Moratorium also applies to properties physically occupied by the Corporate Debtor without any rights or interest

Rajendra K. Bhutta Versus Maharashtra Housing and Area Development Authority & Anr.

Court / Forum : Supreme Court of India

Citation : Civil Appeal No. 12248 of 2018 

Coram : Justice R.F. Nariman, Justice S. Ravindra Bhat, Justice V. Ramasubramanian 

Subject : Section 14 of the Insolvency and Bankruptcy Code, 2016 

Date of Decision : February 19, 2020

Background

Appeal was filed the IRP against judgment of the NCLAT confirming the order NCLT, rejecting application of the IRP seeking a direction from the NCLT to restrain MHADA from taking over possession of the land till completion of the CIRP, contending that such a recovery of possession was in derogation of the moratorium imposed under Section 14 of the Code.

The NCLAT agreeing with NCLT had held that pursuant to the ‘Joint Development Agreement’ the land of the ‘Maharashtra Housing and Area Development Authority’ was handed over to the ‘Corporate Debtor’ and ‘except for development work’ the ‘Corporate Debtor’ has not accrued any right over the land in question. The land belongs to the ‘Maharashtra Housing and Area Development Authority’ which has not formally transferred it in favour of the ‘Corporate Debtor’. Hence, it cannot be treated to be the asset of the ‘Corporate Debtor’ for application of provisions of Section 14(1)(d) of the ‘I&B Code’.

Judgment

Allowing the appeal and set aside the impugned order of the NCLAT, the Supreme Court observed that a question as to the correct interpretation of Section 14(1)(d) of the Insolvency and Bankruptcy Code, 2016. 

A bare reading of Section 14(1)(d) of the Code would make it clear that it does not deal with any of the assets or legal right or beneficial interest in such assets of the corporate debtor. Under Section 14(1)(d) what is referred to is the “recovery of any property”. 

One thing is clear that “owner or lessor” qua “property” is then to be read with the expression “occupied or in the possession of”. One manner of reading this clause is to state that whether recovery is sought by an owner or lessor, the property should either be occupied by or be in the possession of the corporate debtor. The difficulty with this interpretation is that a “lessor” would not normally seek recovery of property “occupied by” a tenant – having leased the property, a transfer of property has taken place in favour of a tenant, “possession” of which would then have to be recovered.

The expression “occupied by” would mean or be synonymous with being in actual physical possession of or being actually used by, in contra-distinction to the expression “possession”, which would connote possession being either constructive or actual and which, in turn, would include legally being in possession, though factually not being in physical possession. Since it is clear that the Joint Development Agreement read with the Deed of Modification has granted a license to the developer (Corporate Debtor) to enter upon the property, with a view to do all the things that are mentioned in it, there can be no gain saying that after such entry, the property would be “occupied by” the developer.

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.