Tribunal holds liquidator can seek possession under IBC before NCLT; unregistered lease deeds and non-payment of rent weaken tenants’ claim to protection under Rent Act
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, has dismissed two appeals filed by M/s Duke Fashions (India) Ltd. and M/s UV & W Products Private Limited, upholding an order of the NCLT, Chandigarh directing them to vacate two commercial properties owned by the corporate debtor.
The dispute concerned the Karabara property and the Hussainpura property, both of which formed part of the corporate debtor’s assets. The appellants claimed they were tenants and argued that eviction could only be pursued before the Rent Controller under the East Punjab Urban Rent Restriction Act, 1949. They also contended that once the company entered liquidation, the earlier application filed by the Resolution Professional under Sections 18 and 25 of the Insolvency and Bankruptcy Code (IBC), 2016 had become infructuous and a fresh application by the Liquidator under Section 35 was necessary.
The NCLAT rejected both arguments.
The Tribunal held that the Liquidator was entitled to continue the pending application after being impleaded, since the powers exercised by the Resolution Professional and the Liquidator were substantially similar in relation to protection and recovery of corporate debtor assets. It observed that taking custody and control of assets is part of the Liquidator’s mandatory statutory duty under Sections 35 and 36 of the IBC.
On the issue of possession, the NCLAT found that the subject properties were undeniably assets of the corporate debtor and were reflected in its balance sheet and books of accounts. The Tribunal also noted that the alleged lease deeds were for a fixed term of 30 years but were unregistered, and therefore could not be relied upon to prove the tenancy terms. Further, no rent had been paid, and the occupants were related parties of the corporate debtor, factors that weighed heavily against their claim of lawful tenancy.
The NCLAT relied on earlier rulings, including Jhanvi Rajpal Automotive and Classic Marble, to reiterate that eviction proceedings by a Resolution Professional or Liquidator before the NCLT are maintainable where the dispute arises solely in relation to insolvency or liquidation of the corporate debtor. It also referred to Adinath Jewellery Exports to hold that resort to the Rent Controller is not necessary in every case, particularly where no valid registered lease and regular rent payment exist.
Addressing the argument based on the Rent Act, the Tribunal held that even if there were any inconsistency, the IBC would prevail by virtue of Section 238, which gives the Code overriding effect over other laws. The reliance on Vishal N. Kalsaria v. Bank of India was held to be misplaced, as that case involved the SARFAESI Act and protection of bona fide, rent-paying tenants, unlike the present case involving related parties and non-payment of rent.
The NCLAT also rejected the constitutional challenge based on Entry 18 of List II, observing that the IBC is legislation on insolvency and bankruptcy, not landlord-tenant relations, and that incidental impact on possession of premises does not oust NCLT’s jurisdiction under Section 60(5)(c).
Finding no error in the NCLT’s order, the appellate tribunal dismissed both appeals and affirmed the direction to vacate the premises.
Bottom Line :
Insolvency and Bankruptcy Code, 2016 - Liquidator/Resolution Professional can seek eviction of occupants/tenants from properties owned by Corporate Debtor before NCLT under Section 60(5)(c) read with Sections 35 and 36 - Resort to Rent Controller is not necessary where alleged lease deeds are unregistered, no rent has been paid and occupants are related parties of Corporate Debtor - IBC overrides inconsistent provisions of Rent Act by virtue of Section 238.
Statutory provision(s): Sections 18, 25, 35, 36, 60(5)(c), 238 of the Insolvency and Bankruptcy Code, 2016; Section 49 of the Registration Act, 1908; East Punjab Urban Rent Restriction Act, 1949; Article/Seventh Schedule Entry 18 of the Constitution of India
