Absence of Original Lessor’s Consent Renders Sub-Letting Invalid – Entire Property Rightfully Included in Liquidation Estate

NCLAT held that in the absence of the original lessor’s consent, the subletting arrangement was legally invalid, and consequently, the entire property, including the disputed portion, was rightfully included in the liquidation estate of the Corporate Debtor.

The National Company Law Appellate Tribunal (NCLAT), Principal Bench, comprising Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member), while adjudicating an appeal, held that in the absence of prior consent from the original lessor (MIDC), as required under the lease deed, the alleged sub-letting arrangement was legally invalid, and therefore, the entire leasehold property, including the disputed 13,000 sq. ft., rightfully formed part of the liquidation estate of the Corporate Debtor.

The Appeal was filed to challenge the order dated 24.04.2024 passed by the NCLT, Mumbai Bench, in IA No. 5769(MB)2023 in C.P. (IB) 921(MB)2022, whereby the Appellants' application seeking exclusion of approximately 13,000 sq. ft. of land, identified as “Wockhardt’s Cephalosporin Facility,” from the liquidation estate of the Corporate Debtor, Eurolife Healthcare Pvt. Ltd., was rejected. The Appellants contended that the said portion of land was never a part of the Corporate Debtor’s leasehold rights and had been sublet to them by Baxter (India) Pvt. Ltd. under a Sub-Letting Agreement dated 17.07.2002, which was later reaffirmed through an agreement dated 29.09.2017. The Appellants also relied on a Memorandum of Understanding dated 25.11.2016 and asserted that sub-letting charges were paid directly to the original lessor (MIDC).

The Respondents submitted that the entire 64,925 sq. mtrs. of land had been assigned to the Corporate Debtor through a registered Deed of Assignment dated 27.03.2018, executed by Baxter in favour of the Corporate Debtor, with the consent of the original lessor (MIDC) dated 09.03.2017. The leasehold rights were originally with Wockhardt Limited, later transferred to Baxter and ultimately assigned to the Corporate Debtor under a Business Transfer Agreement. The Respondents argued that the documents relied upon by the Appellants were unregistered, inadequately stamped, and lacked the mandatory consent of the original lessor (MIDC), which was a prerequisite for any valid sub-letting under Clause (u) of the Lease Deed. Therefore, the alleged subletting was not legally valid.

The Adjudicating Authority rejected the Appellants’ claim, holding that there was no evidence of any lawful right or entitlement over the said portion of land and that there was no legal basis to exclude it from the liquidation estate. The NCLAT upheld this finding, observing that the Deed of Assignment conveyed the entire land to the Corporate Debtor with the requisite consent from the original lessor (MIDC) and conferred absolute leasehold rights upon the Corporate Debtor. The Tribunal further held that the order passed by the Adjudicating Authority was supported by adequate reasoning, and in the absence of consent from the original lessor (MIDC) for the subletting, the claim of the Appellants could not be sustained. Consequently, the Appeal was dismissed, and the order rejecting IA No. 5769(MB)2023 was affirmed.

Mr. Arun Kathpalia, Sr. Advocate with Ms. Saman Ahsan, Mr. Aayush Jain and Mr. Arjit Oswal, Advocates, represented the Appellants.

Mr. Krishnendu Datta Sr. Advocate with Mr. Anish Agarwal, Mr. Tejas Agarwal, Mr. Prateek Chakma and Ms. Niharika Sharma, Advocates, appeared for the Respondents.

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