Municipal Corporation Of Greater ... vs Abhilash Lal

3. On the strength of the contract, SevenHills had borrowed from banks and financial institutions. It had created security by way of mortgage of the said lands, citing Clause 5, which enabled the creation of such encumbrances. SevenHills’ inability to repay its debts led to the initiation of insolvency proceedings by Axis Bank. On 13th March, 2018, before the period given by MCGM’s show­ cause notice ended, the Petition (CP (IB) No. 282/7/HBD/2017) was admitted by the Hyderabad Bench of the NCLT. The first respondent was appointed as the Resolution Professional (hereafter “RP”); this was approved by the Committee of Creditors (“CoC”) as required by the Code, on 12 April, 2018. A publication for expression of interest (“EOP”) was issued on 14 May, 2018; later, on 25th June, 2018 and 16th July, 2018, the terms of the Request for Proposal (RFP) and criteria for evaluation (of RFPs received) were approved. As a result of the RFP published, a resolution plan was submitted by Dr. Shetty’s New Medical Centre (“SNMC”). After discussion with the CoC, a revised RFP was submitted by the RP. The revised resolution plan was approved by the CoC on 4th September, 2018.

4. The resolution plan projected infusion of over ₹1000 crores by SNMC. That amount was to be borrowed; for this purpose, SevenHills’ properties ­ movable and immovable, were proposed to be secured by hypothecation and mortgage respectively. Operational creditors were to be paid off to the extent of 75%. Further, the plan proposed payout to the tune of ₹102.3 crores to MCGM as against its total claim of ₹140.88 crores, and also committed to honouring the terms of the agreement entered into by SevenHills and providing 20% of the beds (of the hospital to be constructed) to the poor and weaker sections of society. The net­worth certificate furnished by SNMC indicated that it possessed sufficient funds.

9. The NCLAT in its impugned order, took note of a memo filed on behalf of the MCGM on 20th April, 2019 (before the NCLT), that the revised resolution plan had been accepted and all terms 9 specified in its written submissions, were to be incorporated. As a result, the NCLAT was of the opinion that there was no scope for interference with the order of the Adjudicating Authority/NCLT.

26. On admission of an insolvency application preferred by a financial creditor/operational creditor, a moratorium is declared on the continuation and initiation of all legal proceedings against the debtor. The NCLT appoints an interim resolution professional (“IRP”). The moratorium operates till the completion of the insolvency resolution process which, by law should be completed within a mandated time frame. During the moratorium period, the debtor cannot transfer, encumber or sell any asset. Upon appointment of an IRP, the board of directors stands suspended and management vests with the IRP. These professionals (IRPs) 19 have to conduct the insolvency resolution process, take over the assets and management of the company, assist creditors in collecting information and manage the insolvency resolution process. The term of the IRP continues until an RP is appointed under Section 22. The IRP has to first determine the debtor’s financial position through information collection regarding assets, finances and operations. Information may include data relating to operations, payments, list of assets and liabilities. The IRP further has to receive and collate claims submitted by creditors.

In case SHCL fails to complete the Project as aforesaid within the said Project Period of 60 (sixty) months excluding monsoon from issuance of Commencement Certificate, and unless such failure is due to force Majeure conditions, penalty for delay shall be charged for the period of delay which will be equivalent to 25% of Lease Rent which SHCL would have paid to the Owner for that period, had the Project been completed within the Project Period and this shall be in addition to lease rent.

ii) SHCL shall have to separately pay the compensation for delay to the Owner at the end of notice period.

a) The SHCL is hereby allowed to sublease;

The permission which shall be granted by the Owner to SHCL to mortgage the Schedule Property in favour of the lender (s) for raising finance will remain irrevocable and irreversible during the tenure of the Project period and lease period except when the contact is terminated. In case the contract is terminated for valid reason, the Owner shall not bear any cost and consequences of resultant termination of mortgage by SHCL to any Financial Institution. While the right of ownership will remain with the Owner, the leasehold rights to the property will remain free from encumbrances and dedicated to the lenders during the currency of loan or the lease period whichever is earlier and the lenders shall continue to enjoy the same rights and privileges as that of SHCL.

SHCL is also hereby allowed, with prior written permission from Commissioner to sublet the whole or part thereof and/or the buildings on the Schedule Property. The SHCL shall be entitled to sublet the Schedule Property and the Building/s thereon from time to time in whole or in part for any duration (not beyond the lease period) to any other Party/ies (sub­lessee/s) on such terms and 32 conditions, as may be agreeable to SHCL within the frame work of the tender and this Agreement and for the same or similar purposes for which agreement is intended, by means of duly registered Deed/s. SHCL shall have to apply for permission to Municipal Commissioner two months in advance and if the approval is not received within two months from the date of receipt of such a request by the Commissioner, it shall be deemed as approved."

33. The show cause notice in this case preceded admission of the insolvency resolution process. In view of the clear conditions stipulated in the contract, MCGM reserved all its rights and its properties could not have therefore, in any manner, been affected by the resolution plan. Equally in the opinion of this Court, the adjudicating authority could not have approved the plan which implicates the assets of MCGM especially when SevenHills had not fulfilled its obligations under the contract.

42. Now, this court proposes to deal with the contention that the provisions of the Code override all other laws and hence, that the 45 resolution plan approved by the NCLT acquires primacy over all other legal provisions. Facially, this argument appears merited. Section 238 enacts that:

49. In view of the foregoing reasons, this court holds that the impugned order and the order of the NCLT cannot stand; they are hereby set aside. The appeal is accordingly allowed, without orders on costs.