NCLAT Bars Recovery Of Premises Occupied By Future Lifestyle In Kolkata Mall During CIRP

The National Company Law Appellate Tribunal (NCLAT) at Delhi has refused to allow recovery of premises occupied by Future Lifestyle Fashion Ltd, the Kishore Biyani-led company, in a Kolkata mall during its insolvency process. The court held that such possession is protected under the moratorium.

Dismissing an appeal by Sudha Apparels Ltd, the tribunal held that since the Resolution Professional (RP) was in possession of the leased premises during the Corporate Insolvency Resolution Process (CIRP), Section 14(1)(d) of the Insolvency and Bankruptcy Code (IBC) barred the lessor from recovering the property.

A bench of Judicial Member Justice Yogesh Khanna and Technical Member Ajai Das Mehrotra observed, “Thus, the actual physical possession of the Property cannot be taken away during the subsistence of the moratorium.”

The appeal arose from an order of the Mumbai Bench of the National Company Law Tribunal (NCLT) and was filed against Ravi Sethia, the Resolution Professional of Future Lifestyle Fashion Ltd.

The dispute stems from a lease agreement entered into in 2008 between Sudha Apparels and Home Solutions Retail India Ltd. Over time, the leasehold rights were transferred, first to Future Retail and eventually to the corporate debtor.

On April 14, 2023, Sudha Apparels moved to terminate the lease, pointing to unpaid rent dating back to February 2022. This step came shortly before the commencement of the Corporate Insolvency Resolution Process on May 4, 2023. It then approached the Mumbai bench of the National Company Law Tribunal seeking vacant possession of the premises.

The NCLT declined relief, observing that Sudha Apparels had not sufficiently established its ownership. It also held that, in any case, Section 14(1)(d) barred recovery since the premises were in the possession of the corporate debtor during the moratorium. The appellate tribunal, however, later found this conclusion on ownership to be inconsistent with the admitted position and set it aside.

Before the NCLAT, Sudha Apparels pointed out that the Resolution Professional had admitted close to 90% of its rental claim, which, according to it, confirmed its status as landlord. It also argued that the company was no longer a going concern, describing it as “dead wood,” with the premises lying locked and unused.

Another plank of its case was that the lease had already been terminated before CIRP began. With that, it argued, no rights survived in favour of the corporate debtor, and the moratorium could not be used to revive what no longer existed.

The Resolution Professional resisted this, alleging that Sudha Apparels had interfered with the reconnection of electricity, in breach of Section 14, thereby hampering the company's ability to function.

The Resolution Professional maintained that the premises were not merely ancillary but formed the backbone of operations, with more than 80% of the company's business linked to the Central Mall store in Kolkata.

The appellate trubunal emphasised that Section 14(1)(d) is framed in absolute terms and extends to any property that continues to remain in the possession of the corporate debtor.

It went on to clarify that even if a termination notice had been issued before the commencement of CIRP, the bar would still apply, preventing the lessor from recovering such property during the moratorium

“This is further evinced from the reading of Regulation 31(b) of the CIRP Regulations, which states the amount due to a person whose rights are affected under Section 14(1)(d) of the Code shall be treated as CIRP costs. It shows even the termination notice was delivered before the initiation of CIRP, Section 14(1)(d) would still apply and restrict the lessor from recovering the property occupied by the Corporate Debtor,” the tribunal said.

Referring to Supreme Court rulings in Rajendra K. Bhutta v. MHADA and R.V. Bhupal Prasad v. State of Andhra Pradesh, the tribunal noted that possession of a tenant, even after termination of lease, is juridical in nature and remains protected until due process of eviction is followed.

Concluding that the Resolution Professional continued to be in possession of the premises and that the property was significant for the corporate debtor's operations, the NCLAT held that the appeal lacked merit and dismissed it.

The tribunal directed the Resolution Professional and the NCLT to conclude the CIRP proceedings expeditiously, preferably within three months, and disposed of all pending applications.