NCLAT upheld the protection of tenants against summary eviction, emphasizing the primacy of tenancy rights over provisions of the Insolvency and Bankruptcy Code (IBC) in the absence of explicit termination by law or mutual agreement.
The National Company Law Appellate Tribunal (NCLAT), New Delhi Bench headed by Justice Rakesh Kumar Jain (Judicial Member) and Technical Member Mr Naresh Salecha reviewed an appeal and held that tenancy rights protected under applicable tenancy laws cannot be extinguished or overridden by the Insolvency and Bankruptcy Code, 2016, unless explicitly provided by law or altered by mutual agreement, and the jurisdiction under Section 60(5) of the IBC does not extend to evicting tenants without due process under tenancy laws.
The appeal originated from an NCLT order allowing the Resolution Professional (RP) of M/s Champalalji Finance Pvt. Ltd. to take possession of a property occupied by tenants under the Maharashtra Rent Control Act, 1999. The RP’s application, filed under Sections 60(5) and 25(2)(a) of the Insolvency and Bankruptcy Code, 2016 (IBC), argued that the property constituted part of the Corporate Debtor's assets and was essential for the insolvency resolution process. The Tribunal, invoking Section 238 of the IBC, held that the Code's provisions override the Rent Control Act and granted the RP control over the property.
The appellants, claiming tenancy rights affirmed by a prior civil court decree, challenged the order before the NCLAT. They contended that tenancy protections could not be overridden by the IBC without adherence to due process under the Rent Control Act. Emphasizing that the tenancy had neither been terminated nor altered by law, the appellants argued that the RP had improperly bypassed the eviction suit route. The appellants further distinguished the cases relied upon by the RP, asserting they pertained to leases or licenses, not continuing tenancies.
The NCLAT found merit in the appellants' arguments, observing that tenancy rights are governed by tenancy laws and cannot be extinguished solely under the IBC. It noted that the RP’s approach circumvented established legal procedures, including an eviction suit filed by the Corporate Debtor, which had since been dismissed for non-prosecution. The Tribunal’s order treating the tenancy as a lease was deemed erroneous, and the judgments cited by the RP were found distinguishable.
The NCLAT held that tenancy rights could not be overridden under the IBC without explicit legal or contractual provisions. It set aside the NCLT's order, declaring the RP's application under Sections 60(5) and 25(2)(a) of the IBC as unsustainable. The appeal was allowed, affirming the principle that tenancy protections must be upheld unless terminated by law or mutual agreement. Pending interlocutory applications were also dismissed.
Mr. Sanjiv Sen, Sr. Advocate along with Mr. Sumit Goel, Ms. Sonal Gupta, Ms. Ruchi Krishna Chauhan, Ms. Anjali Singh, Mr. Prahalad Balaji and Mr. Pragyan Mishra, Advocates represented the Appellants.
Mr. Krishnendu Datta, Sr. Advocate along with Mr. Amar Vivek, Mr. Aditya Gauri, Ms. Damini Sreshtha appeared for Respondent No. 1.
Mr. Gaurav Sethi and Mr. Rahul Pawar, Advocates appeared for the SRA.
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