Case Note & Summary
The National Company Law Appellate Tribunal (NCLAT) allowed two appeals filed by the Resolution Professional (RP) and the largest financial creditor of GPT Steel Industries Limited, challenging orders dated 08.04.2024 passed by the Adjudicating Authority. The Adjudicating Authority had directed the RP to approach the appellate authority of Gujarat Industrial Development Corporation (GIDC) regarding a show cause notice and termination of lease issued during the moratorium period under the Insolvency and Bankruptcy Code, 2016 (IBC), and remitted the resolution plan back to the Committee of Creditors (CoC) for reconsideration. The NCLAT held that the termination of lease by GIDC on 07.04.2022 violated Section 14 of IBC, as leasehold rights are assets of the corporate debtor protected during moratorium. The Tribunal set aside the impugned orders, declared the termination invalid, and restored the resolution plan for approval, emphasizing that the Adjudicating Authority should have entertained the application and set aside the termination instead of directing the RP to approach GIDC's appellate authority.
Headnote
The National Company Law Appellate Tribunal (NCLAT) heard two appeals arising from orders dated 08.04.2024 passed by the Adjudicating Authority (National Company Law Tribunal, Ahmedabad) in the Corporate Insolvency Resolution Process (CIRP) of GPT Steel Industries Limited -- In Company Appeal (AT) (Ins.) No.1103 of 2024, the RP challenged the order disposing of IA No.461 of 2022, which directed the RP to approach the appellate authority of GIDC regarding a show cause notice and termination order issued during moratorium -- In Company Appeal (AT) (Ins.) No.1084 of 2024, Asset Reconstruction Company (India) Limited challenged the order remitting the resolution plan back to the Committee of Creditors (CoC) for reconsideration -- The Tribunal held that the termination of lease by GIDC on 07.04.2022 was during the moratorium period imposed under Section 14 of the Insolvency and Bankruptcy Code, 2016 (IBC), and thus invalid -- Leasehold rights are assets of the corporate debtor protected under moratorium -- The Adjudicating Authority erred in not setting aside the termination order and in remitting the resolution plan -- The appeals were allowed, setting aside the impugned orders and restoring the resolution plan for approval
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Issue of Consideration: The Issue of whether the termination of lease by Gujarat Industrial Development Corporation (GIDC) during the moratorium period under Section 14 of the Insolvency and Bankruptcy Code, 2016 (IBC) was valid and whether the Adjudicating Authority erred in directing the Resolution Professional (RP) to approach GIDC's appellate authority instead of setting aside the termination order
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Final Decision
The National Company Law Appellate Tribunal allowed the appeals, set aside the orders dated 08.04.2024 passed by the Adjudicating Authority, declared the termination of lease by GIDC on 07.04.2022 as invalid, and restored the resolution plan for approval
2024 LawText (NCLAT) (01) 143
Company Appeal (AT) (Ins.) Nos. 1103 & 1084 of 2024
[Justice Ashok Bhushan] Chairperson [Barun Mitra] Member (Technical) [Arun Baroka] Member (Technical)
Company Appeal (AT) (Ins.) Nos. 1103 & 1084 of 2024
Mr. Abhijeet Sinha, Mr. Tishampati Sen, Ms. Riddhi Sancheti, Mr. Ashish Parwani, Mr. Rajeev Nair, Mr. Anurag Anand, Ms. Gitika Makhija, Mr. Mukul Kulhari, Dr. Charu Mathur, Mr. Deep Roy, Mr. Dhaval Savla, Mr. Piyush Swami
Divyesh Desai RP of GPT Steel Industries Ltd., Asset Reconstruction Company (India) Limited
Gujarat Industrial Development Corporation Bhuj, Divyesh Desai RP of GPT Steel Industries Ltd. & Anr.
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Nature of Litigation: Appeals against orders of the Adjudicating Authority in the Corporate Insolvency Resolution Process (CIRP) of GPT Steel Industries Limited
Remedy Sought
The appellants sought setting aside of orders dated 08.04.2024 that directed the RP to approach GIDC's appellate authority and remitted the resolution plan back to CoC
Filing Reason
GIDC issued a show cause notice and terminated the lease during moratorium, and the Adjudicating Authority did not set aside these actions
Previous Decisions
Adjudicating Authority disposed of IA No.461 of 2022 by directing RP to approach GIDC's appellate authority and remitted the resolution plan in IA No.159 of 2020 back to CoC
Issues
Whether termination of lease by GIDC during moratorium under Section 14 of IBC was valid
Whether the Adjudicating Authority erred in directing the RP to approach GIDC's appellate authority instead of setting aside the termination order
Submissions/Arguments
Appellant contended that termination of lease during moratorium violated Section 14 of IBC and leasehold rights are assets of the corporate debtor
Respondent argued that Section 14 of IBC does not apply as GIDC is the owner and has statutory rights to terminate the lease
Ratio Decidendi
Moratorium under Section 14 of IBC prohibits any action against the corporate debtor's assets, including leasehold rights, during CIRP -- Termination of lease by a lessor during moratorium is invalid as it violates the protection afforded under Section 14 -- The Adjudicating Authority has jurisdiction to entertain applications regarding such violations and should set aside invalid actions instead of directing parties to other authorities
Judgment Excerpts
Held that the termination of lease by GIDC on 07.04.2022 was during the moratorium period and thus hit by Section 14 of IBC
Held that leasehold rights are assets of the corporate debtor protected under moratorium
Held that the Adjudicating Authority erred in not setting aside the termination order and in remitting the resolution plan
Procedural History
CIRP commenced on 02.05.2019 under Section 7 of IBC -- GIDC submitted claim which was partially admitted -- Resolution plan approved by CoC on 18.02.2020 -- GIDC issued show cause notice and terminated lease on 07.04.2022 during moratorium -- RP filed IA No.461 of 2022 to set aside termination -- Adjudicating Authority disposed of IA on 08.04.2024 directing RP to approach GIDC appellate authority and remitted resolution plan in IA No.159 of 2020 -- Appeals filed to NCLAT against orders dated 08.04.2024
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