construction of Comprehensive Market Complex including finance from the authorised financial institu- tions, Banke, Corporate houses or

Company Appeal (AT) (Insolvency) No. 81 of 2023 14

such other bodies for development of the land by construction of the Comprehensive Market Complex as per the terms of the Development Agreement and for that purpose, to create mortgage or any other lien over College Street Market Complex or any part thereof, gave and except the area to be allotted to KMC or its nominee or nominees, in favour of the Banks, financial institutions or other bodies without however creating any financial liability for the KMC or affecting its right, title, interest in the said College Street Market Premises and for that purpose Bengal Shelter shall at all times keep the KMC indemnified and harmless against all actions, claims, suits, proceedings, losses, damages and/or costs, charges, and expenses that the MKC may have to face in relation to or arising of such mortgage."

14. The Application which was filed by the Respondent No.3 before the

Adjudicating Authority being IA No.138 of 2022 was for setting aside the

order dated 17.01.2022. The Kolkata Municipality Corporation, owner of the

premises, having by agreement dated 24.02.2006 appointed Respondent

No.1 as developer to develop the College Street Market premises and it

issues notice to the Respondent No.1 on 14.07.2020. Clause 9(g) of the

Development Agreement intimating that the developer had committed

breach and even after more than 13 years the project is not complete. In

reply to the notice (notice is at Page No.251 of the Appeal) was given on

12.08.2020 by Respondent No.1 where several causes was sought to be

explained for not able to complete the project. On 12.11.2021, another

notice was given by the Appellant to the Kolkata Municipal Corporation. The

Company Appeal (AT) (Insolvency) No. 81 of 2023 15

notice requires the Appellant to show cause. Last portion of the notice is as

follows:-

"NOW, THEREFORE, you are called upon hereby to show cause as to why, in view of the breach on your part to perform and discharge your obligations and/or duties as contained in the said agreement(s), the contract between KMC and Bengal Shelter Housing Development Limited in respect of development of the College Street Market by dint of the aforesaid Development and Supplemental Agreements will not be terminated and the Project premises / site along with all buildings / structures/fixtures / appurtenances, etc. attached to Project Premises will be taken over by the Kolkata Municipal Corporation forthwith.

Your reply must reach the undersigned within 7 (seven) days, failing which the KMC will take necessary steps and proceed in this regard as per Law without any further notice."

15. After issuance of show-cause notice dated 12.11.2021, it was replied

by Respondent No.1 vide his letter dated 19.11.2021. After considering the

reply, the Development Agreement was cancelled. From paragraph 2 to the

end of the notice is as follows:-

"2. That the delay in completion of the Project is injurious to your interest only since the allocation of KMC has been completed.

Company Appeal (AT) (Insolvency) No. 81 of 2023 16

 As has already been elaborated above, the allocation of KMC is yet to be completed.  Moreover, owner of the space under your allocation i.e. 70% of the built up space is also KMC. In fact, KMC is supposed to lease out the said space and to receive lease rent against the same. Delay in completion of the Project has meant that KMC is losing out on revenue from such lease rent.

3. That the KMC has accepted the enormity of delays in pertinent issues on its part.

 However, the KMC has only stated that even if certain delays are taken to be reasonable, these could have caused a delay of around three years or so and cannot in any way explain the tremendous delay of eleven years.

4. That several issues were notified to the KMC through numerous letters but the KMC either miserably failed or preferred to be deaf and blind even against encroachment of principal pathways etc.

 However, such claims made by you are vague and trivial. Encroachment of passages is not in any way linked to the delay in construction of the Project.

5. That reluctance of KMC to perform its part of the Agreement led to the delay and such delay beyond your control caused stress with bankers, financiers, suppliers and investors. Some of sub-contractors, your financiers and creditors moved to the jurisprudence

Company Appeal (AT) (Insolvency) No. 81 of 2023 17

including NCLT. One RP was appointed under whom your allocation is now governed and monitored by order of the said NCLT Court. A resolution plan has been submitted being duly accepted by majority of the members of the Committee of Creditors before the Hon'ble Judge of NCLT Court which is pending for final order.

 It is denied that the reluctance of KMC to perform its part of the Agreement led to the delay and that such delay was beyond your control.

 The act on your part to procure loan from financial institutions and on the part of the financial institutions to grant such loan by creating mortgage or lien on any part of the College Street Market without seeking express permission or consent from the owner viz. KMC but simply on the basis of the Agreement were absolutely illegal, contrary to and inconsistent with the provisions of the Agreement and also against the law of the land.

 You also kept the KMC totally in the dark about the proceedings before the NCLT, appointment of RP and submission of so-called resolution plan even though KMC is the owner of the entire building and Project. Your such act is detrimental to the rights of the KMC in the Project.

Therefore, in view of the default and violation on your part of the terms of the agreements and unsatisfactory reply to the Show Cause Notice, the Kolkata Municipal

Company Appeal (AT) (Insolvency) No. 81 of 2023 18

Corporation hereby cancels and terminates the Development Agreement entered with you on 24th February 2006 and Supplemental Agreement dated 12th June 2006 and also revokes and cancels the power given by the KMC by dint of the Power of Attorney vide Annexure-A of the Supplemental Agreement. You are hereby asked not to act any further on the basis of the said Power of Attorney."

16. It was the termination order dated 17.01.2022 which was challenged

in IA No. 138 by the Respondent No.3. It is relevant to note that the

termination of Development Agreement issued by the Appellant terminating

the agreement of Respondent No.1 was not challenged by the Respondent

No.1 who was to develop the project. Termination was directed after

issuance of show-cause notice in accordance with the relevant clauses of

Development Agreement. The Development Agreement executed by the

Appellant in favour of the Respondent No.1 also contained a provision as

noticed above that no party shall assign any of its rights or obligations to

the third party without obtaining prior consent of other party. Here the case

of the Respondent No.2 is that the Respondent No.2 has received an

assignment from the Respondent No.1 dated 06.03.2008 and it was the

Corporate Debtor came into possession of the premises by virtue of

assignment dated 06.03.2008. Assignment in favour of Respondent No.2 i.e.

Corporate Debtor by the Appellant was clearly contrary to the Development

Agreement where there was clear prohibition without approval of the other

party. No consent or permission was obtained from Kolkata Municipal

Corporation by Respondent No.1 for assignment the development right in

Company Appeal (AT) (Insolvency) No. 81 of 2023 19

favour of the Respondent No.2. We are of the view that on the basis of

assignment dated 06.03.2008 as claimed by Respondent No.3, no right

could flow in the Respondent No.2 regarding the premises neither any

developmental rights nor any ownership rights. It was Respondent No.1 who

has unlawfully gave the possession of the premises to Respondent No.2 and

Respondent No.2 was clearly in unlawful possession of the premises.

17. From the materials on record, it is clear that the Appellant who was

owner of the premises and only right for development of the premises was

given to Respondent No.1. Respondent No.1 having failed to carry out the

development as per the terms and conditions, Kolkata Municipal

Corporation has every jurisdiction to cancel the agreement. The cancellation

of the agreement being outside the insolvency process, Respondent No.3

could not have brought issue of cancellation of the agreement before the

Adjudicating Authority by filing the application IA No.138 of 2022.

Respondent No.1 whose Development Agreement was cancelled was free to

take such legal proceeding against the Appellant as may be permissible. It is

relevant to notice that no proceedings were initiated by Respondent No.1

questioning the termination of agreement dated 17.01.2022. When the

Respondent No.1 having not questioned the termination of agreement before

any Competent Authority or Court, it is not for the Adjudicating Authority to

adjudicate the issue of validity of termination order dated 17.01.2022. The

submission which is pressed by Learned Counsel for the Respondent is that

since Moratorium was issued after admission of the CIRP, Section 7

proceedings against the Corporate Debtor Appellant could not have recover

Company Appeal (AT) (Insolvency) No. 81 of 2023 20

the possession from the Corporate Debtor. Section 14(1) on which reliance is

placed is as follows:-

"14. Moratorium. - (1) Subject to provisions of sub-

sections (2) and (3), on the insolvency commencement date, the Adjudicating Authority shall by order declare moratorium for prohibiting all of the following, namely: -

(a) the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgement, decree or order in any court of law, tribunal, arbitration panel or other authority;

(b)transferring, encumbering, alienating or disposing off by the corporate debtor any of its assets or any legal right or beneficial interest therein;

(c) any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002);

(d) the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor.

[Explanation.-For the purposes of this sub-section, it is hereby clarified that notwithstanding anything contained in any other law for the time being in force, a licence, permit, registration, quota, concession, clearance or a similar grant or right given by the Central Government, State Government, local authority, sectoral regulator or

Company Appeal (AT) (Insolvency) No. 81 of 2023 21

any other authority constituted under any other law for the time being in force, shall not be suspended or terminated on the grounds of insolvency, subject to the condition that there is no default in payment of current dues arising for the use or continuation of the license, permit, registration, quota, concession, clearances or a similar grant or right during the moratorium period;]"

18. From the facts as noticed above, it is clear that the Kolkata Municipal

Corporation who is owner of the premises by Development Agreement gave

right of development of the premises to the Respondent No.1 and

Respondent No.1 has unauthorisedly without prior approval of the Appellant

as alleged Assignment Agreement dated 06.03.2008 has given to the

Corporate Debtor. The possession of the premises has to be of Respondent

No.1 who was given possession by the Appellant. In event, the Respondent

No.1 illegally transferred the possession to Respondent No.2 contrary to the

Development Agreement for protection of such possession, Section 14(1)(d)

cannot be relied on.

19. Learned Counsel for the Respondent has also relied a judgment of the

Hon'ble Supreme Court in support of their submissions- "Rajendra K.

Bhutta vs. Maharashtra Housing and Area Development Authority and

Anr.- (2020) 13 SCC 208". In the above case, the Hon'ble Supreme Court

had occasion to consider the provisions of Section 14 of the IBC. The

judgment of the Hon'ble Supreme Court in 'Rajendra K. Bhutta' may not

render any assistance to the Respondent since in the said case Corporate

Debtor was in lawful physical possession of property whereas in the present

Company Appeal (AT) (Insolvency) No. 81 of 2023 22

case, the possession has to be deemed to be of Respondent No.1 who was

given development rights. There was no privity of contract between the

Appellant and the Corporate Debtor nor Section 14(1)(d) can be relied by the

Corporate Debtor for protecting his possession. Another judgment which has

been relied by the Counsel for the Respondent is "Victory Iron Works Ltd.

VS. Jitendra Lohia and Anr- (2023) SCC OnLine SC 260". In 'Victory Iron

Works Ltd.', developmental rights belong to the Corporate Debtor whereas in

the present case, developmental rights belong to Respondent No.1 not to the

Corporate Debtor. Thus, the judgment relied by the Counsel for the

Respondent in 'Victory Iron Works Ltd.' also does not render any assistance

to the Corporate Debtor. Section 18 of the IBC provides, that while

enumerating duties of the IRP, the IRP shall 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. Section 18(1)(f) is as follows:-

"18. Duties of interim resolution professional. - The interim resolution professional shall perform the following duties, namely: -

xxx xxx xxx

(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;

Company Appeal (AT) (Insolvency) No. 81 of 2023 23

(ii) assets that may or may not be in possession of the corporate debtor;

(iii) tangible assets, whether movable or immovable; (iv) intangible assets including intellectual property; (v) securities including shares held in any

subsidiary of the corporate debtor, financial instruments, insurance policies;

(vi) assets subject to the determination of ownership by a court or authority;"

20. In the present case, assets i.e. premises are owned by the Appellant

and there was no contractual arrangement between the Appellant and the

Corporate Debtor with regard to premises in question. The assets clearly

were not the assets of the Corporate Debtor on which IRP can take

possession. It is only the assets on which IRP can take possession on which

the Moratorium under Section 14(1)(d) shall be applicable. Moratorium

cannot be applicable with regard to assets which are not the assets of the

Corporate Debtor.

21. The Adjudicating Authority in its impugned order had held the

assignment agreement dated 06.03.2008 as lawful and valid. The

Assignment Agreement dated 06.03.2008 is on the record which assignment

was not made by the Respondent No.1 after obtaining consent of the

Appellant and it was clearly in breach of clause 13(b) of the Development

Agreement which prohibits both the parties from parting with any of its

rights and obligations under the agreement to any third party without the

prior approval in writing of the other party.

Company Appeal (AT) (Insolvency) No. 81 of 2023 24

22. We are of the view that the Adjudicating Authority has come to a

wrong conclusion that the Assignment Agreement dated 06.03.2008 is

lawful and valid without looking to the terms and conditions of the

Development Agreement which was made by the Kolkata Municipal

Corporation in favour of the Respondent No.1 dated 24.02.2006. No valid

right could flow to Respondent No.2 in pursuance of the Arrangement

Agreement dated 06.03.2008, hence, no right or interest created by

Corporate Debtor by virtue of Arrangement Agreement dated 06.03.2008

which was neither obtained with the consent of the Appellant nor the said

Arrangement Agreement even communicated to the Appellant by

Respondent No.1. The Corporate Debtor had no right to be in possession of

the premises nor its possession was lawful.

23. In view of the foregoing discussions, we are of the view that the

Adjudicating Authority committed error in setting aside the termination

order dated 17.01.2022 passed by the Appellant terminating the

Development Agreement executed in favour of the Respondent No.1, as

observed above. The Respondent No.1 whose Development Agreement was

challenged had not taken any proceeding before any Competent Authority or

Court questioning the termination of the Development Agreement.

Development Agreement having been terminated, no better or further right

can be claimed by Respondent No.2 whose alleged Arrangement Agreement

dated 06.03.2008 on the basis of Development Agreement which was given

by the Appellant in favour of the Respondent No.1. Adjudicating Authority

ought to have desisted from entering into the validity of termination order

Company Appeal (AT) (Insolvency) No. 81 of 2023 25

dated 17.01.2022 issued by the Kolkata Municipal Corporation terminating

the agreement.

24. We have already noticed the show-cause notice dated 12.11.2021

issued by the Appellant to the Respondent No.1 and on finding that there is

breach committed by the Respondent No.1 to the terms and conditions of

the Development Agreement dated 24.02.2006. Agreement was terminated

on 17.01.2022 which order we have already extracted above.

25. From the facts of the present case, it is clear that the Respondent

No.1 has brought its 100% subsidiary, Respondent No.2 without there being

any consent or permission of the Appellant and in the CIRP of the

Respondent No.2, the assets are sought to be included whereas the assets

premises are not the assets of the Corporate Debtor. Even the development

rights do not belong to the Corporate Debtor which was given by the Kolkata

Municipal Corporation in favour of the Respondent No.1 which could not

have been assigned to any entity without prior approval of the Kolkata

Municipal Corporation. No right and interest with regard to premises have

been created in favour of the Respondent No.2. The premises, in question,

cannot be subject matter of the CIRP of the Corporate Debtor. Adjudicating

Authority committed error in directing the Appellant to handover the

possession of the premises to the Resolution Professional. The order passed

by the Adjudicating Authority setting aside the order dated 17.01.2022

terminating Development Agreement, Supplemental Agreement and Power of

Attorney cannot be sustained.

Company Appeal (AT) (Insolvency) No. 81 of 2023 26

26. In view of the foregoing discussions and our conclusions, we allow this

Appeal, set aside the order dated 17.11.2022 passed by the Adjudicating

Authority and reject IA filed by the Respondent No.3. Parties shall bear their

own costs.

[Justice Ashok Bhushan] Chairperson

[Barun Mitra] Member (Technical) New Delhi Anjali

Company Appeal (AT) (Insolvency) No. 81 of 2023