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Gujarat High Court: In an appeal filed by Gujarat Industrial Development Corporation (GIDC) challenging the judgment of the Single Judge for setting aside the termination of lease deed and eviction order passed under the Gujarat Public Premises (Eviction of Unauthorized Occupants) Act, 1972, (PP Act) the Division Bench of Sunita Agarwal, CJ and D.N. Ray, JJ., affirmed the judgment of the Single Judge and dismissed the appeal holding that once a moratorium under Section 14, Insolvency and Bankruptcy Code, 2016 (IBC) comes into force, a lessor, including a statutory authority, cannot terminate a subsisting lease or seek recovery of possession of leased premises occupied by the corporate debtor, even if such an action is based on alleged contractual breaches, non-utilisation of land or non-payment of pre-CIRP dues. The Court further held that, leasehold rights constitute “property” within the meaning of Section 3(27) IBC and are protected under Section 14(1)(d), and further, by virtue of Section 238 IBC, the provisions of the Code would override the PP Act rendering any eviction action during the moratorium legally unsustainable.
Background
In the present case, Gujarat Hydrocarbons and Power SEZ Limited (Corporate Debtor) had taken land on lease from GIDC dated 21 February 2008 for a period of 99 years for the purpose of development, operation and maintenance of a Special Economic Zone (SEZ), and that such leased land constituted the principal and virtually the only asset of the Corporate Debtor.
The National Company Law Tribunal admitted an application under Section 7 IBC on 18 November 2020, and initiated the corporate insolvency resolution process, simultaneously declaring a moratorium under Section 14. During this period, GIDC terminated the lease on 13 December 2021 and passed an eviction order on 10 March 2022.These actions were challenged by the corporate debtor in a writ petition, which was allowed by the Single Judge.
Issue
Whether GIDC, being an operational creditor, could terminate the lease and evict the corporate debtor during the moratorium period under Section 14 IBC.
Analysis
The Court noted that the writ petition was filed on 28 February 2022, challenging the lease termination order dated 13 December 2021, and seeking protection against coercive action. It was further observed that the eviction order under the PP Act, was subsequently passed on 10 March 2022, during the pendency of the writ petition.
The Court noted that dispute arose from a show-cause notice dated 4 February 2019, that the corporate debtor had sought to change the land use from SEZ to industrial purposes. However, such a change was governed by GIDC’s specific policies, as the land had been allotted at different rate than normal for SEZ purposes. The Court observed that the Corporate Debtor had failed to provide mandatory proof of the reversal of government incentives, and the mere submission of a request without procedural compliance justified the rejection of such a change.
On the core legal issue, the Court affirmed the Single Judge’s reading of Section 14(1)(a) to (d) IBC wherein it was held that upon the commencement of the corporate insolvency resolution process (CIRP) and the declaration of a moratorium, the recovery of any property by an owner or lessor from a Corporate Debtor in possession is strictly prohibited. The NCLT’s moratorium order, in line with Section 14, creates an absolute bar against proceedings, transfers, encumbrances, or recovery of assets.
The Court observed that the termination of the lease on the basis of alleged breaches was impermissible during the moratorium. It emphasised that the IBC aims to ensure a time-bound resolution, maximise asset value, and protect the Corporate Debtor as a “going concern”. The explanation to Section 14, added by the 2020 Amendment Act, was intended to address critical gaps by ensuring that essential government grants such as licenses, permits, and concessions which are not terminated on the ground of insolvency.
“The Statement of Object and Reasons of the Code says that the aim is to improve ease of doing business and facilitate more business leading to higher economic growth and development.”
The Court placed significant reliance on Gujarat Urja Vikas Nigam Ltd. v. Amit Gupta, (2021) 7 SCC 209, noting that the term “property” under Section 3(27) IBC is wide enough to include contractual rights and leasehold interests. Referring to the Insolvency Law Committee Report (February 2020), the Court noted that the explanation to Section 14 was inserted to remove ambiguity and prevent the invalidation of government grants, whether through ipso facto clauses or for non-payment of dues, as such actions would defeat the very object of the moratorium.
Further, following the principle in Rajendra K. Bhutta v. MHADA, (2020) 13 SCC 208, the Court held that Section 238 IBC mandates that the Code shall prevail over any inconsistent provisions in other laws, including the PP Act or the Maharashtra Housing and Area Development Authority Act, 1976 (MHADA Act). The moratorium creates a statutory status quo that must be strictly observed to allow the corporate debtor breathing space to organise its affairs.
The Court also noted that the leased plot was the only property of the corporate debtor. It rejected GIDC’s contention that the Explanation to Section 14(1) permitted recovery on grounds other than insolvency. The Court held that the Explanation cannot be interpreted to dilute the protection of the main provision. The Court observed that though the lease deed may permit termination for a “Breach of Covenant”, such rights remain in abeyance during the moratorium.
Finally, the Court observed that GIDC’s termination order itself admitted that the NCLT proceedings added to the “notion of impairment of asset under consideration”, indicating the termination was indeed triggered by insolvency. It was also noted by the Court that GIDC had participated in the CIRP by lodging a claim including conversion charges and had already received over Rs 6 crores under the approved resolution plan. Consequently, the Court held that GIDC could not simultaneously exercise a right to terminate the lease, as this would grant it an impermissible preferential position and render the insolvency process otiose. Finding no error in the Single Judge’s decision, the appeal was dismissed by the Court. Further, the request for stay of operation of judgment was rejected.
[Gujarat Industrial Development Corpn. v. Gujarat Hydrocarbons and Power SEZ Ltd., C/LPA/55/2026, decided on 29-4-2026]
Advocates who appeared in this case:
For the appellant: SN Soparkar, Sr. Advocate, RD Dave, Arjun Sheth, Rishabh Shah
For the respondent: Mihir Joshi, Keyur Gandhi, Raheel Patel, Isa Hakim and Yash Dadhich, Shalin Mehta, Sr. Advocate, Tirth Nayak, Dhanesh Desai, Ishan Joshi
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