Rajalakshmi Vardarrajan Resolution ... vs G Dhananjaya Naidu

[Arising out of Order dated 4th November, 2020 passed by the National Company Law Tribunal, Special Bench, Chennai in IA/626/2020 in CP/877/IB/2018]

IN THE MATTER OF:

Ms. Rajalakshmi Vardarajan Resolution Professional of Arudaavis Labs Pvt. Ltd. 351/18, Ishwarya Flats, 36th Street, I Block, Anna Nagar, Chennai - 6000 040.

...Appellant Versus

Mr. G. Dhananjaya Naidu Represented by POA Mr. D. Balaji, 2/42, Chennivakkam Village Jagannathapuram Post, Ponneri Taluk, Chennai - 600 067. ....Respondent

Present:

For Appellant: Ms. Anjali Sharma, Advocate with Ms. Rajalakshmi Vardarajan, RP in person. For Respondent: Mr. B. Dhanaraj and Mr. G. Ananda Selvam, Advocates. -2-

J UD G M E N T

BANSI LAL BHAT, J.

Respondent herein filed application being IA/626/2020 under Section

60(5) of Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as

'I&B Code') seeking direction in the name of Resolution Professional of the

Corporate Debtor - 'M/s Arudaavis Labs Pvt. Ltd.' to handover vacant

possession of the leased out premises to the Respondent besides claiming

lease rental. By virtue of impugned order dated 4th November, 2020, the

Adjudicating Authority (National Company Law Tribunal) Special Bench,

Chennai allowed the application directing the Resolution Professional to

vacate and handover the possession of land and building measuring 95

Cents and 10,504/- sq.ft. respectively comprised in survey no. 105/3C,

105/3D, 105/7B and 105/6B at Chennivakkam Village, Ponneri Taluk,

Tiruvallur District to Respondent within 30 days starting from 5th November,

2020. Respondent was given liberty to file claim application within 30 days

for the rental dues before the Resolution Professional. Aggrieved thereof, the

Resolution Professional has preferred the instant appeal questioning the

legality of the order impugned on the grounds set out in memo of appeal to

which we shall be adverting to shortly.

2. Before proceeding to take note of the rival contentions, it would be

appropriate to briefly notice the factual matrix attending upon the passing of

impugned order. Corporate Insolvency Resolution Process (for short 'CIRP')

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was triggered at the instance of Respondent by filing application under

Section 9 of the I&B Code with the CIRP commencing w.e.f. 30th July, 2019

and Appellant being appointed as Interim Resolution Professional (IRP).

Respondent lodged its claim before IRP for a total sum of Rs.66,79,260/- on

account of rental arrears with interest covering the period from 1st April,

2014 till 1st August, 2019. According to Respondent, the claim came to be

admitted by the Appellant in its entirety. Respondent, in his application

filed before the Adjudicating Authority claimed that he being the absolute

owner of land and building (godown cum shed) and the vacant land leased

out to Corporate Debtor for manufacture of pharmaceutical ingredients etc.

did face immense hardship and financial loss due to lack of godown space

for storing his paddy stock harvested during May, 2020 leaving him with no

option but to sell the stock at a throw away price and thus staked his claim

to obtain vacant possession of leased premises for storing his future paddy

stock. The Appellant contested the application on various grounds though

the factum of admission of claim of Respondent to the tune of

Rs.66,79,260/- on account of rental arrears was admitted. It was pleaded

that the Lease Deed initially executed in year 2011 was renewed on 23rd

November, 2013 for 11 months with effective lease period starting from 1st

June, 2013 and after completion of 11 months the lease was not renewed

further. It was further pleaded that moratorium had come to an end on the

date of approval of Resolution Plan or Liquidation Order and as such

Respondent could submit the claim only when Liquidation Process was

initiated. In rejoinder, Respondent submitted before the Adjudicating

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Authority that the Appellant was liable to pay the lease rental incurred

during the CIRP Period besides handover vacant possession of premises held

by the Corporate Debtor. On consideration of the rival contentions, the

Adjudicating Authority, keeping in view the admission by the Appellant of

the claim of Respondent to the tune of Rs.66,79,260/- being rental arrears

for the period from 1st April, 2013 till 1st August, 2019 based on lease

agreement entered inter-se the parties allowed the application culminating

in passing of the impugned order assailed in this appeal.

3. Learned counsel for Appellant submits that the impugned order is at

variance with the admission order dated 30th July, 2019 passed by the

Adjudicating Authority which, while declaring the moratorium, had specifically

prohibited the recovery of any property by an owner or lessor whether such

property was occupied by or in the possession of the Corporate Debtor. He

further submits that the impugned order violates the mandate of Section 14 (1)

(d) of the I&B Code. Reliance is placed upon the order of this Appellate

Tribunal dated 30th July, 2018 in "M/s Navbharat Castings LLP vs. M/s

Moserbear India Ltd. & Anr." being Company Appeal (AT) (Insolvency) No.

323 of 2018 and the judgement of Hon'ble Apex Court in "Rajendra K. Bhutta

vs. Maharashtra Housing and Area Development Authority" being Civil

Appeal No. 12248 of 2018. It is contended that as the Corporate Debtor is in

actual physical occupation of the property the same cannot be recovered by the

Owner or Lessor. It is further submitted that the application filed by the

Respondent was premature as moratorium continued to be in effect and

Company Appeal (AT) (Insolvency) No. 1077 of 2020 -5-

neither any Resolution Plan had been approved for the Corporate Debtor nor

had the Corporate Debtor been sent into liquidation.

4. Per contra it is contended by learned counsel for Respondent that the

CIRP period of Corporate Debtor expired on 26th January, 2020 and no

application was filed by the Resolution Professional for extension of CIRP

period. It is further submitted that the CoC in its sixth meeting held on 20th

January, 2020 resolved to liquidate the Corporate Debtor. The application for

liquidation of Corporate Debtor was filed on 14th February, 2020. Respondent

filed IA 626/2020 before the Adjudicating Authority on 5th August, 2020

praying for handing over of leased premises as CIRP period had expired and

moratorium had ceased to have effect from 27th January, 2020. Same was

allowed by the Adjudicating Authority in terms of the impugned order. It is

further submitted that the Respondent's claim of rental dues was till the date

of handover of premises even prior to the date of liquidation. As on date the

liquidation of Corporate Debtor stands approved by the Adjudicating Authority

vide order dated 12th January, 2021 in IA 280/2020.

5. Heard learned counsel for the parties and perused the record. The sole

question arising for consideration in this appeal is whether the Owner/ Lessor

of land in actual physical possession of Corporate Debtor can recover the same

while moratorium is in effect.

6. This Appellate Tribunal had an occasion to deal with the issue in

Company Appeal (AT) (Insolvency) No. 323 of 2018, "M/s Navbharat Castings

LLP vs. M/s Moserbear India Ltd. & Anr". It was held:-

Company Appeal (AT) (Insolvency) No. 1077 of 2020 -6-

"3. On hearing, the learned counsel for the Appellant

and in view of sub-clause (i) of clause (d) of Section 14 of the

Insolvency and Bankruptcy Code, 2016, the recovery of the

property by the owner occupied by the Corporate Debtor is

not permissible during the period of moratorium."

In the afore titled appeal this Appellate Tribunal was dealing with the

issue whether the order of moratorium will be applicable to the lease hold

property of a Landlord in which the Corporate Debtor is a tenant, particularly

after decree of eviction passed in favour of the land lord against the Corporate

Debtor. The finding recorded is unambiguous and lucid. The recovery of

property by the Owner/ Landlord occupied by the Corporate Debtor is not

permissible during the period of moratorium.

7. In "Rajendra K. Bhutta vs. Maharashtra Housing and Area

Development Authority", Civil Appeal No.12248 of 2018, the Hon'ble Apex

Court was dealing with the issue whether Section 14(1) (d) of the I&B Code

would apply to statutorily freeze occupation that may have been handed over

under a Joint Development Agreement. After taking note of the judgments

rendered in "Municipal Corporation of Greater Mumbai vs Abhilash Lal & Ors.

(Civil Appeal No. 6350 of 2019)" and "Sushil Kumar Agarwal vs. Meenakshi

Sadhu & Ors. (2019) 2 SCC 241", the Hon'ble Apex Court held that Section

14(1)(d) of the I&B Code, when it speaks about recovery of property

"occupied", does not refer to rights and interests created in property but only

actual physical occupation of the property.

Company Appeal (AT) (Insolvency) No. 1077 of 2020 -7-

8. It is abundantly clear that the property occupied by the Corporate

Debtor cannot be recovered by the Owner/ Lessor during the period of

moratorium. What is material is that the property should be occupied by the

Corporate Debtor which is interpreted as 'actual physical occupation of the

property' and 'not right or interest created in such property'.

9. Section 14 of the I&B Code provides for slapping of moratorium as a

sequel to the order of admission of application under Section 7, 9 or 10 of

I&B Code. It inter-alia, prohibits recovery of any property by an Owner or

Lessor where such property is occupied by or in possession of the Corporate

Debtor. Sub-section (4) & proviso thereto relevant for our purpose is

reproduced as under:-

"(4) The order of moratorium shall have effect from the

date of such order till the completion of the corporate

insolvency resolution process:

Provided that where at any time during the corporate

insolvency resolution process period, if the Adjudicating

Authority approves the resolution plan under sub-

section (1) of section 31 or passes an order for

liquidation of corporate debtor under section 33, the

moratorium shall cease to have effect from the date of

such approval or liquidation order, as the case may be."

10. A bare reading of this provision reveals that the order of moratorium

takes effect from the insolvency commencement date which, as defined under

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Section 5(12), means the date of admission of an application for initiating

CIRP by the Adjudicating Authority under Section 7, 9 or 10 of the I&B Code.

It lasts till completion of CIRP. Under Section 12 of I&B Code the time limit

for completion of CIRP is provided as 180 days from the date of admission of

application to initiate such process which can be extended for a further

period not exceeding 90 days but has to be mandatorily completed within a

period of 330 days from the insolvency commencement date including the

period of judicial intervention. However, the proviso to Section 14(4) makes it

clear that in the event of approval of a Resolution Plan under Section 31(1) or

passing of an order for Liquidation of Corporate Debtor under Section 33 by

the Adjudicating Authority, the moratorium shall cease to have effect from

the date of approval of the Resolution Plan or passing of order of Liquidation

as the case may be.

11. Adverting to the facts of instant case be it seen that 180 days from the

date of commencement of CIRP expired on 26th January, 2020 and since the

Resolution Professional did neither apply for extension for CIRP beyond the

ordinary period of 180 days nor was a Resolution Plan approved or

liquidation order passed by the Adjudicating Authority before the expiry of

CIRP period viz. 26th January, 2020, moratorium ceased to operate beyond

26th January, 2020. It is not in controversy that the Corporate Debtor has

subsequently been pushed into liquidation in terms of order dated 12th

January, 2021 passed by the Adjudicating Authority. Therefore, we find no

force in the contention raised by the Appellant that the moratorium was in

force on 4th November, 2020 when the impugned order came to be passed. It

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also emerges from record that the Appellant herself has admitted the claim of

Respondent to the tune of Rs.66,79,260/- for the period from 1st April, 2014

till 1st August, 2019 by relying on the lease agreement entered inter-se the

parties. With prohibition in terms of moratorium having ceased to operate

w.e.f. 26th January, 2020, Appellant cannot justifiably hold on to the leased

premises nor resist payment of outstanding rental arrears for the CIRP

period.

12. We find no legal infirmity in the impugned order. The appeal is

accordingly dismissed. No order as to costs.

[Justice Bansi Lal Bhat] Acting Chairperson

[Dr. Ashok Kumar Mishra] Member (Technical)

[Dr. Alok Srivastava] Member (Technical) NEW DELHI

31st March, 2021

AM

Company Appeal (AT) (Insolvency) No. 1077 of 2020