NCLAT(30.01.2023) In Greater Noida Industrial Development Authority (GNIDA) Vs. Roma Unicon Designex Consortium [Company Appeal (AT) (Insolvency) Nos.180, 629 & 630 of 2022] held that;
The above judgment of the Hon’ble Supreme Court (Embassy Property Developments Private Limited vs. State of Karnataka and Ors.) clearly lays down that for asset, which is not the asset of the Corporate Debtor, there will be no jurisdiction with the NCLT to deal with lease hold rights.
“As per the explanation for the purpose of Section 18(1), the term ‘assets’ do not include assets owned by a third party in possession of the corporate debtor held under contractual arrangements including bailment. It also do not include assets of any Indian or foreign subsidiary of the corporate debtor and such other assets as may be notified by the Central Government.”
This Tribunal in Company Appeal (AT) (Insolvency) No. 182 of 2018 in Bhavik Bhimjyani vs. Uday Vinodchangra Shat, RP of Neelkanth Township & Construction Pvt. Ltd. & Ors. has reiterated that Resolution Professional has no jurisdiction to take over any assets of the subsidiary Company of the Corporate Debtor.
A shareholder has got no interest in the property of the company though he has undoubtedly a right to participate in the profits if and when the company decides to divide them.
Holding company and subsidiary company are, however, considered as separate legal entities, and subsidiary are allowed decentralized management.
It was clearly held by the Hon’ble Supreme Court relating to relationship between holding company and wholly owned subsidiary that they are two distinct companies and holding company does not own the assets of the subsidiary.
In the CIRP Process of Corporate Debtor that is Earth Infrastructure Limited, assets of the Land Holding Companies cannot be treated to be assets of the Corporate Debtor.
Resolution Plan submitted by Roma Unicon Designex consortium and Alpha Corp Development Private Limited could not have dealt with the project land which was a land leased out by the Appellant in favour of the Land Holding Company.
Assets of the Subsidiary Company cannot be dealt with in the CIRP Process of Holding Company without the permission of the Lessor.
Excerpts of the order;
# 40. From the submissions of learned Counsel for the parties and materials on record, following are the issues which arise for consideration in these Appeal(s):
(I) Whether in the CIRP proceedings of the Corporate Debtor, i.e. Earth Infrastructures Limited, the assets of the land holding companies, i.e., subsidiary of the Corporate Debtor can be treated to be assets of the Corporate Debtor?
(II) Whether, in the Resolution Plans submitted by the Successful Resolution Applicants, i.e., Roma Unicon Designex Consortium and Alpha Corp Development Private Limited, the assets of the subsidiary, i.e., lease lands could have been dealt and the Resolution Plan could legally contain a clause for transfer of the lease hold rights by the Appellant in favour of Successful Resolution Applicant without there being any prior permission from the Appellant?
(III) Whether assets of the subsidiary companies can be dealt with in Corporate Insolvency Resolution Process of holding Company?
(IV) Whether the Appellant was required to be made party to the CIRP proceedings and heard before approval of any resolution plan dealing with the Project land?
(V) Whether, Resolution Professional acted within the ambit of I & B Code in giving a certificate that Resolution Plans submitted by Roma Unicon Designex Consortium and Alpha Corp Development Private Limited are in accordance with the provisions of the Code?
(VI) Whether Appellant was aware of the development carried out by the Corporate Debtor on the lease land before commencement of the CIRP of the Corporate Debtor?
(VII) What is the way out in the facts and circumstances of the present case?
# 45. The learned Counsel for the Appellant has also relied on the judgment of the Hon’ble Supreme Court in (2020) 13 SCC 308 – Embassy Property Developments Private Limited vs. State of Karnataka and Ors., where the Hon’ble Supreme Court had occasion to notice the provisions of Section 18 of the Code. In the above case, the Corporate Debtor had a mining lease granted by Government of Karnataka, which was to expire on 25.05.2018. Notice for premature termination of lease had already been issued on 09.08.2017. The IRP wrote a letter to Director of Mines seeking the benefit of deemed extension of lease, which was rejected by the State of Karnataka. The IRP has initially filed a Writ Petition in the High Court of Karnataka seeking a declaration that mining lease should be deemed to be valid upto 31.03.2020, which Writ Petition was subsequently withdrawn and thereafter Resolution Professional moved an Application before the NCLT, praying for set-aside the order of Government of Karnataka and seeking a declaration that lease should be deemed to be valid upto 31.03.2020. In the above context, the Hon’ble Supreme Court had occasion to consider the provisions of Section 18 of the Code and the jurisdiction of NCLT to consider the Application of Resolution Professional. In paragraph 39, the Hon’ble Supreme Court extracted provision of Section 18(1) (g) and explanation and in paragraph 40 made the following observations:
“40. If NCLT has been conferred with jurisdiction to decide all types of claims to property, of the corporate debtor, Section 18(1)(f)(vi) would not have made the task of the interim resolution professional in taking control and custody of an asset over which the corporate debtor has ownership rights, subject to the determination of ownership by a court or other authority. In fact an asset owned by a third party, but which is in the possession of the corporate debtor under contractual arrangements, is specifically kept out of the definition of the term “assets” under the Explanation to Section 18. This assumes significance in view of the language used in Sections 18 and 25 in contrast to the language employed in Section 20. Section 18 speaks about the duties of the interim resolution professional and Section 25 speaks about the duties of resolution professional. These two provisions use the word “assets”, while Section 20(1) uses the word “property” together with the word “value”. Sections 18 and 25 do not use the expression “property”. Another important aspect is that under Section 25(2)(b) of the IBC, 2016, the resolution professional is obliged to represent and act on behalf of the corporate debtor with third parties and exercise rights for the benefit of the corporate debtor in judicial, quasi-judicial and arbitration proceedings. Sections 25(1) and 25(2)(b) reads as follows:
25. Duties of resolution professional.—(1) It shall be the duty of the resolution professional to preserve and protect the assets of the corporate debtor, including the continued business operations of the corporate debtor.
(2) For the purposes of sub-section (1), the resolution professional shall undertake the following actions:
(a) ***
(b) represent and act on behalf of the corporate debtor with third parties, exercise rights for the benefit of the corporate debtor in judicial, quasi-judicial and arbitration proceedings;” (emphasis supplied)
This shows that wherever the corporate debtor has to exercise rights in judicial, quasi-judicial proceedings, the resolution professional cannot short-circuit the same and bring a claim before NCLT taking advantage of Section 60(5).”
# 46. The Hon’ble Supreme Court clearly noted that assets owned by third party, which is in possession of the Corporate Debtor under contractual arrangements, is specifically kept out of the term of “assets” under the explanation to Section 18. In paragraph 42 of the judgment, the Hon’ble Supreme Court has noticed that Resolution Professional knowing well that NCLT had no jurisdiction in the matter had initially filed Writ Petition in the High Court. In paragraph 42 following observation has been made:
“42. In fact the resolution professional in this case appears to have understood this legal position correctly, in the initial stages. This is why when the Government of Karnataka did not grant the benefit of deemed extension, even after the expiry of the lease on 25-5-2018, the resolution professional moved the High Court by way of a writ petition in WP No. 23075 of 2018. The prayer made in WP No. 23075 of 2018 was for a declaration that the mining lease should be deemed to be valid up to 31-3-2020. If NCLT was omnipotent, the resolution professional would have moved the NCLT itself for such a declaration. But he did not, as he understood the legal position correctly.”
In paragraphs 45 and 46, it was further held:
“45. A lot of stress was made on the effect of Section 14 of the IBC, 2016 on the deemed extension of lease. But we do not think that the moratorium provided for in Section 14 could have any impact upon the right of the Government to refuse the extension of lease. The purpose of moratorium is only to preserve the status quo and not to create a new right. Therefore nothing turns on Section 14 of the IBC, 2016. Even Section 14(1)(d) of the IBC, 2016, which prohibits, during the period of moratorium, the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor, will not go to the rescue of the corporate debtor, since what is prohibited therein, is only the right not to be dispossessed, but not the right to have renewal of the lease of such property. In fact the right not to be dispossessed, found in Section 14(1)(d), will have nothing to do with the rights conferred by a mining lease especially on a government land. What is granted under the deed of mining lease in ML 2293 dated 4-1-2001, by the Government of Karnataka, to the corporate debtor, was the right to mine, excavate and recover iron ore and red oxide for a specified period of time. The deed of lease contains a schedule divided into several parts. Part I of the Schedule describes the location and area of the lease. Part II indicates the liberties and privileges of the lessee. The restrictions and conditions subject to which the grant can be enjoyed are found in Part III of the Schedule. The liberties, powers and privileges reserved to the Government, despite the grant, are indicated in Part IV. This Part IV entitles the Government to work on other minerals (other than iron ore and red oxide) on the same land, even during the subsistence of the lease. Therefore, what was granted to the corporate debtor was not an exclusive possession of the area in question, so as to enable the resolution professional to invoke Section 14(1)(d). Section 14(1)(d) may have no application to situations of this nature.
# 46. Therefore, in fine, our answer to the first question would be that NCLT did not have jurisdiction to entertain an application against the Government of Karnataka for a direction to execute supplemental lease deeds for the extension of the mining lease. Since NCLT chose to exercise a jurisdiction not vested in it in law, the High Court of Karnataka was justified in entertaining the writ petition, on the basis that NCLT was coram non judice.”
# 47. The above judgment of the Hon’ble Supreme Court clearly lays down that for asset, which is not the asset of the Corporate Debtor, there will be no jurisdiction with the NCLT to deal with lease hold rights.
# 48. This Tribunal in Company Appeal (AT) (Insolvency) No.229 of 2018 – M/s Dynepro Pvt. Ltd. vs. Mr. V. Nagarajan decided on 30.01.2019, after noticing the provisions of Section 18 in paragraph 17, has made following observation:
“As per the explanation for the purpose of Section 18(1), the term ‘assets’ do not include assets owned by a third party in possession of the corporate debtor held under contractual arrangements including bailment. It also do not include assets of any Indian or foreign subsidiary of the corporate debtor and such other assets as may be notified by the Central Government.”
# 49. This Tribunal in Company Appeal (AT) (Insolvency) No. 182 of 2018 in Bhavik Bhimjyani vs. Uday Vinodchangra Shat, RP of Neelkanth Township & Construction Pvt. Ltd. & Ors. has reiterated that Resolution Professional has no jurisdiction to take over any assets of the subsidiary Company of the Corporate Debtor. In paragraph 8 of the judgment, following has been laid down:
“8. We make it clear that the Resolution Professional/ Liquidator has no jurisdiction to take over any asset of the subsidiary company of the Corporate Debtor including ‘Urban Rupi Infrastructure Private Limited’ and ‘Neelkanth Palm Realty Private Limited’, therefore, the Resolution Professional cannot take the original documents available with the subsidiary companies though he may take authenticated photocopies of those documents.”
# 57. We may also notice the submissions of Learned Counsel for the Respondent-Successful Resolution Applicant as well as Flat Buyer Association that both the Corporate Debtor as well as the Lessee were one economic entity. It is submitted on behalf of Learned Counsel for the Flat Buyer Association that both Corporate Debtor and Lessee, land holding companies were alter ego of each. The law is well settled that subsidiary company and the holding company are separate entities. Learned Counsel for the Appellant in the above reference has relied on Judgement of the Hon’ble Supreme Court in “Bacha F. Guzdar, Bombay Vs. Commissioner of Income Tax, Bombay” [(1955) 1 SCR 876] Paragraph 7. It was held by the Hon’ble Supreme Court that shareholder does not acquire any interest in the assets of the company by purchasing shares of company. Following was observed in paragraph 7 of the Judgement:
“It was argued by Mr. Kolah on the strength of an observation made by Lord Anderson in Commissioners of Inland Revenue v. Forrest that an investor buys in the first place a share of the assets of the industrial concern proportionate to the number of shares he has purchased and also buys the right to participate in any profits which the company may make in the future. That a shareholder acquires a right to participate in the profits of the company may be readily conceded but it is not possible to accept the contention that the shareholder acquires any interest in the assets of the company. The use of the word ‘assets’ in the passage quoted above cannot be exploited to warrant the inference that a shareholder, on investing money in the purchase of shares, becomes entitled to the assets of the company and has any share in the property of the company. A shareholder has got no interest in the property of the company though he has undoubtedly a right to participate in the profits if and when the company decides to divide them. The interest of a shareholder vis-a-vis the company was explained in the Sholapur Mills Case. That judgment negatives the position taken up on behalf of the appellant that a shareholder has got a right in the property of the company.”
# 59. Thus the Corporate Debtor, who was lead member of the Special Purpose Company, was contemplated to be separate entity and the contention of the Respondent that both should be treated to be one entity cannot be accepted. It is further relevant to notice that Learned Counsel for the Respondents have also contended that Corporate Veil of the land holding company be pierced and should be lifted in the facts of the present case which will make it clear that it is the corporate debtor which is behind the land holding companies. Lifting of Corporate Veil between the subsidiary and parent company have been legally accepted proposition. Hon’ble Supreme Court in “Vodafone International Holdings BV Vs. Union of India and Anr.” [2012 6 SCC 613]. In paragraph 254-258, has noted the legal principle with regard to relationship between subsidiary company and holding company which is as follows:
“254. Companies Act in India and all over the world have statutorily recognised subsidiary company as a separate legal entity. Section 2(47) of the Indian Companies Act 1956 defines “subsidiary company” or “subsidiary”, a subsidiary company within the meaning of Section 4 of the Act. For the purpose of Indian Companies Act, a company shall be subject to the provisions of sub-section 3 of Section 4, be deemed to be subsidiary of another, subject to certain conditions, which includes holding of share capital in excess of 50% controlling the composition of Board of Directors and gaining status of subsidiary with respect to third company by holding company’s subsidization of third company.
255. A holding company is one which owns sufficient shares in the subsidiary company to determine who shall be its directors and how its affairs shall be conducted. Position in India and elsewhere is that the holding company controls a number of subsidiaries and respective businesses of companies within the group and manage and integrate as whole as though they are merely departments of one large undertaking owned by the holding company. But, the business of a subsidiary is not the business of the holding company (See Gramophone & Typewriter Ltd. v. Stanley, (1908-10) All ER Rep 833 at 837).
256. Subsidiary companies are, therefore, the integral part of corporate structure. Activities of the companies over the years have grown enormously of its incorporation and outside and their structures have become more complex. Multi National Companies having large volume of business nationally or internationally will have to depend upon their subsidiary companies in the national and international level for better returns for the investors and for the growth of the company. When a holding company owns all of the voting stock of another company, the company is said to be a WOS of the parent company. Holding companies and their subsidiaries can create pyramids, whereby subsidiary owns a controlling interest in another company, thus becoming its parent company.
257. The legal relationship between a holding company and WOS is that they are two distinct legal persons and the holding company does not own the assets of the subsidiary and, in law, the management of the business of the subsidiary also vests in its Board of Directors. In Bacha F. Guzdar v. CIT, this Court held that shareholders’ only right is to get dividend if and when the company declares it, to participate in the liquidation proceeds and to vote at the shareholders’ meeting. Refer also to Carew and Company Ltd. v. Union of India and Carrasco Investments Ltd. v. Special Director, Enforcement.
258. Holding company, of course, if the subsidiary is a WOS, may appoint or remove any director if it so desires by a resolution in the General Body Meeting of the subsidiary. Holding companies and subsidiaries can be considered as single economic entity and consolidated balance sheet is the accounting relationship between the holding company and subsidiary company, which shows the status of the entire business enterprises. Shares of stock in the subsidiary company are held as assets on the books of the parent company and can be issued as collateral for additional debt financing. Holding company and subsidiary company are, however, considered as separate legal entities, and subsidiary are allowed decentralized management. Each subsidiary can reform its own management personnel and holding company may also provide expert, efficient and competent services for the benefit of the subsidiaries.”
# 60. It was clearly held by the Hon’ble Supreme Court relating to relationship between holding company and wholly owned subsidiary that they are two distinct companies and holding company does not own the assets of the subsidiary.
# 61. We may also notice judgement of the Hon’ble Supreme Court in “Jaypee Kensington Boulevard Apartments Welfare Association and Ors. Vs. NBCC (India) Limited and Ors.” [2022 1 SCC 401]. Insolvency Resolution Process in the above case was initiated against the “JIL” which hold 100% equity shareholding of “JHL” (Jaypee Health Care Limited). Substantial part of shareholding of JHL was pledged with the lenders. The argument was raised on behalf of the Financial Creditor of JHL that assets of its debtor JHL could not have been dealt with in the Resolution Plan by Corporate Debtor “JIL”. Hon’ble Supreme Court noticed the above objections and also noticed that objector Yes Bank has given its proposition for evolving a workable mechanism. Observation was made by Hon’ble Supreme Court in paragraph 186 that Resolution Plan essentially dealt with assets of the Corporate Debtor “JIL” and not that of its subsidiary. From the facts which was noticed in paragraph 180 it was clear that only shareholding of Jaypee Health Care Limited was sought to be divested by JIL which was owning 100% equity shareholding of JHL. The Judgement of Hon’ble Supreme also clearly indicates that only assets of the corporate debtor can be subject to a Resolution Plan.
# 66. At this stage, we may also notice the provisions of Uttar Pradesh Industrial Area Development Act, 1976. This Act, 1976 was enacted to provide for the constitution of an authority for the development of certain areas in the State into industrial and urban township and for matters connected therewith. The Appellant is an authority constituted under Section 3 of the Act. Section 7 of the Act provides:
“the Authority may sell, lease or otherwise transfer whether by auction allotment or otherwise any land or building belonging to the Authority in the industrial development area on such terms and conditions as it may, subject to any rules that may be made under this Act, think fit to impose”.
# 67. The transfer of land thus is statutorily governed and terms and conditions lays down by authority are statutorily protected. Resolution Plan which contains provisions for transfer of the project of the land contrary to the terms and conditions of the lease deed under which the project land was leased out to the land holding company is contrary to the terms and conditions of the lease deed as well as Section 7 of the UP Industrial Area Development Act, 1976. Resolution Plan thus was clearly in breach of the provisions of the 1976 Act which can not be sustained.
# 68. We have noticed the statutory provision, that Explanation to Section 18(1)(f) clearly contemplates that assets of subsidiary company are entirely different from assets of the holding company and principle of lifting of veil cannot be invoked contrary to statutory prescription as in the present case that is Section 18(1)(f).
# 75. In view of the aforesaid discussions, we answer question nos. 1, 2 and 3 in following manner:
Ans. 1. In the CIRP Process of Corporate Debtor that is Earth Infrastructure Limited, assets of the Land Holding Companies cannot be treated to be assets of the Corporate Debtor.
Ans. 2. Resolution Plan submitted by Roma Unicon Designex consortium and Alpha Corp Development Private Limited could not have dealt with the project land which was a land leased out by the Appellant in favour of the Land Holding Company.
Ans. 3. Assets of the Subsidiary Company cannot be dealt with in the CIRP Process of Holding Company without the permission of the Lessor.
Question No. 4.
# 76. The Appellant’s case in these Appeals are that Appellant was not issued any notice by the Adjudicating Authority for participation in the CIRP Process. From the facts as noticed above, it is clear that the Resolution Professional wrote a letter asking certain information from the Appellant and thereafter only informed about the approval of the Resolution Plan, at no point of time the Appellant was asked to participate in the CIRP Process of the Corporate Debtor. The Resolution Plan which was approved by the Committee of Creditors on 26.08.2019 clearly has dealt with the lease land of the NOIDA Authority. Resolution Professional was well aware that Appellant has its dues on the lease land which have not been paid so far. It was incumbent on the Resolution Professional to inform the Appellant about the Resolution Plan which have been received in the CIRP Process of the Corporate Debtor. The Resolution Professional is an insolvency professional who has been entrusted with various obligations and duties under the I&B Code and the regulations framed thereunder. The Resolution Professional has to take into consideration all liabilities which corporate debtor owns to different and various creditors including government and public authorities. The judgement of the “Nilesh Sharma, RP” (supra) as noticed above indicates that in the said case, application was filed by the association of allottees themselves for impleading the NOIDA Authority which application was allowed and the Adjudicating Authority directed the Resolution Professional to inform the NOIDA Authority and ask them to file a claim. The order passed by the Adjudicating Authority directing the NOIDA Authority to participate and file its claim was unsuccessfully challenged by the NOIDA Authority in this Tribunal. The Judgment of the Nilesh Sharma itself supports the submissions of Learned Counsel for the Appellant that they were necessary party in the CIRP process of the Corporate Debtor. It is to be noted that the Corporate Debtor was lead shareholder of the land holding company in case of Earth Towne Infrastructures Pvt. Ltd. it being 98% shares and with regard to other two land holding companies it had 100% shareholding. In the CIRP Process of such corporate debtor, the Appellant was necessary party and without they being before the CIRP Process the land leased out by them could not have been made subject matter of the Resolution Plan. We thus answer Question No. 4 in following manner:
Ans. 4. Appellant was required to be made party to the CIRP Process before approval of any resolution plan dealing with project land.
Question No. 5
# 77. The Resolution Professional was well aware that the project land is a leased out land which has been leased out by the Appellant to the land holding companies which fact has been clearly mentioned in the Information Memorandum. Information Memorandum also mentions few facts regarding the lease rent. Resolution Professional in his submission has also submitted before us that Resolution Professional has shared the details of the dues of the Appellant to the Resolution Applicants. When the Resolution Professional is aware that project land does not belong to the Corporate Debtor how he permitted the said lease land to be part of resolution plan is question which is unanswered.
# 78. The development right in the project under which the developer is entitled to carry on development is not akin to any ownership/lease hold right in the leased land. Resolution Professional has certified the Resolution Plan that it is in accordance with I&B Code which clearly deals with the project land that is lease land in its entirety. The Resolution Professional did not communicate to the appellant about the receiving of the Resolution Plan and the nature of resolution plans which have been received nor invited attention of the Appellant that Appellant’s dues are not being taken care in resolution plan. The Appellant is also a public authority who is engaged in public functions. Dues of public authority cannot be so casually and negligently dealt with by the Resolution Professional. It is relevant to notice that vide letter dated 18.09.2019 the appellant informed the Resolution Professional about its dues against Towne Infrastructure, the lessee. The Appellant further wrote to RP to intimate the date and proceedings. The RP did not communicate with Appellant nor informed that Resolution Plan has already been approved by CoC dealing with its Land. We are feeling that RP did not reply the letter dated 18.09.2019 since he wanted to conceal from appellant the details of Resolution Plan and proceedings of its approval.
# 79. In the facts of the present case, we are thus satisfied that the Resolution Professional did not act within the ambit of the Code while certifying that Resolution Plan submitted by Roma Unicon Designex consortium and Alpha Corp Development Private Limited is in accordance with the provisions of the Code.
Ans. 5. We answer question no. 5, accordingly. We direct the Registry to forward the Copy of this Order to IBBI to examine the work and conduct of RP and take such action as it may deem fit and proper.
Question No. 6
# 80. The Respondents during their submissions have referred to various materials to indicate that appellants were aware of development on the project land which is being carried out by the corporate debtor. We have noticed while noticing the facts of the case and submissions of the parties that in the year 2017, the associations of two projects namely Earth Sapphire Court and Earth Tech One met the additional Chief Executive Officer (CEO in short). Minutes of the proceedings were drawn by the association itself which have been brought on record which clearly indicate that appellants were aware that corporate debtor is developing the project. The letter written by the Appellant to the Police authorities in the year 2015 also indicate that appellants were aware that it is the corporate debtor who is developing the project land. We have also noticed that the lease deed contains provision under the heading “other clauses” clause 7 which is to the following effect:
“7. The Lessor will monitor the implementation of the project. Applicants who do not have a firm commitment to implement the project within the time limits prescribed are advised not to avail the allotment.”
# 81. The lease deed clearly cast an obligation on the Appellant to monitor the implementation of the project. It has been the case of the association of allottees that they have time and again brought to the notice of the Appellant about the misdeeds of the corporate debtor. Reference to Builder- Buyers meeting held on 20th May, 2016 has also been made. We have also noticed the case of the allottees association that in meeting held on 08th May, 2017 and 16th May, 2017 with the CEO of the Appellant it was represented to the Appellant that they will look into as to whether the penal interest can be waived off. The allottees has brought into the notice of the Appellant about the grievances which they were facing due to delay in the project causing financial distress and mental distress to them.
# 82. We, in the facts and circumstances brought on record, are of the view that Appellant was well aware that the development on the project land is being carried out by the Corporate Debtor. We further, at this stage, may observe that the fact that appellant was aware that the corporate debtor is carrying out development in the project land is not akin to their knowledge of terms and conditions of Resolution Plan which was submitted in the resolution process of the corporate debtor.
Ans. 6. The knowledge by the Appellant of carrying out development by the corporate debtor cannot be read as their consent to transfer the land in favour of the Successful Resolution Applicant or any other person.
Question No. 7.
# 83. From the facts noticed above, it is clear that corporate debtor advertised three projects Earth Towne Infrastructure Pvt. Ltd., Earth Sapphire Court and Earth Tech One. Large number of home buyers have already been allotted flats in the three projects by the Corporate Debtor and huge amount has been received from the allottees of three projects by the Corporate Debtor. Hundreds of crores were taken by the Corporate Debtor from allottees of three projects. With effect from 2016, the Corporate Debtor has abandoned the projects and no development work has been carried out by the Corporate Debtor thereafter.
# 84. While noticing the facts of the I.A. No. 4533 of 2022 filed by the Association of two projects that is Earth Sapphire Court and Earth Tech One it has been pleaded that home-buyers have brought into the notice of the Appellant about their plights and default. The complaints were already submitted to CEO of the Appellant by the 83 home buyers on 27th July, 2016 which has been brought on record as Annexure 2-A of I.A. No. 4533 of 2022. The home-buyers has written letter dated 27th July, 2016 and 02nd August, 2016 bringing into the notice of the NOIDA Authority about the failure of the Corporate Debtor. A reply has also been filed by the Earth Towne Flat Buyer Association in Company Appeal (AT) Ins. No. 630 of 2022 where several other materials have been brought on record including complaints submitted to the Appellant regarding the failure of the corporate debtor. Complaint dated 20th June, 2017 filed as Annexure R-11 has been relied on by the Flat Buyers Association. It was mentioned that the homeCompany buyers are paying bank EMI with interest as well as has paid huge amount to the Corporate Debtor. Reference of meeting with the CEO and Hon’ble Minister dated 11th May, 2017 has also been referred. In the complaint, reference has also been made to an order of the Allahabad High Court dated 23rd February, 2016 where home-buyers have raised various grievances in the writ petition where Allahabad High Court has permitted home-buyers to represent the matter to the CEO which authority was to deal with the matter. It is stated in the complaint that after the order of the High Court dated 23rd February, 2016, they have approached the authorities but no action has been taken. We have already noticed while noticing the facts that in the meetings with the allottees there was representation on behalf of the Appellant that the question of penal interest shall be considered by the Appellant.
# 85. In spite of default of corporate debtor having been brought into the notice of the NOIDA Authority on several occasions right from 2015 no concrete steps were taken by the NOIDA Authority. We have noticed above that one of the obligations under the lease deed was that Appellant was to monitor the development of the project. Obligation to monitor the project includes obligations of the Appellant to ensure that projects are timely completed and action be taken against the defaulting parties.
# 86. We may also at this stage notice one Judgement of the Hon’ble Supreme Court which has been relied on by Learned Counsel for the Successful Resolution Applicant that is [2011 6 SCC 508] in “NOIDA entrepreneurs Association Vs. NOIDA and Ors.”. Hon’ble Supreme Court in the said Judgement laid down that power vested in the State or in Public Authority should be viewed as a trust coupled with duty to be exercised in all social and public interest. In paragraph 38 to 41, following has been laid down:
“38. The State or the public authority which holds the property for the public or which has been assigned the duty of grant of largesse etc., acts as a trustee and, therefore, has to act fairly and reasonably. Every holder of a public office by virtue of which he acts on behalf of the State or public body is ultimately accountable to the people in whom the sovereignty vests. As such, all powers so vested in him are meant to be exercised for public good and promoting the public interest. Every holder of a public office is a trustee.
39. State actions required to be non-arbitrary and justified on the touchstone of Article 14 of the Constitution. Action of the State or its instrumentality must be in conformity with some principle which meets the test of reason and relevance. Functioning of a “democratic form of Government demands equality and absence of arbitrariness and discrimination”. The rule of law prohibits arbitrary action and commands the authority concerned to act in accordance with law. Every action of the State or its instrumentalities should neither be suggestive of discrimination, nor even apparently give an impression of bias, favouritism and nepotism. If a decision is taken without any principle or without any rule, it is unpredictable and such a decision is antithesis to the decision taken in accordance with the rule of law.
40. The Public Trust Doctrine is a part of the law of the land. The doctrine has grown from Article 21 of the Constitution. In essence, the action/order of the State or State instrumentality would stand vitiated if it lacks bona fides, as it would only be a case of colourable exercise of power. The Rule of Law is the foundation of a democratic society. (Vide: M/s. Erusian Equipment & Chemicals Ltd. v. State of West Bengal & Anr., AIR 1975 SC 266; Ramana Dayaram Shetty v. The International Airport Authority of India & Ors., AIR 1979 SC 1628; Haji T.M. Hassan Rawther v. Kerala Financial Corporation, AIR 1988 SC 157; Shrilekha Vidyarthi etc. v. State of U.P. & Ors., AIR 1991 SC 537; and M.I. Builders Pvt. Ltd. v. Radhey Shyam Sahu & Ors., AIR 1999 SC 2468).
41. Power vested by the State in a Public Authority should be viewed as a trust coupled with duty to be exercised in larger public and social interest. Power is to be exercised strictly adhering to the statutory provisions and fact-situation of a case. “Public Authorities cannot play fast and loose with the powers vested in them”. A decision taken in arbitrary manner contradicts the principle of legitimate expectation. An Authority is under a legal obligation to exercise the power reasonably and in good faith to effectuate the purpose for which power stood conferred. In this context, “in good faith” means “for legitimate reasons”. It must be exercised bona fide for the purpose and for none other. (Vide: Commissioner of Police, Bombay v. Gordhandas Bhanji, AIR 1952 SC 16; Sirsi Municipality v. Ceceila Kom Francis Tellis, AIR 1973 SC 855; The State of Punjab & Anr. v. Gurdial Singh & Ors., AIR 1980 SC 319; The Collector (Distt. Magistrate) Allahabad & Anr. v. Raja Ram Jaiswal, AIR 1985 SC 1622; Delhi Administration (Now NCT of Delhi) v. Manohar Lal, (2002) 7 SCC 222; and N.D. Jayal & Anr. v. Union of India & Ors., AIR 2004 SC 867).”
# 87. The facts which have been brought on record indicate that hundreds of crores have been received from the allottees and allottees are waiting for last several years to receive the possession of the flats whereas projects have not proceeded any further from the year 2016. It is due to these hopes that allottees in their meeting of the CoC approved the Resolution Plan so that Resolution Applicants may come and carry on the projects further. The hope and aspiration of the allottees are fully justified. However, as observed above, Resolution Plan could not have dealt with the land which was leased out by the Appellant without permission of the Appellant.
# 88. We have to find out ways and means to protect the interest of the allottees which is of paramount importance. The developer has failed to carry out the projects. We have also noticed in the written-submissions filed by the SRA and Home Buyer Association that land holding companies have been struck off from the record of the Registrar of Companies (RoC) after initiation of CIRP Process. We feel that striking off the land holding companies from record of RoC was with an intent and object to somehow shed off the liabilities of the Appellant.
# 89. We have also held that without approval of the Appellant, subject land could not have been transferred in favour of the Resolution Applicants or any other entities. It is obvious that Appellant before granting any permission for transfer of the land shall require their dues pertaining to land premium, lease rent and other legal dues to be cleared.
# 90. We may also notice that during submissions, Learned Counsel appearing on behalf of Association of Flat Buyer Projects of Earth Sapphire Court and Earth TechOne submitted that they are ready to bear and pay the dues of the Appellant in the interest of the development of the projects. In the facts of the present case, we are of the view that the Appellant has not been diligent to take steps towards recovery of dues and are not entitled to charge any penal interest. We thus direct the Appellant to waive the penal interest and recalculate the dues of the Appellant which was due on the respective land holding companies as on date as held above.
Ans. 7.
# 91. Looking to the stage at which the projects are as on date and looking to the fact that allottees have paid hundreds of crores rupees in the above three projects to the Corporate Debtor and waiting for possession of the flat for last several years, we have to find out ways and means to save the interest of the allottees as well as the interest of the Appellant. We are of the view that Resolution Professional jointly with Flat Buyer Association of respective projects be permitted to make an Application to the Appellant seeking permission for transfer of land in favour of the proposed resolution applicants so as to execute the necessary transfer deeds in favour of the allottees subject to payment of dues of the Appellant. It shall be open for the Appellant to enter into an arrangement with the Resolution Applicant and Flat Buyer Associations for payment of dues and thereafter it may permit transfer of the land so ultimately allottees be given rights and the projects can be developed by the SRA.
# 92. The RP has to publish a fresh Form-G inviting fresh Resolution Plans with specific condition that resolution plans shall be presented before the COC for consideration only when dues of the appellants are paid and permission of appellant is obtained for transfer of lease land.
# 93. The Roma Unicon as well as Alpha Corp shall also be permitted to file resolution plans.
# 94. The Appellant shall recalculate the dues and communicate to the Resolution Professional and Flat Buyers Associations without charging any penal interest within 15 days. Fresh Resolutions Plans so submitted will be considered and examined by the RP and be submitted before CoC for fresh consideration and approval. The application of Resolution Plan may be filed for approval of the plan, thereafter.
# 95. In view of the foregoing discussions, we dispose of these Appeals, in following manner:
i. The Order dated 05th April, 2021 passed by the Adjudicating Authority, the Order dated 08th June, 2021 passed by the Adjudicating Authority and Order dated 07th December, 2021 passed by the Adjudicating Authority in I.A. No. 401(ND)2017 are set aside.
ii. The Appellant is directed to recalculate its dues payable by the respective land holding companies without charging any penal interest and communicate the same to the Resolution Professional and the Flat Buyer Association(s) of three projects within 15 days of this order.
iii. The appellant is made party to the CIRP of the Corporate Debtor and shall be entitled to participate in the process hereinafter.
iv. After receiving the details of the dues, the Resolution Professional shall publish a fresh Form-G containing a condition that Resolution Plans received in pursuance of request for Resolution Plan shall be placed for consideration after receiving prior approval of the Appellant for transfer of land in favour of the proposed resolution applicant subject to arrangement for payment of dues of the Appellant.
v. The Appellant shall consider granting permission for the transfer of project land under the three projects as above on the terms and conditions as finalized by the Appellant with Resolution Professional and flat buyer associations of respective projects.
vi. The Resolution Plan so received shall be again examined by the Resolution Professional and placed before the CoC for fresh consideration. All consequential steps shall be taken thereafter.
vii. All above steps till the submission of application by Resolution Professional before the Adjudicating Authority for approval of the plan, if any, shall be completed within six months from today.
viii. The CIRP period is extended for a period of six months from today.
Parties shall bear their own costs.
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