Development Rights Are Fully Covered By Definition Of "Property" U/S 3(27) Of IBC: NCLAT New Delhi

The NCLAT New Delhi Bench of Justices Ashok Bhushan (Chairperson) Barun Mitra (Technical Member) held that it is no more res integra, that the Development Rights are Rights which can be claimed by a Developer in assets. Development Rights are also fully covered by the definition of Property under Section 3(27) of the IBC.

Brief Facts

These four Appeals arise out of the order passed by the NCLT in the Corporate Insolvency Resolution Process (CIRP) of the 'M/s. Today Homes and Infrastructure Pvt. Ltd (Corporate Debtor) have been filed against the common order dated 05.12.2023 passed .Company Appeal (AT) (Insolvency) No.336 of 2024 and Company Appeal (AT) (Insolvency) No. 337 of 2024 have been filed against the order dated 22.12.2023 passed in IA No. 4876 of 2020 and IA No.987/2021.

The Respondents (owners) own agricultural land admeasuring 35.2062 acres situated in village Behrampur, Gurugram, Haryana. The owners entered into a Development Agreement on 03.03.2007 with New India City Developers Private Limited (Developer) to develop a group housing project and an IT Park on the said land after obtaining the required approvals.

On 19.01.2010, the owners executed irrevocable Special Power of Attorney in favour of the developer in order to enable it to approach different authorities for obtaining licences, clearances, approvals etc.

On 19.01.2010, the owners executed another irrevocable Special Power of Attorney registered on 20.01.2010 in favour of the Corporate Debtor with respect to the land which is to be developed for the Group Housing Project and the Cyper Park. The rights and obligations in favour of the developer was transferred to the Corporate Debtor as per Development Agreement dated 03.03.2007.

The DTCP issued a License to the owners with New India as collaborator for development of the IT Park on area admeasuring 12.55 acres. The Sole Arbitrator as per Consent Award dated 05.09.2009 after obtaining the license on 11.10.2010 by order dated 12.10.2010 directed the joint receivers to handover the possession of the said land to the developer.

On 30.08.2019, owners issued a notice to the corporate debtor stating that the Power of Attorney dated 19.01.2010 was revoked on 30.08.2019. On an order passed by the Adjudicating Authority dated 31.10.2019 on a petition under Section 9 of the IBC, CIRP was initiated against the Corporate Debtor.

The Corporate Debtor who was assigned the rights and obligation of the developer had carried on a project namely— 'Canary Greens' on developer shares of 10.81 acres. The IRP of the Corporate Debtor had taken possession of the project.

The Resolution Professional sought direction against the owners to restore the peaceful, vacant and physical possession of the “Canary Greens” and an interim order was issued on 24.08.2020 by the Adjudicating Authority in IA No.3356 of 2020. After the interim order, the Resolution Professional was again put back in possession on 02.09.2020.

The owners filed IA No.5001 of 2021 by which application owners sought a direction to the Resolution Professional to exclude the project land ad-measuring 10.81 acres situated in Village Behrampur from the proposed Resolution Plan.

All the aforesaid three IAs were heard by the Adjudicating Authority and by order dated 05.12.2023, Adjudicating Authority disposed all the three applications. The Adjudicating Authority held that the Resolution Professional could not place on record any evidence to show that the physical possession of the land in question was handed over to him and the Resolution Professional is in possession of the land.

It was further observed that the issue of possession has to be decided by a Civil Court having jurisdiction on the basis of oral and documentary evidence and the Adjudicating Authority is not competent to decide the same.

Contentions

The appellant in Company Appeal (AT) (Insolvency) No. 1691 of 2023 and Company Appeal (AT) (Insolvency) No. 331 of 2024 submitted that Adjudicating Authority committed error in observing that the Resolution Professional has not been able to prove that it is in Resolution Professional who is in possession. It is submitted that when the corporate debtor has development rights in the land, Resolution Professional is fully entitled in law to take possession. Reference has been made to Sections 18, 20 & 25 of the IBC.

It was further submitted that the owners have no right to claim that the area 10.81 acres be excluded from the CIRP of the Corporate Debtor. Area 10.81 acres is the area which fell in the 50% share of the developer it was assigned to the corporate debtor.

It was further submitted that there being development rights in favour of the developer which has assigned to corporate debtor, it is the corporate debtor who has rights and obligations in the subject land which requires determination by the Adjudicating Authority and issue of development rights in the land cannot be decided dehorse the IBC proceedings and the Adjudicating Authority committed error in holding that it has no jurisdiction.

Per contra, the appellant in Company Appeal (AT) (Insolvency) No.331 of 2024 submitted that the land is owned by the Appellant and is in their possession. The Corporate Debtor has failed to prove that it was in possession on the day of commencement of Moratorium i.e. on 31.10.2019.

It was further submitted that it is undisputed that ownership rights on the land vest with Mordhwaj Singh & Ors., hence, the possession of the said land cannot be taken by the IRP or Resolution Professional.

It was further submitted that the POA having been revoked corporate debtor cannot claim any right, the agreement dated 30.07.2010 read with addendum was entered between the developer and the corporate debtor in which owners are not party, hence, they are not binding on the owners.

NCLAT's Analysis

The NCLAT at the outset perused multiple documents and observed that owners have entrusted to the Developer exclusive and irrevocable rights for development of the scheduled property. Clause 7 deals with 'right to sub-contract' which clearly mentioned that the developer shall be bound to promote and develop the project as a Today Group Project.

The tribunal further observed that the Agreement dated 30.07.2010 between the developer and the corporate debtor is also brought on record where developer for consideration of Rs.40,00,00,000/- has agreed to sell, transfer and confer all the rights, obligations, responsibilities and interests in the entire Floor Space Index (FSI) totalling to 8,00,000 sq. ft. to the corporate debtor

After appreciating the facts of the case, the tribunal further moved to discuss the law on point and firstly referred to section 25(2) of the IBC which obligates the RP to take immediate custody and control of all the assets of the Corporate Debtor and business records of the Corporate Debtor.

The tribunal further observed that it is no more res integra, that the Development Rights are Rights which can be claimed by a Developer in assets. Development Rights are also fully covered by the definition of Property under Section 3(27) of the IBC.

The NCLAT referred to the Supreme Court judgment in Victory Iron Works Ltd. Vs. Jitendra Lohia & Anr. (2023) wherein it was held that therefore, the development rights created in favour of the corporate debtor constitute “property” within the meaning of the expression under Section 3(27) IBC. At the cost of repetition, it must be recapitulated that the definition of the expression “property” under Section 3(27) includes “every description of interest, including present or future or vested or contingent interest arising out of or incidental to property”.

The court in the above case further held that “since the expression “asset” in common parlance denotes “property of any kind”, the bundle of rights that the corporate debtor has over the property in question would constitute “asset” within the meaning of Section 18(1)(f) and Section 25(2)(a) IBC.”

Based on the above the tribunal further observed that it is clear that although Corporate Debtor had not claimed any Ownership Right in the 10.81 acres of the land, but Corporate Debtor has claimed Development Rights on the basis of assignment Agreement dated 30.07.2010 executed between the developer and corporate debtor.

The tribunal further held that the materials on record fully prove that on the land 10.81 acres, the Project Canary Green was constructed which Project was the Project of the Corporate Debtor. Corporate Debtor having Development Right in subject land, the RP was entitled to have possession and take possession.

Thus, the observations of the Adjudicating Authority that the RP was not in possession of the land in question is erroneous and without considering the relevant materials on the record which fully proves that it was Corporate Debtor who was in possession of the Project land and the Project.

The tribunal disagreed with the observation of the Adjudicating Authority pertaining to its incompetency to decide the question of disputed land and referred the judgment in Victory Iron Works Ltd (supra).

The tribunal further observed that the decision regarding it being part of the assets of the Corporate Debtor or not is essential to be decided in CIRP Process and Adjudicating Authority committed error in observing that said issues i.e., Rights of the Development which is claimed by the Corporate Debtor are to be decided by the Civil Court is wholly erroneous and against the Scheme of the IBC.

The tribunal concluded that the observations of the Adjudicating Authority in Order dated 05.12.2023 that the RP could not place on record the evidence to show that physical possession of land in question was handed over to him and its incompetency to decide the disputed land question, are unsustainable.

Accordingly, all appeals were disposed of.

Case Title: Nilesh Sharma Resolution Professional - Today Homes and Infrastructure Pvt. Ltd. Vs. Mordhwaj Singh & Ors

Case Reference: Company Appeal (AT) (Insolvency) No. 331 of 2024 & I.A. No. 1127 of 2024, Company Appeal (AT) (Insolvency) No. 336 of 2024 and Company Appeal (AT) (Insolvency) No. 337 of 2024

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