NCLAT ruled that a lease cancelled prior to the commencement of CIRP could not form part of the resolution plan, and 'holding-over' tenancy under Section 116 of the Transfer of Property Act, 1882, required the lessor's express or implied assent.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench led by Justice Ashok Bhushan (Chairperson) and Technical Members Mr. Barun Mitra and Mr. Arun Baroka reviewed a bunch of two appeals and observed that a plot with a cancelled lease prior to the initiation of CIRP cannot form part of the Corporate Debtor’s resolution plan, and a corporate debtor cannot claim "holding-over" tenancy under Section 116 of the Transfer of Property Act, 1882, without express or implied assent from the lessor. The NCLAT Bench noted that the NOIDA’s valid lease cancellation extinguished all rights over the plot, rendering its inclusion in the resolution plan improper.
Two appeals were filed against the NCLT's order dated January 11, 2024, which allowed the New Okhla Industrial Development Authority (NOIDA) to exclude Plot No. SC-01/D1, Sector 79, Noida, from the resolution plan in the Corporate Insolvency Resolution Process (CIRP) of Kindle Developers Pvt. Ltd. The plot had been leased to the Corporate Debtor on October 24, 2011, but NOIDA cancelled the lease on August 13, 2015, due to non-payment of instalments and interest. Although the Corporate Debtor remained in possession, NOIDA denied the request for lease restoration on November 10, 2020. Despite the CoC approving a resolution plan that included the plot, NOIDA argued that the lease termination before CIRP commencement meant the plot was not part of the Corporate Debtor’s assets.
The NCLAT upheld the NCLT’s order, confirming that the lease stood cancelled on August 13, 2015, and the plot could not be included in the resolution plan. The tribunal rejected the appellant's claim that the Corporate Debtor had status as a “tenant holding over” under Section 116 of the Transfer of Property Act, 1882, noting that NOIDA neither accepted rent nor gave express or implied assent for continued possession. Relying on the Supreme Court’s judgment in Nand Ram v. Jagdish Prasad (2020), the NCLAT emphasized that a lessee becomes a tenant at sufferance after lease termination unless the landlord consents otherwise.
The tribunal further noted that the Corporate Debtor's application to restore the lease, filed in 2016, was time-barred under NOIDA's policy requiring restoration requests within 90 days of cancellation. Additionally, the registration of the project under UP RERA on August 15, 2017, was deemed fraudulent since the lease had already been terminated. The NCLAT held that the Resolution Professional (RP) had acted improperly by including the cancelled plot in CIRP documents, despite knowledge of the lease’s termination, and ruled that Section 14 of the IBC’s moratorium provisions could not apply as the plot was no longer the Corporate Debtor’s asset.
The judgment also highlighted the interplay between NOIDA, the Corporate Debtor, and homebuyers. Homebuyers alleged that despite collecting Rs. 170.21 crores, the developer failed to deliver homes and concealed the lease cancellation. The NCLAT criticized both the developer for mismanagement and NOIDA for neglecting its monitoring duties, citing the Bikram Chatterjee and Others v. Union of India and Others, REEDLAW 2019 SC 07501 case (2019) to stress the authority’s obligation to protect homebuyers. The NCLAT found that the resolution plan was unworkable, affirming the exclusion of the plot from CIRP and allowing NOIDA to repossess the land. The tribunal ordered the liquidation of the Corporate Debtor under Section 33(1) of the IBC, as the CIRP exceeded the 330-day statutory limit.
This decision underscores the importance of strict adherence to lease terms and the need for development authorities to take proactive measures in overseeing projects to safeguard the interests of homebuyers. NOIDA’s role in monitoring the project was scrutinized, and the tribunal directed it to pursue necessary legal steps, including resolving a pending writ petition before the Allahabad High Court.
Mr. Aditya Nayyar, Advocate represented the Appellant.
Mr. Rachit Mittal, the Advocate appeared for Respondent No. 1
Ms. Aishwarya Prasad and Mr. Niraj Chamyal, Advocates appeared for Respondent No. 2.
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