Ojas Tradelease CIRP: NCLT Mumbai Sets Aside 21-Year Acropolis Mall Lease As Fraudulent Under IBC

The National Company Law Tribunal (NCLT) at Mumbai has held that leasing a commercial asset like Acropolis Mall on long-term unfavourable terms without periodic escalation cannot be treated as a bona fide business decision and is detrimental to the interests of the corporate debtor and its creditors.

A bench of Judicial Member Sushil Mahadeorao Kochey and Technical Member Prabhat Kumar allowed an application filed by the Resolution Professional of Ojas Tradelease and Mall Management Pvt. Ltd. under Section 66 of the Insolvency and Bankruptcy Code, which deals with fraudulent trading.

“It is pertinent to note that the valuation of a ready to use commercial property is generally determined on basis of its periodic yield i.e. income capitalization method, and placing the property under lease for abnormally large period without stipulation of periodic increase can certainly not be held as a bona fide act carried out in the interest of corporate debtor in view of the fact that the Mall owned by Corporate Debtor constitutes its business with sole revenue stream therefrom and the impugned lease agreement deals with whole ground floor of such mall” the tribunal observed.

The dispute concerned a lease deed dated March 23, 2022, executed in favour of Praxis Home Retail Ltd. for 44,500 sq. ft. on the ground floor of Acropolis Mall, Ahmedabad, for a period of 21 years at a minimum rent of Rs. 2 lakh per month or 4% of monthly net sales, whichever was higher.

The tribunal noted that the lease locked the property for an abnormally long duration without any provision for periodic escalation, was executed shortly before default, and was also in violation of conditions contained in the mortgage over the mall, indicating an intent to defraud creditors.

Holding the lease to be a fraudulent transaction within the meaning of Section 66 of the Insolvency and Bankruptcy Code, the tribunal set aside the lease deed and directed Praxis Home Retail Ltd to hand over possession of the premises to the resolution professional within 30 days.

The tribunal also directed payment of lease rentals due for the period of occupation and clarified that the corporate debtor would not be liable to pay the Rs. 10 crore amount stipulated in the lease in case of dispossession.