Third Party Must Prove Ownership To Exclude Machinery From Liquidation Estate: NCLT Bengaluru

The National Company Law Tribunal (NCLT) at Bengaluru has held that a third party seeking to exclude machinery or other assets from a corporate debtor's liquidation estate must establish its ownership through sufficient evidence.

Where the claim concerns components embedded in the corporate debtor's machinery, the claimant must also establish that they remain separately identifiable and independently severable.

The tribunal, comprising Judicial Member Sunil Kumar Aggarwal and Technical Member Radhakrishna Sreepada, observed that a person claiming ownership cannot expect the liquidator to investigate and establish the claim on their behalf.

“The party asserting ownership must first place sufficient material before the Tribunal to establish a prima facie proprietary claim; it cannot demand that the Liquidator undertake an open ended investigation merely because the Applicant has asserted that certain components were purchased by it. Had that been the case, instead of trying to ride on the shoulders of Liquidator, the Applicant would have taken initiative to take Experts service for separating the parts,” the tribunal observed.

The application was filed by BP Metal Packs Private Limited, which sought to prevent the liquidator of Metal Closures Private Limited from auctioning plant and machinery allegedly containing assets belonging to it. It also sought the appointment of an independent technical expert to identify and segregate its assets from those forming part of the liquidation estate.

The NCLT observed that Section 36(4)(a) of the Insolvency and Bankruptcy Code, 2016 (IBC), excludes assets owned by third parties that are in the possession of the corporate debtor. However, the person claiming such exclusion must first establish ownership. The tribunal also noted that Section 36(3) includes assets whose ownership is yet to be determined.

The tribunal found that BP Metal Packs had not produced an independent technical report to establish that the components embedded in the corporate debtor's machinery remained separately identifiable and could be removed independently. The lease agreement dated March 15, 2023, also lacked a schedule identifying the machinery and other assets allegedly belonging to the company.

The NCLT noted that BP Metal Packs had raised the issue with the liquidator in June 2026 but approached the tribunal only on October 1, just a week before the scheduled auction on October 8.

The tribunal ruled that directing the liquidator to appoint experts and postpone the auction at this stage would shift the burden of resolving the company's ownership claim to the liquidation estate.

It noted that BP Metal Packs could have obtained an independent technical inventory and report correlating each disputed component with its purchase invoices, records and physical location. However, it had failed to place such an assessment before the tribunal.

“The statutory exclusion under Section 36(4)(a) of the Code operates in respect of assets owned by a third party which are in the possession of the Corporate Debtor. Thus, the precondition for exclusion is establishment of third-party ownership; a mere assertion of ownership does not, by itself, take an asset outside the liquidation estate. Section 36(3) correspondingly contemplates the inclusion of assets over which the Corporate Debtor has ownership rights and also assets whose ownership is yet to be determined,” the tribunal observed.

Accordingly, the NCLT dismissed the application and refused to interfere with the e-auction sale notice dated September 8, 2026, or the auction scheduled for October 8, 2026.

However, the tribunal clarified that dismissal of the application did not amount to a declaration of title in favour of Metal Closures over any specific asset. BP Metal Packs remained free to pursue any other remedy available in law to establish its proprietary rights, subject to the IBC and the rights of third parties that may accrue through the lawful liquidation process.