Lease Premium & Lease Rent Not Included In Explanation To Section 14(1)(D) Of IBC: NCLAT Delhi

Background Facts

On 19.08.2011 the New Okhla Industrial Development Authority (“NOIDA”) entered into a lease deed with M/s GSS Procon Pvt. Ltd. (“Corporate Debtor”), in respect of Plot No. GH-01/C in Sector 143B, Noida for construction of residential flats.

The Corporate Debtor was obligated to pay the lease premium of Rs. 24,29,66,779/- to NOIDA. While 10% of the lease premium amount was paid, the remaining 90% amount was to be paid after a moratorium of 24 months from the date of allotment. During the moratorium period only interest @ 11% per annum, compounded half yearly, was to be paid to NOIDA.

In the meanwhile, the Corporate Debtor was admitted into Corporate Insolvency Resolution Process (“CIRP”) on 10.10.2019. A Resolution Plan was submitted by the Consortium of Home Buyers Association (Crossroad Welfare Society), which was approved by the Committee of Creditors on 04.12.2020 and was pending approval by the Adjudicating Authority.

On 04.06.2021 NOIDA requested the Resolution Professional to pay (i) Lease premium dues, calculated from 11.10.2019 to 30.06.2021, amounting to Rs. 15,54,52,427/-; and (ii) Lease rent for the year 2020-21 and 2021-22 amounting to Rs. 60,74,170/-.

When the payments were not received within 15 days, NOIDA presumed that the Resolution Professional has declined the claim. Subsequently, NOIDA filed an application before the Adjudicating Authority, seeking direction to the Resolution Professional to make the payment of the due amount.

On 12.04.2022, the Adjudicating Authority directed the Resolution Professional to make the payment to NOIDA within 6 months or include the said amount as CIRP Cost.

The Resolution Professional challenged the Order dated 12.04.2022 before NCLAT.

Relevant Law

Section 14(1)(d) of the Insolvency and Bankruptcy Code, 2016

“Section 14: Moratorium.

14.(1) Subject to provisions of sub-sections (2) and (3), on the insolvency commencement date, the Adjudicating Authority shall by order declare moratorium for prohibiting all of the following, namely:—XXX

(d) the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor.

Explanation.—For the purposes of this sub-section, it is hereby clarified that notwithstanding anything contained in any other law for the time being in force, a license, permit, registration, quota, concession, clearances or a similar grant or right given by the Central Government, State Government, local authority, sectoral regulator or any other authority constituted under any other law for the time being in force, shall not be suspended or terminated on the grounds of insolvency, subject to the condition that there is no default in payment of current dues arising for the use or continuation of the license, permit, registration, quota, concession, clearances or a similar grant or right during the moratorium period;”

Issue

Whether Explanation under Section 14(1)(d) of IBC can be invoked for directing the Corporate Debtor to pay lease premium and lease rent amount to NOIDA Authority?

NCLAT Verdict

The Bench observed that Section 14(1)(d) prohibits recovery of any property from the Corporate Debtor during moratorium period by an owner or lessor, where such property is occupied by or in the possession of the Corporate Debtor.

“However, explanation appended to Section 14(1) (d) says that with the prohibition of recovery of any property by an owner or lessor, a license, permit, registration, quota, concession, clearance or a similar grant or right either given by the Central Govt., State Govt. local authority, sectoral regulator or any other authority constituted under any other law for the time being in force, shall not be suspended or terminated on the grounds of insolvency but there would be a condition for its continuation if there is no default in payment of the dues of such license, permit, registration, quota, concession, clearance or a similar grant or right during the moratorium period.

The similar grant or right has to be read in respect of the licence, permit, registration, quota, concession, clearance but it cannot be read as the premium amount or lease rent which has been so ordered by the Adjudicating Authority to be paid by the Appellant to the Respondent.”

The Bench held that Explanation to Section 14(1)(d) of IBC does not include lease premium or lease rent amount. Hence, the Resolution Professional could not have been directed to pay the lease premium and lease rent dues to NOIDA.

The Bench set aside the order of the Adjudicating Authority for being patently illegal. The appeal has been allowed.

Case Title: Sunil Kumar Agarwal v New Okhla Industrial Development Authority.

Case No.: Company Appeal (AT) (Ins.) No. 622 of 2022.

Counsel For Appellant: Mr. Rakesh Kumar, Mr. Ankit Sharma, Mr. Dhruv Gupta & Mr. Lav Dhawan, Advocates.

Counsel For Respondent: Mr. Rachit Mittal, Mr. Parish Mishra, Mr. Adarsh Srivastava, Mr. Pooja Kapur, Advocates for R1 Mr. Kumar Mihir, Adv. for Applicant in I.A. No. 2920 of 2022.

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