Recently, the National Company Law Appellate Tribunal ("NCLAT") dealt with an appeal from the National Company Law Tribunal ("NCLT") in the Corporate Insolvency Resolution Process (“CIRP”) of M/s. Today Homes and Infrastructure Pvt. Ltd. The dispute involved the possession of land for a housing project in Gurugram, with the Corporate Debtor seeking to regain possession from the Respondents. The NCLT had denied the Resolution Professional's request, citing insufficient evidence of possession and jurisdictional limitations. The NCLAT found the Resolution Professional's ("RP") evidence insufficient to prove the Corporate Debtor’s possession of the land at the time CIRP commenced, noting the absence of documentation or affidavits confirming physical possession. While the NCLAT acknowledged the dispute over the revocation of the Power of Attorney, it refrained from ruling on its validity, leaving it for civil court determination.
Brief Facts:
The appeals arise from orders passed by the NCLT, New Delhi, in the Corporate Insolvency Resolution Process ("CIRP") of M/s. Today Homes and Infrastructure Pvt. Ltd. Disputes stemmed from a development agreement between the owners of agricultural land in Gurugram and New India City Developers Pvt. Ltd., which was later assigned to the Corporate Debtor. The agreement involved developing a group housing project and an IT Park. Ownership, possession rights, and obligations were contested, leading to multiple arbitration proceedings and subsequent settlement agreements. Further, disputes emerged regarding the revocation of powers of attorney and development rights assigned to the Corporate Debtor. CIRP proceedings were initiated under the Insolvency and Bankruptcy Code, and the Resolution Professional sought intervention to restore possession of a project named “Canary Greens”. Allegations of unauthorized possession by landowners led to litigation before the NCLT, which passed interim orders addressing these concerns.
Amidst these disputes, the Corporate Debtor contested the revocation of the powers of attorney and filed a civil suit seeking a declaration that the PoA remained valid. During the CIRP, the RP sought to secure possession of the project site, which had reportedly been taken over by the Respondents. The Resolution Professional (RP) argued that the Corporate Debtor had development rights and was in physical possession of the land, which was essential for implementing the resolution plan to complete the project for the benefit of creditors, including home buyers. The NCLT, however, denied the Resolution Professional (RP)’s application to regain possession, noting that the RP had failed to provide conclusive evidence of possession by the Corporate Debtor at the commencement of CIRP. Furthermore, due to the disputed ownership and possession, the matter was deemed outside the NCLT's jurisdiction and required resolution by a civil court. Aggrieved by the NCLT’s order, the RP filed an appeal before the National Company Law Appellate Tribunal (NCLAT).
Issues:
- Whether Corporate Debtor, through its RP, was entitled to possess and manage the
land designated for the group housing project during CIRP, and if it could regain
possession from the Respondents.
- Whether the NCLT had jurisdiction to resolve possession disputes or whether this
matter required adjudication by a competent civil court, given the complex property
ownership issues.
- Whether the unilateral revocation of the PoA by the Respondents was legally valid
and, if not, whether it affected the rights of Corporate Debtor over the disputed land.
Contentions of the Appellant:
The learned senior counsel appearing for the Appellant submitted that the Corporate Debtor holds valid development rights over the subject land pursuant to the Development Agreement dated 03.03.2007. Under the said agreement, the landowners granted development rights over the entire land, divided into residential and industrial zones. The developer, after obtaining requisite licenses from the Directorate of Town and Country Planning, Haryana, assigned its rights and obligations under the Development Agreement to the Corporate Debtor for consideration. A Power of Attorney executed in favour of the Corporate Debtor further authorised it to act on behalf of the owners. It was contended that the Corporate Debtor, as the developer, constructed the project “Canary Greens,” where several towers have been completed and allotted to homebuyers. The possession of the developer’s share of the land, measuring 10.81 acres, was handed over by the landowners, as evidenced by the Development Agreement, arbitration awards, and related documents. The Resolution Professional (RP), therefore, is lawfully entitled to take possession of the said land under Sections 18, 20, and 25 of the Insolvency and Bankruptcy Code (IBC).
The Counsel further argued that the Adjudicating Authority erred in holding that it lacked jurisdiction to adjudicate possession-related issues. The development rights assigned to the Corporate Debtor and the obligations under the IBC necessitate the determination of such matters within the CIRP framework. Additionally, the Power of Attorney granted in favour of the Corporate Debtor could not have been unilaterally revoked by the owners on 30.08.2019. It was emphasised that the landowners, having granted development rights over the entire land, cannot now seek the exclusion of the 10.81 acres forming the developer's share from the CIRP. The towers constructed on this land are subject to the rights of homebuyers. Any dispute regarding possession or development rights must be resolved in accordance with the provisions of the IBC, as the land and development rights vested with the Corporate Debtor on the insolvency commencement date.
Contentions of the Respondent:
The Learned Counsel appearing for the owners in Company Appeal (AT) (Insolvency) No.331 of 2024, contended that the land in question is owned and remains in the possession of the appellants. He submitted that the Corporate Debtor has failed to establish its possession of the land on the date of the commencement of the moratorium, i.e., 31.10.2019. The contention of the Resolution Professional that the Corporate Debtor had physical possession of the land before 31.10.2019 is irrelevant since Section 14(1)(d) of the Insolvency and Bankruptcy Code (IBC) prohibits the recovery of any property by an owner or lessor if it is in the possession of the Corporate Debtor on the moratorium date. Thus, possession on the moratorium date assumes paramount importance. It was further argued that there was no evidence to suggest that possession was handed over by the developer to the Corporate Debtor. Referring to Section 18(f) of the IBC, the Counsel emphasized that the Interim Resolution Professional (IRP) could take control and custody only of those assets over which the Corporate Debtor has ownership rights. Since the ownership rights of the subject land indisputably vest with Mordhwaj Singh & Ors., possession of the land cannot be taken by the IRP or Resolution Professional. Consequently, the land, being owned by Mordhwaj Singh & Ors., should be excluded from the scope of the IBC.
The Counsel also pointed out that the Special Power of Attorney dated 19.01.2010, which was granted to the Corporate Debtor, was revoked by the owners. This revocation has been challenged by the Corporate Debtor, which is currently pending adjudication before the Civil Judge (Senior Division). With the revocation of the Power of Attorney, the Corporate Debtor cannot claim any rights over the land. It was further submitted that the agreement dated 30.07.2010, along with its addendum, was entered into between the developer and the Corporate Debtor without the involvement of the owners and, therefore, does not bind them. The developer’s failure to fulfil its obligations under the Development Agreement dated 03.03.2007 and to comply with the Arbitration Award dated 09.12.2017, including its directions within the stipulated 18-month period, led to the owners revoking the Special Power of Attorney. The Counsel alleged that the Developer and the Corporate Debtor, being part of the same group, are acting in connivance. He questioned how the Corporate Debtor, with an authorized capital of Rs.60 crore and a paid-up capital of Rs.56.29 crore, could agree to issue equity shares worth Rs.120 crore to the developer in consideration of acquiring the entire Floor Space Index (FSI) of 8,00,000 sq. ft. for the Group Housing Project.
Observation of the Tribunal:
The Tribunal meticulously analyzed the disputes arising from the lease agreements, including claims related to additional ground rent, FAR violations, and penalties. It underscored the importance of adhering to statutory requirements and fairness in the enforcement of contractual obligations. The Tribunal remarked, “The foundational principles of fairness and transparency must guide the actions of both parties, ensuring that statutory obligations are neither overlooked nor misapplied.” The Tribunal emphasised that the government bodies involved, such as L&DO, MCD and DDA must act within the bounds of law and avoid any semblance of arbitrariness. It observed, “The inconsistency in applying regulations concerning FAR violations and lease terms creates a perception of administrative arbitrariness, which undermines the integrity of governance.” The Tribunal highlighted that such discrepancies could erode trust in public institutions and emphasised the need for clarity in the applications of statutory provisions.
On the issue of calculating financial claims, the court noted, “Any claim for additional ground rent or penalties must be substantiated with clear evidence and calculated in strict conformity with the terms of the lease agreement and statutory requirements”. It found that the figures presented by the government lacked adequate substantiation and directed a review to ensure accuracy. Regarding the principle of promissory estoppel, the Tribunal affirmed its application in this case, stating, “When a government entity makes a promise or creates a legitimate expectation through its conduct, it cannot be allowed to resile from it arbitrarily, especially when the other party has acted to its detriment in reliance on such promise”. The Tribunal acknowledged that while this principle cannot override statutory provisions, it serves as a safeguard against unjust conduct by government authorities.
The Tribunal also noted that the petitioner’s reliance on prior permissions and assurances from government authorities appeared to be reasonable. It remarked, “The conduct of the authorities, including their previous approvals and communications, cannot be disregarded when determining the validity of the petitioner’s claims”. In conclusion, the Tribunal stressed that disputes over compliance with lease terms, FAR regulations, and additional dues must be resolved with due regard to legal principles and procedural fairness. Additionally, the Tribunal addressed whether the Corporate Debtor, through its RP, was entitled to possess and manage the land designated for the group housing project during CIRP. It held that under the IBC framework, the RP’s role includes the management of the Corporate Debtor’s assets, which extends to any property under dispute, provided such possession is necessary for achieving the resolution process's objectives. The Tribunal directed that the Corporate Debtor could regain possession of the disputed land if it formed part of its assets and was essential for the CIRP.
On the jurisdictional question, the Tribunal observed that while the NCLT’s primary jurisdiction lies in insolvency and related matters, disputes involving complex property ownership issues might require adjudication by a competent civil court. However, it noted that the NCLT can decide incidental issues essential for the CIRP’s effective conduct, provided it does not overstep into areas exclusively reserved for civil courts. Regarding the unilateral revocation of the Power of Attorney (PoA) by the Respondents, the Tribunal remarked that such revocation could not arbitrarily deprive the Corporate Debtor of its rights over the disputed land. It observed, “The validity of the revocation must be examined in light of the terms of the PoA and the conduct of the parties. Any unilateral action that affects the rights of the Corporate Debtor during CIRP must withstand legal scrutiny and cannot be presumed valid without proper adjudication.”
The decision of the Court:
The Tribunal ruled that the petitioner must fulfil its obligations under the lease agreement, including the payment of ground rent and penalties, as applicable. However, the government’s claims were directed to be recalculated and verified to ensure that they align with the terms of the lease agreement and statutory requirements. The Tribunal further directed the authorities to act consistently and transparently in their future dealings, stating, “The claims, while valid in principle, must withstand scrutiny to ensure compliance with established legal standards and procedural fairness”.
Case Title: Nilesh Sharma Resolution Professional - Today Homes and Infrastructure Pvt. Ltd. v. Mordhwaj Singh & Ors.
Citation: Company Appeal (AT) (Insolvency) No. 1691 of 2023
Coram: Justice Ashok Bhushan, Barun Mitra (Member-Technical)
Advocate for Appellant: Adv. Ramji Srinivasan (Sr. Advocate), Kanishk Khetan, Ashu Kansal, Shivam Jaiswal, Nilesh Sharma
Advocate for Respondent: Adv. Rajesh Kumar Gautam, Anant Gautam, Dinesh Sharma, Liki, Kushagra Nilesh Sahay, Sumesh Dhawan, Raghav Dembla, Nipun Gautam
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