Bar of Sec 14 Insolvency code is applicable on taking possession from corporate debtor during moratorium; SC.

Supreme Court of India

Justice R F Nariman, Justice S. Ravindra Bhat and Justice V. Ramasubramanian

The SC {RAJENDRA K. BHUTTA v. MAHARASHTRA HOUSING AND AREA DEVELOPMENT AUTHORITY AND ANOTHER} holds that when it comes to any clash between the MHADA Act and the Insolvency Code, on the plain terms of Section 238 of the Insolvency Code, the Code must prevail. This is for the very good reason that when a moratorium is spoken of by Section 14 of the Code, the idea is that, to alleviate corporate sickness, a statutory status quo is pronounced under Section 14 the moment a petition is admitted under Section 7 of the Code, so that the insolvency resolution process may proceed unhindered by any of the obstacles that would otherwise be caused and that are dealt with by Section 14. The statutory freeze that has thus been made is, unlike its predecessor in the SICA, 1985 only a limited one, which is expressly limited by Section 31(3) of the Code, to the date of admission of an insolvency petition up to the date that the Adjudicating Authority either allows a resolution plan to come into effect or states that the corporate debtor must go into the liquidation. It was held that for this temporary period, at least, all the things referred to under Section 14 must be strictly observed so that the corporate debtor may finally be put back on its feet albeit with a new management.

Further held that raising contractor being in possession on behalf of an owner of property, or a lessee of a mine was held to be an “occupier” within the meaning of Section 2(1) of the Mines Act, 1952.

It was also held that it is clear that Section 14(1)(d) of the Insolvency & Bankruptcy Code, when it speaks about recovery of property “occupied”, does not refer to rights or interests created in property but only actual physical occupation of the property. 

The question before the SC in the present case was whether Section 14(1)(d) of the Code will apply to statutorily freeze ‘occupation’ that may have been handed over under a Joint Development Agreement. The SC answered it in affirmative.

In the present case the Joint Development Agreement, a license is granted to the developer (i.e. the Corporate Debtor) to enter upon the land, demolish the existing structures and to construct and erect new structures and allot tenements. Thereafter, as a result of the Corporate Debtor defaulting in repayment of the loan to its financial creditor, namely, the Union Bank of India, an Insolvency Application under Section 7 of the Code, which was filed on 15.05.2017, was admitted on 24.07.2017, appointing an Interim Resolution Professional (i.e. the Appellant before SC). A moratorium in terms of Section 14 was also declared.

On 12.01.2018 - after the imposition of the moratorium period under Section 14 of the Code - MHADA issued a termination notice to the Corporate Debtor stating that upon expiry of 30 days from the date of receipt of the notice, the Joint Development Agreement as modified would stand terminated. It was further stated that the Corporate Debtor would have to handover possession to MHADA, which would then enter upon the plot and take possession of the land including all structures thereon. In that context the question fell for consideration before the SC whether bar of Sec 14 would be applicable in taking possession by MHADA. The SC answered it in affirmative.

In view of above, the judgment of NCLAT was set aside by the SC and NCLT was directed to dispose of the resolution professional’s application.