Eviction Of Tenant From Corporate Debtor's Property Can Be Sought Under Tenancy Law, Not U/S 60(5) Of IBC: NCLAT

Brief Facts

The insolvency proceedings were initiated against the CD on March 17, 2023 and the RP was appointed. Thereafter, the RP visited the property owned by the CD and found it to be in occupation of the appellants. The RP thereafter filed an application seeking eviction of the appellants from the property under section 60(5) of the code.

It was argued by the appellants before the tribunal that the property in question was occupied by Late Shri Suresh Padmanabha Hegde as a tenant which is protected under the Maharashtra Rent Control Act.

The CD claimed to have purchased this property from original owner / landlord of the Appellants and filed a suit for eviction bearing RAE Suit No. 149 of 2011 in which the CD categorically averred that “the plaintiff predecessor in title let out to the defendant the premises” referring to the property in question but the eviction was sought on the ground of bonafide requirement by demolishing the existing structure for raising a new building.

This suit was filed on 23.12.2016. While the suit was pending, the application under Section 7 of the code filed by Edelweiss Asset Reconstruction Company Limited against the CD was admitted and CIRP was initiated on 17.03.2023.

The Tribunal while referring to Section 18(1)(f) and Section 25 of the Code observed that it is the duty of the IRP/RP to take immediate custody of all the assets of the CD, therefore, the property in question has to be repossessed by him after eviction of the present appellants and also held that the provisions of Section 238 shall prevail over and above the provisions of the Act by which the tenancy of the Appellants has been protected.

Contentions:

The appellant submitted that the Adjudicating Authority committed error in conflating tenancy with lease and holding that the RP is empowered to take custody of the leased property. It was also argued that the appellant, as monthly tenants, are protected under the tenancy laws therefore cannot be evicted under section 25 of the code without there being an eviction suit filed under the applicable Act.

It was further contended that it is well settled that once a tenant always a tenant unless his status is changed by contract or by operation of law. In this regard, he has relied upon a decision in the case of M.R. Sahni Vs. Doris Randhawa, 2008.

It was also submitted that Section 60(5) of the Code is not attracted because the dispute in respect of tenancy rights and eviction of the tenant is separate from the insolvency of the CD and is not related to insolvency resolution process. He has relied upon a decision of the Hon'ble Supreme Court in the case of Embassy Property Developments (P) Ltd. Vs. State of Karnataka, (2020).

It was also submitted that The RP was duty bound to represent and act on behalf of the CD and to carry forward the suit proceedings in view of Section 25(2)(b) of the Code but he has tried to short cut the same by filing an application under Section 60(5) r/w Section 25(2)(a) of the Code which was not maintainable and now the said suit has been dismissed for non-prosecution.

Refuting the submissions, the respondent submitted that the CD is the lawful owner of the property and the appellant are merely tenants. However, decree passed in favor of the predecessor of the appellants is irrelevant as the CD is under insolvency under which the only authority to protect CD's assets is the Tribunal

It was further contended that the tenants are in default of rent payment and were liable for eviction and because of their continuing non-payment of rent and breach of tenancy terms, cannot seek refuge under the Act and are liable to be evicted. He has relied upon a decision in the case Jhanvi Rajpal Automotive Pvt. Ltd.(2023).

Observations:

The tribunal observed that there is a sharp difference between the lease and a tenancy. The lease is for a fixed period of time which can be terminated by issuance of notice under Section 106 of the Transfer of Property Act, 1882 whereas the tenancy continues until it is changed by contract or by operation of law.

It further observed that in the present case, there has been no change of the tenancy rights of the Appellants by way of a contract and the law which is to operate in respect of termination of tenancy are the provisions of the Act and not the Code.

It noted that in Embassy Property Developments (P) Ltd. Vs. State of Karnataka, (2020) the Supreme Court held that “wherever the corporate debtor has to exercise a right that falls outside the purview of the IBC, 2016 especially in the realm of the public law, they cannot, through the resolution professional, take a bypass and go before NCLT for the enforcement of such a right.”

The tribunal also noted that in Gujarat Urja Vikas Nigam Ltd. Vs. Amit Gupta & Ors., (2021) the Supreme Court held that “considering the text of Section 60(5)(c) and the interpretation of similar provisions in other insolvency related statutes, NCLT has jurisdiction to adjudicate disputes, which arise solely from or which relate to the insolvency of the Corporate Debtor.

However, in doing do, we issue a note of caution to the NCLT and NCLAT to ensure that they do not usurp the legitimate jurisdiction of other courts, tribunals and fora when the dispute is one which does not arise solely from or relate to the insolvency of the Corporate Debtor. The nexus with the insolvency of the Corporate Debtor must exist.”

It further added that it is well settled that once a tenant always a tenant unless the status changes by contract or by operation of law and in this regard reference may be had to the decision of M.R. Sahni Vs. Doris Randhawa, 2008 and Jagdambey Builders Pvt. Ltd. Vs. J. S Vohra, 2016.

Accordingly, the present appeal was dismissed.

Case Title: Sumati Suresh Hegde & Ors. Versus Anand Sonbhadra

Case Number: Comp. App. (AT) (Ins) No. 884 of 2024

Judgment Date: 9/01/2025

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