The insolvency and Bankruptcy Code does not permit sub-leasing by the Liquidator as it violated the lease deed and statutory provisions while upholding the public body's authority.
The National Company Law Appellate Tribunal (NCLAT), New Delhi Bench, led by Justice Rakesh Kumar Jain (Judicial Member) and Technical Members Mr. Naresh Salecha and Mr. Indevar Pandey, reviewed an appeal and observed that any sub-lease by a Liquidator under the Insolvency and Bankruptcy Code, 2016, must strictly comply with the terms of the lease deed and applicable statutory provisions. The Tribunal further held that the Liquidator’s powers under Section 35 of the IBC do not override these contractual and legal obligations.
The appeal by Mr. Prabhat Jain, Liquidator of M/s Narmada Cereal Pvt. Ltd., under Section 61(1) of the Insolvency and Bankruptcy Code, 2016, challenged the NCLT New Delhi Bench's order rejecting his plea to sub-lease the Corporate Debtor's factory to M/s Maa Yashoda Food Grains. The liquidation process commenced following the failure of resolution efforts, and despite several e-auctions, the Corporate Debtor could not be sold as a going concern. To reduce expenses and maintain operational viability, the Liquidator temporarily sub-leased the plant and machinery, with the support of the sole financial creditor, Punjab National Bank (PNB). The sub-lease, however, faced objections from MP Industrial Development Corporation Limited (Respondent No. 1), the lessor of the industrial land, which initiated actions citing breaches of the lease deed and the MP State Industrial Land and Building Management Rules, 2019.
The Appellant contended that the sub-lease arrangement, being limited to plant and machinery, did not breach the lease terms and was exempt under Clause 22 of the 2019 Rules. It was argued that the Liquidator acted in good faith under Section 35 of the IBC to preserve the Corporate Debtor's assets, citing judgments such as Municipal Corporate of Greater Mumbai (MCGM) v. Abhilash Lal, REEDLAW 2019 SC 11503 and Sundresh Bhatt, Liquidator of ABG Shipyard v. Central Board of Indirect Tax and Custom, REEDLAW 2022 SC 08611. Respondent No. 1 countered that the sub-lease violated Clause 12 of the lease deed, which prohibited sub-leasing without prior approval, and the 2019 Rules, which required a tripartite agreement for such arrangements. The Respondent further asserted that the show-cause notices issued were administrative actions, not legal proceedings under Section 33(5) of the IBC.
The Appellate Tribunal examined the lease provisions and statutory rules governing the arrangement. It observed that Clause 12 explicitly barred sub-leasing without prior written consent and that Rule 22 of the 2019 Rules mandated compliance with specific conditions for sub-leases. The Tribunal dismissed the Appellant's reliance on precedents like Sundresh Bhatt, finding them inapplicable to the facts. While acknowledging the Liquidator's statutory duties, it emphasized the necessity of adhering to contractual and statutory requirements, which were evidently breached in this case.
Concluding that the sub-leasing was unauthorized, the Tribunal upheld the actions of Respondent No. 1. It directed the refund of the lease amount to the Liquidator to facilitate the liquidation process but dismissed the Appellant’s claims regarding the sub-lease’s validity. This decision reaffirms the criticality of compliance with lease agreements and statutory frameworks in insolvency proceedings, underscoring that the Liquidator's authority under the IBC does not override contractual obligations or state-mandated rules.
Mr. Saurabh Kalia and Mr. Iswar Mohapatra, Advocates represented the Appellant.
Mr. Abhishek Choudhary and Mr. Aalok Kumar, Advocates appeared for Respondent No. 1.
Mr. Ankit Raj, Mr. Akash Chandrayan and Mr. Ali Mohammed Khan, Advocates appeared for Respondent No. 2.
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