Property Over Which Corporate Debtor Has No Subsisting Right Cannot Form Part Of Its CIRP: NCLAT

The National Company Law Appellate Tribunal (NCLAT) at Delhi has recently held that a corporate debtor cannot include in its Corporate Insolvency Resolution Process (CIRP) an immovable property over which it has no subsisting legal right.

Setting aside an order of the National Company Law Tribunal (NCLT), Kolkata, the appellate tribunal allowed Calcutta Pinjrapole Society's plea to exclude its property from the CIRP of R.S. Iron Industries Pvt. Ltd.

A bench of Chairperson Justice Ashok Bhushan and Technical Member Barun Mitra held that the company had remained in unauthorised possession of the property after its lease expired and that an eviction decree attained finality up to the Supreme Court.

Such possession, the tribunal held, could not confer any right capable of being dealt with during the insolvency process.

The tribunal observed, "A person who has unauthorised or illegal possession of a property cannot claim that it has any right in the property nor said property can be asset of said person. In the property in question, in which the Corporate Debtor has no subsisting right could not have been included in the CIRP process and nor could be dealt with in the CIRP process."

The dispute concerned a two-storeyed building and about 14 bighas of land in Howrah, which Calcutta Pinjrapole Society had leased to R.S. Iron Industries Pvt. Ltd. in 1958 for a period of 21 years. The lease expired on December 31, 1978, but the company continued to occupy the premises.

The society filed an eviction suit, and a civil court decreed eviction in 2005. The decree was subsequently affirmed by the appellate court, the Calcutta High Court, and the Supreme Court.

Although the corporate debtor later secured an order from the West Bengal Land Reforms and Tenancy Tribunal declaring the eviction decree a nullity, the Calcutta High Court set aside that order in September 2023.

After the corporate debtor entered CIRP in April 2024, the society approached the NCLT seeking exclusion of the property from the insolvency process. The NCLT rejected the application, holding that ownership remained disputed and directing treating rent claims as operational debt

Before the appellate tribunal, the society contended that ownership could no longer be questioned because the eviction decree had attained finality before the Supreme Court. It argued that once the lease had expired and the corporate debtor no longer had any legal right over the property, it could not be included in the information memorandum or the resolution process.

The RP contended that the property had not been treated as an asset of the corporate debtor. According to the RP, it was disclosed in the information memorandum because the company remained in possession of it and the pending litigation had to be disclosed.

The successful resolution applicant submitted that the approved resolution plan only contemplated pursuing the pending proceedings and abiding by their outcome.

Rejecting those submissions, the tribunal held that the relationship between the parties was that of landlord and tenant and that the corporate debtor had never claimed ownership of the property. It also held that the NCLT erred in treating ownership as a disputed issue despite the eviction decree having been affirmed up to the Supreme Court.

The tribunal further held that the dispute relating to vesting of the land under the West Bengal land reforms law was between the society and the State and did not confer any right on the corporate debtor, whose leasehold interest had long since come to an end.

Holding that the corporate debtor had no subsisting right in the property when the CIRP commenced, the tribunal ruled that it could neither be included in the information memorandum nor form part of the resolution process.

It also held that the Resolution Professional had wrongly included the property in the CIRP despite being aware that the corporate debtor had no subsisting right over it.

Accordingly, the tribunal allowed the appeal, set aside the NCLT's order and directed that the property be excluded from the CIRP of R.S. Iron Industries Pvt. Ltd.