NCLAT upheld the NCLT’s decision, affirming that the EoI issued by Respondent No.1 did not contravene Section 14(1)(d) of the IBC.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench comprising Justice Ashok Bhushan (Chairperson) and Barun Mitra (Technical Member) was hearing an appeal on Monday and observed that the Expression of Interest (EoI) issued by the Financial Creditor does not violate Section 14(1)(d) of the IBC, as the Corporate Debtor's use of the Facility under the Facility Agreement does not equate to ownership or possession of the Facility, thereby not warranting protection from actions under SARFAESI Act.
The NCLAT addresses the appeal filed by the Corporate Debtor (hereinafter referred to as "Appellant") through its Resolution Professional (RP) challenging the National Company Law Tribunal's (NCLT) order dated 28.11.2022. The NCLT's order had rejected IA No.422/2022, which sought to quash the Expression of Interest (EoI) dated 25.04.2022 issued by Respondent No.1 – Financial Creditor (hereinafter "Respondent No.1").
The dispute centres around a Facility Agreement dated 28.12.2007 between the Appellant and its subsidiary, Wind World (India) Infrastructure Pvt. Ltd. (Respondent No.2), for the operation and maintenance of power switchyards. Under this agreement, while the Appellant had the right to use, operate, and maintain the facility, the ownership remained with Respondent No.2. Subsequently, Respondent No.2 entered into loan agreements with Respondent No.1, creating hypothecation and assignment agreements over the facility's assets.
On 20.02.2018, CIRP was initiated against the Appellant. Following this, Respondent No.1, having declared Respondent No.2's account as NPA and commenced proceedings under the SARFAESI Act, issued an EoI on 25.04.2022 to find new contractors for the facility's operation and management. The Appellant challenged this EoI, arguing it violated Section 14(1)(d) of the IBC, which prohibits recovery of property occupied by or in possession of the corporate debtor during the CIRP moratorium.
The NCLAT, while examining the appeal, highlighted key aspects of the Facility Agreement and its modifications. The agreement explicitly stated that, despite the Appellant's right to operate and maintain the facility, ownership remained with Respondent No.2. The Facility Use Charges, which the Appellant was obligated to pay, were not settled, leading to the default and the initiation of SARFAESI proceedings by Respondent No.1.
The central issue was whether the EoI constituted a violation of Section 14(1)(d) of the IBC. The NCLAT observed that Section 14(1)(d) pertains to the recovery of property by an owner or lessor when the property is occupied by or in possession of the corporate debtor. Given that the Appellant's rights were limited to operation and maintenance without ownership, and considering that the EoI was for appointing new contractors rather than direct recovery of property, the NCLAT found no breach of Section 14(1)(d).
The NCLAT upheld the NCLT’s decision, affirming that the EoI issued by Respondent No.1 did not contravene Section 14(1)(d) of the IBC. The NCLAT concluded that the EoI was a procedural action under the SARFAESI Act to manage the facility effectively and did not amount to recovery of property occupied by the Appellant. Thus, the appeal was dismissed, reinforcing the legality of Respondent No.1's actions in light of the outstanding dues and ongoing CIRP proceedings.
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