Case: MUNICIPAL CORPORATION OF GREATER MUMBAI (MCGM) Vs. ABHILASH LAL

2. MCGM owns inter alia, Plot Nos. 155¬156, 162 and 168 (all plots hereafter called the lands) in village Marol, Andheri (East) Mumbai. By a contract (dated 20 th December, 2005) SevenHills Healthcare (P.) Ltd. (the company facing insolvency proceedings, hereafter SevenHills) agreed to develop these lands (which were to be leased to it for 30 years) and construct a 1500 bed hospital. MCGM stipulated several conditions, including that 20% of the beds had to be reserved for use by the economically deprived, and that SevenHills had to complete the construction in 60 months (excluding monsoons). The sixty¬month period ended on 24 th April, 2013; the project however, was not completed. In terms of Clause 15(g), the lease deed had to be executed within a month after completion. However, the deed was not executed as the project was not completed. Further, SevenHills had to pay lease rent at the annual rate of 10,41,04,000. MGCM alleges that there were ? defaults in these payments. In these circumstances, MCGM issued a show cause notice on 23 rd January, 2018, proposing termination of the contract/agreement. It is submitted that SevenHills owed MCGM an amount of 76,05,07,780. ?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 13 th March, 2018, before the period given by MCGMs 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 25 th June, 2018 and 16 th 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. Shettys 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, 20184. 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 net-worth certificate furnished by SNMC indicated that it possessed sufficient funds5. MCGM filed an application (I.A. No. 207/ 2018) claiming that it ought to be declared as a Financial Creditor and a Member of the Committee of Creditors. It made several submissions, which indicated that subject to stipulations with respect to completion of the hospital project in a timebound manner, and subject to SNMC providing 20% beds in the completed hospital, for use by the economically weaker sections (and at the disposal of MCGM) and, lastly subject to clearing its (MCGMs) claims to the tune of 140.88 ? crores, it was agreeable to the resolution plan. However, later during the proceedings, it opposed the resolution plan, arguing that being a public body as well as a planning authority, it had to comply with the provisions of the Mumbai Municipal Corporation Act, 1888 ( MMC Act), which meant that all action and approval had to be taken by the Improvement Committee of the Corporation. It was also stated that the show cause notice ( SCN) dated 23 rd January, 2018 had been already issued by MCGM proposing to terminate the contract (with SevenHills) to which there was no response and that in the absence of a lease, the provisions of Section 14(1)(d) of the Code could not prevent the MCGM from terminating the agreement. Another argument made was that the period of CIRP in the case began on 13 th March, 2018 when the petition was admitted and the period of 270 days expired on 8 th September, 2018; an extension of 90 days provided in Section 12(3) was granted by the Adjudicating Authority on 4 th September, 2018 and the extended period came to an end on 7 th December, 2018; thus the CIRP has lapsed by efflux of time6. The NCLT, after considering the views of the RP, MCGM, the creditors and SNMC, held that:29. It may be relevant to note here that the Application for approval of the resolution plan was filed on 07.09.2018. The MCGM at a belated stage has come up with its objections to the Resolution Plan with the contention that it is undisputed owner of the plot on which one of the hospitals of the Corporate Debtor in Mumbai is built. The various objections raised by MCGM as enumerated hereinabove at a belated stage are neither tenable nor acceptable. It is clear from the record that MCGM is taking a stand which is totally contrary to its own decisions and factual submissions. The final prayer of MCGM is to reject the resolution plan and order for liquidation of the Corporate Debtor. The RP in his submissions has clearly pointed out as to why the averments of MCGM are erroneous and incorrect. For the sake of briefness, the submissions made by RP as stated supra are not discussed in detail once again. This Adjudicating Authority is of the view that the contentions raised by MCGM cannot be accepted due to the conflicting and contradictory stands taken by it in the course of hearings. Further, the contention of MCGM relating to expiry of the period of 270 days is untenable and unacceptable for the reason that the Application by the Resolution Professional for the approval of the Resolution Plan has been made well before the expiry of the period of CIRP and the same is in accordance with the provisions of the Code. Therefore, the objections raised by the MCGM are hereby rejected7. The NCLT also held that the plan filed along with the application met the requirements of Section 30(2) of the Code, and Regulations 37, 38, 38(IA) and 39(4) of IBBI (CIRP) Regulations, 2016. It also held that the resolution plan did not contravene any of the provisions of Section 29A and was unanimously approved by that CoC; it provided for 78.07% of payment to financial creditors and 75% of payment to operational creditors including doctors, irrespective of claims in incorrect forms. Further, the resolution applicant is also addressing the dues payable to MCGM as stated in the resolution plan. Further, that NCLT observed that on comparison of the amount offered in the resolution plan with Form¬ H submitted by the RP, it was seen that the amount proposed in the plan was more than that of the value of liquidation of the Corporate Debtor. It accordingly approved the plan8. Aggrieved by NCLTs order, MCGM approached the Appellate Tribunal, before which several grounds were urged, including that since the conditions stipulated in the contract (with SevenHills Healthcare) had not been complied with, there was no lease deed and consequently no interest inured in the land, in favour of the Corporate Debtor. It was also urged that the resolution applicant was aware that the property belonged to MCGM, and had not vested in the Corporate Debtor. Despite these circumstances, the proposal and revised proposal incorporating encumbrances of the lands were made contrary to law. It was also specifically urged that mandatory provisions of the MMC Act requiring express authorization by the corporation for transfer or creation of any interest in land had not been complied with and resultantly, the proposal and revised proposal approved by the NCLT, so far as they dealt with the property and lands, were not enforceable against MCGM9. 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 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.

Court's reasoning:
32. A cumulative reading of the stipulations reveals that the contract/agreement contemplates that the lease deed was to be executed after the completion of the project. The contract reveals that (a) the project period was for 60 months starting from the date excluding the monsoon period; (b) by Clauses 5 and 17, SevenHills could mortgage the property for securing advances from financial institutions for the construction of the project and thereafter towards its working. Such mortgage/charge or interest was subject to approval by MCGM. In the event the contract was to be terminated, it was agreed that MCGM would not in any manner be liable towards the mortgaged amount and all its rights and ownership would continue to vest in it free from encumbrances (Clause 17)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 contract34. The argument of the RP, the financial institutions (CoC), and the SNMC with regard to MCGMs interest not being affected, in this courts opinion is insubstantial. SNMCs proposed insolvency plan on the one hand no doubt provided for the liquidation of MCGMs liabilities initially to the tune of 102 crores (later revised to over ? 140 crores). However, the provisions of the resolution plan clearly ? contemplated infusion of capital to achieve its objectives. One of the modes spelt out in the plan for securing capital was mortgaging the land. Initially, no doubt, SNMC stepped into the shoes of SevenHills and assumed its control. What is important to notice is that the corporate restructuring was a way of taking over of the companys liquidation by SNMC as it was not only Seven Hills project with shares and liquidation of debts, but also the restructuring of the companys liabilities if necessary, by creating fresh debts and mortgage of the land which directly affected MCGMIt is a matter of record that in the present case, the resolution plan was never approved by the corporation and that it was put to vote. The contesting parties, including the RP and CoC were unable to point out to anything on the record to establish that a valid permission contemplated by Section 92 was ever obtained with regard to the proposal in the resolution plan. The proposal was approved by the NCLT and MCGMs appeal was rejected by NCLAT. The proposal could be approved only to the extent it did not result in encumbering the land belonging to MCGM36. It is evident from a plain reading of Section 92(c), that the Commissioner (of MCGM) is empowered to, with the sanction of the corporation, lease, sell or otherwise convey any immovable property belonging to the corporation. It is not in dispute that the original contract entered into on 20¬12¬2005 contemplated the fulfilment of some important conditions, including firstly, the completion of the hospital project within a time frame; and secondly, timely payment of annual lease rentals. It is a matter of record that the hospital project was scheduled to be completed by 24 th April, 2013. MCGM cites Clause 15(g) of the contract to urge that within a month of this event, i.e. completion of the hospital, a lease deed had to be executed. This event never took place. Therefore, the terms of the contract remained, in the opinion of the court, an agreement to enter into a lease; it did not per se confer any right or interest, except that in the event of MCGMs failure or omission to register the lease (in the event SevenHills had complied with its obligations under the contract), it could be sued for specific performance of the agreement, and compelled to execute a lease deed. That event did not occur; SevenHills did not complete construction of the 1600 bed hospital. Apparently, it did not even fulfill its commitment, or pay annual lease rentals. In these circumstances, MCGM was constrained to issue a show cause notice before the insolvency resolution process began, and before the moratorium was declared by NCLT on 13 th March, 2018. According to MCGM, in terms of Clause 26 (of the contract), even the agreement stood terminated due to default by SevenHills. This court does not propose to comment on that issue, as that is contentious and no finding has been recorded by either the adjudicating authority or the NCLAT41. The material placed on record by MCGM before this Court also reveals that the meeting held by the Corporation on 14 th December, 2018, referred back to the resolution proposal given by SNMC. The minutes of the meeting records that three members were unanimous in their view that since SevenHills had not complied with the terms and had even sought to encumber the property by mortgage, SNMC, a UAE based company, ought not be granted approval to take over the plot and proceed with its project47. In the opinion of this court, Section 238 cannot be read as overriding the MCGMs right – indeed its public duty ¬ to control and regulate how its properties are to be dealt with. That exists in Sections 92 and 92A of the MMC Act. This court is of opinion that Section 238 could be of importance when the properties and assets are of a debtor and not when a third party like the MCGM is involved. Therefore, in the absence of approval in terms of Section 92 and 92A of the MMC Act, the adjudicating authority could not have overridden MCGMs objections and enabled the creation of a fresh interest in respect of its properties and lands. No doubt, the resolution plans talk of seeking MCGMs approval; they also acknowledge the liabilities of the corporate debtor; equally, however, there are proposals which envision the creation of charge or securities in respect of MCGMs properties. Nevertheless, the authorities under the Code could not have precluded the control that MCGM undoubtedly has, under law, to deal with its properties and the land in question- which undeniably are public properties. The resolution plan therefore, would be a serious impediment to MCGMs independent plans to ensure that public health amenities are developed in the manner it chooses, and for which fresh approval under the MMC Act may be forthcoming for a separate scheme formulated by that corporation (MCGM)48. The last contention of the respondents, that MCGM was bound by the statement made by its counsel, in the opinion of this court, cannot prevail. As held earlier, there is no approval for the plan, in accordance with law; in such circumstances, the written plea accepting the plan, by a counsel or other representative who is not demonstrated to possess the power to bind MCGM, is inconclusive. In this regard, the court notices the well¬known principle that there can be no estoppel against the express provisions of law. (Ref. Kasinka Trading v. Union of India (1995) 1 SCC 274 , Darshan Oils (P) Ltd. v. Union of India (1995) 1 SCC 345 , Shrijee Sales Corporation v. Union of India (1997) 3 SCC 398 , Shree Sidhbali Steels Ltd. v. State of U.P. (2011) 3 SCC 193 , Pappu Sweets and Biscuits v. Commr. of Trade Tax, U.P. (1998) 7 SCC 228  and Commr. of Customs v. Dilip Kumar & Co. (2018) 9 SCC 1.)