Insolvency and Bankruptcy Code, 2016 – s.25(2)(a) – IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 – Regulation 30 – Corporate Debtor and one ‘EP’ (appellant in CA No.1782 of 2021) entered into an MoU – Corporate Debtor financed the purchase of the property in question by ‘EP’ for 40% of the share capital in ‘EP’ and a Joint Development Agreement with it in respect of the property – Actual physical possession of the property was also handed over to the Corporate Debtor which factum was confirmed in two subsequent MoUs – Later, Corporate Debtor also executed a Leave and License Agreement granting license to ‘V’ (appellant in CA No.1743 of 2021), for the permissive use of a portion of the property, however, ‘V’ now claims to be in possession of the entire property – ‘EP’ joined this Agreement as a confirming party – CIRP was initiated against Corporate Debtor by a third-party financial creditor – Resolution Professional (RP) filed application u/s.25 r/w Regulation 30 of 2016 Regulations for certain directions – NCLT directed ‘V’ and ‘EP’ not to obstruct possession and activities of RP however, it also held that the order would not prevent ‘V’ from carrying on its business in the portion of land licensed to it – Appeals filed by ‘V’ and ‘EP’ were dismissed by NCLAT, RP was directed to disclose in the Information Memorandum that the Corporate Debtor has development rights over the property – On appeal, held: A bundle of rights and interests created in favour of the Corporate Debtor over the immovable property in question by a series of documents, partake the character and shade of ownership rights – Therefore, these rights and interests in the immovable property are definitely liable to be included by the RP in the Information Memorandum – Resolution Professional is duty bound u/s.25(2)(a) to take custody and control of the same – NCLT and NCLAT have done a delicate act of balancing, by protecting the interests of ‘V’ to the extent of the land permitted to be occupied – In fact, ‘V’ does not even have the status of a lessee, but is only a licensee and a license does not create any interest in the immovable property – NCLT as well as NCLAT rightly held that the possession of the Corporate Debtor, of the property needs to be protected and thus, a direction u/Regulation 30 was issued to the local district administration to give assistance to the RP for completion of CIRP of the Corporate Debtor effectively.
Insolvency and Bankruptcy Code, 2016 – s.3(37) – Income Tax Act, 1961 – s.102(2) – “asset” – Held: The word “asset” is not defined, either in IBC or in any of the seven enactments referred to in s.3(37) of the Code – But the word “asset” is defined in s.102(2) of the 1961 Act to include “property or right of any kind” – Though s.102 applies as such to Chapter X-A of the Income Tax Act, the definition throws light on the fact that property or right of any kind is considered to be an asset.
Insolvency and Bankruptcy Code, 2016 – ss.3(27), 18(f), 25(2)(a) – “property”, “asset” – CIRP was initiated against the Corporate Debtor – Interim Resolution Professional claimed that the development rights held by the Corporate Debtor formed part of its intangible assets and therefore, must be included in the Information Bulletin and protected – Held: Definition of the expression “property” u/s.3(27) includes “every description of interest, including present or future or vested or contingent interest arising out of or incidental to property” – Since the expression “asset” in common parlance denotes “property of any kind”, the bundle of rights that the Corporate Debtor has over the property in question would constitute “asset” within the meaning of s.18(f) and s.25(2)(a), IBC – Income Tax Act, 1961 – s.102(2). Indian Bankruptcy Code, 2016 – Explanation u/s.18; s.25 – Appellants challenging the impugned orders of the NCLT and NCLAT argued that by virtue of the Explanation u/s.18, the disputes between the Corporate Debtor and the third-party lessee/licensee are not amenable to the jurisdiction of the authorities under the Code – Held: Explanation u/s.18 begins with a caveat “for the purposes of this Section” – Therefore, the exclusion of assets owned by a thirdparty, but in the possession of the Corporate Debtor held under contractual arrangements, from the definition of the expression “assets”, is limited to s.18 – The Explanation u/s.18 does not extend to s.25.
Dismissing the appeals, the Court
HELD: 1.1 Section 3(27) of the IBC defines the word “property”. But the word “asset” is not defined either in Section
3 or in Section 5 or in Section 79 of the Code, though Section 79(14) defines the expression “excluded assets”. However Section 3(37) of the Code states that words and expressions used but not defined in this Code but defined in the Indian Contract Act, 1872 (9 of 1872), the Indian Partnership Act, 1932 (9 of 1932), the Securities Contract (Regulation) Act, 1956 (42 of 1956), the Securities Exchange Board of India Act, 1992 (15 of 1992), the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993), the Limited Liability 15 Partnership Act, 2008 (6 of 2009) and the Companies Act, 2013 (18 of 2013), shall have the meanings respectively assigned to them in those Acts. The word “asset” is not defined, either in IBC or in any of the seven enactments referred to in Section 3(37) of the Code. But the word “asset” is defined in Section 102(2) of the Income Tax Act, 1961 to include “property or right of any kind”. Though Section
102 applies as such to Chapter X-A of the Income Tax Act, the definition throws light on the fact that property or right of any kind is considered to be an asset. [Paras 19, 20 and 26][1033-E, G-H; 1034-A-B; 1038-B-C]
1.2 A bundle of rights and interests were created in favour of the Corporate Debtor, over the immovable property in question. The creation of these bundle of rights and interests was actually for a valid consideration. But for the payment of such consideration, Energy Properties would not even have become the owner of the property in dispute. Therefore, the development rights created in favour of the Corporate Debtor constitute “property” within the meaning of the expression under Section 3(27) of IBC. The definition of the expression “property” under Section 3(27) includes “every description of interest, including present or future or vested or contingent interest arising out of or incidental to property”. Since the expression “asset” in common parlance denotes “property of any kind”, the bundle of rights that the Corporate Debtor has over the property in question would constitute “asset” within the meaning of Section 18(f) and Section 25(2)(a) of IBC. A bundle of rights and interests were created in favour of the Corporate Debtor, by a series of documents such as (i) the MoU dated 24.01.2008; (ii) the shareholders agreement dated 24.01.2008; (iii) the flow of the consideration from the Corporate Debtor to the UCO Bank and to Energy Properties; (iv) the Development Agreement dated 16.06.2008; (v) the Memorandum Recording Possession dated 02.03.2010 executed by the original shareholders of Energy Properties; (vi) the Memorandum Recording Possession dated 24.06.2010 executed by Energy Properties in favour of the Corporate Debtor; and (vii) the Leave and License Agreement primarily executed by the Corporate Debtor in favour of Victory, which was merely confirmed by Energy Properties as a confirming party. Some of these bundle of rights and interests, partake the character and shade of ownership rights. Therefore, these rights and interests in the immovable property are definitely liable to be included by the Resolution Professional in the Information Memorandum and the Resolution Professional is duty bound under Section 25(2)(a) to take custody and control of the same. [Paras 35, 37][104-B-E; 1042-A-C]
Sushil Kumar Agarwal v. Meenakshi Sadhu & Others (2019) 2 SCC 241 : [2018] 12 SCR 756 – relied on.
1.3 Two applications were filed before NCLT. One was by the Resolution Professional and the other was by Victory. A careful look at the application filed by Victory would show that there was no whisper about Victory occupying any land in excess of what they were permitted to occupy under the Leave and License Agreement. Under the Leave and License Agreement, Victory was allowed to occupy only 10000 sq. ft. of land, upon payment of a monthly license fee of Rs.5,000/-. If at all, a vague averment was made in paragraph VII (c) of their application to the effect that inasmuch as the Corporate Debtor was unable to commence any development activity in the subject land, the owner and the developer, with their full consent, had decided to allow the applicant to run its business in the usual course from the subject land, because the subject land could not have been left vacant for any substantial period of time. The fact that there were security guards posted in the property is borne out by records. This is why NCLT as well as NCLAT have done a delicate act of balancing, by protecting the interests of Victory to the extent of the land permitted to be occupied. In fact, Victory does not even have the status of a lessee, but is only a licensee. A license does not create any interest in the immovable property. Therefore, NCLT as well as NCLAT were right in holding that the possession of the Corporate Debtor, of the property needs to be protected. This is why a direction under Regulation 30 had been issued to the local district administration. [Paras 48 - 50][1044-G; 1045-A-E]
Embassy Property Developments Private Limited v. State of Karnataka and Others (2020) 13 SCC 308 : [2019]
17 SCR 559; Gujarat Urja Vikas Nigam Limited v. Amit Gupta and Others (2021) 7 SCC 209; Tata Consultancy Services Limited v. SK Wheels Private Limited Resolution Professional, Vishal Ghisulal Jain (2022) 2 SCC 583 – distinguished.
Rajendra K. Bhutta v. Maharashtra Housing and Area Development Authority & Anr. (2020) 13 SCC 208 : [2020] 4 SCR 305 – relied on.
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.
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