Supreme Court Sets Aside NCLAT Order, Restores NCLT Direction for Corporate Debtor’s Voluntary Surrender of Leased Property to Lessor Despite IBC Moratorium During CIRP
- REEDLAW
- Aug 10
- 3 min read
Updated: Aug 12
REEDLAW Legal News Network reports: The Supreme Court set aside the NCLAT order and restored the NCLT’s direction permitting the corporate debtor to voluntarily surrender leased property to the lessor during the Corporate Insolvency Resolution Process (CIRP). The Court held that the Section 14(1)(d) moratorium under the Insolvency and Bankruptcy Code (IBC) does not bar such voluntary surrender where the Committee of Creditors (CoC), exercising its commercial wisdom as upheld in K. Sashidhar v. Indian Overseas Bank and Others, REEDLAW 2019 SC 02502, determines that retention of the property is not necessary for the debtor’s ongoing operations, thereby affirming the binding nature of CoC decisions during insolvency proceedings.
The Supreme Court Bench comprising Justice Sanjay Kumar and Justice Satish Chandra Sharma, while adjudicating a Civil Appeal, held that Section 14(1)(d) moratorium under the IBC does not prohibit the voluntary surrender of leased property by the corporate debtor to the lessor during CIRP where the Committee of Creditors, exercising its commercial wisdom as recognized in K. Sashidhar v. Indian Overseas Bank and Others, REEDLAW 2019 SC 02502, decides that retaining the property is unnecessary for the debtor’s ongoing operations. The Court thereby affirmed the binding effect of CoC decisions during insolvency proceedings.
The Supreme Court adjudicated an appeal under Section 62 of the Insolvency and Bankruptcy Code (IBC), 2016, challenging the National Company Law Appellate Tribunal’s (NCLAT) order which had set aside the National Company Law Tribunal (NCLT), Kolkata Bench’s direction to deliver possession of leased property to the appellants during the Corporate Insolvency Resolution Process (CIRP). The corporate debtor had secured financial assistance by mortgaging portions of leased premises while retaining possession under Leave and License Agreements, which were terminated due to defaults in payment.
The financial creditor, as the sole member of the Committee of Creditors (CoC), initiated CIRP under Section 7 of the IBC. The appellants, as lessors and secured creditors, had their claims admitted. After a detailed review of the Resolution Professional’s report, the CoC unanimously resolved that the corporate debtor did not require the leased property due to limited operations and high rental liabilities. The CoC directed possession to be handed over to the appellants. Despite objections from a suspended director of the corporate debtor, the NCLT ordered possession delivery accordingly.
The NCLAT reversed this order, relying on Section 14(1)(d) of the IBC, which bars recovery of property by the owner during moratorium when such property is in possession of the corporate debtor, and remanded the case for reconsideration. Subsequently, the newly appointed Resolution Professional affirmed that retaining the property was neither feasible nor necessary. The CoC and Resolution Professional supported surrendering possession to the appellants, while the suspended director opposed this without bearing the rental costs.
The Supreme Court underscored that the commercial wisdom of the CoC must be accorded primacy during CIRP, drawing upon the binding precedent of K. Sashidhar v. Indian Overseas Bank and Others, REEDLAW 2019 SC 02502. The Court distinguished the matter from routine landlord-tenant disputes, recognising that the voluntary surrender of leased property was consensual and aligned with CIRP’s objectives. Accordingly, the Supreme Court set aside the NCLAT’s order and restored the NCLT’s direction for expeditious handover of possession to the appellants, instructing the Resolution Professional to implement it without delay.
Mr. Ashish Choudhury, Advocate, represented the Appellant.
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