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No Contravention of Law in the Formulation of Resolution Plan: National Company Law Appellate Tribunal

Where terms of a contract have been adhered to, in the absence of violation of other rights, there is no need to go into the other issues of contravention of law in the formulation of the Resolution Plan; as was observed by the NATIONAL COMPANY LAW APPELLATE TRIBUNAL PRINCIPAL BENCH, NEW DELHI, consisting of Justice Jarat Kumar Jain, Member (Judicial); and Dr. Alok Srivastava, Member (Technical), in the matter of PAR Formulations Pvt. Ltd. vs. Print House (India) Pvt. Ltd. & Ors. [Company Appeal (AT) (Ins.) No. 348 of 2021], on 06.12.21.

The facts of the case were that the appellant filed the present appeal under Section 61 of the Insolvency and Bankruptcy Code, 2016 against the order passed by the Adjudicating Authority, that is, National Company Law Tribunal, Mumbai Bench, approving the Resolution Plan submitted by M/s. Sify Technologies Limited in the Corporate Insolvency Resolution Process (CIRP) of Print House (India) Pvt. Ltd. & Ors., the Corporate Debtor. The impugned order has been challenged to the extent that it affects the appellant’s rights regarding termination of the existing Leave and License Agreement dated 16.6.2017 with the Respondent No. 1 and refund of the security deposit upon delivery of the premises and on the ground that the order has been passed without giving any notice or opportunity of hearing to the appellant.

The Learned Counsel for the appellants, contended that the Resolution Plan contravenes the provision of Section 62 of the Indian Contract Act, 1872 whereby novation, rescission or alternation of contract is only possible with the permission of all the parties and cannot be done unilaterally. It was argued that by virtue of lock-in clause in the License Agreement, the appellant is entitled to enjoy peaceful possession of the property till 23.8.2022. It was further claimed that there was no occasion for termination of the Leave and License Agreement and therefore, the impugned order, in as much as it allows unilateral termination of Leave and License Agreement is against section 30(2)(e) read with section 31(1) of the Insolvency and Bankruptcy Code, 2016 , which requires the Resolution P to confirm that the Resolution Plan does not contravene any provision of law and the Adjudicating Authority has to satisfy itself that the Resolution Plan complies with the requirement of section 30(2)(e) of Insolvency and Bankruptcy Code, 2016.

The Learned Counsel for the respondents, relying on precedents, put forth the proposition that the commercial wisdom of Committee of Creditors is not open to judicial review ordinarily. The counsel also stated that while the Resolution Plan was under consideration of the Committee of Creditors and the Adjudicating Authority, it could not have been shared with the third party due to corporate confidentiality reasons hence it did not share with the appellant. Referring to provisions in Sections 59, 62(a) and 62(i) of the Indian Easements Act, 1982, it was argued that the circumstances are similar to the provision providing that the guarantor’s transferee is not bound by the License agreement. It was also argued that since the insolvency proceedings are in rem, the appellant was aware of the same from 3.9.2019 by the email of Resolution Professional and is, therefore, therefore, guilty of delay and laches and since ‘delay defeats equity’, his appeal is liable to be dismissed. Further, it was contended that the approval of the Resolution Plan under Insolvency and Bankruptcy Code, 2016 is in itself a binding contract as is stated in section 30 of Insolvency and Bankruptcy Code, 2016.

The National Company Law Appellate Tribunal, after perusing the facts, evidence and arguments presented, as well as precedents referred to, found that even though the Leave and License Agreement’s termination was included in the Resolution Plan, the Successful Resolution Applicant followed the Leave and License Agreement as per clause 12 (a) in terminating the agreement. Thus, the respondent has not violated the rights of the appellant. Since the appellant’s lease has been duly terminated by resorting to the terms of the agreement, the court opined that there was need to go into the other issues as contravention of law in the formulation of the Resolution Plan.

Keeping in mind the activities in relation to its business of production of oral, liquid and injectable medicines, conducted by the appellant at the said premises, the bench granted two months’ time from the date of the order, to the appellant; and directed the respondent, the Successful Resolution Applicant, to return the security deposit amount in accordance with the lease agreement to the appellant. Thus, the appeal was disposed of.

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