The National Company Law Tribunal, Mumbai (“NCLT”) has in its judgement dated October 27, 2020 (“Judgement”) in the matter of Asset Reconstruction Company (India) Limited v. Precision Fasteners Limited [C.P. (IB) No. 1339/NCLT/MB/2017], held that jurisdiction to grant reliefs of recovery of rent from tenant and the eviction of tenant from the property of the corporate debtor lies in the exclusive domain of the civil court, hence, such issues cannot be dealt with by the adjudicating authority (“Adjudicating Authority”) as defined under Section 5(1) of the Insolvency and Bankruptcy Code, 2016 (“IBC”) by invoking Section 60(5) of the IBC.

Facts

The NCLT, in this Judgement, has considered the following two applications:

• M.A. No. 1512/2018 (“Application No.1”) filed by the Liquidator (“Applicant”or “Liquidator”) of Precision Fasteners Limited (“Corporate Debtor”) against Siddhi Edibles Private Limited (“Respondent”); and
• M.A. No. 47/2019 (“Application No. 2”) filed by the Respondent against the Liquidator.

Application No.1 was filed by the Liquidator under Section 60(5)(c) of the IBC, wherein the Applicant stated that he had been appointed as the liquidator of the Corporate Debtor by an order dated March 12, 2018. The Corporate Debtor rented out a premise owned by it, that is, the ‘office Space No. 19, Ground floor at premise No. 8, Camac Street, Kolkata’ (“Property”) to the Respondent. By agreement dated October 07, 1983, (“Agreement”), one Mrs. Pushpadevi Jain had assigned all the right, title and interest in respect of the Property in favour of the Corporate Debtor and the Agreement also recorded that the Corporate Debtor had obtained the consent of Shantiniketan Estates Private Limited (“Developer”). The Developer had also recognised the ownership, title and interest of the Corporate Debtor for the Property by letter dated October 24, 1986. The promoter of the Corporate Debtor had entered into a leave and license agreement with the Respondent in respect of the Property and copy of it was not traceable. The Applicant by letter dated June 08, 2018 had communicated to the Respondent that the promoters of the Corporate Debtor had confirmed that the leave and license agreement had expired prior to the commencement of the corporate insolvency resolution process of the Corporate Debtor and was not renewed thereafter. The Respondent unilaterally reduced the rent of the Property from INR 26,000/- per month to INR 21,000/- per month from December, 2017. Further, the Respondent paid only INR 18,900/- in the month of June, 2018 and subsequently had stopped paying the rent.

Respondent stated that it was a lawful tenant and bona-fide occupant of the Property and paid rent regularly to the Corporate Debtor. The Respondent submitted that during October, 2016, on the instruction of the Corporate Debtor, the Respondent paid a part of the rent to the Kolkata Municipal Corporation (“KMC”), and the Applicant had also stated that the said amount paid to KMC was adjusted towards rent paid by the Respondent. The Respondent had also enclosed the property tax receipt that had the name of Corporate Debtor as the owner of the Property.

The Applicant stated that he served notice dated April 17, 2018 (“Eviction Notice-1”) and notice dated September 12, 2018 (“Eviction Notice-2”) to the Respondent but in reply to both eviction notices, the Respondent refused to vacate and handover the possession of the Property.

Therefore, this Application No.1 was filed by the Applicant wherein he sought relief for eviction of, and recovery of outstanding rent from, the Respondent. Further, the Applicant also sought relief to sell, dispose-off and transfer the Property. Application No.2 was filed by the Respondent against the Applicant seeking the relief to set aside and/or quash the Eviction Notice-1 and Eviction Notice-2.\

Issues

• Whether the Adjudicating Authority has the jurisdiction to grant reliefs for recovery of rent from tenant and eviction of tenant from the Property of the Corporate Debtor under Section 60(5) of the IBC.
• Whether the Liquidator was right in including the Property under liquidation estate of the Corporate Debtor.

Arguments
Contentions raised by the Applicant:

Applicant contended that unilateral reduction of the rent of the Property by the Respondent was unjustified. The Applicant brought forth the irony by the Respondent in the correspondences. On one hand, by the letter dated May 14, 2018, the Respondent, in reply to Eviction Notice -1, stated therein that the Respondent paid rent to the Corporate Debtor, paid property tax on behalf of the Corporate Debtor to KMC and name of the Corporate Debtor appeared on the property tax receipt enclosed therewith; the contents of which corroborated that the Corporate Debtor is the owner of the Property, while, on the other hand, by letter dated September 17, 2018 in reply to Eviction Notice– 2, the Respondent challenged the inclusion of the Property in the liquidation estate of the Corporate Debtor and further the Respondent had challenged the title and ownership of the Corporate Debtor to the Property.

As per Section 35 (Powers and duties of liquidator) of the IBC, the Applicant was empowered to take into his custody or control of all assets, property, effects, actionable claims of the Corporate Debtor and to take such measures to protect and preserve the assets of the Corporate Debtor as necessary. Applicant relied on Section 36 (Liquidation estate) of the IBC and sought a relief that the Respondent be directed to vacate the Property owned by the Corporate Debtor. As per Regulation 44 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016, the Applicant is required to liquidate the Corporate Debtor within a time-bound manner and therefore, the Applicant submitted that it is just and necessary that the reliefs sought be granted.

Contentions raised by the Respondent:
Respondent objected to the Eviction Notice–1. Respondent had replied to the letter dated June 08, 2018 of the Liquidator by letter dated June 27, 2018 stating that the Respondent was ready to pay rent to the Liquidator subject to production of document to establish that the Property belonged to the Corporate Debtor. Even though the Corporate Debtor entered into an agreement for sale with the Developer, ultimately, there was no registered deed of conveyance in favour of the Corporate Debtor from the Developer. The Liquidator had admitted that the ownership of the Property had not been lying with the Corporate Debtor even though Mrs. Pushpadevi Jain had executed the Agreement in favour of the Corporate Debtor, because the Agreement has not been duly registered. The Developer had acknowledged the right of the Corporate Debtor as owner of the Property, though there was no valid registered deed of transfer in favour of the Corporate Debtor. In view of the above, the Property would not come under the liquidation estate as per Section 36(4)(a) of the IBC, as it is an asset owned by a third party which is in possession of the Corporate Debtor.

The Liquidator issued Eviction Notice – 2 even after having the knowledge that the Property did not come under the liquidation estate. The Respondent, by letter dated September 17, 2018, refused to hand-over the possession of the Property. The Respondent had no information relating to creation of security relating to the Property in favour of any secured creditor of the Corporate Debtor. The Respondent submitted that it is a settled position of law that without legal recourse, a tenant cannot be evicted.

Observations of the NCLT

The NCLT relied on the judgment of the Hon’ble Supreme Court in the case of Embassy Property Developments Private Limited v. State of Karnataka and Others [2019 SCC OnLine SC 1542] wherein it was held that “If NCLT has been conferred with jurisdiction to decide all types of claims to property, of the corporate debtor, Section 18(f)(vi) would not have made the task of the interim resolution professional in taking control and custody of an asset over which the corporate debtor has ownership rights, subject to the determination of ownership by a court or other authority. … Section 25(1) and 25(2)(b) reads as follows: 25. Duties of resolution professional – (1) It shall be the duty of the resolution professional to preserve and protect the assets of the corporate debtor, including the continued business operations of the corporate debtor (2) For the purposes of Sub-section (1), the resolution professional shall undertake the following actions: (a)…. (b) represent and act on behalf of the corporate debtor with third parties, exercise rights for the benefit of the corporate debtor in judicial, quasi-judicial and arbitration proceedings. This shows that wherever the corporate debtor has to exercise rights in judicial, quasi-judicial proceedings, the resolution professional cannot short-circuit the same and bring a claim before NCLT taking advantage of Section 60(5)”.

The NCLT analysed the applicability of the precedents to the instant matter at hand, that is, whether the above judgments dealing with the powers and duties of resolution professional could be applicable to liquidator.

The NCLT noted that Section 35(1)(k) of the IBC provides that, subject to the directions of the Adjudicating Authority, the liquidator shall have the power to institute or defend any suit, prosecution or other legal proceedings, civil or criminal, in the name of or on behalf of the corporate debtor. Further, the NCLT noted that Section 63 of the IBC provides for ‘Civil court not to have jurisdiction’ and Section 231 of the IBC provides for ‘Bar of jurisdiction’. Therefore, the NCLT observed that when the Adjudicating Authority is provided with a specific jurisdiction under the IBC, the civil court has no jurisdiction in respect of those specific matters such as preferential transactions, undervalued transactions, etc. The NCLT further observed that when the provisions of the IBC are read comprehensively, such as Section 18(f)(vi), Section 25(2)(b) and Section 35(1)(k), it can be inferred that the jurisdiction of the Adjudicating Authority does not extend to subjects such as recovery of money, specific performance, eviction proceedings, etc. which were to be dealt with by civil court only.

Further, reference was also made to the judgment of the National Company Law Appellate Tribunal upholding the rejection of resolution plan in the matter of K.L Jute Products Private Limited v. Tirupti Jute Industries Limited and Others [Company Appeal (AT)(INS) No. 277 of 2019]. The relevant portion is as follows: “Insofar as, the eviction of 2nd Respondent is concerned, the Adjudicating Authority is not empowered to pass an order of eviction and it is for an ‘Aggrieved party’ to move the appropriate forum for redressal of its grievances in accordance with Law….”

The NCLT observed that in the guise that the IBC is a complete code in itself, the Adjudicating Authority can neither enlarge nor amplify its jurisdiction.

Decision of the NCLT

The NCLT held that recovery of rent from the tenant and the eviction of tenant from the Property of the Corporate Debtor is in the exclusive domain of the civil court and cannot be dealt with by the Adjudicating Authority under Section 60(5) of the IBC. It was held that the jurisdiction to deal with such matters lies exclusively with the civil court/rent control court only. Hence, the NCLT advised the parties to approach the appropriate jurisdictional civil court for the remedies sought except for sale of the Property.

It was held that, since the Respondent paid rent for the Property, which is an admitted fact, the Liquidator was right in including this Property in the liquidation estate of the Corporate Debtor. Further, it was held that the Liquidator may take steps to register the sale deed for the Property so that there will be a clear title for the Property. Insofar as the sale of the Property by the Liquidator was concerned, the NCLT held that he could do so after taking possession of the Property by due process of law.

Vaish Associates Advocates View:

The NCLT has rightly analyzed the powers of the liquidator and thereby in corollary interpreted the limited scope of the Adjudicating Authority under the IBC. By reading the various provisions of the IBC comprehensively and in view of the legislative intent, this Judgement observed that the power to grant the relief of recovery of rent from tenant and the eviction of tenant from the property of the corporate debtor lies with the appropriate jurisdictional civil court.

It is important to note that a civil court has jurisdiction by virtue of Section 9 of the Code of Civil Procedure, 1908 to try all suits of civil nature excepting suits of which cognizance is either expressly or impliedly barred. However, the Adjudicating Authority under the IBC does not have jurisdiction to all suits since the various professionals working towards the resolution/liquidation of the corporate debtor have the power to approach other appropriate authorities for seeking reliefs. Therefore, the NCLT, through this Judgement, has rightly clarified that the Adjudicating Authority can exercise only such powers within the contours of its jurisdiction, as prescribed by the statute, the law in respect of which, it is called upon to administer.

For more information please write to Mr. Bomi Daruwala at [email protected]

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