NCLT Chandigarh Orders Promoters Responsible For Insolvency To Vacate Majestic Hotels' Property

On 17 March, the Chandigarh Bench of the National Company Law Tribunal (NCLT), in the insolvency proceedings of Majestic Hotels Ltd. (corporate debtor), directed the promoters and related parties to vacate portions of the company's flagship property, Hotel Majestic Park Plaza in Ludhiana.

A Bench comprising Judicial Member K. Biswal and Technical Member K.K. Singh observed:

“The intent as per the provisions of the IBC is that if the Corporate Debtor has failed to meet its obligations in payment to the Creditors, then following the process as provided in the Code, management of the CD is to be handed over to a third person who could resolve the condition of insolvency of the said Corporate Debtor. Accordingly, R1 and R4 either individually or jointly cannot claim to be treated at par with third party creditors as they are the ones responsible for the failure of the CD and bringing it to the condition of insolvency.”

The application was filed by Navneet Gupta, the Resolution Professional (RP) of the corporate debtor, seeking directions to evict the suspended director Jasbir Singh Khangura (Respondent 1), his wife Raman Khangura (Respondent 4), and entities allegedly linked to the promoters from portions of the hotel property.

The Corporate Insolvency Resolution Process (CIRP) commenced on 3 July 2024 after the Tribunal admitted a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 filed by UV Assets Reconstruction Company Limited. Upon admission, the management of the corporate debtor stood suspended and control vested in the RP.

Despite the commencement of CIRP, portions of the hotel continued to remain in occupation of Jasbir Singh Khangura, Raman Khangura and Tru Prime Pvt. Ltd. (Respondent 3), a company allegedly linked to the promoters. The RP sought eviction from a salon on the second floor, 13 shops on the third floor, five rooms (Nos. 1802–1806) on the eighth floor and the ninth-floor penthouse used as the Khangura family residence.

The RP argued that under Sections 17, 18, 19 and 25 of the IBC, all assets and records of the corporate debtor must be handed over to the RP upon commencement of CIRP. He submitted that the hotel premises were owned by the corporate debtor, relying on title deeds, balance sheets and property tax records.

According to the RP, Tru Prime Pvt. Ltd. was in illegal possession of certain portions of the premises based on fabricated profit-sharing agreements allegedly executed in 2019 and 2020, which were neither registered nor reflected in the corporate debtor's records. He also alleged fabrication of invoices for the supply of 7,000 litres of ghee in the six months preceding CIRP, despite the hotel's monthly consumption being only about 40–50 litres.

With respect to the ninth-floor penthouse, the RP challenged the reliance placed by Raman Khangura on an occupancy agreement and arbitral award, contending that they were unregistered intra-family arrangements absent from the corporate debtor's statutory records. He also relied on Section 238 of the IBC to argue that the Code overrides inconsistent contractual arrangements or awards.

Respondent 1 argued that pre-CIRP contracts continue to bind the corporate debtor under Section 20(2)(b) of the IBC and submitted that the RP could not disregard them without seeking to set them aside. Tru Prime Pvt. Ltd. contended that the eviction request was premature and that the RP could not unilaterally terminate existing agreements. Respondent 4 similarly argued that the occupancy agreement and arbitral award were valid and binding.

The Tribunal noted that Respondent 4 had served as a director and shareholder of the corporate debtor at the time of execution of the occupancy agreements, holding 11.05% equity as on 31 March 2016, while Respondent 1, then managing director, held 28.81%. It also noted that the penthouse was allegedly co-shared with Jagpal Singh and Gurdial Kaur Khangura, the parents of Respondent 1.

Observing that Respondents 1 and 4 were part of the management responsible for the corporate debtor's insolvency, the Bench held:

“Their dues, if any, cannot get priority over other stakeholders such as Financial Creditors and other Creditors and therefore, they cannot be permitted to continue the possession over the properties of the CD on the strength of the said alleged agreements/purported Memorandum granting the occupancy right to R4. If they are allowed to continue their possession, then that would tantamount giving her the priority over other stakeholders which would go against very intent of the Code.”

Accordingly, the Tribunal allowed the application and directed Respondents 1, 3 and 4 to vacate the premises within two weeks, failing which the RP was permitted to seek police assistance.

FOR APPELLANTS: Advocates Nitin Kaushal and Moulshree Shukla

FOR RESPONDENTS: Advocates Aalok Jagga, Sahil Lohan, Vibhu Aggarwal and APS Madaan.