Gujarat High Court Holds IBC Moratorium Bars Lease Termination and Eviction During CIRP

The Gujarat High Court has held that the moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016, bars a lessor — including a statutory authority — from terminating a lease or initiating eviction proceedings against a corporate debtor during the Corporate Insolvency Resolution Process. In Gujarat Industrial Development Corporation v. Gujarat Hydrocarbons and Power SEZ Limited, the Court upheld that leasehold rights constitute property protected under Section 3(27) of the IBC.

Facts of the Case

Gujarat Industrial Development Corporation (GIDC) had leased SEZ land to Gujarat Hydrocarbons and Power SEZ Limited. When the lessee entered the CIRP, GIDC sought to terminate the lease and initiate eviction proceedings under the Gujarat Public Premises (Eviction of Unauthorised Occupants) Act, citing alleged contractual breaches, non-utilisation of land, and non-payment of pre-CIRP dues.

A Single Judge had quashed the termination and the eviction proceedings, holding them impermissible during the subsistence of the moratorium. GIDC filed a Letters Patent Appeal challenging this order.

Division Bench Ruling

The Division Bench dismissed the appeal, holding that once a moratorium under Section 14 comes into force, a lessor 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 observed that allowing the lessor to simultaneously terminate the lease and pursue eviction would render the entire insolvency process otiose and would amount to granting an impermissible preferential position, contrary to the statutory scheme of the IBC. The moratorium is designed to be a protective shield against asset depletion during the resolution process, and leasehold rights form part of the assets available for the resolution plan.

Impact on IBC Jurisprudence

This judgment strengthens the moratorium protection under the IBC by extending it to leasehold interests held by the corporate debtor. It clarifies that statutory authorities, despite their special powers under state legislation, cannot circumvent the moratorium to recover leased properties. The ruling is particularly relevant for corporate debtors operating in SEZs and industrial estates where leasehold arrangements are the norm.

For resolution professionals and prospective resolution applicants, the judgment provides assurance that the asset base available for resolution will not be diminished by unilateral actions of lessors during the CIRP. It reinforces the principle that the IBC creates a collective process for all stakeholders, and individual creditors or lessors cannot break rank to secure preferential treatment.