Municipal Corporation of Greater Mumbai (MCGM) had initially entered into a contract dated 20th December, 2005 with the Seven Hills Healthcare (p) lmt (SHCL) over a land in the village Marol, Andheri, Mumbai. Under the contract it was agreed that the SHCL would develop the land and build a 1500 beds hospital. The MCGM had stipulated several conditions on the development as there must be 20 % of the beds reserved for the deprived and economically backward people. Also the contract includes that the construction of the hospital must be completed within 60 months of the issuing of commencement certificate excluding the monsoons, and the sixty months period ended on 24th April 2013, And on the completion of construction under clause 15(g) of the contract The MCGM would commence a lease deed within a month. The SevenHills has to pay the rental annually up to the completion of construction. However the SevenHills defaulted on the payment of annual lease and further the lease deed was not executed by MCGM as it had not completed the construction of the Hospital. And issued a show cause notice on 23rd January, 2018 proposing the termination of contract.
Further the SevenHills had borrowed funds from financial institutions and banks by creating securities in the way of mortgaging the said lands as cited under clause 5 of the contract. While unable to repay the debts, Axis Bank had initiated the insolvency proceedings. Before the end of show cause notice period on 13th march, 2018 a petition was raised in Hyderabad National Company Law Tribunal (NCLT) as the headquarters of the SevenHills is present in Hyderabad and the NCLT appointed a Resolution Professional (RP) that is first respondent Abhilash Lal and this was approved by Committee of creditors (Coc) on 12th April, 2018. Further Dr. Shetty’s New Medical Center (SNMC) submitted a resolution plan which projects that over 1000 crores were borrowed by SHCL in the form of hypothecation and mortgage the lands where the implied criterias of 20% beds for poor and deprived would be provided for the corporation and offered over 102.3 crores against its total claim of 140.88 crores. This resolution proposal was accepted by Coc on 4th September, 2018.
Later MCGM filed an application claiming that it has to be declared as a financial creditor and has to be made as a member of Coc and stated that the hospital construction and the time should be subjected to the stipulations made in the contract. And further during the proceedings it stated that as a public body corporation it has to comply with the provisions of the Mumbai Municipal Corporation Act,1888 (MMC). And all the permissions should be obtained from the Committee of the Corporation.[1]
ISSUE RAISED :
In this Case Court dealt with the issue of:
- Whether the Corporate Debtor had the authority of leaseholder rights is a disputed fact in the present case.
- Whether Section 238 of Insolvency and Bankruptcy Code is applicable in the issues concerning third party property.
CONTENTIONS :
Initially this case was dealt before the NCLT, the important contentions raised by the MCGM are mainly two, firstly the Termination of Contract, MCGM had issued show cause notice on 23rd January, 2018 for which no response was received by MCGM thus there is no active lease rights vested in Corporate Debtor and therefore Section 14(1)(d) of IBC shouldn’t prohibit the MCGM from terminating the contract. And secondly it was argued before the NCLT that there is a lapse of Corporate Insolvency Resolution Process, where the CIRP was commenced on 13th March, 2018 and it the period of 270 days were supposed to be ended on September 8th, 2018 as there is an extension granted by the Adjudicating authority on 4th September. Since the extended time was over on 9th December the procedure has lapsed due to the expiry of time and as a result there is no right on the Corporate Debtor to lease the lands. NCLT held that the contentions made by the MCGM are conflicting and contradictory to each other and also the expiry of time period of 270 is not acceptable as the resolution plan was completed before the expiry of that period and rejected the objections raised by MCGM.
MCGM had gone on to the Appellate tribunal of National Company law Appellate Tribunal (NCLAT). Before NCLAT several grounds were contented. Where several new contentions were added on the ground that the stipulated conditions were not satisfied and thus the lease deed was not executed to the Corporate Debtor, and the resolution applicant are also aware of the fact that the property rights belongs to the MCGM despite knowing the fact they proceed with the encumbrances of land is contrary to law and also the mandatory condition of getting the approval from Corporation under the MMC Act hence the proposals approved by the NCLT and the properties they dealt with are not enforceable to MCGM. NCLAT opined that after considering the orders of NCLT and the approval of resolution plans by the MCGM in the beginning, there is no need to interfere with the orders of the Adjudicating authority.
Aggrieved by the imputed orders of the NCLT and NCLAT, MCGM went for an Appeal before the Hon’ble Supreme Court. And raised the contention that no lease deed was signed by the MCGM and every lease deed must be registered to admit as a security. Thus there must be an approval of revised plan allowing the execution of lease deed to the SHCL or the applicant SNMC and neither NCLT nor the NCLAT had the authority to issue binding orders to MCGM on regulating his property. And the legal conseles appearing on behalf of the respondents contended that when the revised plan of SNMC offered for the repayment of the entire dues, even with such an offer the actions of MCGM seems arbitrary and unreasonable as they are seeking for the liquidation of the Seven Hills Healthcare Lmt. and there is no need of approval by commissioner under Section 92A of MMC Act, 1888 as the contract of lease is essentially a registered contract and also MCGM had took about 10 crores as the lease consideration in the initial stage of the contract and additionally it was contended that relying on the Section 92 of MMC Act,1888 is misleading the case by relating a insolvency case to the MMC Act,1888 and also should be influenced by the Act as the Section 238 of the Code has overriding effect on other provisions.hence the orders passed by the NCLT and NCLAT are sound and valid.
Taking as the main contentions which are discussed above there are many more contentions which were made by the respective learned counsels. After respective Contentions the respective Court had referred many relevant cases such as: Ram Singh Vijay Pal Singh & Ors. v. State of U.P. & Ors the court dealt with the same issue where requiring prior approval of the statutory authority without which the property could not be disposed of. The court held in this case the appellants have no legal right to claim that the property be given to them on hire purchase basis.[2] and many more other cases where similar issues were dealt with by the Hon’ble Supreme Court.
RATIONALE :
By hearing the above contentions the three judge bench consists of Justice Arun Mishra, Justice Vineet Saran, Justice S. Ravindra Bhat. These three judges had delivered a remarkable judgement by creating a limitation on Section 238 of IBC, 2016 after referring to many cases which are relevant to the present issue. It was held by the SC that the Section 238 does not override the provision of Section 92 and Section 92A of the MMC Act,1888 as the overriding effect can be applied on the cases which are related to the Insolvency and Bankruptcy and mainly when the properties are of debtors and not when the properties involved are third parties. And also held that without the approval under Section 92 and 92A of MMC Act,1888 the adjudicating authorities cannot override the MCGM’s obligations and allow new creation of interest in its properties and public lands.[3]
INFERENCE :
This landmark case brought us a standard solution for a concept of dispute where our Supreme Court had dealt with this issue of overriding effect of Section 238 in many cases. Where for the first time a clear view on this point had been held by the SC. and the limitation on the Section 238 was imposed stating that this Section has the applicability on such issues when the property or properties in dispute or of the Corporate Debtors but not when they are related to the Third party also the present case shows the overriding effect was not absolute as the present case dealt with the concept that when there is a provision which has to be satisfied in order to be valid then such prescribed process should be done and it can’t be done otherwise as in the present case the approval from Municipal Commissioner under Section 92 and 92A of the MMC Act, 1888 is mandatory for the further proceedings under the Statute of Insolvency and Bankruptcy Code, 2016.
Name : Karedla Vinya Sai Suguna College : JC College Of Law, Guntur, Andhra Pradesh.
[1] Municipal Corporation Of Greater Mumbai. vs Abhilash Lal on 15 Nov, 2019, Civil Apl. no. 6350 of 2019
[2] Ram Singh Vijay Pal Singh & Ors. v. State of U.P. & Ors, Appeal (civil) 2300 of 2007
[3] Municipal Corporation Of Greater Mumbai. vs Abhilash Lal on 15 November, 2019, Civil Appeal no. 6350 of 2019