In a significant ruling for insolvency and banking practitioners, the New Delhi Bench of the National Company Law Appellate Tribunal (NCLAT) has dismissed appeals challenging the eviction of related-party occupants from properties of M/s Venus Garments (India) Ltd. (in liquidation), where SBI is the financial creditor. The NCLAT clarified that the liquidator can validly continue an eviction application originally filed by the Resolution Professional, as Section 35 of the IBC vests pari materia powers identical to Sections 18 and 25, and the contents of the application govern maintainability.
The Tribunal explained that Section 238 of the IBC operates as a complete override and prevails over the East Punjab Urban Rent Restriction Act, 1949 to the extent of any inconsistency, being a special, later legislation enacted for time-bound resolution and realisation of distressed assets. Further, the Tribunal emphasised that an unregistered lease deed for 30 years is inadmissible in evidence under Section 49 of the Registration Act, and occupants who are close relatives of the suspended directors of the Corporate Debtor cannot defeat the liquidation mandate by asserting tenancy rights based on such unregistered documents.
The Justice Yogesh Khanna (Officiating Chairperson) and Barun Mitra (Technical Member) recorded three key factual findings of the NCLT: (a) the Corporate Debtor is the absolute owner of the subject properties; (b) the appellants are not tenants but unauthorised occupants illegally using the property; and (c) the purported lease for 30 years was never registered and therefore could not be received in evidence under Section 49 of the Registration Act. The appellants were found to be close relatives of the suspended directors of the Corporate Debtor, falling within the definition of ‘related party’ under Section 5(24) of the IBC, and the NCLT observed that this was a deliberate game plan to throttle the auction process, which had already failed nine times.
The Tribunal noted that both properties were reflected in the Balance Sheet and Books of Accounts of the Corporate Debtor and formed part of the liquidation estate under Section 36(3)(a) of the IBC. Sections 35(1)(b), (d), (e), (k) and (l) of the IBC collectively confer comprehensive authority upon the Liquidator to take custody and control of the assets of the Corporate Debtor, and these powers are not merely enabling but impose mandatory statutory duties.
The NCLAT observed that the Supreme Court in Gujarat Urja Vikas Nigam Ltd. v. Amit Gupta [(2021) 7 SCC 209] had clarified that the NCLT has jurisdiction to adjudicate disputes which arise solely from or relate to the insolvency of the Corporate Debtor, provided the nexus with insolvency exists. The Tribunal further observed that the Supreme Court’s decision in Vishal N Kalsaria Vs Bank of India [(2016) 3 SCC 762], was decided on Jan 20, 2016, before Section 238 of the IBC was enacted, was confined to the SARFAESI Act, and was premised on the protection of a blameless, unrelated, rent-paying third-party tenant, conditions entirely absent in the present case where the appellants are related parties who have admittedly not paid any rent for seven years.
The NCLAT also relied on its own decisions in Jhanvi Rajpal Automotive Pvt Ltd. v. Resolution Professional [CA(AT)(Ins.) No. 1417 of 2022] and Adinath Jewellery Exports v. Mr. Brijendra Kumar Mishra [Company Appeal (AT) (Insolvency) No. 748 of 2022], holding that the Liquidator/RP can seek eviction of tenants, licensees and other occupants before the NCLT without resorting to civil or rent control proceedings, and that the Rent Act is relevant only where there exists a registered lease deed supported by regular payment of rent. The constitutional argument based on Entry 18 of List II of the Seventh Schedule was rejected, with the NCLAT holding that the IBC is legislation on insolvency enacted under Entries 9 of List III and Entries 43-44 of List I, and the mere incidental effect of an IBC order on possession does not convert an insolvency matter into a landlord-tenant matter.
Briefly, the company appeals were filed by Duke Fashions (India) Ltd. and UV & W Products Pvt Ltd., challenging the common order passed by the NCLT, Chandigarh, which directed the appellants to be evicted within two weeks from properties belonging to the Corporate Debtor, M/s Venus Garments (India) Limited, which is in liquidation. Duke Fashions claimed to be a tenant of the Corporate Debtor in settled commercial possession of the Karabara Property since May 13, 2011, while UV & W Products claimed to be a tenant in settled commercial possession of the Hussainpura Property since Sep 01, 2018.
The Resolution Professional had originally filed an application under Section 60(5) read with Sections 18 and 25 of the Insolvency and Bankruptcy Code, 2016 (IBC), seeking eviction of the appellants on the ground that they were in unauthorised occupation of the Corporate Debtor’s assets. After the Corporate Debtor was ordered into liquidation, the Liquidator was impleaded and continued to pursue the same eviction application. The appellants contended that the Resolution Professional’s application became infructuous upon liquidation, that the Liquidator had no locus to pursue it, and that the only lawful remedy was a suit for eviction under the East Punjab Urban Rent Restriction Act, 1949 before the Rent Controller. The appellants further argued that the non-obstante clause in Section 238 of the IBC could not override the Rent Act.
