Summary
A corporate debtor had financed a company's purchase of ten acres in Howrah, taken forty per cent of its shares, obtained exclusive development rights and possession, and licensed 10,000 square feet to a third party. After insolvency commenced, the resolution professional sought protection of possession and inclusion of the development rights in the information memorandum; the owner and the licensee objected that the land belonged to a third party and that the NCLT could not evict a licensee. The NCLT and NCLAT protected the licensed area but otherwise upheld the resolution professional. The Supreme Court dismissed both appeals: development rights created for consideration are 'property' under Section 3(27) and an asset to be taken into custody under Section 25(2)(a); the Explanation to Section 18 is confined to that section; and a licence creates no interest in land.
Issues
- Whether development rights and possession obtained by a corporate debtor over land owned by another company, in return for financing its purchase, constitute property and an asset of the corporate debtor to be included in the information memorandum and taken into custody by the resolution professional.
- Whether the NCLT and NCLAT exceeded their jurisdiction in protecting the corporate debtor's possession against the owner and a licensee claiming to occupy the entire land.
Provisions considered
- Sections 3(27), 18(f) and 25(2)(a), Insolvency and Bankruptcy Code, 2016'Property' includes every description of interest in property; 'asset', though undefined in the Code and the seven statutes referred to in Section 3(37), denotes property of any kind, so the bundle of rights the corporate debtor holds over the land is an asset it must preserve and take custody of. (¶¶ 19, 20, 22, 26, 35, 37)
- Explanation to Section 18, Insolvency and Bankruptcy Code, 2016The exclusion of third-party assets held by the corporate debtor under contractual arrangements applies only for the purposes of Section 18, as the Explanation itself says, and does not extend to the resolution professional's duties under Section 25. (¶¶ 38, 39, 40)
- Regulations 30 and 36, Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016The resolution professional was entitled to seek the assistance of the district administration to protect the corporate debtor's possession, and the development rights must be included in the information memorandum. (¶¶ 6, 16, 37, 50)
Held
- The memorandum of understanding, shareholders' agreement, flow of consideration to the bank, development agreement, two memoranda recording possession and the licence jointly executed with the owner as mere confirming party show that a bundle of rights and interests partaking of ownership was created in the corporate debtor for valid consideration, without which the owner would not have acquired the land; following Sushil Kumar Agarwal, development rights are an incident of ownership parted with to the developer, and these rights may even amount to an irrevocable agency coupled with interest under Section 202 of the Contract Act. (¶¶ 29, 30, 31, 32, 33, 34, 35, 36, 37, 40)
- Embassy Property concerned a mining lease that was neither a statutory nor a contractual right, Gujarat Urja a power purchase agreement terminated on grounds unrelated to insolvency, and Tata Consultancy supports the corporate debtor; Rajendra K. Bhutta, on a joint development agreement, is the closest authority and distinguishes occupation from possession. The licensee's own application never claimed more than the 10,000 square feet licensed, it is only a licensee with no interest in the land, and the tribunals rightly balanced the interests by protecting its licensed area while protecting the corporate debtor's possession of the rest. (¶¶ 42, 43, 44, 45, 46, 48, 49, 50)
Result
Appeals by the licensee and the ostensible owner dismissed without costs; orders of the NCLT dated 12.02.2020 and of the NCLAT dated 08.04.2021 protecting the resolution professional's possession, confining the licensee to the 10,000 square feet under its leave and licence agreement, and requiring the development rights to be disclosed in the information memorandum, upheld.