NCLAT: Joint Development Agreement Between Lessee And Corporate Debtor Valid; NOIDA's Appeal Dismissed, Right To Submit Claim Closed To Protect CIRP Timelines

The Appellant/NOIDA challenged the NCLT's order before the NCLAT, New Delhi and raised the following arguments:

1. While the plot in question was leased by NOIDA to M/s Logix City Developers Private Limited (Logix) for development of a Group Housing Project, the same was illegally transferred by Logix to M/s Dream Procon Private Limited (Corporate Debtor) by way of a Joint Development Agreement (JDA), which was in violation of the provisions of the Lease Deed executed between NOIDA and Logix.
2. As per the Lease Deed, Logix could sub-divide the subject premises into smaller plots and could have transferred the same to any third party only with NOIDA's prior approval and after due payment of transfer charges to NOIDA as per the prevailing policy. Further, Logix was not allowed to assign or change its role under the said Lease Deed and in case of contravention of the same, the lease could have been cancelled by the NOIDA. If Logix violated any of the terms of registration/allotment/lease or failed to deposit the amount, NOIDA had the right to terminate the Lease Deed.
3. It is only after the initiation of the CIRP Proceedings against the Corporate Debtor that NOIDA came to know of the transactions with the Corporate Debtor involving the land in question. During the pendency of the CIRP, the Respondent No. 2/Victory Ace Social Welfare Society (VASWS), a society comprising of 234 allottees of residential units/flats in the Project of the Corporate Debtor, approached the NCLT vide IA No. 4538/2020 for directions to NOIDA and the NCLT, vide Order dated 21.10.2020, directed the Resolution Professional to make a representation to NOIDA seeking its consent for inviting a Resolution Plan in respect of the Corporate Debtor. In compliance with this Order, the RP sent a letter dated 23.10.2020 along with copies of the JDA, GPA and Agreement to sell, requesting it to participate in the CIRP Proceedings. It was only at this time that NOIDA became aware of the existence of the JDA, the Agreement to sell and the GPA.
4. IA No. 5050/2020 was preferred by NOIDA seeking directions to the RP to exclude the said premises from the pool of assets of the Corporate Debtor mainly on the ground that the Agreement was executed by Logix in a covert manner without NOIDA's approval which is against the provisions of the terms entered into between NOIDA and Logix.
5. The Corporate Debtor had no rights over the subject premises as the JDA, GPA and Agreement to sell are non-est in the eyes of law. The asset does not belong to the Corporate Debtor under Section 18 of the Insolvency and Bankruptcy Code, 2016, (the Code), since the interest was not transferred legally by Logix to the Corporate Debtor. Approval of the Project by UPRERA would not vest any title to the Corporate Debtor in respect of the subject premises.
6. NOIDA's Ledger Statements show that no payments were made by the Corporate Debtor to NOIDA. The advertisements were issued by the various unknown parties such as 'Victory Infra Projects Private Limited', where even the basic details were not mentioned.
7. NOIDA does not recognize the Corporate Debtor and denies the validity of the JDA, and therefore the NCLT's order directing it to participate in the CIRP and submit its claim before the Resolution Professional is illegal and liable to be set aside.

The Respondent No. 1/Resolution Professional opposed the appeal and raised the following arguments:

1. The Project was duly approved by NOIDA and accordingly 80% of the construction work was completed after getting approval of Building Plans, Water Supply Plan and Water Disposal Plan etc. as per statutory requirements.
2. The Project was duly registered with UPRERA and as per Section 4(2)(c) of RERA Act, 2016 a Project could not be registered without submitting authenticated copy of approvals and Commencement Certificate from the Competent Authority.
3. The JDA and development of the Project was well within NOIDA's knowledge and NOIDA is not taking a contrary stand and trying to defeat the CIRP which would adversely affect more than 500 Homebuyers.
4. The Resolution Professional duly performed his duties and took control and custody of the assets of the Corporate Debtor as mentioned in the Balance Sheet as under Section 18(1)(f); the development rights have vested in the 'Corporate Debtor' is admittedly a proprietary right of the Corporate Debtor. The RP did not create any pool of asset for the CIRP.
5. The JDA is a valid contract and with duly recognizes in the recitals that NOIDA is the 'sole owner' of the said plots. Logix has been recognized as the 'sole lessee' of the said plot. The term 'Owner' assigned to Logix in the said JDA is merely with a purpose of convenience and does not confer any such title to Logix.
6. The Corporate Debtor is defined as a Joint Developer in the JDA and as per Clause 2, development right over the FSI of 6,00,000 sq. ft. were granted in favour of the Corporate Debtor and this does not amount to any change in the role of Logix and assigned under the Lease Deed.
7. The Construction Clause under the Lease Deed provides that the construction shall be as per the Building Plan approved by NOIDA which is strictly being adhered to. The Lease Deed is an admitted document based on which the rights of development, sub-Lease Deed and transfer of plots was exclusively transferred by NOIDA in favour of Logix. The parties to the JDA have duly ensured that all the terms and conditions laid down by NOIDA and Lease Deed were adhered to and there is no violation of the covenants of the Lease Deed regarding approvals, payments, etc.
8. The Resolution Plan submitted by Respondent No. 2/Victory Ace Social Welfare Society (VASWS) has been approved by the CoC by over 90% votes and despite the fact that NOIDA has not submitted any claim, the Resolution Plan proposes to pay Rs. 10 crores to NOIDA for discharge of its dues.

The Respondent No. 2/VASWS, i.e. a Homebuyers' Association having over 200 members and also the Successful Resolution Applicant, also opposed the Appeal and raised the following arguments:

1. The Project was formerly registered with UPRERA and the Building Plans were prepared and submitted to NOIDA and also approved by NOIDA. All details about the Project were always in public domain and well within the NOIDA's knowledge. Further, in terms of the JDA, the Corporate Debtor was liable to pay proportionate lease premium and rent to NOIDA, which the Corporate Debtor duly paid and NOIDA duly accepted from time to time. It was only based on the approvals given by NOIDA that the Corporate Debtor completed 80% of the construction activity on the subject land.
2. NOIDA raised no objection to the Project for over seven years and fully accepted the performance of the parties under the Lease Deed and the JDA. For the very first time an objection was raised on 06/11/2020, in reply to the representation made by the RP in furtherance of the direction given by the NCLT in IA 4538/2020 filed by VASWS.
3. The Lease Deed does not require that the development activity be carried out by Logix itself and therefore does not prevent Logix from transferring the development rights in the Project land to the Corporate Debtor. 'Development rights' are independent of the leasehold rights over the property and are freely transferable in law. The Lease Deed only requires NOIDA's permission for creation of sub-lease rights, but not for transferring development right per se. JDA only transfers 'development rights' in favour of the Corporate Debtor as it has been authorised by GPA to carry out construction and marketing of the completion. There is no registered instrument by a payment of stamp duty as would be required if Logix were to create any form of leasehold interest in favour of the Corporate Debtor.
4. Since the execution of the JDA, the Project is in occupation of the Corporate Debtor and therefore the ratio of the Hon'ble Supreme Court in 'Rajendra K. Bhutta' Vs. 'Maharashtra Housing and Area Development Authority & Anr.' (2020) 13 SCC 208 in paras 7, 8 and 19 is squarely applicable to the facts of this case. In this decision, it was held that as the development rights constitute the property of the Corporate Debtor and no attempt to dispossess the developer can be made by the landowner/authority during the CIRP in view of Section 14(1)(d) of the Code.
5. This Tribunal in 'Victory Iron Works Ltd.' Vs. 'Jitendra Lohia, RP of Avani Towers Ltd. & Ors., Company Appeal (AT) (Insolvency) No. 507 & 377 of 2020, has also taken the same view and held that since the development Agreement of the 'Corporate Debtor' was not terminated by the landowner before the commencement of CIRP, the protection under Section 14 of the Code will apply.
6. NOIDA has chosen not to file their 'Claim' despite a representation and direction but instead decided to contest the validity of the JDA on vexatious grounds. On 31.05.2021, NOIDA has issued a letter stating that it is in the process of filing the claim before the RP. Hence, NOIDA has adopted a contradictory stand inasmuch as on one hand it has denied the rights of the Corporate Debtor in the Project land and on the other hand it has sought permission to file its claim before the RP.
7. 80% of the construction has been completed and the rights of over 500 buyers hangs in balance on account of the stand taken by NOIDA. NOIDA being a statutory authority is under the legal duty and obligation to protect the interest and rights of the homebuyers. The Hon'ble Supreme Court in 'Bikram Chatterji & Ors. Vs. Union of India', (2019) 19 SCC 161 has held that innocent homebuyers cannot be left in the lurch and hence this Appeal is devoid of any merits and is liable to be dismissed with costs.

The NCLAT analyzed the above arguments and held as follows:

1. The CONSTRUCTION Clause under the Lease Deed provides that the construction shall be as per the Building Plans approved by NOIDA. The Corporate Debtor has entered into the JDA, whereby the development rights and other privileges over the said Project premises has been transferred by Logix in favour of the Corporate Debtor. The Registration Date of the Project was 18.03.2019 and the 'signing Competent Authority' was 'NOIDA Authority'. The 'original start date' is given as 15.10.2012 and the 'proposed completion date' is 31.12.2019. The said document is not denied by NOIDA. It is pertinent to note that NOIDA has extended permission to this Project on 08.01.2014. Further, the Project is registered under UPRERA, which establishes that all copies of approvals and Commencement Certificate from the Competent Authority were submitted in compliance of Section 4(2) of RERA Act, 2016. Therefore, the stand taken by NOIDA that it had no knowledge of the Project being developed by the Corporate Debtor is unsustainable.
2. In terms of the Lease Deed, Logix was entitled to sub-divide the plot into smaller plots and not less than 10,000 sq. mtr., each and develop the Housing Project. Accordingly, Logix sub-divided the plot into smaller landholdings and entered into a JDA with the third party developer/the Corporate Debtor. Thereby, the Corporate Debtor came into the occupation of the Project land. It is also seen from the record that the Corporate Debtor widely advertised the Project in Print and Digital Media. The material on record establishes that all details of the Project were in public domain and therefore NOIDA's stand that it had absolutely no knowledge about the Project, holds no water. It is also seen from the record that the Project commencement date was 2012 and the completion date was 2019. There is no documentary evidence filed by NOIDA showing any sort of objection raised by them for this seven year period.
3. A perusal of the JDA shows that the Agreement only creates development rights in favour of the Corporate Debtor which is authorised by a GPA to carry out construction and sale of the flats. There is no leasehold interest created in favour of the Corporate Debtor. There is no Clause in the Lease Deed which prevents Logix from transferring development rights or creating a sub-lease right to a third party.
4. A careful reading of the JDA shows that NOIDA is shown as 'the sole owner' of Plot No. GH-02. A comprehensive reading of all the terms and conditions show that pursuant to the registered Lease Deed dated 08.06.2011 leasehold rights were granted to Logix and it is clearly stated in the JDA that it considers itself the 'sole lessee' of the plot. The JDA read with the Allotment Letter and the Builder Buyer Agreement further strengthens the case that both Logix and the Corporate Debtor have clearly repeated that the 'NOIDA is the Owner of the Project land' and Logix is only a 'lessee of the plot'. For all the aforenoted reasons, this Tribunal is of the earnest view that the issue raised by NOIDA regarding the usage of the word 'Owner' with reference to Logix in the JDA, is misconceived.
5. 'Development right' vested in the Corporate Debtor is a proprietary right and the rights under JDA fall within the definition of the term 'Property' under Section 3(2) of the Code. The Corporate Debtor is defined as a 'Joint Developer' in the Joint Development Agreement and as per Clause 2 of the Agreement, the development rights over the FSI of 6,00,000 sq. ft. were granted in favour of the Corporate Debtor. This does not amount to any change in the role of Logix as can be seen from the Lease Deed.
6. The development activity was to be executed as per the plans approved by NOIDA. It is clearly specified that even if the change is a material one, the Joint Developer shall not have the liberty to change the nature of development of the Project or amend the construction plans, 'duly approved by NOIDA'.
7. Having accepted the lease premium amounts towards lease premium and lease rentals under the Lease Deed and benefited therefrom, NOIDA cannot now turn around and say that they are completely unaware of the Project or that the JDA is non-est in the eyes of the law.
8. Additionally, we do not find any substantial reasons given by NOIDA to have not exercised their rights to cancel the Lease Deed in view of their stand that Logix had sub-leased the property without their approval and in contravention of Clause 5 of the Lease Deed. Clause No. 12 clearly mentions that the lessee/sub-lessee shall not be allowed to change his role otherwise the lease/sub-lease can be cancelled and the entire amount deposited shall be forfeited. There is no whisper with respect to any steps taken by NOIDA to cancel the Lease Deed. It is beyond comprehension as to how NOIDA could have overlooked this factual scenario for seven long years, having approved the Building Plans, having accepted the premium amounts and the lease rentals and now at this stage of CIRP, stating that they were completely unaware of any such Housing Project coming up, is completely untenable.
9. NOIDA has challenged the Order passed by the NCLT inter alia directing it to participate in the CIRP of the Corporate Debtor and submit its claim before the RP. It is the case of the Resolution Applicant/Second Respondent that NOIDA had taken a contradictory stand in its stay Application seeking a direction to the RP not to close its right to lodge its claim against the 'Corporate Debtor' till the final disposal of the Appeal. Further, vide letter dated 31.05.2021 addressed to the Second Respondent, NOIDA had stated that action was being taken to file the 'Claim' before the RP. The Learned Counsel for the Second Respondent argued that this was an inconsistent stand being taken by NOIDA and that NOIDA is unjustified in taking inconsistent positions and that the principle that 'one cannot approbate and reprobate only to defeat the proceedings or to delay and prolong them is completely unnecessary' as held by the Hon'ble Supreme Court in 'Joint Action Committee of Air Line Pilots' Association of India (ALPAI) & Ors.' Vs. 'Director General of Civil Aviation & Ors.' (2011) 5 SCC 435 is applicable to the facts of this case.
10. Further, in view of the Hon'ble Supreme Court's decision in 'Ebix Singapore Pvt. Ltd.' Vs. 'Committee of Creditors of Educomp Solutions Ltd. & Anr.', [2021 SCC OnLine SC 707], the stress placed on the importance of timelines to be adhered to cannot be undermined. NCLT has allowed IA No. 4538/2020 filed by the Second Respondent seeking a direction to NOIDA to participate in the CIRP Proceedings. This Application was allowed by the NCLT with a direction to NOIDA to lodge its due 'Claim' with the RP as per law and participate in the CIRP Process through a duly authorised person and attend all the meetings. However, NOIDA preferred this Appeal seeking to set aside the Common Impugned Order dated 02.03.2021, instead of exercising their right in participating in the CIRP Proceedings and filing their 'Claim' before the RP. Vide Order dated 07.04.2021, this Tribunal had rejected the prayer for filing of claim by NOIDA observing that the Resolution Plans were pending approval before the CoC. This Order has not been challenged and has attained finality. In the meantime, the CoC has approved the Resolution Plan by a majority of 90% votes on 07.05.2021.
11. Further we do not have 'equity jurisdiction' as held by the Hon'ble Supreme Court in 'Pratap Technocrats Private Limited & Ors.' Vs. 'Monitoring Committee of Reliance Infratel Limited & Ors.' (2021) 10 SCC 623, wherein the Hon'ble Apex Court has noted that 'under the Indian Insolvency Regime, a conscious choice has been made by the legislature to not confer any independent equity based jurisdiction on the Adjudicating Authority and the Appellate Authority'. The jurisdiction of the Appellate Authority under Section 61(3) in an Appeal against an Order wherein the Resolution Plan has been approved by the CoC is similarly placed and is strictly restricted and therefore this Tribunal cannot exercise any jurisdiction beyond what is expressly conferred. Having regard to the timelines and the observations made by the Hon'ble Supreme Court in the aforenoted 'Ebix Singapore Pvt. Ltd.' (Supra) read together with the fact that vide Order dated 07.04.2021, this Tribunal had closed the right of NOIDA, which closure has not been challenged and has attained finality, resultantly, this Tribunal is of the earnest view that being a time bound process and also keeping in view the interest of the Homebuyers, this Appeal is dismissed with the aforenoted observations. Needless to add, the NCLT shall proceed in accordance with law.

Case Title: New Okhla Industrial Development Authority v. Nilesh Sharma and Another | Company Appeal (AT) (Insolvency) No. 288/2021

Coram: Justice Anant Bijay Singh, Member (Judicial) and Ms. Shreesha Merla, Member (Technical)

Counsel for Appellant: Mr. Sanjiv Sen, Sr. Advocate alongwith Mr. Sourav Roy, Mr. Kaushal Sharma and Mr. Prabudh Singh, Advocates

Counsel for Respondent No. 1: Mr. Abhijeet Sinha, Mr. Palash Singh and Mr. Milan Singh Negi, Advocates

Counsel for Respondent No. 2: Mr. Prithu Garg and Mr. Yudhveer Singh Rawal, Advocates

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