Summary
An insolvency resolution plan contemplated financing through interests in municipal land on which the debtor was developing a hospital. The Supreme Court held that the land belonged to the municipality and the unfulfilled development agreement had not itself conferred the contemplated lease. Statutory municipal approval for dealing with that property could not be bypassed through plan approval or counsel’s assent. Both insolvency tribunal orders were set aside; the disputed issue of contractual termination was left undecided.
Issues
- Whether an insolvency plan could affect municipal land without the approval required by municipal law.
- Whether the Code’s overriding clause or counsel’s assent displaced that requirement.
Provisions considered
- Sections 92 and 92A, Mumbai Municipal Corporation Act, 1888Municipal approval and prescribed controls on disposal or creation of interests in public property remained applicable; no valid approval for the proposed plan was established. (¶¶ 29, 35, 36, 39, 47, 48)
- Section 238, Insolvency and Bankruptcy Code, 2016The overriding clause did not empower insolvency authorities to bypass statutory control over a third party’s municipal property in these circumstances. (¶¶ 42, 45, 47)
Held
- The development agreement contemplated execution of a lease after fulfilment of conditions which had not occurred. It did not itself confer the proposed leasehold interest. Whether the contract stood terminated remained undecided. (¶¶ 30, 31, 32, 33, 36)
- The plan’s financing proposals directly affected municipal land; a mere change-of-shareholding characterisation did not answer that concern. Valid approval through the prescribed municipal process was necessary. (¶¶ 34, 35, 36, 39)
- Section 238 did not override the municipality’s statutory power and duty over its own public property. The insolvency authorities could not enable fresh interests in it without the required approval. (¶ 47)
- Counsel’s acceptance did not establish lawful municipal approval or authority to bind the corporation. Estoppel could not defeat express statutory requirements. (¶ 48)
Result
Appeal allowed without costs. The NCLAT order and the NCLT’s plan-approval order were set aside. The Court did not determine the disputed claim that the development contract had already terminated.