Eurolife Healthcare Pvt Ltd As Corporate Debtor Retains Absolute Rights Over Disputed Cephalosporin Facility As Part Of Liquidation Estate: NCLAT

Brief Facts

Maharashtra Industrial Development Corporation (MIDC) executed a 95-year lease deed on 08.09.1998 for Plot No. B-15/2 in Waluj Industrial Area, Aurangabad, in favour of Wockhardt Life Sciences Limited (Appellant No. 2). The lease was registered on 08.10.1998.

In 2002, Wockhardt Life Sciences Limited transferred its business to Baxter (India) Pvt. Ltd. via a Business Transfer Agreement (06.03.2002) and a Deed of Assignment (17.07.2002). The assignment was made subsequent to consent order issued by MIDC dated 13.03.2002, granting consent to the assignor to assign its leasehold rights.

Baxter sublet approximately 13,000 sq. ft. of the plot to Wockhardt Ltd. via a Sub-Letting Agreement dated 17.07.2002 which was subject to approval of MIDC. In 2016, Baxter transferred its leasehold rights to Eurolife Healthcare Pvt. Ltd. (Corporate Debtor) via a Business Transfer Agreement (13.10.2016) and a Deed of Assignment (27.03.2018), with MIDC's consent.

CIRP was initiated against Eurolife Healthcare Pvt. Ltd. by the NCLT on 09.05.2023. MIDC issued a demand notice on 31.08.2023 to Eurolife for sub-letting charges of Rs. 1.65 cr. which was paid by Eurolife on 14.09.2023.

The Appellants filed an Application before NCLT, Mumbai, seeking to exclude the Cephalosporin Facility (approximately 13,000 sq. ft.) from liquidation proceedings of Eurolife.. NCLT dismissed the application on 24.04.2024. Aggrieved, the Appellant filed the appeal challenging the impugned order.

Submissions

Shri Arun Kathpalia, Senior Counsel for the Appellant contended that the 13,000 sq. ft. area, on which the Cephalosporin Facility of Wockhardt is located, was not part of the Corporate Debtor after the execution of the Lease Deed dated 08.09.1998. Under these agreements, the Corporate Debtor agreed to sub-let the facility area to Wockhardt. The area in question was never part of the assets of the Corporate Debtor. The counsel stated that the Appellant had paid sub-letting charges to the MIDC. MIDC has approved the sub-division of Plot No. B-15/2 to the Appellant.

Shri Krishnendu Datta, Senior Counsel for the Respondents submitted that the entire area of Plot No. B-15/2 (64,925 sq. mtrs) was assigned to the Corporate Debtor via a registered Assignment Deed dated 27.03.2018. The Corporate Debtor retains leasehold rights over the entire area, including the 13,000 sq. ft. in question.

He contended that there was no record of MIDC granting prior consent for sub-letting the area. The lease prohibited assignment/sub-letting without prior approval of MIDC. Any alleged sub-letting in favour of the Appellant of the Appellant conferred no rights on the Appellant. The liquidation estate included the entire 64,925 square metre Cephalosporin Facility area.

Observations

The question before the court was whether the Wockhardt Cephalosporin Facility, which was situated in area of 13,000 sq. ft. of the larger property, was not the asset of the Corproate Debtor and needed to be excluded from the liquidation estate of the Corporate Debtor.

The Tribunal referred to Assistant Commissioner, Commercial Department, Works Contract and Leasing Kota vs. Shukla and Brothers [(2010) 4 SCC 785], where it was observed:

"Courts should record reasons for their conclusions to enable the appellate or higher courts to exercise their jurisdiction appropriately and in accordance with law."

It was further observed that:

"Reasons are the soul of orders. Non-recording of reasons could lead to dual infirmities; firstly, it may cause prejudice to the affected party and secondly, more particularly, hamper the proper administration of justice."

The Tribunal held that recording of reason is sine qua non for exercise of judicial power by a Court or Tribunal. The Tribunal observed that the NCLT recorded reasons for holding that Coprorate Debtor has absolute right over the property and area of 13,000 sq. ft. cannot be excluded from the liquidation estate. Thus, the Corporate Debtor has absolute rights over the property forming part of the liquidation estate. The Tribunal held that payments made towards sub-letting charges did not confer rights on the applicant over the disputed area. The Tribunal dismissed the appeal.

Case Title: Wockhardt Ltd. & Anr. vs. Rajeev Mannadiar (RP of Eurolife Healthcare Pvt. Ltd.) & Anr.

Case Number: Company Appeal (AT) (Insolvency) No.927 of 2024

For Appellant : Mr. Arun Kathpalia, Sr. Advocate with Ms. Saman Ahsan, Mr. Aayush Jain and Mr. Arjit Oswal, Advocates.

For Respondents : Mr. Krishnendu Datta Sr. Advocate with Mr. Anish Agarwal, Mr. Tejas Agarwal, Mr. Prateek Chakma and Ms. Niharika Sharma, Advocates.

Date of Judgment: 07.01.2025