Case Name: Sincere Securities Private Limited Vs Chandrakant Khemka
Case Number: Civil Appeal No. 12812 OF 2024
Date: Tuesday, the fifth Day of August, Two Thousand and Twenty Five
Quorum: Sri Justice Sanjay Kumar
Facts
The case was an appeal under Section 62 of the Insolvency and Bankruptcy Code, 2016 (IBC) against an order of NCLAT setting aside an NCLT order for the return of possession of a property (“White House”, New Delhi) to its owners (appellants). The property had been mortgaged and subsequently sold by Nandini Impex Pvt Ltd (the corporate debtor) to the appellants to raise loans. Nandini Impex, however, had possession through Leave and License Agreements, subsequently revoked for non-payment of rent. Subsequent to insolvency proceedings being triggered, the Committee of Creditors (CoC), comprising solely UCO Bank, and the Resolution Professional (RP), concluded the property could not be withheld due too much expenditure and limited usage. Only Chandrakant Khemka, the suspended director of the debtor, raised an objection, which resulted in litigation, which had finally reached this Supreme Court appeal.
Issues
- Whether Section 14(1)(d) of the IBC, disallowing recovery of property in the hands of the debtor during the moratorium, precluded the Tribunal from directing the return of the property to the appellants when the CoC and RP no longer desire to retain it.
2. Whether the NCLAT was justified in directing the case to be remanded to the NCLT for fresh determination instead of restoration of possession.
Legal Provisions Involved
Section 14(1)(d), IBC: Banks recovery of property held by a corporate debtor during the period of moratorium.
Section 7, IBC: Financial creditors initiation of CIRP.
Section 62, IBC: Appeal to the Supreme Court.
Judicial Precedents: Emphasis on the business wisdom of the Committee of Creditors (K. Sashidhar v. Indian Overseas Bank, (2019) 12 SCC 150).
Arguments
Petitioners’ Arguments
The RP and the CoC (UCO Bank) had intentionally avoided retaining the property for lack of financial viability. The NCLT, based on this decision, lawfully directed the return of possession.
None but Chandrakant Khemka, in the interest of no one but the CIRP, objected to the return for reasons unknown and extraneous and refused to pay the expenses. Section 14(1)(d) does not apply where creditors and the resolution professional voluntarily surrender possession. Judicial precedents (K. Sashidhar) prioritize the commercial sense of the CoC.
Respondent’s Arguments
Chandrakant Khemka contended the RP presented false facts to the NCLT, and therefore, it was an unreasoned order. He contended the property was crucial to the business of the debtor. Section 14(1)(d) of the IBC excluded the property from being returned during CIRP. The NCLAT’s remand was warranted for detailed adjudication.
Analysis
The Supreme Court noted that all the parties – the CoC (UCO Bank), the current as well as the earlier Resolution Professionals, and the owners (appellants) – were one in not wanting to maintain possession because of huge rent and nil operational need. None but the suspended director, Khemka, objected with no willingness to finance continued possession.
The Court noted that Section 14(1)(d), which safeguards the debtor’s assets under CIRP, does not necessarily exclude the CoC or RP from making a determination that possession be transferred if it would not be in the interest of the debtor to hold on to the property. The CoC’s determination—being a domain of their “commercial prudence”—is non-justiciable in line with settled law (K. Sashidhar). The NCLAT approach, limiting itself to the technical bar of Section 14(1)(d), was found to be misplaced; the facts elicited consensus for surrender with one dissenting (but not contributory) voice.
Judgment
The Supreme Court reversed the NCLAT’s order and affirmed the NCLT’s order and ordered the Resolution Professional to return possession of the property forthwith to the appellants, to which the Court held that this was not a case of enforcement against the debtor but a case of agreed relinquishment that was in favor of the CIRP, as held by the Committee of Creditors and the Resolution Professional. The appeal was therefore granted.
Conclusion
The judgment highlighted the primacy of the commercial wisdom of the Committee of Creditors (CoC) in Corporate Insolvency Resolution Process (CIRP) cases, even in relation to the management of assets under lease or licensing arrangements. While Section 14(1)(d) allows for a moratorium, the same principle cannot prevail over the unanimous decision of the CoC and the Resolution Professional (RP) to transfer property that is extraneous to business and financially burdensome. Objections from the erstwhile management, which are not constructive to the CIRP and lack a commitment to incur costs, cannot justify judicial intervention. This ruling reinforces the non-justiciability of the business judgments of the CoC in the course of insolvency proceedings.
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WRITTEN BY __ Kondala Phani Priya
