Supreme Court Affirms authority of CoC Over Property During CIRP

This appeal originated from a dispute about possession of two sections of a property (White House, Rani Jhansi Road, New Delhi) which acted as security for financial assistance availed from the Appellants by the corporate debtor-Nandini Impex Pvt. Ltd. (Nandini Impex/Corporate Debtor). Despite the transfer, the property remained occupied by the corporate debtor under Leave and License agreements which, after defaults, were terminated by the Appellants. Eviction suits followed. UCO Bank, as the sole member of the Committee of Creditors (CoC) of the Corporate Debtor, initiated CIRP against the Corporate Debtor, which was admitted on September 20, 2022. The Appellants, recognized as operational creditors, had their claims accepted by the Interim Resolution Professional.

Upon considering the huge rentals, the CoC at its meeting held on April 6 2023, decided that retention of the property was not financially viable and authorized its return to the Appellants. The Hon’ble National Company Law Tribunal (NCLT), taking note of the CoC’s decision, directed the Resolution Professional (RP) to deliver possession to the Appellants. Chandrakant Khemka (suspended director), who opposed this move, appealed to the Hon’ble National Company Law Appellate Tribunal (NCLAT), which set aside the NCLT order, citing Section 14(1)(d) of the Insolvency and Bankruptcy Code, 2016 (IBC) barred recovery by an owner of property during the Corporate Insolvency Resolution Process (CIRP), when such property was occupied by the corporate debtor, and remanded the matter for fresh consideration by the NCLT.

The Hon’ble Supreme Court overturned the decision of the NCLAT, finding the CoC’s commercial decision to return the property both lawful and reasonable, and the application of Section 14(1)(d) of the IBC against the owners inapposite when the CoC and the RP themselves do not wish to retain the property.

The Hon’ble Supreme Court held as follows:

1. CoC’s Commercial Wisdom∶ Decisions of the CoC made after due deliberation regarding the retention or release of property must be given primacy during the CIRP and not subject to judicial review.

2. Section 14(1)(d) of the IBC Interpretation∶ Section 14(1)(d) prohibits recovery of possession by an owner where such property is occupied by or is in the possession of the corporate debtor. In the case on hand, the chronology of events manifests that, at its very first meeting held on February 20, 2023, the CoC discussed the issue of retention of the ground floor of White House. It asked the RP to visit the said premises and decide as to whether holding on to the same was required, spending a huge amount towards rentals. Thereafter, at its third meeting held on April 6, 2023, the CoC took note of the RP’s report that it was not feasible to hold on to the subject property, as only 8 to 9 staff members were there and the revenue generated would not be sufficient to pay the lease/license rentals. The CoC recorded that the matter was duly discussed, and the RP was asked to hand over possession as early as possible, as there was no requirement to hold on to the said premises spending such a huge amount towards rentals.

3. It was only thereafter that the appellants filed Interlocutory Applications before the NCLT praying for a direction to deliver possession of the subject property to them along with other reliefs. Therefore, considering it was the CoC and the RP who were desirous of returning the property to the Appellants keeping in mind the adverse financial implications of retaining the same, the bar of Section 14(1)(d) of the IBC would not be attracted.

4. Objections Limited: The Court noted that Chandrakant Khemka, as the suspended director, was the only party opposing the return of property, yet was “not willing to personally bear the expenditure for such retention” and appeared to be “bent upon stalling that process for some undisclosed and extraneous reasons. The Court concluded that the decision to return possession was therefore legitimate.

The Hon’ble Supreme Court ultimately restored the NCLT’s order, directing the RP to deliver possession of the property to the Appellants. The judgment stands as an important confirmation that the “commercial wisdom” of the creditors is paramount during CIRP, and judicial intervention in such matters is limited. Further, Section 14(1)(d) only applies where recovery of property from the Corporate Debtor is not consented to by the CoC and the RP, and not where the same is in the commercial interests of the CIRP.