NCLAT held that the Insolvency and Bankruptcy Code provisions do not override third-party rights to control and regulate their properties.
The National Company Law Appellate Tribunal (NCLAT), New Delhi Bench comprising Justice Rakesh Kumar Jain (Judicial Member) and Ajai Das Mehrotra (Technical Member) was hearing an appeal and observed that IBC provisions do not override third-party rights to control and regulate their properties. NCLAT concluded that the respondent's rights over the plot and the appellant's lease obligations remained intact despite the CIRP. The Appellate Authority upheld the respondent’s right to demand the enhanced land cost, dismissing the appellant's arguments.
In the appeal filed by M/s SEL Manufacturing Company Limited (‘Appellant’) against the order of the National Company Law Tribunal (NCLT), Chandigarh, dated 03.06.2022, the National Company Law Appellate Tribunal (NCLAT) addressed issues arising from a Lease Deed dated 22.12.2008 between the appellant and Punjab Small Industries & Export Corporation Limited (‘Respondent’) for a plot in Ludhiana leased for 99 years. The appellant also sought condonation of a 7-day delay in filing the appeal, which the court granted.
Insolvency proceedings against the appellant began on 11.04.2018, during which the respondent did not file any claims. A resolution plan by the Consortium of Arr Ess Industries Private Limited and Leading Edge Commercial FZE was approved on 10.02.2021. On 05.03.2021, the respondent issued a demand notice for Rs. 1,12,97,128/- related to the leased plot. The appellant argued that the plot was included in the resolution plan to pay creditors and sought to quash the demand, which was dismissed by the NCLT. Despite submitting a demand draft, the respondent returned it, citing the expiry of an Amnesty Scheme and increased the demand to Rs. 2,17,74,283/-.
The appellant requested the NCLAT to set aside the NCLT’s order, quash the demand notices, and direct the respondent to issue a No Objection Certificate (NOC) for the plot. They contended that the respondent, as an Operational Creditor, should have filed claims during the CIRP, and the demand was extinguished as it was not part of the approved resolution plan. The respondent argued that the demand was based on the lease terms requiring the appellant to pay any court-ordered enhancements and accused the appellant of not disclosing the pending demand during the CIRP.
The NCLAT examined the arguments and judgments cited by both parties. It noted that the enhanced land cost demand predated the CIRP and was not disclosed, violating the lease terms. The court referenced the Supreme Court’s ruling in Municipal Corporation of Greater Mumbai vs. Abhilash Lal, emphasizing that IBC provisions do not override third-party rights to control and regulate their properties. The court concluded that the respondent's rights over the plot and the appellant's lease obligations remained intact despite the CIRP.
Ultimately, the NCLAT upheld the respondent’s right to demand the enhanced land cost, dismissing the appellant's arguments. The court emphasized the necessity of adhering to lease terms and disclosing all relevant claims during the CIRP, thereby affirming that the payment demanded by the public authority was essential to clear title defects unrelated to the CIRP proceedings.
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