Lease Termination During CIRP Moratorium Illegal; NCLAT Quashes GIDC Action and Restores Resolution Process

NCLAT held that the lease termination during the CIRP moratorium was illegal, quashed the action taken by GIDC, and restored the resolution process.

The National Company Law Appellate Tribunal (NCLAT), Principal Bench comprising Justice Ashok Bhushan (Chairperson) and Technical Members Mr. Barun Mitra and Mr. Arun Baroka, while adjudicating a batch of two company appeals along with connected interlocutory applications, held that the termination of lease and eviction proceedings initiated by GIDC during the CIRP moratorium were in contravention of Section 14 of the IBC, since leasehold rights constitute assets of the corporate debtor and are protected under the moratorium. The Tribunal further held that the Adjudicating Authority erred in remanding the resolution plan to the CoC without recording any finding of non-compliance with Section 30(2) of the IBC.

The National Company Law Appellate Tribunal (NCLAT), while adjudicating two appeals arising from the CIRP of GPT Steel Industries Limited, examined the legality of the termination of the lease and eviction proceedings initiated by Gujarat Industrial Development Corporation (GIDC) during the subsistence of the moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016. The Resolution Professional had filed an interlocutory application seeking to set aside GIDC’s lease termination order dated 07.04.2022, which the Adjudicating Authority disposed of by directing the RP to approach GIDC’s own Appellate Authority. The NCLAT found that the moratorium had been in effect since the admission of the Section 7 application in May 2019 and that GIDC’s action was in contravention of the statutory moratorium.

The Appellate Tribunal relied upon the Supreme Court’s ruling in Rajendra K. Bhutta v. Maharashtra Housing and Area Development Authority and Another, REEDLAW 2020 SC 02501, affirming that no dispossession or recovery measures could be undertaken against a corporate debtor during moratorium. It held that leasehold rights constituted assets of the corporate debtor and therefore enjoyed protection under Section 14. The Tribunal rejected the Adjudicating Authority’s decision to defer to GIDC’s appellate forum, holding that such an approach was erroneous when the termination order itself stood barred by the moratorium. Further, it distinguished the Embassy Property Developments Private Limited v. State of Karnataka and Others, REEDLAW 2019 SC 12501 judgment cited by GIDC, clarifying that the said case dealt with lease extension and not with protection from eviction during moratorium.

In the connected appeal, the NCLAT also examined the Adjudicating Authority’s order remanding the approved resolution plan back to the CoC for reconsideration due to unresolved issues concerning GIDC’s dues. The Appellate Tribunal held that there was no finding of non-compliance with Section 30(2) of the IBC and that the lease rights and GIDC’s admitted claim had been adequately addressed in the resolution plan. It noted that such remand was based entirely on the flawed view taken in the connected interlocutory application and hence was unsustainable.

Accordingly, the NCLAT allowed both appeals. It quashed the lease termination and eviction notice dated 07.04.2022, allowed IA No. 461 of 2022 filed by the RP, and set aside the Adjudicating Authority’s order dated 08.04.2024 in IA No. 159 of 2020. The resolution plan application was revived for fresh consideration, with a direction to the Adjudicating Authority to dispose of it at the earliest.

Mr. Abhijeet Sinha Sr. Advocate, with Mr. Tishampati Sen, Ms. Riddhi Sancheti, Mr. Ashish Parwani, Mr. Rajeev Nair, Mr. Anurag Anand, Ms. Gitika Makhija and Mr. Mukul Kulhari, Advocates, represented the Appellant in Company Appeal No.1084 of 2024.

Mr. Deep Roy, Mr. Dhaval Savla and Mr. Piyush Swami. Advocates represented the Appellant in Company Appeal No.1084 of 2024.

Dr. Charu Mathur, Advocate, appeared for the Respondent in Company Appeal No.1084 of 2024.

Mr. Tishampati Sen, Ms. Riddhi Sancheti, Mr. Ashish Parwani, Mr. Rajeev Nair, Mr. Anurag Company Appeal (AT) (Ins.) Nos. 1103 & 1084 of 2024 2 Anand, Ms. Gitika Makhija and Mr. Mukul Kulhari, Advocates, appeared for the Respondent No. 1 in Company Appeal No.1084 of 2024.

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