Case Note & Summary
The National Company Law Appellate Tribunal (NCLAT) allowed two appeals filed by the Resolution Professional (RP) and the largest financial creditor of GPT Steel Industries Limited, challenging orders dated 08.04.2024 passed by the Adjudicating Authority. The Adjudicating Authority had directed the RP to approach the appellate authority of Gujarat Industrial Development Corporation (GIDC) regarding a show cause notice and termination of lease issued during the moratorium period under the Insolvency and Bankruptcy Code, 2016 (IBC), and remitted the resolution plan back to the Committee of Creditors (CoC) for reconsideration. The NCLAT held that the termination of lease by GIDC on 07.04.2022 violated Section 14 of IBC, as leasehold rights are assets of the corporate debtor protected during moratorium. The Tribunal set aside the impugned orders, declared the termination invalid, and restored the resolution plan for approval, emphasizing that the Adjudicating Authority should have entertained the application and set aside the termination instead of directing the RP to approach GIDC's appellate authority.
Headnote
The National Company Law Appellate Tribunal (NCLAT) heard two appeals arising from orders dated 08.04.2024 passed by the Adjudicating Authority (National Company Law Tribunal, Ahmedabad) in the Corporate Insolvency Resolution Process (CIRP) of GPT Steel Industries Limited -- In Company Appeal (AT) (Ins.) No.1103 of 2024, the RP challenged the order disposing of IA No.461 of 2022, which directed the RP to approach the appellate authority of GIDC regarding a show cause notice and termination order issued during moratorium -- In Company Appeal (AT) (Ins.) No.1084 of 2024, Asset Reconstruction Company (India) Limited challenged the order remitting the resolution plan back to the Committee of Creditors (CoC) for reconsideration -- The Tribunal held that the termination of lease by GIDC on 07.04.2022 was during the moratorium period imposed under Section 14 of the Insolvency and Bankruptcy Code, 2016 (IBC), and thus invalid -- Leasehold rights are assets of the corporate debtor protected under moratorium -- The Adjudicating Authority erred in not setting aside the termination order and in remitting the resolution plan -- The appeals were allowed, setting aside the impugned orders and restoring the resolution plan for approval
Issue of Consideration
The Issue of whether the termination of lease by Gujarat Industrial Development Corporation (GIDC) during the moratorium period under Section 14 of the Insolvency and Bankruptcy Code, 2016 (IBC) was valid and whether the Adjudicating Authority erred in directing the Resolution Professional (RP) to approach GIDC's appellate authority instead of setting aside the termination order
Final Decision
The National Company Law Appellate Tribunal allowed the appeals, set aside the orders dated 08.04.2024 passed by the Adjudicating Authority, declared the termination of lease by GIDC on 07.04.2022 as invalid, and restored the resolution plan for approval
Law Points
- Moratorium under Section 14 of the Insolvency and Bankruptcy Code
- 2016 (IBC) prohibits any action against the corporate debtor's assets during Corporate Insolvency Resolution Process (CIRP) -- Leasehold rights constitute assets of the corporate debtor protected under moratorium -- Termination of lease by lessor during moratorium is invalid as it violates Section 14 of IBC -- Adjudicating Authority has jurisdiction to entertain applications regarding actions taken in violation of moratorium -- Operational creditors' claims must be addressed through the resolution plan process under IBC
