Secured Creditor Can’t Claim Right in Property Beyond What Was Available to Co. During Subsistence of Sub-Lease Rights

Case Details: Harmuny Entertainment (P.) Ltd. v. Mahuaa Media (P.) Ltd. - [2024] 164 taxmann.com 33 (HC-Delhi)

Judiciary and Counsel Details

• Dharmesh Sharma, J.
• Jeevesh Mehta, R.K. Khanna, Yakesh Anand, Ms Sonam Anand, Akshay Thakur, Tanveer Singh & Sanjay Bajaj, Advs. for the Respondent.

Facts of the Case

In the instant case, the applicant leased sub-demised office space to the respondent company in liquidation vide registered indenture of sub-lease. The applicant filed an application for a disclaimer of the said property.

The Objector-PNB claimed that the said application was not maintainable and liable to be dismissed as premises in respect of which a disclaimer was sought, already stood mortgaged by the company (in liquidation) with PNB, from which company (in liquidation) sought certain credit facilities and Term Loans.

In pursuance of availing such credit facilities, a company in liquidation had created a first pari passu charge in its favour, and since the loan account of the company in liquidation was declared as an NPA, it initiated appropriate proceedings under the SARFAESI Act, 2002.

It was noted that the covenant agreed upon between the applicant and the company in liquidation clearly stipulated that the applicant would not be liable in case of non-payment of any amount borrowed by the company in liquidation.

Further, it was noted that the covenant would show that the company in liquidation had been conferred the right to mortgage and/or create a charge in respect of the subject property during the tenure of the sublease.

It was made clear that it would be subject to performing covenants, stipulations, terms and conditions, including payment of various charges, which were not complied with in respect of payment of rental charges.

High Court Held

The High Court noted that the applicant had exercised its option of terminating the sub-lease on account of non-payment of rent and other charges. Further, the PNB could not claim rights in the property beyond what was available to the company in liquidation during the subsistence of sub-lease rights.

The High Court held that since the bank’s right to seek forfeiture of mortgaged property flew from the rights of the sub lessee, i.e., a company in liquidation, on termination of such rights at the behest of the applicant, nothing survived in favour of PNB to lay its claim over a property for the remainder of the period of the lease. Therefore, the petition under section 535 of the Companies Act, 1956, was to be allowed.