Case: RAJENDRA K. BHUTTA Vs. MAHARASHTRA HOUSING AND AREA DEVELOPMENT AUTHORITY AND ANOTHER

The facts necessary to appreciate the setting in which this question arises are as follows:i. On 01.11.2007, a Resolution bearing No.6280 was passed by the Maharashtra Housing and Area Development Authority (hereinafter referred to as the MHADA) to execute a joint development agreement with the Corporate Debtor, i.e. Guru Ashish Construction Private Limited, and Goregaon Siddharth Nagar Sahakar Griha Nirman Sanstha Limited (a Society for persons who are displaced and who are to be rehoused in the project for joint development of land, ad measuring about 40 acres), which envisaged re-development insofar as 672 tenements in Siddharth Nagar, Goregaon, Mumbai were concernedii. On 03.03.2008, the Maharashtra State Government granted its approval to the aforesaid Resolutioniii. On 10.04.2008, a Tripartite Joint Development Agreement (hereinafter referred to as the Joint Development Agreement) was entered into between the Society representing persons occupying 672 tenements, MHADA and the Corporate Debtoriv. On 25.03.2011, a Loan Agreement was entered into and executed between the Union Bank of India and the Corporate Debtor for a sum of Rs. 200 Croresv. On 09.11.2011, a Deed of Modification was entered into between the three parties to the Joint Development Agreement, as after carrying out the survey of the land in question, it was found that certain parcels of land, which were identified with certain city survey numbers, were omitted, as a result of which they were also added, now making the project for a total of 47 acres of landvi. As a result of the Corporate Debtor defaulting in repayment of the loan to its financial creditor, namely, the Union Bank of India, an Insolvency Application under Section 7 of the Code, which was filed on 15.05.2017, was admitted on 24.07.2017, appointing an Interim Resolution Professional (i.e. the Appellant before us). A moratorium in terms of Section 14 was also declared by this ordervii. On 12.01.2018 - after the imposition of the moratorium period under Section 14 of the Code - MHADA issued a termination notice to the Corporate Debtor stating that upon expiry of 30 days from the date of receipt of the notice, the Joint Development Agreement as modified would stand terminated. It was further stated that the Corporate Debtor would have to handover possession to MHADA, which would then enter upon the plot and take possession of the land including all structures thereonviii. One hundred and eighty days from the start of the Corporate Insolvency Resolution Process (hereinafter referred to as the CIRP) expired on 19.01.2018. The NCLT, by order dated 24.01.2018, extended the CIRP period by ninety days, as is permissible under the Codeix. On 01.02.2018, the Appellant filed M.A. No. 96 of 2018, 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 NCLT, by order dated 02.04.2018, dismissed the aforesaid application, stating that Section 14(1)(d) of the Code does not cover licenses to enter upon land in pursuance of Joint Development Agreements, stating that such licenses would only be personal and not interests created in property. An appeal against this order was preferred to the NCLATx. Meanwhile, in a parallel proceeding, on 18.04.2018, the amount of time taken by the NCLT in deciding the application under Section 7 under the Code, being 55 days, was sought to be omitted from the total number of days allowable under the Code. This application was partially granted, excluding 38 out of 55 days. An appeal to the NCLAT proved successful, whereby the NCLAT, by order dated 09.05.2018, allowed the appeal and allowed the entire 55 days so taken before the NCLT to be excludedxi. On 03.07.2018, the Appellant filed an approved Resolution Plan before the NCLT, Mumbai by way of I.A. No.21433 of 2018. We are informed that this was within the extended period of 55 days so granted by the NCLAT. It may only be mentioned that the Resolution Plan was approved by 86.16% of the Committee of Creditors. Ultimately, the NCLAT, by the impugned order dated 14.12.2018, (after omitting to refer to the order dated 09.05.2018), stated that 270 days are over, as a result of which the entire discussion of Section 14(1)(d) would now become academic. However, it also decided:14. On perusal of record, we find 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.

Court's reasoning:
The aforesaid provisions of the Joint Development Agreement would show that, at the very least, a license is granted in favour of the developer to enter upon the land to demolish existing structures, construct and erect new structures, and allot to erstwhile tenants, tenements in such constructed structures in three categories – (1) the earlier tenants/licensees of structures that were demolished; (2) tenements to be allotted free of cost to MHADA; and (3) what is referred to as free sale component which the developers then sell and exploit to recover or recoup cost and make profit. It is wholly unnecessary for us to refer to any other clauses of the Joint Development Agreement. It is also not necessary for the purpose of this case to state as to whether an interest in property is or is not created by the said Joint Development Agreement7. 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. For this reason, any reference to Sections 18 and 36, as was made by the NCLT, becomes wholly unnecessary in deciding the scope of Section 14(1)(d), which stands on a separate footing. Under Section 14(1)(d) what is referred to is the recovery of any property. The property in this case consists of land, ad-measuring 47 acres, together with structures thereon that had to be demolished. Recovery would necessarily go with what was parted by the corporate debtor, and for this one has to go to the next expression contained in the said sub-section11. Regard being had to the aforesaid authorities, it is clear that when recovery of property is to be made by an owner under Section 14(1)(d), such recovery would be of property that is occupied by a corporate debtor15. The conspectus of the aforesaid judgments would show that 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. Indeed, this becomes clear from the termination notice dated 12.01.2018, issued by MHADA to the developer, in which it is stated:35. This is therefore to inform you that on the expiry of 30 days from the date of receipt of this notice, the Joint Development Agreement dated 10.04.2008 and Deed of Confirmation and Modification dated 03.11.2011 and Letter dated 18.01.2014 stands terminated and you will not be allowed to enter the property and your authority/license to enter the property or remain thereupon is terminated. MHADA thereupon will not allow you to do anything on or in relation to the property and MHADA shall take possession of all the structures standing at whatever stage they are situated at Goregaon (West) and bearing CTS No …16. There is no doubt whatsoever that important functions relating to repairs and re-construction of dilapidated buildings are given to MHADA. Equally, there is no doubt that in a given set of circumstances, the Board may, on such terms and conditions as may be agreed upon, and with the previous approval of the Authority, handover execution of any housing scheme under its own supervision. However, when it comes to any clash between the MHADA Act and the Insolvency Code, on the plain terms of Section 238 of the Insolvency Code, the Code must prevail. This is for the very good reason that when a moratorium is spoken of by Section 14 of the Code, the idea is that, to alleviate corporate sickness, a statutory status quo is pronounced under Section 14 the moment a petition is admitted under Section 7 of the Code, so that the insolvency resolution process may proceed unhindered by any of the obstacles that would otherwise be caused and that are dealt with by Section 14. The statutory freeze that has thus been made is, unlike its predecessor in the SICA, 1985 only a limited one, which is expressly limited by Section 31(3) of the Code, to the date of admission of an insolvency petition up to the date that the Adjudicating Authority either allows a resolution plan to come into effect or states that the corporate debtor must go into the liquidation. For this temporary period, at least, all the things referred to under Section 14 must be strictly observed so that the corporate debtor may finally be put back on its feet albeit with a new management17. My learned brother S. Ravindra Bhat, J.s judgment in Municipal Corporation of Greater Mumbai (supra), which has been strongly relied upon by Mr. Dave and Mr. Patil, dealt with an entirely different fact situation, as is clear from paragraphs 32 and 33 of the said judgment, which are set out herein below: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 contract18. The matter had come to this Court after the Adjudicating Authority had approved of a certain resolution plan, unlike in the facts of the present case, and what was clear, on the facts of that case, was that a show cause notice of the Municipal Corporation, which preceded admission of the insolvency resolution process, made it clear that assets of MCGM could not possibly be subsumed within a resolution plan without its approval/permission. It was in this context that this Court, in para 47 of the said judgment, stated that Section 238 of the Code cannot be read as overriding the MCGMs right - indeed its public duty - to control and regulate how its properties are to be dealt with. Properties was referred to in this judgment as referring to assets of the corporate debtor. We have seen how, in the facts of this case, we are not concerned with the assets of the corporate debtor, least of all the assets of MHADA. The limited question before us is as to whether Section 14(1)(d) of the Code will apply to statutorily freeze occupation that may have been handed over under a Joint Development Agreement19. Likewise, the recent judgment Sushil Kumar Agarwal (supra) deals with specific performance and whether a Development Agreement may be specifically performed. The ratio of that judgment appears to be that where Development Agreements create an interest in property, they may be specifically performed, but not otherwise. As we have pointed out herein above, 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. For this reason also, this judgment is wholly distinguishable