IBC| Commercial Wisdom Of CoC Must Be Given Primacy During CIRP: Supreme Court

The Supreme Court has ruled that commercial wisdom of the Committee of Creditors must be given primacy during the CIRP and its decisions must be given the respect that is lawfully due to it.

The Court was considering an Appeal under Section 62 of the Insolvency and Bankruptcy Code, 2016 against an order of the National Company Law Appellate Tribunal setting aside order of National Company Law Tribunal directing for delivery of possession of the property in question to the Appellants.

The division bench of Justice Sanjay Kumar and Justice Satish Chandra Sharma observed, "The commercial wisdom of the CoC must, accordingly, be given primacy during the CIRP. When UCO Bank, constituting the CoC, decided that retention of the possession of the subject property was not in the interest of the CIRP, that decision must be given the respect that is lawfully due to it."

The Appellant was represented by Senior Advocate Siddarth Bhatnagar while the Respondent was represented by Advocate-on-Record Aman Gupta.

Facts of the Case

A Memorandum of Understanding was executed by and between Nandini Impex Private Limited, which became a corporate debtor under the IBC thereafter, represented by its Director, Chandrakant Khemka, on the one hand, and Noble Dealcom Private Limited along with Jodhpur Properties and Finance Private Limited, Appellant Nos. 2 and 3, on the other hand, whereby Nandini Impex Private Limited availed financial assistance to the tune of 3₹ crores from them and secured the same through deposit of the title deeds relating to the rear portion of the ground floor of White House. Another Memorandum of Understanding was executed by Nandini Impex Private Limited on with Sincere Securities Private Limited, Appellant No.1 herein, for availing a loan of 3 crores from it and the same was secured ₹ through deposit of the title deeds of the front portion of the ground floor of White House. As Nandini Impex Private Limited failed to repay the loans, separate conveyance deeds were executed by it transferring the title over the front and rear portions of the ground floor of White House to the Appellants respectively. However, two separate Leave and License Agreements were executed simultaneously on the same day, whereby possession of the front and rear portions of the ground floor of White House was retained by Nandini Impex Private Limited on payment of rentals of 6 lakhs per month for each portion. Owing to the default in payment of the rentals, the appellants terminated the Leave and License Agreements on 08.05.2020. Eviction suits were also instituted by the appellants for regaining possession of the subject ground floor portions along with other reliefs.

While so, UCO Bank, respondent No. 3 herein, filed a petition under Section 7 of the IBC against Nandini Impex Private Limited. The same was admitted by the NCLT, initiating corporate insolvency resolution process against Nandini Impex Private Limited, the corporate debtor. Significantly, UCO Bank was the sole member of its Committee of Creditors. The Appellants, as operational creditors, filed their respective claims before the Interim Resolution Professional appointed for the corporate debtor and the said claims were accepted in toto. At that stage, UCO Bank, constituting the CoC, deputed the Resolution Professional to visit the subject property on the ground floor of White House and decide whether there was any need to retain the same by paying huge rentals. Thereafter, at its meeting, the CoC decided that there was no requirement to hold on to the subject property and requested the Resolution Professional to hand over the possession thereof to the appellants. Chandrakant Khemka, being a suspended director of the corporate debtor, raised objections to this move.

While the NCLT allowed the CoCs decision, the NCLAT observed that Section 14(1)(d) of the IBC barred recovery by an owner of property during the CIRP, when such property was occupied by the corporate debtor.

Reasoning By Court

The Court at the outset pointed out that the Counsel for Chandrakant Khemka conceded that he was not willing to pay the current rent or the arrears of rent, post initiation of the CIRP.

It also took note of the fact that except for Chandrakant Khemka, Respondent No. 1, who is a suspended director of the corporate debtor, all other parties are at consensus that the property in question need not be retained by the corporate debtor, as it is not required by it and imposes a huge financial burden on it, in terms of the lease/license rentals payable therefor

"Despite all others involved in the CIRP being in favour of doing so, Chandrakant Khemka alone opposes the return of the subject property to the appellants. His lofty claim that the rent due to the appellants would stand secured by the provisions of the IBC does not stand to reason, Further, Chandrakant Khemka is himself not willing to bear the expenditure for retaining the possession of the subject property", the Court observed.

Stating that UCO Bank, constituting the CoC, echoed the stand of the Resolution Professional, it referred to its decision in K. Sashidhar v. Indian Overseas Bank and others and asserted that commercial wisdom of the Committee of Creditors must be given primacy during the CIRP and its decisions must be given the respect that is lawfully due to it.

The Court concluded that the decision was made as following the Insolvency and Bankruptcy Code and added, "it was the CoC and the Resolution Professional who were and still are desirous of returning the possession of the property in question to the appellants, keeping in mind the adverse financial implications of retaining the same. It appears that Chandrakant Khemka, respondent No. 1, who is not willing to personally bear the expenditure for such retention, is bent upon stalling that process for some undisclosed and extraneous reasons."

The Appeal was accordingly allowed.

Cause Title: Sincere Securities Private Limited & Ors. vs. Chandrakant Khemka & Ors.

Appearances:

Appellants- Senior Advocate Siddarth Bhatnagar, Advocate Ashish Choudhury, Advocate Aditya Sidhra, Advocate Anand Kamal,A dvocate Abhishek Arora, Advocate Prachi Grover, Advocate Sulekha Agarwal, Advocate Akash Agarwal

Respondents- Advocate-on-Record Aman Gupta, Advocate Anup Kashyap, Advocate Divyam Kandhari, Advocate-on-Record Shambo Nandy, Advocate-on-Record Partha Sil, Advocate Utkarsh Dwivedi, Advocate Srijit Datta

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