Mumbai Municipal Corporation Act, 1888 – ss.92 and 92A – Appellant owns inter alia, the lands in question – By contract dated 20.12.2005, one ‘SHCL’ agreed to develop these lands (to be leased to it) and construct 1500 bed hospital – Construction was to be completed in 60 months (excluding monsoons) which ended on 24.04.2013 – Lease deed was to be executed after the completion of the project – Project not completed within the period – ‘SHCL’ had to pay lease rent at the annual rate of ` 10,41,04,000/- –Appellant alleged defaults in the payments – Issued show cause notice on 23.01.2018, proposing contract termination – Insolvency proceedings initiated by Axis Bank also as ‘SHCL’ was unable to repay its debts – Before the period given by appellant’s show-cause notice ended, the Petition was admitted by the National Company Law Tribunal (NCLT), Hyderabad Bench – 1st respondent was appointed as the Resolution Professional (RP), approved by Committee of Creditors (CoC)– Terms of the Request for Proposal (RFP), criteria for evaluation (of RFPs received) approved – Resolution plan submitted by one ‘SNMC’ – Revised RFP submitted by RP – Revised resolution plan approved by CoC – Appellant opposed the resolution plan – Plan approved by NCLT and the Appellate Tribunal, NCLAT – Held: Resolution plan contemplated infusion of capital and one of the modes for securing capital was mortgaging the land – In view of the clear conditions stipulated in the contract, the appellant reserved all its rights and thus, its properties could not have been, in any manner, affected by the resolution plan – Adjudicating authority could not have approved the plan which implicates the assets of the appellant especially when ‘SHCL’ had not fulfilled its obligations under the contract – Further, the resolution plan was never approved by the corporation – Also, s.238, IBC cannot be read as overriding the appellant’s right- indeed its public duty to control and regulate how its properties are to be dealt with– That exists in ss.92, 92A – s.238, IBC could be of importance when the properties and assets are of a debtor and not when a third party like the appellant is involved – Therefore, in the absence of approval in terms of ss.92 & 92A, the adjudicating authority could not have overridden appellant’s objections and enabled the creation of fresh interest in respect of its properties and lands – Authorities under the Code could not have precluded the control that the appellant has, under law, to deal with its properties and the land in question, which undeniably are public properties – Resolution plan therefore, would be serious impediment to appellant’s independent plans to ensure that public health amenities are developed in the manner it chooses, and for which fresh approval under the MMC Act may be forthcoming for a separate scheme formulated by it – Impugned order and the order of NCLT, set aside – Insolvency and Bankruptcy Code, 2016 – s.238 and ss.14(1)(d), 22, 30(2), 31, 62 – Interpretation of Statutes – IBBI (CIRP) Regulations, 2016 – Regulations 37, 38, 38(IA) & 39(4).
Insolvency and Bankruptcy Code, 2016 – Aim of; insolvency process under– Discussed.
Insolvency and Bankruptcy Code, 2016 – s.238 – Scope of – Discussed.
Allowing the appeal, the Court
HELD: 1. In the present case, Section 92 of the Mumbai Municipal Corporation Act, 1888 (MMC Act) has no bearing on the validity of the resolution plan, the approval order or the impugned order. Section 92 of the MMC Act mandates and prescribes the manner in which disposal of land belonging to the appellant would take place. However, the resolution plan does not contemplate any disposal of the said land or creation of any additional rights and obligations of appellant or the Corporate Debtor in relation to the lands. It is merely the shareholding of the Corporate Debtor which undergoes a change pursuant to the resolution plan. Appellant cannot place any embargo on such shareholding changes by resorting to proceeding under the Code. On admission of an insolvency application preferred by a financial creditor/operational creditor, a moratorium is declared on the continuation and initiation of all legal proceedings against the debtor. The NCLT appoints an interim resolution professional (“IRP”). The moratorium operates till the completion of the insolvency resolution process which, by law should be completed within a mandated time frame. During the moratorium period, the debtor cannot transfer, encumber or sell any asset. Upon appointment of an IRP, the board of directors stands suspended and management vests with the IRP. These professionals (IRPs) have to conduct the insolvency resolution process, take over the assets and management of the company, assist creditors in collecting information and manage the insolvency resolution process. The term of the IRP continues until an RP is appointed under Section 22. The IRP has to first determine the debtor’s financial position through information collection regarding assets, finances and operations. Information may include data relating to operations, payments, list of assets and liabilities. The IRP further has to receive and collate claims submitted by creditors. The RP selected by the NCLT has to constitute a committee of creditors (CoC) comprising all the financial creditors of the corporate debtor. This provision is aimed at creditors adopting a collective approach towards insolvency resolution instead of proceeding individually. Key decisions of the process, and the plan to be eventually finalized are to be approved by the CoC upon its satisfaction that the provisions of the most acceptable plan would ensure that their dues are cleared. [Para 24, 26 and 27] [674-A-C-E-H; 675-AB]
2. The Insolvency and Bankruptcy Code, 2016 is principally aimed at aiding a corporate debtor in the resolution of its insolvency condition without approaching liquidation. The key to this process is the finalization of an insolvency resolution plan. A suitably structured plan would provide for repayment of the debtor’s outstanding liabilities after evaluating its financial worth, at the same time ensuring its survival as a going concern. The resolution plan must necessarily provision for repayment of the debt of operational creditors in a manner such that it shall not be lesser than the amounts that would be due, should the debtor be liquidated per Section 30(2) of the Code. Also, the plan should identify the manner of repayment of insolvency resolution costs, the implementation and supervision of the strategy, and should be in compliance with the law. If the terms (including the terms of repayment) under the resolution plan are approved by the committee of creditors, it has to be further approved by the NCLT, which is the adjudicating authority. [Para 28] [675-B-D]
3.1 The show cause notice in this case preceded admission of the insolvency resolution process. In view of the clear conditions stipulated in the contract, appellant reserved all its rights and its properties could not have therefore, in any manner, been affected by the resolution plan. Equally in the opinion of this Court, the adjudicating authority could not have approved the plan which implicates the assets of MCGM especially when SevenHills had not fulfilled its obligations under the contract. [Para 33] [683-D-E]
3.2 SNMC’s proposed insolvency plan on the one hand no doubt provided for the liquidation of MCGM’s liabilities initially to the tune of ` 102 crores (later revised to over ` 140 crores). However, the provisions of the resolution plan clearly contemplated infusion of capital to achieve its objectives. One of the modes spelt out in the plan for securing capital was mortgaging the land. Initially, no doubt, SNMC stepped into the shoes of SevenHills and assumed its control. The corporate restructuring was a way of taking over of the company’s liquidation by SNMC as it was not only Seven Hills’ project with shares and liquidation of debts, but also the restructuring of the company’s liabilities if necessary, by creating fresh debts and mortgage of the land which directly affected MCGM. Section 92 unequivocally prescribes the method whereby MCGM’s properties can be dealt with through lease or by way of creation of any other interest. The only mode permitted is through prior permission of the corporation. The resolution plan was never approved by the corporation and that it was put to vote. The contesting parties, including the RP and CoC were unable to point out to anything on the record to establish that a valid permission contemplated by Section 92 was ever obtained with regard to the proposal in the resolution plan. The proposal was approved by the NCLT and MCGM’s appeal was rejected by NCLAT. The proposal could be approved only to the extent it did not result in encumbering the land belonging to MCGM. It is evident from a plain reading of Section 92(c), that the Commissioner (of MCGM) is empowered to, with the sanction of the corporation, “lease, sell or otherwise convey any immovable property belonging to the corporation.” It is not in dispute that the original contract entered into on 20-12-2005 contemplated the fulfilment of some important conditions, including firstly, the completion of the hospital project within a time frame; and secondly, timely payment of annual lease rentals. It is a matter of record that the hospital project was scheduled to be completed by 24th April, 2013. MCGM cites Clause 15(g) of the contract to urge that within a month of this event, i.e. completion of the hospital, a lease deed had to be executed. This event never took place. Therefore, the terms of the contract remained, in the opinion of the court, an agreement to enter into a lease; it did not per se confer any right or interest, except that in the event of MCGM’s failure or omission to register the lease (in the event SevenHills had complied with its obligations under the contract), it could be sued for specific performance of the agreement, and compelled to execute a lease deed. That event did not occur; SevenHills did not complete construction of the 1600 bed hospital. Apparently, it did not even fulfill its commitment, or pay annual lease rentals. In these circumstances, MCGM was constrained to issue a show cause notice before the insolvency resolution process began, and before the moratorium was declared by NCLT on 13th March, 2018. According to MCGM, in terms of Clause 26 (of the contract), even the agreement stood terminated due to default by SevenHills. This court does not propose to comment on that issue, as that is contentious and no finding has been recorded by either the adjudicating authority or the NCLAT. The principle that if a statute requires a thing to be done in a particular manner, it should be done in that manner or not at all, articulated in Nazir Ahmad v. Emperor, AIR 1936 PC 253, has found widespread acceptance. In the context of this case, it means that if alienation or creation of any interest in respect of MCGM’s properties is contemplated in the statute through a particular manner, that end can be achieved only through the prescribed mode, or not at all. [Paras 34-36, 39] [683-F-H; 684-A-H; 688-F-G] Ram Singh Vijay Pal Singh & Ors. v. State of U.P. & Ors (2007) 6 SCC 44 : [2007] 5 SCR 1060 ; Essar Bulk Terminal Limited & Anr. v. State of Gujarat & Ors. (2018) 3 SCC 750 – relied on.
Saroj Screens Pvt. Ltd. v Ghanshyam & Ors. (2012)
11 SCC 434 : [2012] 5 SCR 141 – referred to. Nazir Ahmad v. Emperor, AIR 1936 PC 253 – referred to.
3.3 The material placed on record by MCGM before this Court also reveals that the meeting held by the Corporation on
14 th December, 2018, referred back to the resolution proposal given by SNMC. The minutes of the meeting records that three members were unanimous in their view that since SevenHills had not complied with the terms and had even sought to encumber the property by mortgage, SNMC, a UAE based company, ought not be granted approval to take over the plot and proceed with its project. [Para 41] [689-H; 690-A] Jaipur Metals & Electricals Employees Organization v. Jaipur Metals & Electricals Ltd. (2019) 4 SCC
227 : [2018] 14 SCR 926 ; Duncans Industries v. A.J. Agrochem (2019) SCC Online (SC) 1319 ; Macquaire Bank Ltd. v. Shilipi Cable Techologies Ltd. (2018) 2 SCC 674 : [2017] 13 SCR 751 ; Dharani Sugars & Chemicals Ltd. v. Union of India & Ors. (2019) 5 SCC
480 – relied on.
4. Section 238, cannot be read as overriding the MCGM’s right – indeed its public duty - to control and regulate how its properties are to be dealt with. That exists in Sections 92 and 92A of the MMC Act. This court is of opinion that Section 238 could be of importance when the properties and assets are of a debtor and not when a third party like the MCGM is involved. Therefore, in the absence of approval in terms of Section 92 and 92A of the MMC Act, the adjudicating authority could not have overridden MCGM’s objections and enabled the creation of a fresh interest in respect of its properties and lands. No doubt, the resolution plans talk of seeking MCGM’s approval; they also acknowledge the liabilities of the corporate debtor; equally, however, there are proposals which envision the creation of charge or securities in respect of MCGM’s properties. Nevertheless, the authorities under the Code could not have precluded the control that MCGM undoubtedly has, under law, to deal with its properties and the land in question- which undeniably are public properties. The resolution plan therefore, would be a serious impediment to MCGM’s independent plans to ensure that public health amenities are developed in the manner it chooses, and for which fresh approval under the MMC Act may be forthcoming for a separate scheme formulated by that corporation (MCGM). There is no approval for the plan, in accordance with law; in such circumstances, the written plea accepting the plan, by a counsel or other representative who is not demonstrated to possess the power to bind MCGM, is inconclusive. In this regard, the court notices the well-known principle that there can be no estoppel against the express provisions of law. The impugned order and the order of the NCLT cannot stand; they are set aside. [Para 47-49] [693-H; 694E-H]
Kasinka Trading v. Union of India (1995) 1 SCC
274 : [1994] 4 Suppl. SCR 448 ; Darshan Oils (P) Ltd. v. Union of India (1995) 1 SCC 345 : [1994] 5 Suppl. SCR 278 ; Shrijee Sales Corporation v. Union of India (1997) 3 SCC 398 : [1996] 10 Suppl. SCR 888 ; Shree Sidhbali Steels Ltd. v. State of U.P. (2011) 3 SCC
193 : [2011] 3 SCR 134; Pappu Sweets and Biscuits v. Commr. of Trade Tax, U.P. (1998) 7 SCC 228: [1998]
2 Suppl. SCR 119 ; Commr. of Customs v. Dilip Kumar & Co. (2018) 9 SCC 1 : [2018] 7 SCR 1191 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
This page is for informational and research purposes only and does not constitute legal advice. Consult a qualified advocate for advice specific to your situation.