Gujarat High Court
Gujarat Industrial Development … vs Gujarat Hydrocarbons And Power Sez … on 29 April, 2026
Author: Sunita Agarwal
Bench: Sunita Agarwal
NEUTRAL CITATION
C/LPA/55/2026 CAV JUDGMENT DATED: 29/04/2026
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Reserved On : 24/02/2026
Pronounced On : 29/04/2026
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/LETTERS PATENT APPEAL NO. 55 of 2026
In R/SPECIAL CIVIL APPLICATION/4937/2022
With
CIVIL APPLICATION (FOR STAY) NO. 1 of 2025
In R/LETTERS PATENT APPEAL NO. 55 of 2026
FOR APPROVAL AND SIGNATURE:
HONOURABLE THE CHIEF JUSTICE MRS. JUSTICE SUNITA
AGARWAL
and
HONOURABLE MR.JUSTICE D.N.RAY
=============================================
Approved for Reporting Yes No
=============================================
GUJARAT INDUSTRIAL DEVELOPMENT CORPORATION
Versus
GUJARAT HYDROCARBONS AND POWER SEZ LIMITED & ORS.
=============================================
MR SN SOPARKAR, SR. ADVOCATE WITH MR RD DAVE WITH MR
ARJUN SHETH, WITH MR. RISHABH SHAH for the Appellant(s)
No. 1
MR MIHIR JOSHI, SR. ADVOCATE with MR. KEYUR GANDHI
WITH MR RAHEEL PATEL WITH MS. ISA HAKIM AND MR YASH
DADHICH for GANDHI LAW ASSOCIATES(12275) for the
Respondent(s) No. 1
MR SHALIN MEHTA, SR ADVOCATE with MR TIRTH
NAYAK(8563) for the Respondent(s) No. 2
MR DHANESH DESAI with MR ISHAN JOSHI for SINGHI &
CO(2725) for the Respondent(s) No. 3
=============================================
CORAM:HONOURABLE THE CHIEF JUSTICE MRS. JUSTICE
SUNITA AGARWAL
and
HONOURABLE MR.JUSTICE D.N.RAY
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CAV JUDGMENT
(PER : HONOURABLE THE CHIEF JUSTICE
MRS. JUSTICE SUNITA AGARWAL)
1. This intra court appeal has been filed by the Gujarat
Industrial Development Corporation (in short as the “GIDC”)
to challenge the judgment and order dated 01.12.2025 passed
by the learned Single Judge in allowing the writ petition,
setting aside the orders dated 13.12.2021 terminating the
lease deed dated 21.02.2008 as well as the order dated
10.03.2022 directing for eviction of the petitioner under
Section 5 of the Gujarat Public Premises (Eviction of
Unauthorized Occupants) Act, 1972 (in short as the “Public
Premises Act’ 1972” or PP Act‘ 1972).
2. Both the orders were subjected to challenge in the writ
petition filed by the respondent no.1 herein viz. Gujarat
Hydrocarbon Power SEZ Ltd. primarily on the ground that
they were passed during the subsistence of the moratorium
under Section 14 of the Insolvency & Bankruptcy Code, 2016
(in short as “IBC’ 2016”). It was argued before the writ court
that in view of Section 14(1)(d) of the IBC’ 2016, any recovery
of any property by the lessor which in the possession of the
Corporate debtor would be prohibited and hence, the order
terminating of lease and eviction under the PP Act‘ 1972,
cannot be sustained.
3. The learned Single Judge while adverting to the facts of
the case, has framed the point of determination that :-
“Whether the respondent No.1-GIDC being operational
creditor is/was justified in passing the impugned ordersPage 2 of 59
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during the moratorium period under Section 14 of the
IBC and also during the CIRP?”.
4. To answer the said question, the writ court has
deliberated on the statutory provisions incorporated in
Sections 3(27), 14, 25, 31 and 238 of the IBC’ 2016 to record
that in view of the term “property” as defined in Section 3(27)
of the Code, the property of the Corporate debtor viz. the
respondent no.1 herein would necessarily include its lease
hold rights over the land in question.
5. Referring to Section 14(1)(d) in conjunction with the
Explanation attached thereto, it was held that the ‘property’
defined under Section 3(27) of IBC’ 2016, viz. the land in
question, which continues to remain in possession of the
Corporate debtor pursuant to a lease deed, cannot be
recovered by the respondent GIDC being the lessor, during
the subsistence of the moratorium. It was opined by the
learned Single Judge that :-
(i) The object and underlying rationale of clauses (a) to (d)
of sub-section (1) of Section 14 are clearly to preserve
the assets and maintain the value of the Corporate
debtor as a going concern during the resolution process.
A conjoint reading of these provisions with the
Explanation to sub-section (1) makes it evident that the
legislature, in its wisdom, sought to ensure that any
licence, permit, registration, etc. conferred by any
Government or statutory authority, shall not be
suspended or terminated merely on the ground of
insolvency, provided there is no default in respect of
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current dues.
(ii) This legislative scheme, when read as a whole,
demonstrates that while each clause of sub-section (1) of
Section 14 operates independently, they are intended to
function harmoniously to give full effect to the protective
framework of the moratorium. The cumulative intention
of the legislature is unmistakable to safeguard the
property and business interests of the Corporate debtor,
to preserve its value, and to ensure that the continuity of
its operations is not jeopardized during the corporate
insolvency resolution process.
(iii) The writ Court referring to Sections 25 and 31(1) of the
IBC’ 2016 has noted the duty of the Resolution
Professional to preserve, protect and maintain the
assets, books of accounts and records of Corporate
debtor, so that upon approval of the resolution plan, the
same may be seamlessly handed over to the successful
resolution applicant in an orderly manner. With the
approval of the resolution plan by the adjudicating
authority, the same shall be binding on the Corporate
debtor, its employees, members, creditors including the
Central Government, any State Government or any local
authority to whom a debt in respect of the payment of
dues arising under the law for the time being in force as
also the guarantors and other stakeholders involved in
the resolution plan, the creditors include a financial
creditor, an operational creditor, a secured creditor, an
unsecured creditor and a decree holder. It was, thus,
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observed that once the resolution plan has been
approved, the same will be binding upon all those
stakeholders involved in the resolution plan.
(iv) Referring to Section 238 of the IBC’ 2016, it was noted
that the said provision gives overriding effect over the
Public Premises Act’ 1972 and during the period of
moratorium and/or if resolution plan is approved, the
order passed under the Public Premises Act’ 1972 is
contrary to the aim and object of IBC’ 2016, and as such,
the provisions of IBC’ 2016 shall prevail.
6. Coming to the facts of the instant case, it was noted by
the Writ Court that :-
(i) The Corporate debtor is/was in the business of
developing operating, and maintaining Special Economic
Zones (SEZs), by leasing and sub-dividing lands to
industrial undertakings. To carry out the said business,
the Corporate debtor obtained lands in question on lease
from GIDC. The leasehold interest/lands/plots allotted
on lease by the GIDC are the only assets of the
Corporate debtor.
(ii) The Corporate debtor was subjected to the insolvency
proceedings under Section 7 of the IBC’ 2016 upon filing
of an application on 18.11.2020. On admitting the said
application, moratorium under Section 14 of the IBC’
2016 was declared on 18.11.2020 itself.
(iii) During the moratorium period and Corporate Insolvency
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Resolution Process (CIRP), the GIDC has passed the
impugned orders terminating the lease deed dated
13.12.2021 and subsequent eviction order dated
10.03.2022 under the Public Premises Act, 1972 inter
alia for non-payment of the past dues and breach of
conditions of lease.
(iv) It was noted that the GIDC during the CIRP, lodged its
claim in Form ‘B’. The Committee of Creditors (‘COC’)
approved the resolution plan submitted by the
respondent applicant (respondent no.2 before the writ
court), which included payment of Rs.6,14,48,685/- to
the GIDC (respondent No.1 therein) in terms of the
approved resolution plan.
7. It was ultimately held that the impugned orders of
termination of lease deed and the order of eviction under the
Public Premises Act’ 1972 had been passed during the
subsistence of the moratorium period and shall be non est,
illegal and bad in law being contrary to Section 14 of the IBC’
2016. The conclusion drawn by the learned Single Judge on
the submissions made on behalf of the GIDC, respondent no.1
therein/appellant herein are extracted hereinunder :-
“12.2 Even otherwise, respondent No.1 – GIDC did
lodge its claim in Form ‘B’ before the Resolution
Professional and that there is already a provision
for the dues of respondent No.1 and as per the
approved Resolution Plan, respondent No.1 was
entitled to Rs.06,14,48,685/- which the respondent
No.2 – successful Resolution Applicant has in fact
paid on approval of the Resolution Plan. The
Resolution Plan was allowed by the AdjudicatingPage 6 of 59
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Authority after overruling the objections raised by
the respondent No.1. Therefore, as per Section 31
read with Section 2(10) of the IBC, approved
Resolution Plan shall be binding upon all the
stakeholders involved in the Resolution Plan. Thus,
respondent No.1 being an operational creditor is
also bound by the approved Resolution Plan. The
respondent No.1 being an operational creditor
under the scheme of the IBC, cannot have higher
rights than the financial creditors and cannot have
priority over the dues of the financial creditors.
Dues of an operational creditor are always subject
to the provisions of such dues made in the
Resolution Plan as per Section 30 of the IBC.
12.3 Looking to the scheme, object and purpose of
the IBC, the impugned orders are not sustainable
in the eye of law. I say so because the underlined
object behind the aforesaid enactment is to provide
effective legal framework for timely resolution of
insolvency and bankruptcy to support development
of credit markets and encourage entrepreneurship.
So as to achieve the goal and object of the
enactment, the Resolution Professional clothed
with ample powers to ensure that the assets of the
Corporate debtor are preserved, protected and
ultimately realized to its optimum potential so as to
secure maximum value for all the stakeholders
within the framework without any delay. As per the
law laid down by the Apex Court in catena of
decisions, under the IBC, all efforts should be made
to revive the company, rather than liquidation.
Liquidation of the company/ Corporate debtor shall
be the last resort when all the efforts to revive the
company fail. In the present case, the Corporate
debtor is in the business of developing, operating,
and maintaining Special Economic Zones (SEZs),
including leasing and sub-dividing land parcels to
industrial undertakings. The plots in question are
the only assets which can be termed as its capital.
If the lands in question are taken over, in that case,
there would be nothing left in the company which
would result into death of the Corporate debtor,Page 7 of 59
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therefore would be against the scheme of the IBC.
As stated hereinabove, under the approved
Resolution Plan, respondent No.2 – successful
Resolution Applicant has already paid
Rs.06,14,49,685/- taking into consideration the
plots in question only. Except the lands in question,
there remains nothing for to be paid. Therefore, if
the impugned orders are not set aside, it would not
only defeat the approved Resolution Plan but would
also defeat the purpose and scheme of the IBC.
13. In the aforesaid backdrop, this Court would
now proceed to examine the contentions advanced
by learned Senior Advocate Mr.Soparkar for the
respondent No.1 – GIDC.
13.1 So far as submissions on behalf of respondent
No.1 that once the Resolution Plan is approved,
CIRP ends and Resolution Professional ceases to
hold the office as having become functuous officio
and thereby Resolution Professional has no locus
and/or authority to pursue the present proceedings
is concerned, this Court is not impressed by the
said submission. In the scheme of the IBC, role and
responsibilities of the Resolution Professional are
clearly delineated under Section 25. Therefore,
when the present petition was filed, moratorium
and the CIRP were pending. Accordingly, being
Resolution Professional, it is the statutory duty
casted upon him to protect the property of the
Corporate debtor. Thus, harmonious reading of
Section 25 with Section 3(27), once the Resolution
Plan is approved, it is the statutory duty of the
Resolution Professional to hand over peaceful and
vacant possession of the property to the successful
Resolution Applicant. Therefore, the contention of
respondent No.1 is devoid of any merits and is
hereby rejected.
13.2 With regard to the contention raised by
making reliance on the explanation appended to
Sections 14(1)(a) to (d) to state that the
termination is barred only when it is occasioned byPage 8 of 59
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reason of insolvency and not otherwise where the
lease deed was terminated on account of repeated
and continuing breaches of terms and conditions of
the lease deed is concerned, the said contention, in
my considered opinion, cannot be accepted.
A plain reading of clauses (a) to (d) of Section 14(1)
clearly manifest the legislative intent that once the
moratorium is declared upon commencement of
CIRP, there shall be a prohibition against recovery
of any property by the owner of lessor where such
property is in possession or occupation of the
Corporate debtor. The explanation appended to
Section 14(1) cannot be construed to defeat the
clauses (a) to (d) of Section 14(1). The explanation
inserted by the legislature to clarify that a license,
permit, registration, quota, concession, clearances
or a similar grant or right given by the Central
Government, State Government, local authority,
sectoral regulator or any other authority
constituted under any other law for the time being
in force, shall not be suspended or terminated on
the grounds of insolvency, with a louder object that
if the business of the Corporate debtor is
depending upon any such licence, permit,
registration etc. then the same shall not be
cancelled or terminated on the grounds of
insolvency. Therefore, it cannot be construed that
the lease deed terminated by respondent No.1 –
GIDC is permitted as the same was terminated on
the ground of continuing breaches of terms and
conditions of the lease agreement. If the
interpretation of explanation appended to Sections
14(1)(a) to (d) is construed in a way sought to be
perceived by respondent No.1, it would render the
provisions of Section 14(1) nugatory.
13.3 So far as the contention that right to
terminate lease and right to lodge a claim before
learned NCLT are distinct and independent rights
of the lessor is concerned, this Court finds such
argument to be wholly inconsistent with the object
and scheme of the IBC.
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As observed hereinabove and it is not in dispute
that respondent No.1 lodged its claim in Form ‘B’
before the CoC and in the approved Resolution
Plan, there is a provision made in respect of the
claim of the respondent No.1 and accordingly, a
sum of Rs.06,14,49,685/- has already been paid by
the respondent No.2 – successful Resolution
Applicant. The very respondent No.1 has also
challenged the order passed against the approval
of the Resolution Plan against learned NCLAT and
the said appeal is pending. Thus, if contention of
the GIDC being an operational creditor allowed to
simultaneously exercise its right to terminate the
lease deed, would render the entire insolvency
process otiose and would amount to granting an
impermissible preferential position vis-à-vis
financial creditor which would normally be
contrary to the statutory hierarchy envisaged
under the IBC. On the contrary, conduct on the
part of GIDC to terminate the lease and to initiate
the proceedings under the provisions of the Act,
1972 deserves serious consideration. It is to be
noted that initially the respondent No.1
participated in the CIRP and lodged its claim
before the CoC and Resolution Professional.
However, having realized that in the scheme of
IBC, position of it being an operational creditor
would not allow to meet the expectation and
thereby to defeat the CIRP, passed an order under
the provisions of the Act, 1972. GIDC being
statutory authority was even otherwise expected to
act fairly and in accordance with law and certainly
not in a manner contrary to the statutory
framework of the IBC.
13.4 With regard to the contention that since the
Corporate debtor was not an ongoing concern at
the time of initiation of CIRP, the termination of
lease deed would not be hit by the moratorium, this
Court is unable to concur.
It is not a condition precedent under the Code that
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CIRP can be initiated only in respect of a
functioning or ongoing concern. The moratorium
envisaged under Sections 14(1) (a)-(d) applies
upon initiation of CIRP against any Corporate
debtor, irrespective of its operational status.
The Explanation appended to Section 14(1) further
fortifies this position by clarifying that even where
the Corporate debtor is an ongoing concern, and its
business depends upon statutory licences or
permissions, such rights shall not be terminated
merely because of the insolvency. Therefore, the
distinction sought to be drawn between an ongoing
and nonoperational concern is immaterial.
The essence of Section 14 lies in maintaining the
status quo of the Corporate debtor’s assets and
preventing disruption during the CIRP so that the
interests of creditors particularly the Financial
Creditors are adequately protected. Consequently,
this contention also stands rejected.
13.5 So far as submission of respondent No.1 that
if the GIDC not permitted to recover its dues, then
in that case, it would amount to loss to the public
exchequer, has no substance. The said submission
is as such contrary to the scheme and relevant
provisions of the IBC. The concept of public
exchequer cannot be selectively revoked by the one
State entity to elevate its standing above other
financial creditors. Therefore, GIDC cannot seek
preferential treatment under the guise of
protecting public revenue so as to displace the
statutory priority accorded to the financial
creditors under the IBC.
14. Even taking into consideration Section 238 of
the IBC, the impugned order of eviction passed
under the provisions of the Act, 1972 is not tenable
in the eye of law and is unsustainable. As per
Section 238 of the IBC, the provisions shall
override other laws and the provisions of the IBC
shall have the effect, notwithstanding anythingPage 11 of 59
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inconsistent therewith contained in any other law
for the time being in force or any instrument
having effect by virtue of such law. Therefore, IBC
shall override the provisions of the Act, 1972. Thus,
the impugned order of eviction deserves to be
quashed and set aside.
14.1 At this stage, it would be relevant to take note
of the decision of the Apex Court in the case of
Ghanshyam Mishra & Sons Pvt. Ltd. v.
Edelweiss Asset Reconstruction Company Ltd.
[(2021) 9 SCC 657] held thus as under:
“102. In the result, we answer the questions
framed by us as under:
102.1 That once a resolution plan is duly approved
by the Adjudicating Authority under sub-section (1)
of Section 31, the claims as provided in the
resolution plan shall stand frozen and will be
binding on the Corporate debtor and its employees,
members, creditors, including the Central
Government, any State Government or any local
authority, guarantors and other stakeholders. On
the date of approval of resolution plan by the
Adjudicating Authority, all such claims, which are
not a part of resolution plan, shall stand
extinguished and no person will be entitled to
initiate or continue any proceedings in respect to a
claim, which is not part of the resolution plan;
102.2 The 2019 amendment to Section 31 of the
I&B Code is clarificatory and declaratory in nature
and therefore will be effective from the date on
which I&B Code has come into effect;
102.3 Consequently all the dues including the
statutory dues owed to the Central Government,
any State Government or any local authority, if not
part of the resolution plan, shall stand extinguished
and no proceedings in respect of such dues for the
period prior to the date on which the Adjudicating
Authority grants its approval under Section 31Page 12 of 59
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could be continued.”
15. So far as the decisions relied on by learned
Senior Advocate Mr.Soparkar for the respondent
No.1 in case of Tata Consultancy Services Ltd.
(supra) is concerned, the facts of the case is
wholly converse to the case on hands. In the said
case, the Corporate debtor was the lessor and was
receiving services from the lessee. Whereas, in the
present case, the Corporate debtor is the lessee
and was enjoying leasehold rights under the lease
agreement. Before the Apex Court, in Tata
Consultancy Services Ltd. (supra), it has been
observed that the appellant therein is neither
supplying any goods or services to the Corporate
debtor in terms of Section 14(2) nor is it recovering
any property that is in possession or occupation of
the Corporate debtor as the owner or lessor of such
property as envisaged under Section 14(1)(d). It is
further observed that the appellant therein was
availing services of the Corporate debtor and using
the property that has been leased to it by the
Corporate debtor and therefore, it would held that
Section 14 is indeed not applicable to the case.
Whereas, in the case on hand, as discussed, GIDC
being the lessor has sought to recover the
possession of the property of the Corporate debtor
in capacity of owner or lessor. Thus, the facts are
materially different and hence, the decision in case
of Tata Consultancy Services Ltd. (supra) will not
be applicable in the facts of the present case.
15.1 So far as decision in case of Phatu
Romchiram Mulchandani (supra) is concerned,
the said decision was rendered in the context of the
provisions of the Companies Act, 1956 and not in
the context of Section 14 of the IBC. The scope of
Section 14 of the IBC and Section 537 of the
Companies Act, 1956 are wholly different and
thereby, in my considered opinion, the said
decision would not come to any help to respondent
No.1.
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15.2 So far as decision in case of Abhilash Lal
(supra) is concerned, in the said decision,
development agreement executed between MCGM
and the Corporate debtor whereby the Corporate
debtor was required to construct a hospital with
1500 bed and after completion of the construction,
a lease deed was to be executed. Since the
construction was not completed, lease deed was
never executed. In the said facts and the context,
when Corporate debtor was admitted in the CIRP
and MCGM terminated the development
agreement, the Apex Court has held that protection
of Section 14(1)(d) was not available to the
Corporate debtor as the lease deed was not
executed. However, in the instant case, admittedly,
lease deed was executed in favour of the Corporate
debtor and thereby leasehold rights would come
within the sweep of Section 3(27) and thereby the
rigors of Section 14 would come into play. Hence,
the said decision is also of no help to the
respondent No.1.
15.3 So far as decision of the coordinate Bench of
this Court in case of Biotor Industries Limited (in
liquidation) (supra) is concerned, the scope and the
context in the said case was under Section 33(5) of
the IBC. In the said case, liquidation proceedings
against the Corporate debtor was going on and at
that time termination was made on the ground that
leased property would not be part of the liquidation
estate as per Section 36(6)(iv). However, in the
present case, leased ‘property’ is clearly included
within Section 14(1)(d) wherein it takes its
meaning from Section 3(27) and includes an
interest in the property. Hence, the said case is
also not of any help to the respondent No.1.
I answer the question accordingly.”
8. Considering the above, we may extract the opinion of the
learned Single Judge as under :-
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(i) The dues of the GIDC, being an operational creditor,
have been made subject to the provisions of such dues in
the resolution plan as per Section 30 of the IBC’ 2016.
(ii) Upon approval of the resolution plan, the successful
resolution application made payment to GIDC. The
GIDC being an operational creditor is also bound by the
approved resolution.
(iii) The objections taken by the learned Senior advocate
appearing for the GIDC about the maintainability of the
writ petition filed by the resolution professional, has
been dealt with by noticing the statutory scheme under
Section 25 with Section 3(27) of the IBC’ 2016 to hold
that once the resolution plan is approved, it is the
statutory duty of the resolution professional to handover
peaceful and vacant possession of the property to the
successful resolution applicant.
(iv) As regards the submissions of the learned Senior
counsel for the petitioner therein that in view of the
Explanation appended to Section 14(1)(a) to (d), the
termination of lease is barred only when it is occasioned
by reason of insolvency and not otherwise when the
lease deed was terminated on account of repeated and
continuing breach of the terms and conditions of the
lease deed, it was observed by the learned Single Judge
that since the termination of the lease and eviction order
under the Public Premises Act’ 1972 had been passed
during the subsistence of the moratorium as against thePage 15 of 59
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legislative intent, GIDC is not permitted to argue the
ground of continuing breaches of the terms and
conditions of the lease agreement. The submission of
the learned senior counsel based on the interpretation of
Explanation appended to Section 14(1)(a) to (d) as
construed, if accepted, it would render the provisions of
Section 14(1) negatory.
(v) It was also noted by the learned Single Judge that the
GIDC has also challenged the order passed by the NCLT
for approval of the resolution plan before the NCLAT and
its appeal is pending. Thus, being an operational
creditor, the GIDC cannot be allowed to simultaneously
exercise its right to terminate the lease deed invoking
the conditions therein as it would render the entire
insolvency process otiose and would amount to granting
an impermissible preferential position vis-à-vis financial
creditor which would normally be contrary to the
statutory hierarchy envisaged under the IBC’ 2016.
(vi) It was noted that the GIDC being statutory authority,
was even otherwise expected to act fairly and in
accordance with law and certainly not in a manner
contrary to the statutory framework of the IBC.
(vii) With regard to the submission that since the Corporate
debtor was not ongoing, it would not be hit by
moratorium, it was concluded that the moratorium
envisaged under Section 14(1)(a) to (d) applies upon
initiation of CIRP against any Corporate debtor,Page 16 of 59
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irrespective of its operational status.
9. The conclusion drawn by the learned Single Judge in
allowing the writ petition filed by the Corporate debtor
challenging the action of GIDC in terminating the lease deed
and passing eviction order under the Public Premises Act’
1972 during the subsistence of moratorium, has been
challenged herein by the GIDC essentially on the same
grounds agitating the same submission as were raised before
the learned Single Judge, whose decision we do not find to
suffer from any error of law. However, for the sake of
completeness of this judgement, we deal with the submission
of Mr. Saurabh Soparkar, learned Senior counsel for the
appellant GIDC before us, as under:-
I. The lease deed contained the power to terminate and the
termination order has been passed invoking the ‘Breach of
Covenant’ clause under the lease agreement. Section 14(1)(d)
can be invoked only in case the explanation attached thereto
is not attracted. Meaning thereby, the termination or
cancellation of lease deed during moratorium period is
prohibited, only if such termination is made on the ground of
insolvency. The submission is that the explanation serves as
an explanation to the main provision, to the extent that what
has been prohibited in the main section is circumscribed or
restricted by way of the explanation.
II. It was vehemently argued that the lease granted was for
a specific purpose to provide for establishment, development
and management of SEZ for promotion of exports and mattersPage 17 of 59
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connected or incidental thereto. The Corporate debtor had
given an undertaking to utilise the land in question for the
purposes as aforesaid, in accordance with the provisions of
the Gujarat SEZ Act, the SEZ Rules made thereunder and
further in terms and conditions of the Letters of approval.
III. The Development Tenure as per clause 3.5 of the lease
deed was to implement the proposal for setting up the SEZ in
the leased land within the time period as prescribed under the
Gujarat SEZ Act, the SEZ Rules and the conditions of the
Letters of approval including the extensions.
IV. The Land Use as provided in clause 3.8 of the lease deed
is for establishment in the hydrocarbon, oil and gas, energy
and petrochemical sector.
V. Under the scheme of the lease agreement, the Corporate
debtor/lessee was engaged as a developer of SEZ and was
entitled to make independent sub-leases with units within the
SEZ, in accordance with SEZ Act and the Rules made
thereunder.
VI. The submission is that it is no one’s case that the
conditions of the lease deed were fulfilled. In absence of any
action on the part of the Corporate debtor in the direction of
development of SEZ, since after 21.02.2008, when the land in
favour of the Corporate debtor was leased for a period of 99
years, at an annual rent of Rs. 3,768/-, no error can be
attached to the order of termination of lease agreement. The
submission is that the allotment was made at the concessionalPage 18 of 59
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rate of Rs. 165/- per sq. mtrs. as per the policy of the GIDC
only in order to promote the development of SEZ.
VII. A show-cause notice issued for breach of conditions of
the lease deed, inter alia, for non-use of the subject land had
been issued by the GIDC on 19.03.2011. On 20.12.2018,
another show-cause notice was issued for violation of clause
3.3 (Utilisation) of the lease deed. Third notice dated
04.02.2019 has been issued inter alia for non-payment of rent,
which is violation of terms and conditions of the lease deed.
The order dated 13.12.2021 for termination of lease deed has
been passed in view of persistent defaults of the conditions of
the lease agreement inspite of repeated opportunities being
awarded to the respondents/lessee to remedy, by issuance of a
show-cause notice calling upon the lessee to defend the
actions that were to be taken under the provisions of the
Public Premises Act’ 1972 for eviction.
VIII. The attention of the Court is invited to the
communication dated 23.07.2007 at page ‘586’ of the paper
book to submit that the land in question was offered with a
clear stipulation therein that lessee shall submit a time bound
programme/development schedule for utilisation of the land of
SEZ within 6 months of allotment and seek approval of GIDC.
The eviction notice dated 04.02.2019 was issued to the
petitioner as per the terms of the allotment and policy of the
Corporation. Clause 15.2 of the lease deed has been pressed
into service to submit that in case of breach in terms of non-
payment of annual rent, the lessor/appellant herein was
entitled to initiate action under the Public Premises Act’ 1972.
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IX. Placing the eviction notice issued under Section 4(1) of
the Public Premises Act, 1972, it was submitted that the same
was issued as per the terms of the allotment and the policy of
GIDC. The rent/installment/revenue charges amounting to Rs.
18 crores and odd has been outstanding and the GIDC is
legally entitled to recover the said amount from the lessee,
inasmuch as, the lessee had failed and neglected to pay
inspite of expiry of a long time and affording sufficient
opportunity.
X. Emphasis has also been laid on the statement in clause
(d) of the said notice to the effect that the lessee has
committed such acts of waste as are likely to diminish
materially the value or impair substantially the utility of the
leased land (premises). By entering into arrangements and
understanding with the third parties and financial institutions
by structuring deals on the basis of above mentioned property
of the Corporation without taking the permission, clearing the
dues of the Corporation or the consent of the Corporation,
leading to a situation where the value of the public premises
is compromised and complications are created.
XI. The submission is that the notice for eviction under the
Public Premises Act, 1972 had been issued with a clear
contemplation therein of the contravention of terms, express
or implied, under which the lessee was authorised to occupy
the leased premises for setting up SEZ. The submission, thus,
is that the eviction order dated 10.03.2022 has been passed
under the Public Premises Act, 1972 after providing due
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opportunity of hearing to the lessee, viz the original petitioner
in terms of the lease deed and no exception can be taken
thereto.
10. At this juncture, we may note that the writ petition was
filed on 28.02.2022 challenging the order dated 13.12.2021
passed by the GIDC terminating the lease deed dated
21.02.2008 with a further relief that no coercive steps in
respect of the property may be taken against the petitioner.
The eviction order under the Public Premises Act, 1972 dated
10.03.2022 was passed during the pendency of the writ
petition.
11. We may also note, at this juncture, from the show-cause
notice dated 04.02.2019 under Section 4(1) of the Public
Premises Act, 1972, that there is a reference of a request
made by the petitioner for change of usage of leased land
from SEZ to industrial use, with respect to which it is stated
therein that the change of use is governed by the policies and
guidances of the Corporation and that the lessee had been
allotted the land for SEZ purposes at a rate different than the
normal rate. Moreover, the lessee had not submitted any
proof of reversal of Government incentives taken by the
Company, which is also a pre-condition in such case. Merely
submitting a request without any compliance of procedure
and non-submission of required documents are sufficient
factors to reject the representation of the lessee in that
regard.
12. By placing the above noted show-cause notices dated
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19.03.2011, 20.12.2018 and 04.02.2019 at pages ’99’, ‘102’
and ‘103’ of the paper book, it was, thus, vehemently argued
by the learned Senior counsel for the GIDC that the order of
cancellation of lease deed and eviction of the lessee from the
premises in question is saved by Explanation to Section 14(1),
inasmuch as, the recovery of any property by the lessor which
is in possession of the Corporate debtor (lessee) on the
grounds of insolvency is impermissible, however, an exception
is incorporated therein that in case of default in payment of
current dues arising from the use, etc. during the moratorium
period, the eviction was permissible.
13. Elaborating further, it was vehemently argued that the
learned Single Judge has completely ignored the explanation
to clause 14(1)(d) while holding that the expression of the
Explanation given by the petitioner, if accepted, it would
defeat clauses (a) to (d) of Section 14(1) and render the entire
provisions of Section 14 (1) negatory when Section 14(1)
clauses (a) to (c) are not attracted at all in the instant case,
inasmuch as, the appellant GIDC only seeks to recover its
property leased out to the respondent after termination of the
lease on account of the breach of terms and conditions of the
lease deed.
14. To substantiate the said submissions, reliance is placed
on the decision of the Apex Court in P. Mohanraj v. Shah
Bros. Ispat (P) Ltd., [(2021) 6 SCC 258] to submit that the
expression “proceedings” occurring in Section 14(1)(a) would
not cover the ‘proceedings under the Public Premises Act’,
1972, which are summary in nature and the proceedings as
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contemplated therein which are barred during the
moratorium would cover only civil proceedings. It was argued
that clause (a) to sub-section (1) of Section 14 has been read
and interpreted therein to notice that the expression
“institution of the suits” has to be read as one category and
the disjunctive “or” before the word “proceedings” would be a
separate category. The width of the expression “proceedings”
can be interpreted in light of “including execution of any
judgement, decree or order any court of law, tribunal,
arbitration panel or other authority”, which means only civil
proceedings. The submission is that the Estate Officer
exercising statutory power under the Public Premises Act’
1972 would not fall within the meaning of any tribunal or
authority, proceedings before whom including execution can
be said to be prohibited or barred under clause (a) of sub-
section (1) of Section 14. The submission is that however
wider expression may be given to the word “proceedings”,
occurring in Section 14(1)(a), the same would not envelope
the quasi-judicial proceedings under the Public Premises Act,
1972.
15. Placing the decision of the Apex Court in Embassy
Property Developments (P) Ltd. v. State of Karnataka,
[(2020) 13 SCC 308], it was argued that while dealing with
the question before the Apex Court as to whether the dispute
revolves around the decisions of statutory or quasi-judicial
authorities can be subjected to challenge in the insolvency
proceedings before the NCLT or NCLAT or the High Court can
interfere under Article 226/227 of the Constitution of India. In
the facts of the said case, while moratorium in terms of
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Section 14 of IBC was declared by the NCLT, Chennai by
admitting the application under Section 7 of the IBC’ 2016,
the proposal for deemed extension of the mining lease held by
the Corporate debtor, which had expired during the
moratorium was rejected by the Government of Karnataka on
the ground that the Corporate debtor had contravened not
only the terms and conditions of the lease deed but also the
provisions of Rule 37 of the Minor Concession Rules, 1960 and
Rule 24 of the Minerals (Other than Atomic and Hydro
Carbons Energy Minerals) Rules, 2016.
16. Prior to inception of moratorium, a notice for premature
termination of the lease deed had already been issued on the
allegations of violation of the statutory rules and terms and
conditions of the lease deed. However, no order of
termination had been passed till the initiation of CIRP.
17. The Corporate debtor through the Resolution
professional moved a miscellaneous application before the
NCLT praying for setting aside of the order of the Government
of Karnataka and seeking a declaration that the lease shall be
deemed to be valid upto 31.03.2020 and a consequential
direction to the Government to execute supplement lease
deeds for the period upto 31.03.2020.
18. In these facts and circumstances of the case, the
question arose before the Apex Court that :-
“(i) Whether the High Court ought to interfere, under
Articles 226/227 of the Constitution, with an order
passed by the National Company Law Tribunal in a
proceeding under the Insolvency and Bankruptcy Code,Page 24 of 59
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2016, ignoring the availability of a statutory remedy of
appeal to the National Company Law Appellate Tribunal
and if so, under what circumstances; and
(ii) Whether questions of fraud can be inquired into by
the NCLT/NCLAT in the proceedings initiated under the
Insolvency and Bankruptcy Code, 2016″
19. The said questions have been answered by the Apex
Court while concluding that :-
“Conclusion
53. The upshot of the above discussion is that though
NCLT and NCLAT would have jurisdiction to enquire into
questions of fraud, they would not have jurisdiction to
adjudicate upon disputes such as those arising under the
MMDR Act, 1957 and the Rules issued thereunder,
especially when the disputes revolve around decisions of
statutory or quasi-judicial authorities, which can be
corrected only by way of judicial review of
administrative action. Hence, the High Court was
justified in entertaining the writ petition and we see no
reason to interfere with the decision [State of
Karnataka v. Tiffins Barytes Asbestos & Paints Ltd., 2019
SCC OnLine Kar 2463] of the High Court. Therefore, the
appeals are dismissed. There will be no order as to
costs”
20. Based on the aforesaid reasoning of the Apex Court, it
was vehemently submitted by Mr. Saurabh Soparkar, learned
Senior counsel for the appellant that it is clear that in any
dispute arising out of the decision of the statutory or quasi
judicial authority, NCLT or NCLAT would have no jurisdiction
to adjudicate. Viewed from this angle, in the instant case,
when NCLT and NCLAT have no jurisdiction on the question
of validity of the eviction order under Section 4(1) of the
Public Premises Act, 1972, it cannot be argued that the said
proceedings could have been made subject matter of the
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insolvency proceedings. If a dispute cannot be covered or
adjudicated by a statutory tribunal like NCLT or NCLAT
exercising power under IBC’ 2016, as in the instant case, it
cannot be argued that the proceedings under the Public
Premises Act are barred under IBC 2016, inasmuch as, they
are not covered under Section 14(1)(a) of IBC’ 2016.
21. Reliance is further placed on the decision of the Apex
Court in Municipal Corporation of Greather Mumbai
(MCGM) vs. Abhilasb Lal & Ors.[(2020) 3 SCC 234] and
the decisions of this Court in the case of Biotor Industries
Ltd. vs. Gujarat Industrial Development Corporation in
Letters Patent Appeal No. 259 of 2023 and in the case of
Biotor Industries Ltd. vs. Gujarat Industrial
Development Corporation in Special Civil Application
No.3688 of 2022 to substantiate the above submissions.
22. In rebuttal, Mr. Mihir Joshi, learned Senior counsel for
the Corporate debtor, respondent no.1 herein would submit
that both the orders of GIDC for termination of the lease deed
and eviction under Section 5 of the Public Premises Act’ 1972
were challenged before the writ court as a result of the
prohibition under Section 14(1)(d) against recovery of any
property by the lessor which is in the possession of the
Corporate debtor.
23. The land in question was allotted to the Corporate
debtor vide lease deed dated 21.02.2008 for a period of 99
years which was subsisting till moratorium had commenced
on 18.11.2020. The lease was granted for development of a
SEZ and by communication dated 04.01.2011, the GIDC
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granted permission to the Corporate debtor to create a charge
over the lands for availing credit facilities to the tune of Rs.
100 crores from the respondent no.3 financial institution.
24. On 19.03.2011, a show-cause notice was issued to the
Corporate debtor for breach of lease deed inter alia for non-
use of the subject land.
25. However, on 14.03.2013, GIDC introduced a policy for
the denotification of SEZ lands by way of a circular. The
Corporate debtor applied for transfer of the southern plot to
the interested parties under the said policy, however, no
decision was taken in that regard.
26. On 18.11.2020, the NCLT, New Delhi initiated CIRP
against the Corporate debtor by admitting Company Petition
(IB) No.571 of 2020 preferred by respondent no.3.
Accordingly, a moratorium was declared as per Section 14 of
the IBC 2016. In the meantime, GIDC issued two notices
dated 20.12.2018 and 04.02.2019 alleging violation of clause
3.3(Utilisation) of the lease deed and non-payment of rent to
the tune of Rs. 18,94,99,478/-; respectively.
27. In the insolvency proceeding, even GIDC filed its claim
before the interim resolution professional on 10.03.2021 for
an amount of Rs.180,62,53,182/-, which included non-
utilisation penalty, conversion fees and revenue charges.
28. The respondent no.2 herein was selected as a successful
resolution applicant who filed a revised resolution plan dated
23.08.2021 for the Corporate debtor, which has determined
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the claims of the operational creditor, GIDC and also about
the extension of lease for, GIDC land.
29. The COC approved the revised resolution plan on
12.09.2021. However, the GIDC preferred IA No.136/2022
before the NCLT, New Delhi on 08.01.2022 inter alia
objecting to the approval of the resolution plan, which was
later withdrawn on 13.09.2023. The NCLT, New Delhi
approved the resolution plan on 19.09.2023. The writ petition
out of which the appeal has arisen was filed on 03.03.2022
challenging the termination order dated 13.12.2021, which
was passed during the subsistence of the moratorium. Notice
was issued to GIDC on 09.03.2022 and eviction order under
the Public Premises Act’ 1972 was passed on the next day, i.e.
10.03.2022.
30. It is further submitted that during the pendency of the
writ petition, the resolution plan was implemented and
effected vis-a-vis GIDC, particularly when the payment of
Rs.6,14,46,685/- was received by the GIDC. However, on the
same day, the GIDC had issued a communication to the
resolution applicant/respondent no.2 demanding additional
payment as agreed under the lease deed.
31. Simultaneously, GIDC preferred Company Appeal (AT)
(Ins) No. 1648 of 2023 before the NCLAT challenging the
orders dated 13.09.2023 (of withdrawal of its objection) and
19.09.2023 (approval of resolution plan). The NCLAT had set
aside the order dated 13.09.2023 in IA No. 136/2022 holding
that the withdrawal by the counsel of the GIDC was not under
the instructions of its client and IA No. 136 /2022 was
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restored. Resultantly, the order dated 19.09.2023 approving
the resolution plan was also set aside and the parties were
directed to appear before the NCLT, New Delhi for fresh
hearing of both the applications.
32. The Special Leave Petition (C) No. 8777-8778 of 2024
against the order of NCLAT dated 08.08.2024 has been
dismissed on 20.08.2024. However, again vide order dated
19.02.2025, the objections filed by the GIDC in IA
No.4585/2021 has been rejected, approving the resolution
plan by the NCLT, New Delhi. The GIDC again preferred
appeals against both the orders which are currently pending
before the NCLAT.
33. While placing this factual situation, it is also submitted
by the learned Senior counsel for the Corporate debtor that it
emerges from the claim form filed by the GIDC in the CIRP
that the lease lands were subsequently denotified by the GIDC
and it filed a claim of Rs.81,84,41,910/- as conversion charges
by relying on its circular.
34. The GIDC, therefore, cannot be permitted to take a u-
turn to rely on clause 3.3 (Utilisation) of the lease deed on the
premise of Breach of Covenant that the land in question has
not been utilised for development of SEZ.
35. Mr. Shalin N. Mehta, learned Senior advocate appearing
for the successful Resolution Applicant (‘SRA’) viz. the
respondent no.2 herein, further invited attention of the Court
to the copy of the resolution plan under IBC’ 2016 submitted
by the SRA as approved by the NCLT, New Delhi, to
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demonstrate that the resolution applicant undertook the
necessary development activities, sub-division of plots in the
demised premises into such size and design to suit the need of
industries and bringing industrial units on the ground by
offering them customised infrastructure suitable to their
peculiar business requirements. The SRA undertook that it
shall put the idle resources of the Corporate debtor to its
optimum utilisation.
36. Inviting attention of the Court to the copy of the
resolution plan at page ‘194’ of the paper book, it was sought
to be demonstrated that due to constraint of developing SEZ
on account of radical changes in the taxing policies in the SEZ
units etc., the Corporate debtor applied for the denotification
of the SEZ for an area of 108 acres. The request of the
Corporate debtor was approved in the meeting of the Board of
Approvals held on 25.03.2011. Later in 2012, further
denotification was applied for the remaining area 0f 139.90-46
hectares and the said proposal was placed in the meeting of
Board of Approvals held on 18.01.2013 when after
deliberations, it was approved. Based on the information
available on the official website of the SEZ-INDIA pertaining
to the SEZs which are notified and operating in the country
and also pertaining to the list published for existing notified
SEZ in the country, the name of the Corporate debtor is not
appearing in the list. The Development Commissioner, SEZ
has also not filed any claim for any of their dues pertaining to
the Corporate debtor with the resolution professionals.
37. It was, thus, submitted that as declared in the resolution
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plan, the resolution applicant had expressed good reasons to
believe that SEZ denotification is approved and all the dues
between the Corporate debtor and Development
Commissioner, SEZ might have been settled at the time of
denotification.
38. It was also mentioned therein that with the
denotification, now the only business activity that may be
carried out by the Corporate debtor is development of
demised premises as per the use of the notified area by sub-
leasing the industrial plots developed within the demised
premises.
39. With these facts, the attention of the Court is further
invited to the claim put forth by the GIDC before the interim
resolution professional/resolution professional on 10.03.2021,
wherein total claim of Rs. 18,06,253,182/- had been bifurcated
into penalty as per the GIDC circular dated 21.07.2017;
conversion charges as per the GIDC circular dated
14.03.2013; and revenue charges payable on 18.11.2020 with
interest computed on monthly rent continuously.
40. The claim put forth by the GIDC for conversion charges
in the CIRP against the Corporate debtor is stated to be proof
of the fact of conversion of land by denotification of SEZ into
development for industrial purposes/activities.
41. Further, placing reliance upon the decision of the Apex
Court in Embassy Property Developments Private Ltd.
(supra), Rajendra K. Bhutta vs. MHADA [(2020) 12 SCC
2080, GUVNL vs. Amit Gupta [(2021) 7 SCC 209] and
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Victory Iron Workd Ltd. vs. Jintendra Lohia [(2023) 7
SCC 227], it was argued that the termination of the lease
deed dated 21.02.2008, after initiation of CIRP and during
operation of moratorium in terms of Section 14 of IBC’ 2016,
is impermissible.
42. Considering the submissions of the learned counsels for
the parties and perused the record, at the outset, we may set
out Section 14 of the IBC’ 2016, relevant for our purposes :-
“14. Moratorium.–(1) Subject to provisions of sub-
sections (2) and (3), on the insolvency commencement
date, the Adjudicating Authority shall by order declare
moratorium for prohibiting all of the following, namely:
—
(a) the institution of suits or continuation of pending
suits or proceedings against the Corporate debtor
including execution of any judgment, decree or order in
any court of law, tribunal, arbitration panel or other
authority;
(b) transferring, encumbering, alienating or disposing of
by the Corporate debtor any of its assets or any legal
right or beneficial interest therein;
(c) any action to foreclose, recover or enforce any
security interest created by the Corporate debtor in
respect of its property including any action under the
Securitisation and Reconstruction of Financial Assets
and Enforcement of Security Interest Act, 2002 (54 of
2002);
(d) the recovery of any property by an owner or lessor
where such property is occupied by or in the possession
of the Corporate debtor.
Explanation.–For the purposes of this sub-section, it is
hereby clarified that notwithstanding anything contained
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in any other law for the time being in force, a license,
permit, registration, quota, concession, clearances or a
similar grant or right given by the Central Government,
State Government, local authority, sectoral regulator or
any other authority constituted under any other law for
the time being in force, shall not be suspended or
terminated on the grounds of insolvency, subject to the
condition that there is no default in payment of current
dues arising for the use or continuation of the license,
permit, registration, quota, concession, clearances or a
similar grant or right during the moratorium period;
(2) The supply of essential goods or services to the
Corporate debtor as may be specified shall not be
terminated or suspended or interrupted during
moratorium period.
(2A) Where the interim resolution professional or
resolution professional, as the case may be, considers
the supply of goods or services critical to protect and
preserve the value of the Corporate debtor and manage
the operations of such Corporate debtor as a going
concern, then the supply of such goods or services shall
not be terminated, suspended or interrupted during the
period of moratorium, except where such Corporate
debtor has not paid dues arising from such supply during
the moratorium period or in such circumstances as may
be specified;
(3) The provisions of sub-section (1) shall not apply to–
(a) such transactions, agreements or other arrangements
as may be notified by the Central Government in
consultation with any financial sector regulator or any
other authority;
(b) a surety in a contract of guarantee to a Corporate
debtor.
(4) The order of moratorium shall have effect from the
date of such order till the completion of the corporate
insolvency resolution process:
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Provided that where at any time during the corporate
insolvency resolution process period, if the Adjudicating
Authority approves the resolution plan under sub-section
(1) of section 31 or passes an order for liquidation of
Corporate debtor under section 33, the moratorium shall
cease to have effect from the date of such approval or
liquidation order, as the case may be.”
43. The relevant paragraphs ’31’ and ’32’ of the order of the
NCLT dated 18.11.2020 declaring moratorium, is to be noted
as under:-
“31. The moratorium is declared which shall have effect
from the date of this Order till the completion of CIRP,
for the purposes referred to in Section 14 of the IBC,
2016. It is ordered to prohibit all of the following,
namely:
a) The institution of suits or continuation of pending
suits or proceedings against the Corporate debtor
including execution of any judgment, decree or order in
any court of law, tribunal, arbitration panel or other
authority;
(b) Transferring, encumbering, alienating or disposing of
by the Corporate debtor’s assets or any legal right or
beneficial interest therein;
(c) Any action to foreclose, recover or enforce any
security interest created by the Corporate debtor in
respect of its property including any action under the
Securitisation and Reconstruction of Financial Assets
and Enforcement of Security Interest Act, 2002 (54 of
2002);
(d) The recovery of any property by an owner or lessor
where such property is occupied by or in the possession
of the Corporate debtor.
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32. The supply of essential goods or services of the
Corporate debtor shall not be terminated, suspended, or
interrupted during moratorium period. The provisions of
Sub-section (1) of Section 14 of IBC, 2016 shall not apply
to such transactions, as notified by the Central
Government.”
44. As noted hereinbefore, the learned Single Judge
discussing the provisions of Section 14(a) to (d) had opined
that a plain reading of the said provision clearly manifests the
legislative intent that once the moratorium is declared upon
commencement of the CIRP, there shall be a prohibition
against recovery of any property by the owner or lessor where
such property is in possession or occupation of the Corporate
debtor. If the business of the Corporate debtor is dependent
upon any license, permit, registration, etc. the same cannot be
cancelled or terminated on the grounds of insolvency. The
right to terminate lease allegedly in terms of the conditions of
the lease deed on the plea of continuing breach thereof, was
not available. From a perusal of the order of moratorium
declared by the NCLT, it is evident that the language of
Section 14(1)(a) to (d) has been incorporated therein to
prohibit initiation of any suit or proceeding against the
Corporate debtor including execution, transfer, alienating or
encumbering asset of the Corporate debtor, the recovery of
any property by the owner or lessor where such property is in
occupation or possession of the Corporate debtor.
45. It is noteworthy that the IBC’ 2016 has transformed the
laws relating to reorganisations and insolvency resolution of
corporate persons and has been enacted to conduct
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proceedings in a manner that the value of assets of such
persons, his partnership firms and individuals in a time bound
manner for maximisation of value of assets of such persons, to
promote entrepreneurship, availability of credit and balance
the interests of all the stakeholders including alteration in the
order of priority of payment of Government dues.
46. The Statement of Object and Reasons of the Code says
that the aim is to improve ease of doing business and facilitate
more business leading to higher economic growth and
development.
47. Explanation to Section 14 was added by way of the
Amendment Act of 2020 with effect from 28.12.2019. The aim
and object of the Amendment Ordinance of 2019 was to fill
the critical gaps in the corporate insolvency framework.
48. The relevant extract of Statement of Objects and
Reasons of the Second Amendment Bill, 2019, reads that:-
“A need was felt to give the highest priority in
repayment to last mile funding to Corporate debtors to
prevent insolvency, in case the company goes into
corporate insolvency resolution process or liquidation, to
prevent potential abuse of the Code by certain classes of
financial creditors, to provide immunity against
prosecution of the Corporate debtor and action against
the property of the Corporate debtor and the successful
resolution applicant subject to fulfilment of certain
conditions, and in order to fill the critical gaps in the
corporate insolvency framework, it has become
necessary to amend certain provisions of the Insolvency
and Bankruptcy Code, 2016.”
49. Section 5(a) of the Amendment Act of 2020 reads as
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under :-
“5. In section 14 of the principal Act,-
(a) in sub-section (1), the following Explanation shall be
inserted, namely:-
“Explanation. For the purposes of this sub-section, it is
hereby clarified that notwithstanding anything contained
in any other law for the time being in force, a license,
permit, registration, quota, concession, clearances or a
similar grant or right given by the Central Government,
State Government, local authority, sectoral regulator or
any other authority constituted under any other law for
the time being in force, shall not be suspended or
terminated on the grounds of insolvency, subject to the
condition that there is no default in payment of current
dues arising for the use or continuation of the license,
permit, registration, quota, concession, clearances or a
similar grant or right during the moratorium period;
50. The submission of the learned Senior counsel for the
appellant is that the Explanation to sub-section (1) of Section
18 added by way of amendment of 2020 is by way of exception
to the main provision where prohibitions have been
incorporated with the declaration of moratorium. The
submission is that the learned Single Judge has committed an
error in holding that the entire sub-section (1) of Section 14
providing for prohibition in different eventualities will be
applicable in the facts of the present case. The submission is
that only prohibition which may be attracted, in the instant
case, is as incorporated in clause (d) of sub-section (1) of
Section 14, which if read with the Explanation, the
Explanation will exclude clause (d) in a case where
termination of lease is only the ground of default in terms of
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the lease and not on the ground of insolvency. The
submission is that since the termination of lease, in the
instant case, is on the ground of breach of conditions of the
lease and default in payment of annual rent, prohibition
clause (d) of sub-section (1) of Section 14 will not be attracted
at all. Moreover, none of the other clauses of sub-section (1)
of Section 14 can be applied in the facts of the present case.
51. Dealing with this submission of the learned Senior
counsel, we may note from a careful reading of Section 14 of
the IBC’ 2016 where only exceptions to provisions of sub-
section (1) are enumerated in sub-section (2) and (3), which
contain two exceptions.
52. As has been noted by the Apex Court in P. Mohanraj &
Ors. (supra), the language employed in clause (a) to sub-
section (1) of Section 14, makes it clear that the expression
“institution of suits” or “continuation of pending suits”; is to b
read as one category, and the disjunctive “or” before the word
“proceedings” would make it clear that proceedings against
the Corporate debtor would be a separate category. The
words “including exclusion of any judgment, decree or order”
and “any Court of law, Tribunal, arbitration panel or other
authority” is indicative of the width of the provision being very
wide and make it clear that the “proceedings” as enumerated
in clause (d) cannot be interpreted to mean only civil or suit
proceedings. The words “proceedings against the Corporate
debtor” including “any other authority” must be given its
widest meaning to hold that any proceedings against the
Corporate debtor before any authority to include all bodiesPage 38 of 59
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created by the statute on which powers are conferred to carry
out Government or quasi judicial functions, shall be prohibited
during the moratorium.
53. It was held therein that the expression “proceedings”
cannot be cut down to mean civil proceedings stricto sensu by
the use of rules of interpretation such as ejusdem generis and
noscitur a sociis. The Constitution Bench judgment in
Rajasthan SEB v. Mohan Lal, (1967) 3 SCR 377, considering
the meaning of “other authorities” in Article 12 of the
Constitution of India, was noted in paragraph ’23’ therein as
under :-
“23. Likewise, in Rajasthan SEB v. Mohan Lal [Rajasthan
SEB v. Mohan Lal, (1967) 3 SCR 377 : AIR 1967 SC
1857] , this Court had to decide whether the expression
“other authorities” in Article 12 of the Constitution of
India took its colour from the preceding expressions
used in the said Article, making such authorities only
those authorities who exercised governmental power.
This was emphatically turned down by a Constitution
Bench of this Court, stating : (SCR pp. 384-85 : AIR p.
1862, paras 4-5)
“4. In our opinion, the High Courts fell into an error in
applying the principle of ejusdem generis when
interpreting the expression “other authorities” in Article
12 of the Constitution, as they overlooked the basic
principle of interpretation that, to invoke the application
of ejusdem generis rule, there must be a distinct genus
or category running through the bodies already
named. Craies on Statute Law summarises the principle
as follows:
‘The ejusdem generis rule is one to be applied with
caution and not pushed too far. … To invoke the
application of the ejusdem generis rule there must
be a distinct genus or category. The specific words
must apply not to different objects of a widelyPage 39 of 59
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differing character but to something which can be
called a class or kind of objects. Where this is
lacking, the rule cannot apply, but the mention of a
single species does not constitute a genus [Craies
on Statute Law, 6th Edn., p. 18.] .’
Maxwell in his book on Interpretation of
Statutes explained the principle by saying:’But the
general word which follows particular and specific words
of the same nature as itself takes its meaning from them,
and is presumed to be restricted to the same genus as
those words … Unless there is a genus or category, there
is no room for the application of the ejusdem generis
doctrine [Maxwell on Interpretation of Statutes, 11th
Edn., pp. 326 & 327.] ‘. In United Towns Electric Co.
Ltd. v. Attorney General for Newfoundland [United
Towns Electric Co. Ltd. v. Attorney General for
Newfoundland, (1939) 1 All ER 423 (PC)] , the Privy
Council held that, in their opinion, there is no room for
the application of the principle of ejusdem generis in the
absence of any mention of a genus, since the mention of
a single species–for example, water rates–does not
constitute a genus. In Article 12 of the Constitution, the
bodies specifically named are the Executive
Governments of the Union and the State, the
Legislatures of the Union and the States, and local
authorities. We are unable to find any common genus
running through these named bodies, nor can these
bodies be placed in one single category on any rational
basis. The doctrine of ejusdem generis could not,
therefore, be applied to the interpretation of the
expression “other authorities” in this article.
5. The meaning of the word “authority” given
in Webster’s Third New International Dictionary, which
can be applicable, is ‘a public administrative agency or
corporation having quasi-governmental powers and
authorised to administer a revenue-producing public
enterprise’. This dictionary meaning of the word
“authority” is clearly wide enough to include all bodies
created by a statute on which powers are conferred to
carry out governmental or quasi-governmental functions.
The expression “other authorities” is wide enough to
include within it every authority created by a statute and
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functioning within the territory of India, or under the
control of the Government of India; and we do not see
any reason to narrow down this meaning in the context
in which the words “other authorities” are used in
Article 12 of the Constitution.”
54. The question before the Apex Court was as to whether
the institution or continuation of a proceeding under Section
138/141 of the Negotiable Instruments Act can be said to be
covered by the moratorium provisions under Section 14 of the
IBC. It was argued before the Apex Court that criminal
proceedings are outside the scope of the expression
“proceedings” contained in Section 14(1) (a) of the IBC’ 2016.
55. Taking note of the provisions of Section 14(1) as also the
exceptions contained in sub-section (2) and sub-section (3), it
was noted therein that on the insolvency commencement date,
the adjudicating authority shall mandatorily declare a
moratorium to prohibit clauses (a) to (d). Importantly, under
sub-section (4), this order of moratorium does not continue
indefinitely, but has effect only from the date of the order
declaring moratorium till the completion of the CIRP, which is
time bound either culminating in the order of the adjudicating
authority approving resolution plan or in liquidation.
Exceptions in sub-section (2) are for the benefit of the
Corporate debtor wherein it is provided that the supply of
essential goods or service to the Corporate debtor shall not be
terminated or suspended or interpreted during the
moratorium period. Two exceptions incorporated in sub-
section (3) are applicable to the nature of transactions
therein.
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56. While interpreting the provisions of Section 14,
considering its object, it was observed that having regard to
the object sought to be achieved by the IBC’ 2016 in imposing
moratorium, a quasi judicial proceeding which would result in
the assets of the Corporate debtor being depleted as a result
of having to pay compensation which can amount to twice the
amount of cheque that has bounced would directly impact the
CIRP in the same manner as institution, continuation or
execution of a decree in such suit in a civil court for the
amount of debt or other liability. It was held that it is
impossible to discern any difference between the impact of a
suit and a Section 138 proceedings, insofar as, the Corporate
debtor is concerned, inasmuch as, the objection of the
moratorium is to provide necessary breathing space to the
Corporate debtor to get back on its feet during the CIRP. It
was, thus, held that the width of the expression “proceedings”
in clause (a) of sub-section (1) of Section 14 should not be cut
down so as to make such proceedings analogous to civil suits.
57. In the scheme of different clauses of Section 14, it was
noted that while Section 14(1)(a) refers to monetary liability
of the Corporate debtor, clause (b) thereof refers to Corporate
debtor’s estate and together these two clauses form a scheme,
which shields the Corporate debtor from pecuniary attacks
against it in the moratorium period so that the Corporate
debtor gets breathing space, continue as a going concern in
order to rehabilitate itself. Any crack in this shield is bound
to have adverse consequence, given the object of Section 14
and cannot, by any process of interpretation, be allowed to
occur.
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58. Further, considering other provisions as to moratorium
in Part III of IBC, in the context of individuals and firms
occurring in Section 81 and Section 85, it was noted that the
moratorium contained in Section 14 is not subject specific.
The only light thrown on the subject is by the exception
provision contained in Section 14(3) (a). Also the expression
“proceedings” used by the legislature in Section 14(1) (a) is
not trammelled by the word “legal” as a prefix that is
contained in the moratorium provision qua individuals and
firms in Part III of IBC.
59. It was further observed that even otherwise, the
proceedings under Section 138 would be a legal proceeding in
respect of a debt and given the object and context of Section
14, the expression “proceedings” cannot be cut down by any
rule of construction and must be given a fair meaning
consonant with the object and context. It was, however, noted
that criminal proceedings which are not directly related to
transactions evidencing debt or liability of the Corporate
debtor, as conceded before the Court, would be outside the
scope of this expression.
60. Mr. Mihir Joshi, learned Senior advocate appearing for
the respondent no.1/Corporate debtor would argue that the
purpose of moratorium under section 14 is to preserve the
status quo and not to create a new right. The right under
Section 14(1)(d) is not to be dispossessed. Referring to the
decision of the Apex Court in Gujarat Urja Vikas Nigam
Ltd. v. Amit Gupta, [(2021) 7 SCC 209], it was submitted
that in a challenge to the order of NCLT, staying termination
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of Power Purchase Agreement of the Corporate debtor, based
on the application moved by the resolution professional of the
Corporate debtor under Section 60(5) of the IBC’ 2016, it was
held by the Apex Court that Section 14(1)(d) provides for
protection of a ‘property’ defined in Section 3(27) of the IBC’
2016, which would include Power Purchase Agreement, which
is an instrument falling in Section 238 of IBC. It was observed
therein that IBC was a reform and institutional framework
under IBC contemplated establishment of single forum to deal
with matters of insolvency, which were distributed early
across multiple fora.
61. It was held therein that for the success of an insolvency
regime, it is necessary that insolvency proceedings are dealt
with in a timely, effective and efficient manner. In the facts of
the said case, it was held therein that Power Purchase
Agreement was terminated solely on the ground of insolvency,
since the event of default contemplated under the same was
the commencing of insolvency proceedings against the
Corporate debtor. The dispute pertaining to termination of
agreement solely arises out of and relates to the insolvency of
the Corporate debtor.
62. One of the questions considered by the Apex Court in
Gujarat Urja Vikas Nigam Ltd. (supra), was the ipso facto
clauses in the contract, which allows a party to terminate the
contract with its counter party due to the occurrence of an
“event of default”. The question was in the context of
insolvency law, in some of the ipso facto clauses, the event of
default includes applying for insolvency, commencement of
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insolvency proceedings, appointment of insolvency
representation, etc. In the said context, the Apex Court has
considered the amendments by the Insolvency and
Bankruptcy Code (Amendment) Act, 2020, which inter alia
introduced Explanation to Section 14(1), as noted
hereinabove.
63. The Apex Court has noted therein that the legislative
intent behind this amendment was discussed in the report of
the Insolvency Law Committee dated 20.02.2020 and the
report noted the importance of keeping the Corporate debtor
as a going concern during the moratorium period imposed
under Section 14 and how it was being affected by the
termination of certain Government licenses, permits, etc.
based on ipso facto clauses which allowed termination upon
commencement of insolvency. Noting that the legislative
intent underlying Section 14 would be to invalidate such
terminations, the report recommended addition of the
Explanation to Section 14(1) of IBC. The relevant portion of
the report as noted by the Apex Court in para ’14’, reads as
under :-
“Prohibition on Termination on Grounds of Insolvency
***
8.3. It was brought to the Committee that in some
cases government authorities that have granted
licences, permits and quotas, concessions,
registrations, or other rights (collectively referred to
as “grants”) to the Corporate debtor attempt to
terminate or suspend them even during CIRP period.
This could be attempted in two ways : one, by relying
on ipso facto clauses, by virtue of which these grants
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proceedings themselves, and second, by initiating
termination on account of non-payment of dues.
8.4. The Committee discussed that by and large, the
grants that the Corporate debtor enjoys form the
substratum of its business. Without these, the
business of the Corporate debtor would lose its value
and it would not be possible to keep the Corporate
debtor running as a going concern during CIRP
period, or to resolve the Corporate debtor as a going
concern. Consequently, their termination during CIRP
by relying on ipso facto clauses or on non-payment of
dues would be contrary to the purpose of introducing
the provision for moratorium itself. Thus, the
Committee concluded that the legislative intent
behind introducing the provision for moratorium was
to bar such termination.
8.5. In this regard, the Committee noted that
depending on the nature of rights conferred by them,
these grants may constitute the “property” of the
Corporate debtor. Section 3(27) of the Code provides
an inclusive definition of property which includes
“money, goods, actionable claims, land and every
description of property situated in India or outside
India and every description of interest including
present or future or vested or contingent interest
arising out of, or incidental to, property.” This
definition is substantially the same as the definition of
“property” under Section 436 of the Insolvency Act,
1986 (UK), which has been considered the widest
possible definition of property. In India too, it is
accepted that certain licences and concessions can
convey permission to use property, or may embody a
lease, permit, etc. granting rights in the property.
Thus, their termination in certain circumstances,
could have been considered contrary to an order of
moratorium barring actions under Section 14(1)(d) or
preventing alienation of property by any person.
8.6. Similarly, in many circumstances, termination or
suspension of grants, particularly registrations, wouldPage 46 of 59
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be through proceedings that follow due process of
law. Such proceedings may be a form of enforcement
that would deprive the Corporate debtor of its assets.
In this regard, the Committee noted that Section
14(1)(a) prevents “the institution of suits or
continuation of pending suits or proceedings against
the Corporate debtor including execution of any
judgment, decree or order in any court of law,
tribunal, arbitration panel or other authority.” This
provision has been given an expansive reading by the
appellate authority and the adjudicating authority,
that had passed orders preventing recovery by stock
exchanges and regulators, as well as the de-
registration of aircrafts.
8.7. Relying on this, the Committee was of the view
that termination or suspension of such grants during
the moratorium period would be prevented by Section
14. However, to avoid any scope for ambiguity and in
exercise of abundant caution, the Committee
recommended that the legislative intent may be made
explicit by introducing an Explanation by way of an
amendment to Section 14(1).
(emphasis in original and supplied)”
64. It was observed therein that the court’s intervention
would be guided by ascertaining the legislative intent from
the provisions therein. Referring to the scheme of Section 14
of the IBC’ 2016, it was concluded in paragraphs ‘165’, ‘166’,
‘169’ as under :-
“165. Section 14 of IBC lists the conditions under which
a moratorium can be imposed by NCLT in terms of
clauses (a) to (d) of sub-section (1). It further clarifies
that a licence, permit, quota, concession, grant or right
given by a government cannot be suspended or
terminated on the grounds of insolvency, subject to
certain exceptions. This clarification was added by way
of an Explanation to Section 14(1) with effect from 28-
12-2019. The Report of the Insolvency Law Committee
dated 20-2-2020, as discussed above, noted that withoutPage 47 of 59
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such government grants “the business of the Corporate
debtor would lose its value and it would not be possible
to keep the Corporate debtor running as a going concern
during CIRP period, or to resolve the Corporate debtor
as a going concern” [Para 8.4] . The Report further
stated that the termination of such grants during CIRP
on account of ipso facto clauses or non-payment of dues
is in contravention of the purpose behind imposition of
moratorium itself.
166. While recommending the inclusion of an
explanation, the Report of the Insolvency Law
Committee stated that while it was of the view that
termination or suspension of such grants is prevented by
Section 14, it recommended adding the Explanation “to
avoid any scope for ambiguity and in exercise of
abundant caution” [Para 8.7] , and to ensure that the
legislative intent should be made explicit by introduction
of the explanation by way of an amendment to Section
14(1). The Insolvency Law Committee (in its discussion
in the February 2020 Report) took the position that
Section 14 even in its unamended form, contained an
interdict on the invalidation of government grants,
though the language of Section 14 did not make this
position explicit.”
“169. The inclusion of the Explanation to Section 14(1)
and Section 14(2-A) indicates that Parliament has been
amending IBC to ensure that the status of a Corporate
debtor as a “going concern” is not hampered on account
of varied situations, which may not have been in
contemplation at the time of enacting IBC. It will be
relevant to note that in a recent three-Judge Bench
decision of this Court in P. Mohanraj v. Shah Bros. Ispat
(P) Ltd. [P. Mohanraj v. Shah Bros. Ispat (P) Ltd., (2021)
6 SCC 258] , Rohinton Fali Nariman, J. speaking for the
Court, expounded upon the object of Section 14 in the
following terms : (SCC p. 301, para 30)“30. … the object of a moratorium provision such
as Section 14 is to see that there is no depletion of a
Corporate debtor’s assets during the insolvency
resolution process so that it can be kept running as aPage 48 of 59
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going concern during this time, thus maximising value
for all stakeholders. The idea is that it facilitates the
continued operation of the business of the Corporate
debtor to allow it breathing space to organise its
affairs so that a new management may ultimately take
over and bring the Corporate debtor out of financial
sickness, thus benefitting all stakeholders, which
would include workmen of the Corporate debtor.”
(emphasis supplied)”
65. It can, thus, be seen that the Apex Court has clarified
therein that the Explanation to Section 14(1) with effect from
28.12.2019 was added by way of clarification that a licence,
permit, quota, concession, clearances or right given by a
Government, cannot be suspended or terminated on the
grounds of insolvency, subject to certain exceptions. The
report of the Insolvency Law Committee dated 20.02.2020, as
discussed therein, noted that without such Government
grants, “the business of the Corporate debtor would lose its
value and it would not be possible to keep the Corporate
debtor running as a going concern during CIRP period, or to
resolve the Corporate debtor as a going concern”
66. It was noted from the report that the termination of such
grants during CIRP on account of ipso facto clauses or non-
payment of dues is in contravention to the purpose behind the
imposition of moratorium itself. The inclusion of Explanation
in light of the report of the Insolvency Law Committee was
only to avoid any scope for ambiguity and in exercise of
abundant caution. The Insolvency Law Committee, however,
took the position that Section 14 even in its unamended form,
contained an interdict on the invalidation of Government
grants, though the language of Section 14 did not make thisPage 49 of 59
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position explicit. The Explanation to Section 14(1) is to ensure
that the status of a Corporate debtor as a “going concern” is
not hampered on account of varied situations, which may not
have been in contemplation at the time of enacting IBC.
67. We may further refer to the decision of the Apex Court in
Rajendra K. Bhutta v. MHADA [(2020) 13 SCC 208],
placed by the learned Senior counsel for the respondent no.1
Corporate debtor wherein the question was as to the correct
interpretation of Section 14(1) (d) of the IBC’ 2016. In the
facts of the said case, after imposition of moratorium under
Section 14 of the Code, the Maharashtra Housing and Area
Development Authority (‘MHADA’) therein had issued a
termination notice to the Corporate debtor stating that upon
expiry of 30 days from the date of receipt of the notice, the
Joint Development Agreement as modified would stand
terminated. The Corporate debtor was directed to hand over
possession to the Development Authority which would then
enter upon the plot and take possession of the land including
all structures thereon.
68. It was argued on behalf of the Development Authority
that the various provisions of the Maharashtra Housing and
Area Development Act, 1976, (‘MHADA Act‘) particularly its
preamble and certain Sections, and under the Joint
Development Scheme the authorities concerned enter into
with the builders, must first get the previous approval of the
authority, and such schemes have to be executed under the
supervision of the authority. That being the case, Section
14(1)(d) would not apply. The said provision does not coverPage 50 of 59
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licenses to enter upon land in pursuance of Joint Development
Agreements and such licenses being “personal” and no
interest created in the property, there is no question of any
possession or occupation being handed over, inasmuch as, the
development authority had taken symbolic possession, though
after imposition of moratorium period.
69. In the context of the said controversy, while reading the
joint Development Agreement, it was noted that at the very
least, a license is granted in favour of the developer to enter
upon the land/property with a view to do all the things that
are mentioned therein. There can be no gainsaying that after
such entry, the property would be “occupied by” the
developer. The termination notice further states that on the
expiry 0f 30 days from the date of receipt of the notices, the
developer will not be allowed to enter the property and that
its authority/license to enter the property or remain
thereupon is terminated. The MHADA thereupon will not
allow the developer to do anything or in relation to the
property and shall take possession of all the structures
standing thereon.
70. On the issue as to whether any clash between the
MHADA Act and Insolvency Code, it was held that on a plain
reading of Section 238 of the Insolvency Code, the Code must
prevail. This is for the very good reason that when a
moratorium is spoken of by Section 14 of the Code, the idea is
that, to alleviate corporate sickness, a statutory status quo is
pronounced under Section 14 the moment a petition is
admitted under Section 7 of the Code, so that the insolvencyPage 51 of 59
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resolution process may proceed unhindered by any of the
obstacles that would otherwise be caused and that are dealt
with by Section 14. The statutory freeze, thus, has been made
for a limited period, expressly limited by Section 31(3) of the
Code, to the date of admission of an insolvency petition upto
the date of approval of resolution plan by adjudicating
authority or Corporate debtor going in liquidation. It was,
thus, observed that for this temporary period, at least, all the
things referred to under Section 14 must be strictly observed
so that the Corporate debtor is finally put back on its feet
albeit with a new management.
71. Noticing the limited question before the Court therein as
to whether Section 14(1)(d) of the Code will apply to
statutorily freeze ‘occupation’ that may have been handed
over under a Joint Development Agreement, it was held in
paragraph ’28’ as under :-
“28. ……it is clear that Section 14(1)(d) of the
Insolvency and Bankruptcy Code, when it speaks
about recovery of property “occupied”, does not
refer to rights or interests created in property but
only actual physical occupation of the property…..”
72. In light of the above legal principles, coming to the facts
of the present case, it may be noted that the “demised
premises or the leased plot” is the only property held by the
Corporate debtor, which was initially leased for 99 years for
the operation, maintenance, management and administration
of SEZ in the State of Gujarat under the relevant provisions of
the SEZ Act. The Corporate debtor being lessee of the
property in occupation of the lease property and the lease is
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subsisting.
73. The GIDC seeks recovery of the “property occupied by
the Corporate debtor” as against Section 14(1)(d) of the IBC’
2016 with the contention that Explanation to Section 14(1) is
an exception to clause (d) of sub-section (1) of Section 14, and
it does not refer to any other clauses of sub-section (1) of
Section 14 specifically clause (a) and as such, termination of
the lease except on the ground of insolvency and recovery of
property is permitted under the explanation.
74. This submission deserves to be rejected outrightly in
view of the observation in Gujarat Urja Vikas Nigam Ltd.
(supra) with reference to the Law Commission Report dated
20.02.2020, that the Explanation by way of clarification was
added to Section 14(1) with effect from 28.12.2019, by way of
abundant caution to avoid any scope for ambiguity and to
ensure that the legislative intent of termination or suspension
of Government grant prevented by Section 14(1) is made
explicit by introduction of the Explanation. What is to be seen
is that the status quo as on the date of admission of the
application under Section 7 of IBC’ 2016 is required to be
maintained during the moratorium period, which shall have
the limited effect to the date of the said order upto the
completion of the insolvency resolution process in terms of
sub-section (4) of Section 14 read with Section 31(3) of the
IBC’ 2016.
75. The Explanation to sub-section (1) of Section 14 being
clarificatory, in any case, will not envelope the whole sub-
section(1) of Section 14, the intent of which is to ensure that
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the status of a Corporate debtor as a “Government concern”,
is not hampered on account of the varied situations during the
CIRP.
76. The submission of the learned Senior counsel that the
Explanation to sub-section (1) of Section 14 should be read as
an exception to clause (d) to sub-section (1) of Section 14
only, inasmuch as, it permits termination of contract by a
statutory authority on any other ground during CIRP except
on the ground during of insolvency. Suffice it to say that the
Explanation in sub-section (1) of Section 14 has been brought
to invalidate ipso facto clauses for some of the Government
contract, clarifying that a Government or statutory contracts
cannot be suspended or terminated on the grounds of
insolvency, subject to certain exceptions, as an abundant
caution. The main provision of Section 14, however, itself
invalidates any such action. The Explanation cannot be
construed as an enabling provision to permit such acts which
would make the whole section nugatory.
77. Even otherwise, in the instant case, under the terms and
conditions of the lease deed, there is no ipso facto clause
giving rise to any right to the lessor to terminate the lease
deed merely on the default in payment of annual rent.
78. The ground of cancellation of lease deed as stated in the
impugned termination order dated 13.12.2021 is that in view
of the persistent default of the conditions of the lease
agreement, inspite of various opportunities being granted,
when they are not remedied, GIDC is left with no other option
but to terminate the lease deed and further proceed to initiate
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action under the provisions of the Public Premises Act’ 1972.
79. The averments in the termination order dated
13.12.2021 that “The admission of case at NCLT forum has
added to the already created notion of impairment of asset
under consideration” itself is sufficient to form the opinion
that the termination of lease is triggered by the insolvency
proceedings, resultantly, termination being on the ground of
insolvency alone.
80. As regards the assertion in the previous notices about
the defaults with regard to the terms and conditions of the
lease deed, it may be noted that under clause (v) of 3.3
(Utilisation), the parties have agreed as under :-
“(v) Notwithstanding the foregoing however, the
Parties herewith agree that the Lessee may during the
Term of this Lease seek a change of the nature of the
use of the Demised Premises from an SEZ to any other
industrial use duly sanctioned under the applicable
statutory or regulatory provisions enacted in reference
thereto with prior consent, approval or permission of the
Lessor.”
81. A bare reading of the said clause indicates that during
the term of the lease, the lessee could seek a change of the
nature to use of demised premises from SEZ to any other
industrial which has to be duly sanctioned under the
applicable statutory or regulatory provisions with the prior
consent, approval or permission of the lessor.
82. Clause 3.9 of the lease deed permits the lessee to create
any charge, mortgage, lien or encumbrances against the
demised premises during the course of the term of the lease
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and the Lessor is mandated to provide no objection certificate
to the lessee or to a sub-lessee or any concerned party in that
regard. Clause 3.9, thus, militates against the case of GIDC
that it could terminate the lease deed solely on the ground of
default in payment of annual rent.
83. Clause 15 is the only clause which pertains to ‘Breach of
covenant’ and sub-clauses 15.1 and 15.2 contained therein
read as under :-
“15.1 In the specific event that the Annual Rent
has not been paid and is, therefore, in arrears for a
period of more than two months, whether the same has
been legally demanded or not, the Lessor may seek re-
entry in the Demised Premises and the Term of this
Lease hereby granted and right to any renewal thereof
shall absolutely cease. PROVIDED ALWAYS that the
power of such re-entry herein before contained shall not
be exercised unless and until the Lessor has given a
ninety (90) days notice to the Lessee requiring it to
remedy the breach in terms of payment of Annual Rent.
15.2 In the event that the said breach in terms of non-
payment of the Annual Rent has not been remedied, the
Lessor shall take action as per policy ad initiate action
under the Gujarat Public Premises (eviction of
unauthorised occupants) Act, 1972.”
84. A bare reading of clause 15.1 indicates that it provides
for suspension of right of the lessee during the tenure of lease
in case of non-payment of annual rent for a period of more
than two months and the lessors right to seek re-entry in the
demised premises, however, the proviso therein would make
such right of re-entry, subject to giving 90 days notice to the
lessee requiring it to remedy the breach in terms of payment
of annual rent. Further, in view of clause 15.2, the action may
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be initiated under the Gujarat Public Premises Act’ 1972 if the
breach in terms of non-payment of the annual rent has not
been remedied.
85. Thus, in accordance with the terms of the “Breach of
covenant” contained in the lease deed, a previous 90 days
notice is required to be given to the lessee asking for payment
of rent and eviction action can be initiated under the Public
Premises Act in case of persistent default.
86. However, both these actions should freeze during the
period of moratorium, inasmuch as, re-entry in terms of the
said terms and conditions of the lease deed, would not be
permitted or stand prohibited in view of clause (d) of sub-
section (1) of Section 14, inasmuch as, recovery to any
property by the lessor which is in occupation or possession of
the Corporate debtor, is impermissible.
87. Clause (a) of sub-section (1) of Section 14 further
prohibits institution of any “proceedings” against the
Corporate debtor which would result in depletion of asset of
the Corporate debtor. The statutory freeze during the
moratorium period is to ensure that the status of a Corporate
debtor as a “going concern” is not hampered during the
insolvency proceeding and any “proceeding” which would
result in the assets of the Corporate debtor being depleted,
which would directly impact the CIRP, may be arrested. As
held by the Apex Court in P. Mohanraj & Ors. (supra),
Section 14(1) is a shield against any such attack under the
moratorium period upon the Corporate debtor who is to get
breathing space to continue as a going concern in order to
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ultimately rehabilitate itself. Any crack in this shield which is
bound to have adverse consequences, would be against the
object of Section 14(1) of the IBC’ 2016.
88. Given the object of Section 14(1) of the IBC’ 2016, in
the facts of the present case, neither the termination of the
lease agreement in terms of the clause 15 (Breach of
covenant) nor the eviction “proceedings” under the Gujarat
Public Premises Act, were permissible during the moratorium
period. The orders of termination of lease and eviction of the
lessee, therefore, have been rightly quashed by the learned
Single Judge.
89. Moreover, the resolution plan of the successful
resolution applicant has been approved by the NCLT. The
objections of GIDC to the approval of the Resolution plan has
been rejected and the GIDC is in appeal before the NCLAT
against the order of approval of the resolution plan.
90. We may also note that during the CIRP, the GIDC had
also submitted its claim including conversion charges by
relying on its circular which gives rise to an indication that
the land was subsequently denotified or the conversion plan of
the Corporate debtor was accepted. GIDC has also received a
payment of Rs. 6 crores and odd in the proposed resolution
plan and had filed withdrawal of its objection to the approval
of the resolution plan approved by the NCLT, which was later
objected.
91. Be that as it may, on the merits of the approval of
resolution plan or any claim of GIDC, which fall within the
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domain of the NCLAT, we do not need to comment. We clarify
that the observations, if any, in that regard hereinabove will
not come in the way of the parties.
92. With the above, the present appeal stands dismissed
being devoid of merits. No order as to costs. Pending Civil
Application, if any, would not survive and shall stand disposed
of, accordingly.
(SUNITA AGARWAL, CJ )
(D.N.RAY,J)
FURTHER ORDER
After delivery of judgement in the open Court, the
request made for stay of operation of this judgment cannot be
accepted and hence, rejected.
(SUNITA AGARWAL, CJ )
(D.N.RAY,J)
BIJOY B. PILLAI
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