Agreement To Sell Does Not Confer Ownership Rights Over Corporate Debtor's Property: NCLT Bengaluru

The Bengaluru National Company Law Tribunal (NCLT) on 26 May held that an agreement to sell, by itself, does not confer ownership rights or create any interest in an immovable property in favour of a purchaser in insolvency proceedings.

Judicial Member Sunil Kumar Aggarwal and Technical Member Radhakrishna Sreepada dismissed an application seeking execution of a sale deed in respect of a commercial property owned by Fortuna Buildcon (India) Private Limited, which is undergoing Corporate Insolvency Resolution Process (CIRP). The Bench held:

“The fact remains that Agreement of sale dated 12.03.2019 and Amendment Agreement dated 20.04.2019 by themselves do not confer any title or convey interest in favour of the applicant in the Schedule Property”

The corporate debtor's principal asset was a commercial property situated at Sadashivanagar, Bengaluru, mortgaged to Tumkur Grain Merchants Co-operative Bank Limited (TGMC Bank). Fortuna Integral Projects Private Limited, the applicant, relied on a registered agreement of sale executed in March 2019 for Rs. 8.75 crore after the bank issued a No Objection Certificate. It also relied on an amendment agreement of April 2019, claiming that possession of the property had been handed over.

The applicant stated that it had paid over Rs.6.57 crore towards sale consideration and discharge of bank dues, asserting that the transaction was a bona fide distressed sale at arm's length based on a valuation of around Rs.8.68 crore. It alleged that the Resolution Professional (RP) failed to execute the final sale deed despite repeated requests, even though it was ready to pay the remaining Rs. 2.17 crore, and therefore sought directions for execution of the sale deed.

The RP opposed the plea, arguing that the applicant was a related party of the corporate debtor and that the transaction, executed shortly before commencement of CIRP, constituted a preferential and undervalued arrangement intended to siphon off the corporate debtor's principal asset. The RP further pointed out that although the applicant claimed to have cleared the bank's dues, TGMC Bank continued to file and pursue its claim in CIRP.

The Tribunal observed that the applicant failed to produce any material evidence of physical possession of the property, except reliance on contractual clauses in the amendment agreement. It further noted that since payments were made during CIRP, the claim of prior transfer of possession could not be accepted.

Referring to the NCLAT decision in Indo World Infrastructure Pvt. Ltd. v. Mukesh Gupta, the Tribunal reiterated that an agreement to sell does not create any right, title, or interest in the property. The Bench also questioned the conduct of TGMC Bank, observing inconsistencies in its actions. It noted:

“This reflects the possible dubious role played by the TGMC Bank in receiving money from Applicant by keeping the CoC in dark and again pursuant to filing claim before RP and receiving amount under approved resolution plan and issuing discharge slip of loan to both. It needs to be summoned to explain the entire scenario as also its conduct as a public institution.”

It further held that the application, filed in 2024 seeking enforcement of agreements executed in 2019–20, was barred by limitation.

Accordingly, the NCLT dismissed the application.

For Petitioner: S Vivekananda, Apoorva

For Respondent: Raghuram Cadambi