Moratorium bars recovery of property physically occupied by corporate debtor notwithstanding lawful pre-insolvency lease termination.

The Appellant is the owner/lessor of a property in Kolkata leased to the Corporate Debtor (CD) via a 21-year agreement executed in 2008.

Due to rent defaults since February 2022, the Appellant issued a termination notice on April 14, 2023.

Subsequently, the Corporate Insolvency Resolution Process (CIRP) was initiated against the CD on May 4, 2023, triggering a moratorium.

The Appellant filed IA No. 4147/2023 before the NCLT Mumbai seeking physical possession of the property.

The NCLT dismissed the application on October 1, 2024, on the grounds that the Appellant failed to establish ownership and that recovery was barred by Section 14(1)(d) of the IBC.

The Appellant challenged this order, noting that the Resolution Professional (RP) had already admitted 90% of the rental claim, effectively acknowledging the Appellant’s status as landlord.

1. Whether the Adjudicating Authority erred in holding that the Appellant failed to establish ownership/landlordship despite the RP’s admission of the rental claim.

2. Whether Section 14(1)(d) of the IBC prohibits the recovery of property by a lessor during the moratorium if the lease was terminated prior to the Insolvency Commencement Date but the Corporate Debtor remains in physical occupation.

The court primarily applied Section 14(1)(d) of the Insolvency and Bankruptcy Code (IBC), 2016, which prohibits the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor.

It relied on the Supreme Court’s interpretation in Rajendra K. Bhutta v. Maharashtra Housing and Area Development Authority, which distinguished "occupied by" (physical occupation) from "possession" (legal possession), holding that the former is protected during moratorium.

The court further referenced Regulation 31(b) of the CIRP Regulations, which treats amounts due to persons affected under Section 14(1)(d) as CIRP costs.

It also cited R.V. Bhupal Prasad v. State of Andhra Pradesh, observing that a tenant at sufferance has juridical possession protected by law until duly ejected.

The NCLAT first set aside the NCLT’s finding regarding ownership, ruling that the RP’s admission of the rental claim and the lack of dispute over the Appellant’s status rendered the NCLT's demand for additional proof of title unnecessary.

However, on the core issue of possession, the Tribunal held that Section 14(1)(d) is absolute.

It reasoned that even if a lease is lawfully terminated pre-CIRP, the moratorium restricts the lessor from recovering property if the CD is in actual physical occupation.

The Tribunal found that the subject property was vital for the CD's status as a "going concern," as it housed the "Central" store which accounted for 80% of the CD’s business during the CIRP.

The court distinguished the Appellant's reliance on AA Estates (P) Ltd. v. Kher Nagar Sukhsadan, noting that AA Estates recognized that Section 14(1)(d) applies when a CD is in actual physical occupation.

The court also noted the Appellant’s alleged conduct in obstructing electricity supply, which further necessitated the protection of the CD's occupation to preserve value.

While the Tribunal corrected the NCLT's finding on ownership in favor of the Appellant, it dismissed the appeal regarding the restoration of possession.

The Tribunal directed the NCLT and RP to conclude the proceedings expeditiously, preferably within three months.

All pending applications were disposed of.