National Company Law Appellate Tribunal
Par Formulations Private Limited vs Print House (India) Private Limited on 6 December, 2021
NATIONAL COMPANY LAW APPELLATE TRIBUNAL
PRINCIPAL BENCH, NEW DELHI
Company Appeal (AT) (Ins.) No. 348 of 2021
IN THE MATTER OF:
PAR Formulations Pvt. Ltd. ....Appellant
Having its registered office at
9/215, Pudupakkam-Vandalur,
Main Road Pudupakkam,
Kelambakkam, Chennai-603103.
Tamil Nadu
Vs.
Print House (India) Pvt. Ltd. ... Respondent No. 1
Having its registered office at R/847/2, T.T.C. In Industrial Area MIDC, Rabale, Navi Mumbai, Rabale - 400701.
Maharashtra.
Mr. Manish Baldeva, ....Respondent No. 2Former Resolution Professional of Respondent No.1, Having his office at G-02, Salasar Jyot CHS Ltd., Bageshree Park, Shivsena Galli, Station Road, Bhayander (West), Thane - 401101.
Maharashtra.
SIFY Technologies Limited ....Respondent No. 3 Having its registered office at Tidel Park, 2nd Floor, No. 4, Canal Bank road, Taramani, Chennai 600113. Tamil Nadu Present:-
For Appellant:- Mr. Dhruv Mehta, Sr. Advocate with Mr. Aditya Mukherjee, Mr. Krishan Tangirala, Mr. Aashish Gupta, Advocates For Respondent:- Mr. Krishnendu Datta, Sr. Advocate with Mr. Dhrupad Vaghani and Ms. Naveli R. and Ajiz M. K, Advocates for R-3.
Mr. Ayush J Rajani (PCS), Ms. Khushboo Shah, Advocates for R-2 Company Appeal (AT) (Ins.) No. 348 of 2021 Page 1 of 13 Mr. Manish Baldeva, R 2, In person Judgment (Date: 06 .12.2021) (Virtual Mode) [Per.: Dr. Alok Srivastava, Member (Technical)] This appeal has been filed under Section 61 of the Insolvency and Bankruptcy Code, 2016 (herein after called 'IBC') against the order 23rd June, 2020 (hereinafter called 'Impugned Order') passed by the Adjudicating Authority (National Company Law Tribunal, Mumbai Bench) in MA 2972/ 2019 in CP (IB) No. 82/MB.II/2018. PAR Formulations Pvt. Ltd. has filed this appeal against Print House (India) Pvt. Ltd., the Corporate Debtor as Respondent No. 1, Manish Baldeva, former Resolution Professional (in short RP) of Corporate Debtor as Respondent No. 2 and Sify Technologies Limited, the Successful Resolution Applicant as Respondent No. 3.
2. By the Impugned Order, the Adjudicating Authority has, inter alia, approved the Resolution Plan submitted by M/s. Sify Technologies Limited (Respondent No. 3) in the Corporate Insolvency Resolution Process (CIRP) of Respondent No. 1- Corporate Debtor. The Appellant has challenged the Impugned Order to the extent that it affects the Appellant's rights regarding termination of the existing Leave and Licence Agreement dated 16.6.2017 (hereinafter called 'Licence Agreement', attached at pp. 194-212 of Appeal paperbook) with 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.
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3. In brief, the facts of the case as stated and argued by the Appellant are that in terms of the Licence Agreement, Respondent No. 1 has agreed to the sub-lease the first floor of the building admeasuring approximately 21020 sq. ft. carpet area and 10 open car parking spaces located at R-847/2, TTC Industrial Area, MIDC, Rabale, Navi Mumbai-400071 to the Appellant for 5 years upto 23.8.2022. The Appellant has further stated that as per clause 3(b) of the Licence Agreement, entire five years' period is lock-in period for Respondent No. 1 and Respondent No.1 was entitled to terminate the agreement only if there was a material breach of contract. He has claimed that since there was no breach of the terms of the Licence Agreement by any party, there was no occasion for termination of the Licence Agreement and therefore, the Impugned Order, in as much as it allows unilateral termination of Licence Agreement is against section 30(2)(e) read with section 31(1) of the IBC, which requires the RP 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 IBC.
4. The Appellant has claimed that the Impugned Order 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.
5. The Appellant has further stated that the Successful Resolution Applicant (Respondent No. 1) has after taking over management of Respondent No. 1 on 16.10.2020 asked the Appellant to vacate the said property vide letter dated 26.04.2021 (attached at pp. 258-261 of Appeal Paperbook, vol.II) and threatened disconnection of electricity supply from Company Appeal (AT) (Ins.) No. 348 of 2021 Page 3 of 13 the month of May 2021. He has further stated that Respondent No. 1 has thus unilaterally terminated the Licence Agreement by notice dated 26.4.2021, even though Respondent No. 1has been raising invoices and the Appellant has been duly making payments against the same.
6. The Appellant has claimed that it is using the said premises for carrying out suitable sample, microbial analysis and other analytical support to its affiliate companies and therefore, it is not possible for it to move its laboratory and other functions to another location without getting approval from Food and Drug Authority, Maharashtra Government. The Appellant has alleged that Respondent No. 1 has started renovation work in the premises/building of the said property, which is proving to be a hindrance in the enjoyment of his rights under the Licence Agreement.
7. The arguments of all the parties were heard and the pleadings of all the parties were considered by us.
8. The Learned Counsel for Appellant has argued that by virtue of lock-in clause in the Licence Agreement, the Appellant is entitled to enjoy peaceful possession of the property till 23.8.2022. He has stated that upon learning about the CIRP of Respondent No.1-Corporate Debtor, the Appellant enquired from Respondent No. 2 through a letter dated 11.9.2019 about the Resolution Plan and its potential impact on its rights. He did not receive any reply, and sometime later, the Impugned Order was passed by the Adjudicating Authority on 23.6.2020. He has claimed that the Appellant was supplied with a copy of the Impugned Order on 25.7.2020 and again on 26.9.2020, even though Respondent No. 2 merely informed him of the impugned order and requested for details of lease, rent or other Company Appeal (AT) (Ins.) No. 348 of 2021 Page 4 of 13 charges to be paid by the Appellant, without making any request to the Appellant to vacate the subject property. He has argued that Respondent No. 1 never objected to the Appellant occupying the said property and continued to raise monthly invoices under the Licence Agreement from November 2020 till March 2021 and the Appellant duly made payments towards the same. It was only through a termination notice dated 26.4.2021 sent by the Successful Resolution Applicant (Sify Technologies Ltd., which is Respondent No. 3) that the Appellant was called upon to vacate the said property by 31.5.2021, which has occasioned the filing of this appeal.
9. The Learned Counsel for Appellant has argued that the RP is required to examine the Resolution Plan for any contravention of the provisions of law in force under section 30(2)(e) of IBC and the Adjudicating Authority has to satisfy itself that the proposed Resolution Plan meets the requirement as stipulated under section 30(2)(e) in accordance section 31(1). He has claimed that both the authorities failed to perform their duty diligently and permitted unilateral termination of the License Agreement in the proposed Resolution Plan.He has argued that the Impugned Order runs contrary to the several judgments of NCLT and NCLAT, wherein it has been held that the pre-existing rights cannot be altered by virtue of CIRP, which are as follows :-
(i) K.L. Jute Private Limited vs. Tirupati Jutes Industries Limited [CA (AT) (Ins) No. 272 of 2019, NCLAT].
(ii) DBM Geotechnics and Construction Private
Limited vs. Digi Port Limited [CP
1382/I&BP/NCLT/MAH/ 2017, NCLT
Mumbai Bench.
Company Appeal (AT) (Ins.) No. 348 of 2021
Page 5 of 13
(iii) Standard Chartered Bank vs. Ruchi Soya
Industries Ltd. [CP(IB) 1371 & 1372 (MB)/2017, NCLT, Mumbai]
10. The Learned Counsel for Appellant has also argued that the pleading of Respondent No. 2 that Section 238 of IBC gives the proceedings under IBC the protection to override any other inconsistent legal provisions is not correct because the plan approved under section 238 of IBC cannot contravene any other law in force. He has also rebutted the argument of the Respondent No. 2that the Impugned Order has been considered and affirmed by NCLAT vide judgment dated 13.4.2021 in the matter of Next Orbit Venture Fund vs. Print House (India) Limited &Ors. [CA (AT) (Ins) 417 of 2020] as the non- compliance of the Plan with respect to section 62 of the Contract Act, 1872 has not been considered in the earlier appeal.
11. The Learned Counsel for Appellant has denied that there has been delay or laches on the part of the Appellant in approaching the NCLT because the cause of action has arisen only after Respondent No. 1 issued the termination noted dated 26.4.2021(supra) calling upon the Appellant to vacate the subject property. He has claimed that invoices were being issued by the Respondent No. 1 and it was only after the issuance of the termination notice that Respondent No. 1 stopped issuing invoices upon the appellant. Hence, 26.4.2021, which is the date on which the Appellant received termination notice should mark the beginning of the period of limitation and, therefore, the appeal has been filed within limitation.
12. The Learned Counsel for Respondent No. 2 (former RP of the Corporate Debtor) has adverted to the judgment of Hon'ble Company Appeal (AT) (Ins.) No. 348 of 2021 Page 6 of 13 Supreme Court in the case of Jaypee Kensington Blvd. Apartments vs. NBCC (India) Limited & Anr. [Civil Appeal No. 3395 of 2020], wherein the proposition that the commercial wisdom of Committee of Creditors (CoC) is not open to judicial review ordinarily, has been upheld. He has also claimed that the Appellant was aware of the fact that the Resolution Plan had been approved vide Impugned Order dated 23.6.2020, and hence he has decided to challenge it after a period of over 11 months, which should not be allowed. He has argued that the said resolution plan was approved by 70.05% votes in its favour in the CoC meeting and therefore, it is in accordance with commercial wisdom of CoC which cannot be questioned. He has also stated that while the Resolution Plan was under consideration of the CoC 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. He has referred to provisions in sections 59, 62(a) and 62(i) of the Indian Easements Act, 1982, wherein it is provided that the guarantor's transferee is not bound by the licence agreement. He has further argued that these provisions of the Indian Easements Act, 1882 provide for instances where licence is deemed revoked, when the guarantor (in this case, the erstwhile management of the Corporate Debtor) ceases to have any interest in the property affected by the licence agreement.
13. The Learned Counsel for Respondent No.3 Sify Technologies Ltd. (Successful Resolution Applicant) has argued that Respondent No. 3 took over the management of the Corporate Debtor w.e.f. 16.10.2020 and thereafter took necessary actions to implement the Resolution Plan. He has adverted to the information provided to the Appellant about the approval of the Resolution Plan vide RP's e-mail dated 25.7.2020 (attached at pg. 229 of Appeal Paperbook, Vol. II), Company Appeal (AT) (Ins.) No. 348 of 2021 Page 7 of 13 and thereafter through e-mail dated 30.11.2020 (attached at pp. 230-231 of Appeal Paperbook, Vol. II) sent by Respondent No.3 to the Appellant by which the Appellant was asked to vacate the said premises. Also the RP vide email dated 25.7.2020 had earlier sent to the Appellant a copy of the entire Resolution Plan. According to the terms of the approved Resolution Plan, Respondent No. 3 had sought termination of all existing Leave and Licence Agreements of the Corporate Debtor, including termination of Leave and Licence Agreements with the Appellant. He has agreed now more than 12 months have elapsed since 30.11.2020, when the Respondent No. 3 had asked Appellant to vacate the said premises, he has taken action as per as clause 12 (a) of the Licence Agreement for its termination.
14. Therefore, the Ld. Counsel for Respondent no. 3 has claimed, the Appellant was fully aware of the approval of the resolution plan in the insolvency proceedings at least from 25 July, 2020 and it never approached the Adjudicating Authority regarding protection of its right in the Licence Agreement. Since the insolvency proceedings are in rem, the Appellant was aware of the same from 3.9.2019 by the email of Resolution Professional (p.226 of Appeal paperbook, Vol.II) and is, therefore, therefore, guilty of delay and laches and since 'delay defeats equity', his appeal is liable to be dismissed. He has argued that the approval of the Resolution Plan under IBC is in itself a binding contract as is stated in section 30 of IBC.
15. The Learned Counsel for Respondent No. 3 has also argued that the erstwhile promoter, who is an unsuccessful Resolution Applicant, had separately preferred appeal before the Hon'ble NCLAT challenging the approval of Resolution Plan by the Adjudicating Authority which was dismissed vide judgment Company Appeal (AT) (Ins.) No. 348 of 2021 Page 8 of 13 dated 14.3.2021. The Learned Counsel has further submitted that Respondent No. 3 has already invested over Rs. 70 crores in the last 11 months in the said property and has issued purchase orders worth Rs. 180 crores to several vendors. Thus it has commenced work as part of the implementation of the project in accordance with the approved Resolution Plan. He has also stated that Emerson Process Management India Pvt. Limited, which was occupying the 3rd floor has vacated the facility and delivered the premises in the month of March, 2021 and work has commenced on the third floor. Similarly, NRB Bearings Limited, which was occupying the second floor, is vacating the premises occupied by it and Respondent No. 3 has already started project work to operationalize project work for operationalizing the data center.
16. The Learned Counsel for Respondent No. 3 has finally stated that if the existing licencees would not vacate their respective facilities, it would cause substantial loss to Respondent No. 3, who has already invested substantial capital to convert these buildings into data center. Hence if the claim of the Appellant is accepted it would frustrate the implementation process and cause financial loss to Respondent No. 3, who has proposed the Resolution Plan to keep the Corporate Debtor as a going concern, though with a change in business, which was formally approved by the CoC and the Adjudicating Authority and upheld by Hon'ble NCLAT.
17. The Leave and Licence Agreement entered between the Appellant and Respondent No. 1 is attached at pp.194-212 of the Appeal paperbook. According to clause 12(a) in the licence agreement the condition for termination by either party is by furnishing six months' written notice to the either party which states as follows:
Company Appeal (AT) (Ins.) No. 348 of 2021 Page 9 of 13 "12. TERMINATION
(a) Upon expiry of the Lock in Period, either Party can terminate this agreement without any reason by furnishing 6 (six) months written notice to the either Party."
Further clause 12 (c) states as follows:-
„(c) Upon termination, the licencee shall hand over vacant and peaceful vacation of the Licenced Premises to the licensor subject to refund of security deposit. However not withstanding termination or earlier termination of this agreement, the licensee shall remain liable to the licensor or for all outstanding payments, including but not limited to water charges, electricity charges as per clause 5(d) and outstanding licence fees included until the date of termination or the date of handover of the licenced premises, whichever is later."
18. Therefore, it is clear that there is a provision in the Licence Agreement for unilateral termination of the agreement without assignment of any reason by furnishing six months' notice. Clause 12(c) makes the licencee liable for paying all outstanding payments which include rent, water charges and electricity charges calculated on the date of termination or the date of handover of the licensed premises. It is also noticed that a formal notice was given vide e-mail dated 27.4.2021 by the Successful Resolution Applicant SIFY Technologies Limited to he Appellant (attached at pp. 258-261 of Appeal paperbook, Vol. II), even if we consider this to be a formal notice under the leave and licence agreement and Successful Resolution Applicant to be responsible as a signing authority in the said agreement, more than 7 months have passed since the sending of this notice. Even then, as per clause 12 (b) of the licence agreement, unilateral termination of the agreement has been enforced by the Successful Resolution Applicant.
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19. We note that the Appellant exchanged communications/emails with the RP and later with the Successful Resolution Applicant -Sify Technologies Limited (Respondent No. 3) about his interest in continuing in the said premises but was informed very clearly vide e-mail dated 30.11.2020 that „Sify has taken over the management of Print House (India) Pvt. Ltd. on 16.10.2020 and has informed to you we do not wish to continue the rental business to Print House (India) Pvt. Ltd., as we had proposed termination of all existing contracts under the Resolution Plan‟. In the same e-mail communication, the Successful Resolution Applicant mentioned that „as informed to you over telephone, Sify is in need of the space occupied by PAR Formulations for establishing its data center. We appreciate your gesture and understanding our position and coming forward to support us in implementing the Resolution Plan approved by the court‟.
20. It is, therefore, apparent that e-mail dated 30.11.2020 (attached at p. 230 of Appeal paperbook, vol.II) sent by Sify Technologies can be considered as notice to the Appellant stating its requirement of the said premises for implementing the Resolution Plan and also that it did not wish to continue with the rental business of Print House (India) Pvt. Ltd. It is also noted that the Appellant was being issued invoices for payment of licence fee, water charges and electricity charges by the Successful resolution applicant which were being duly paid by the Appellant. (The invoices and payment proof are attached at pp.232-257 of Appeal Paperbook, Vol. II.). Furthermore, the Respondent No. 3 sent a formal notice dated 26.4.2021, vide email dated 27.4.2021 (attached at pp. 258-261 of appeal Paperbook, Vol.II) a formal notice for termination of the Licence Agreement. It is now more than 7 months since this notice was Company Appeal (AT) (Ins.) No. 348 of 2021 Page 11 of 13 sent. Clause 12 (a) of Licence Agreement stipulates that unilateral termination of agreement can be done with 6 months notice.
21. It is also worth noting that the Appellant continued to enjoy the said premises after the approval of the Resolution Plan by the Adjudicating Authority and also continued to pay the licence fee as well as water and electricity charges. He was well aware of the status of the said premises as contained in the successful resolution plan and was asked to vacate the premises vide e-mail of Sify Technologies dated 30.11.2020. He has enjoyed the premises for over one year now from the date he was sent mail on 30.11.2020. Therefore, it would not be correct for the appellant to now say at this time and stage that his rights under the Licence Agreement should be protected, more so as clause 12(b) of the Licence Agreement does provide the possibility of unilateral termination of the Licence Agreement after the period of six months from giving notice.
22. In the present case, even though the Licence Agreement's termination was included in the Resolution Plan, we find that the Successful Resolution Applicant followed the Licence Agreement as per clause 12 (a) in terminating the agreement. Thus he has not violated the rights of the Appellant in the Licence Agreement.
23. Since the Appellant's lease under the Licence Agreement have been duly terminated by resorting to the terms of Licence Agreement, we do not feel any need to go into the other issues as contravention of law in the formulation of the Resolution Plan as has been claimed by the Appellant.
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24. We are conscious of the fact that the Appellant has set up a laboratory and carries out activities in relation to its business of production of oral, liquid and injectable medicines for itself and its affiliate companies in the said premises, and it may be difficult for it to shift its operations to another premise immediately. We are also aware that the two other licensees of the previous Corporate Debtor whose license agreements were also terminated under the Successful Resolution Plan, have vacated their premises and the Successful Resolution Applicant Sify Technologies Limited has invested a good amount of funds for renovation of the said premises.
25. In the situation as discussed above, we are of the view that the Appellant may be given time to shift its operation to another premises within two months from the date of this order. The Appellant will be liable to pay the licence fee, water and electricity charges to the Successful Resolution Applicant, till the time it vacates the said premises and simultaneously the Successful Resolution Applicant shall return the security deposit amount in accordance with the lease agreement to the Appellant.
26. The appeal is disposed off with the above-stated directions. There shall be no order as to costs.
[Justice Jarat Kumar Jain] Member (Judicial) [Dr.Alok Srivastava] Member (Technical) New Delhi 6th December, 2021 /aks/ Company Appeal (AT) (Ins.) No. 348 of 2021 Page 13 of 13