NCLAT Upholds Eviction Of Subsidiaries From Corporate Debtor's Properties During Liquidation

The National Company Law Appellate Tribunal (NCLAT) at Delhi has upheld the NCLT Ahmedabad's order directing eviction of two subsidiaries from premises owned by a corporate debtor.

The court held that the NCLT can exercise jurisdiction under Section 60(5) of the Insolvency and Bankruptcy Code (which gives the insolvency court power to decide questions of law or fact arising out of or connected with insolvency or liquidation) to recover possession and rent during liquidation when the underlying leases are invalid.

A bench of Chairperson Justice Ashok Bhushan and Technical Member Barun Mitra said the insolvency court had acted within its powers, noting that “the License Agreement being unregistered was an invalid document and legally unenforceable, and as the Appellant continued in possession of the subject property, the directions issued by the Adjudicating Authority under Section 60(5) of IBC to hand over peaceful and vacant possession of the property to the Liquidator to make it a part of the liquidation estate were not arbitrary.”

The dispute relates to premises in Ahmedabad and Mumbai owned by Doshion Pvt. Ltd., which entered CIRP in August 2021 and was later ordered to be liquidated. Its subsidiaries, Fivebro Water Services Pvt. Ltd. and Gondwana Engineers Ltd., were occupying the properties.

Fivebro was in possession under an unregistered lease, followed by a fresh registered lease executed on the very day CIRP commenced. Gondwana occupied the Mumbai premises under an unregistered license agreement that did not comply with the Maharashtra Rent Control Act.

After liquidation, the liquidator moved the NCLT, Ahmedabad, seeking possession of both properties and recovery of rent and license fee dues.

The adjudicating authority allowed the applications, which led the subsidiaries to move the appellate tribunal. Their stand was that eviction and recovery of rent were purely contractual issues and not something the NCLT should be deciding. Pointing to the Supreme Court's ruling in Gujarat Urja Vikas Nigam Ltd. vs Amit Gupta, they said Section 60(5) of the IBC applies only where there is a clear and direct link to the insolvency process.

Rejecting this, the appellate tribunal found that the Ahmedabad lease executed post-moratorium was hit by Section 14 of the IBC and legally unenforceable. On the Mumbai premises, it was noted that the unregistered license agreement was void under state law. In both cases, the liquidator was entitled, under Section 35 of the IBC, to take custody of the assets and bring them into the liquidation estate.

The tribunal clarified that “as long as the residuary jurisdiction of the adjudicating authority is invoked in respect of a contract that has a nexus with the insolvency/liquidation of the corporate debtor, the invocation of this jurisdiction cannot be questioned” and dismissed the appeals.