Liquidator Cannot Take Possession Of Asset Where Ownership Is Seriously Disputed: NCLT Mumbai

The Mumbai Bench of the National Company Law Tribunal (NCLT) has recently held that a liquidator cannot take custody of an asset where a third party raises a serious dispute over ownership and claims an independent title.

The tribunal observed that in such cases, the appropriate course is to seek determination of title before the competent civil forum rather than invoke its summary jurisdiction.

A bench of Judicial Member Sushil Mahadeorao Kochey and Technical Member Prabhat Kumar made the observation while directing the Liquidator of AJS Impex Pvt. Ltd. to appoint an independent architect or surveyor to measure the disputed Office A-2 premises in Mumbai within 30 days. It also directed the Liquidator to thereafter take appropriate action before the competent civil forum for declaration of title.

The bench observed, "While it is true that the Liquidator is duty-bound under Section 35 of the Code to take custody and control of the assets of the Corporate Debtor, such power cannot be exercised in cases where the ownership of the asset itself is seriously disputed by a third party claiming independent title. In such circumstances, the appropriate course of action would be for the Liquidator to approach the competent civil forum for determination of the dispute."

The dispute arose from an application filed by the liquidator on October 2, 2024, seeking possession of Office A-2 (Part II) in Trade Square Building, Andheri-Kurla Road, Mumbai.

The Liquidator contended that the premises formed part of the company's liquidation estate after the company entered liquidation on April 30, 2024. It sought directions to remove what it described as the respondents' unlawful occupation of the property.

According to the Liquidator, the corporate debtor had purchased Office A-2 (Part II), measuring 81.30 square metres, under an agreement for sale dated October 1, 2009. It argued that a later agreement executed in favour of another purchaser related only to Office A-2 (Part I). Therefore, the subsequent transaction did not affect the corporate debtor's rights over the portion it had already acquired.

The Liquidator also relied on legal notices and police complaints issued before and after the commencement of insolvency proceedings. It contended that, despite repeated demands, the occupants continued in what it described as unlawful possession of the premises.

The occupants disputed those claims. They maintained that they held valid title through subsequent registered conveyances and had been in lawful possession since 2016. They argued that the dispute involved competing claims over title and possession of immovable property. According to them, such issues required a full-fledged trial before a competent civil court and could not be decided in summary insolvency proceedings.

The co-operative society also clarified its role before the tribunal. It submitted that it had no adjudicatory function in disputes relating to ownership or possession of individual units. It also stated that it did not possess the title documents of unit holders.

After examining the sanctioned floor plans, the tribunal found that Office A-2 could not exceed about 148.34 square metres. It noted that the developer had first sold 81.30 square metres to the corporate debtor. It later purported to sell 149.40 square metres as another part of the same office to a different purchaser.

The tribunal observed that this exceeded the total area of Office A-2 and indicated that the same office had effectively been sold twice.

The tribunal also noted that one of the partners of the developer was the wife of the suspended director of the corporate debtor. It observed that although the office had first been sold to the corporate debtor, the premises remained in the occupation of the subsequent purchaser. This indicated that possession had never been handed over to the corporate debtor despite the earlier transaction.

On the effect of the continued occupation on the liquidation process, the bench observed, "Indubitably, this continued unlawful occupation of the property by the Respondent is causing serious prejudice to the liquidation process, as the Liquidator is unable to take control and realize the value of the said asset for the benefit of the stakeholders."

The tribunal nevertheless held that disputed questions relating to title and possession of immovable property fall outside the scope of its summary jurisdiction under the Insolvency and Bankruptcy Code.

It observed that determination of such issues would require adjudication of civil rights, which is beyond the scope of the summary jurisdiction exercised by the tribunal under the Code.

Accordingly, the tribunal directed the Liquidator to appoint an independent architect or surveyor to inspect and measure the disputed premises within 30 days in the presence of the concerned parties.

It directed all the respondents to cooperate with the exercise. The tribunal also directed the Liquidator to take appropriate action before the competent civil forum for declaration of the corporate debtor's title over the disputed portion.

For Petitioner: Advocate Malhar Zatakia, Adv. Atishay Jain

For Respondent: Advocate Amir Arsiwala a/w Advocate Sanath Warkar, Adv. Laukik Palkar and Adv. Sanath Deshpande