Leasehold Rights Vest With Corporate Debtor Upon Amalgamation: NCLAT Upholds Inclusion Of WBHIDCO Land In Concast Steels' Liquidation Estate

A bench of Justice Mohd. Faiz Alam Khan (Judicial Member) and Technical Member Arun Baroka observed that WBHIDCO was aware of the amalgamation between CIL and CSPL and in fact, filed an application for rectification of the said amalgamation order passed by the NCLT, Kolkata bench.

“The record reflects that the appellant had full knowledge of the amalgamation between Concast Ispat Ltd. and Concast Steel and Power Ltd. and, in fact, facilitated the filing of a rectification application before the NCLT. Thus, it cannot now claim that the transfer was without consent,” the Tribunal observed.

The dispute stemmed from a 99-year lease granted by WBHIDCO to CIL in 2012 for certain acres of land in New Town, Kolkata, intended for the sole purpose of setting up a corporate office in accordance with the lease deed. The deed specifically contained a clause of prohibition of transfer or alienation of the land without prior consent of WBHIDCO, the appellant. Following the amalgamation of CIL with CSPL through an approval of Calcutta High Court in 2015, the NCLT Kolkata bench rectified the order in 2018 to include the leased property in the schedule and list of assets transferred to CSPL.

When CSPL went into liquidation after an order was passed by NCLT, Kolkata, following an unsuccessful resolution plan, the liquidator issued a public advertisement for the sale of the company's assets, which also included the leased land. WBHIDCO objected, claiming that the leased land belonged to the State government and could not be treated as part of CSPL's liquidation estate since no formal consent was granted for amalgamation of leasehold rights and the land. The NCLT Kolkata rejected WBHIDCO's application, leading to the present appeal before the NCLAT.

In rejecting WBHIDCO's arguments, the Bench observed:

“Though no express permission was taken for amalgamation, there was an implied consent of the appellant for transferring this leasehold land in favour of CSPL, including its correspondence and advice to rectify the amalgamation order”. The Tribunal further clarified that only the leasehold rights of CSPL constituted assets within the domain of the liquidation estate.

“The CSPL (corporate debtor) has stepped into the shoes of CIL only for beneficial enjoyment of leasehold rights as a lessee, and no ownership rights were transferred. The leasehold rights, being property within the meaning of Section 3(27) of the IBC, can validly be included in the liquidation estate,” the Bench observed.

WBHIDCO's arguments that the NCLT Kolkata lacked jurisdiction to decide on the legality of the amalgamation scheme was also rejected. Relying on a plethora of judgments of the Apex Court, the NCLAT said:

“The question whether assets included in the liquidation estate belong to the corporate debtor goes to the core of the CIRP process. The NCLT and this Appellate Tribunal have jurisdiction to determine the same”.

The Bench concluded that the appellant had failed to challenge the amalgamation order or its rectification at the appropriate stage, nor any mention was made in its pleadings.

In dismissing the appeal, the Tribunal affirmed that leasehold interests, though subordinate to ownership rights, nonetheless they are transferrable and form part of liquidation assets under the Insolvency and Bankruptcy Code, 2016.

Case Title: West Bengal Housing Infrastructure Development Corporation Ltd. v. Kshitiz Chawchharia (Liquidator of Concast Steel and Power Ltd.)

Case Number: Company Appeal (AT) (Insolvency) No. 2119 of 2024

For Appellant: Mr. Palash S. Singhai, Mr. Harshal Sareen, Mr. Manish Srivastava and Ms. Kamakshi S. Rao, Advocates.

For Respondent: Mr. Soorjya Ganguli, Ms. Kiran Sharma, Mr. Ananad Amit and Ms. Pooja Chakraborti, Advocates.

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