Tenant's Continued Occupation Cannot Defeat CIRP; NCLT Mumbai Orders Handover Of Corporate Debtor's Property

The National Company Law Tribunal (NCLT) in Mumbai has recently held that a tenant's continued occupation of a corporate debtor's property after expiry of its arrangement cannot defeat the objectives of the corporate insolvency resolution process (CIRP) or obstruct implementation of an approved resolution plan.

The tribunal directed Countertops and Cabinets (India) Pvt Ltd to hand over possession of a Jaipur property owned by Krystal Stone Exports Ltd within 15 days.

A Bench of Judicial Member Sushil Mahadeorao Kochey and Technical Member Prabhat Kumar passed the order on an application filed by Resolution Professional Suman Kumar Verma.

He had sought recovery of possession of the land and building situated at RIICO Industrial Area, Shivdaspura, Jaipur.

Holding that the property must remain under the Resolution Professional's control during CIRP, the Bench noted “The continuation of possession by Respondent No. 1 after expiry of arrangement with the Respondent No. 1 cannot defeat the objectives of the CIRP or obstruct the Resolution Professional from discharging his statutory duties under the Insolvency and Bankruptcy Code, 2016.”

The insolvency proceedings against Krystal Stone Exports were initiated in 2019 by Stressed Assets Stabilization Fund (SASF), the assignee of debt originally advanced by IDBI Bank.

Following a remand by the National Company Law Appellate Tribunal (NCLAT), the company was again admitted into CIRP on May 3, 2024. Verma was subsequently confirmed as the Resolution Professional.

The dispute stemmed from Countertops and Cabinets' claim that it had been operating from the premises since 2014. The company argued that it enjoyed protection under the Rajasthan Rent Control Act and that any dispute over its tenancy could be decided only by the Rent Tribunal.

The Resolution Professional took the position that control of the property was essential for carrying forward the insolvency process. According to him, the tenant's continued occupation could hamper implementation of the resolution plan that has now been approved by the Tribunal.

While examining the record, the Bench noted that the secured lender had already initiated action under the SARFAESI Act long before the tenancy documents relied upon by the tenant came into existence.

The Tribunal also found that leasing out the property was not part of the corporate debtor's ordinary business activities. In those circumstances, it held that no leasehold or other interest in the property could have been created without the secured creditor's prior written consent.

Explaining its reasoning, the bench observed, "It can not be denied that the leasing of property by the corporate debtor is not in its ordinary course of business, more so when the corporate debtor wa s in default and the secured lender has already proceeded to avail its rights under SARFAESI Act well before exertion of purported agreement"

The tribunal also rejected the tenant's claim that it had been in protected possession since 2014.

It held that the unregistered agreement relied upon by the tenant could not create enforceable tenancy rights. The bench further observed that the document appeared to be “an afterthought and ante-dated.”

The Tribunal noted that a fresh registered rent agreement had been executed by the Resolution Professional in November 2024 after possession was taken during CIRP.

That agreement permitted occupation only for a limited period. It also required the tenant to vacate upon notice.

The bench held that this later agreement superseded the earlier arrangements relied upon by the tenant.

Rejecting the tenant's objections, the tribunal held that issues arising out of or relating to the insolvency resolution of a corporate debtor fall within the NCLT's exclusive jurisdiction under the Insolvency and Bankruptcy Code.

Allowing the application, the bench directed the tenant and its directors to hand over peaceful and vacant possession within 15 days.

It also directed them to pay outstanding occupation charges. The Resolution Professional was permitted to seek police assistance if the directions are not complied with.