Easement Right Disputes Affecting Liquidation Fall Within NCLT's Jurisdiction: NCLAT New Delhi

The New Delhi National Company Law Appellate Tribunal (NCLAT) on 29 July held that the National Company Law Tribunal (NCLT) can decide disputes over an easementary right of way under the Insolvency and Bankruptcy Code, 2016 (IBC) where the dispute has a direct connection with the corporate insolvency resolution process or liquidation and affects value maximisation of the corporate debtor's assets.

A 2:1 Bench comprising Technical Members Arun Baroka and Indevar Pandey, constituting the majority, upheld the NCLT's order recognising the Liquidator's right to access the corporate debtor's property through an existing pathway. Judicial Member Justice N. Seshasayee dissented, holding that disputes relating to easementary rights fall within the exclusive jurisdiction of civil courts.

The majority observed:

“Thus, we find that the dispute arises solely from or relates to the insolvency/liquidation of the corporate debtor and therefore, as provided in Section 60(5)(c), there is a close nexus and the adjudicating authority was well within its jurisdiction to pass the necessary directions as have been done by it in the impugned order.”

The dispute arose during the liquidation of Adya Oils and Chemicals Ltd., which owned industrial land at Vadodara purchased for establishing a castor oil manufacturing unit.

The Liquidator alleged that the corporate debtor had accessed the property since 1999 through adjoining plots, which were later purchased by ARC Research and Development Centre Limited from Jord Engineers India Limited in 2007. According to the Liquidator, the appellants blocked the only access during the Covid-19 lockdown by constructing a wall and dumping mud, thereby preventing entry to the property.

Invoking Section 60(5)(c) of the IBC (which empowers the NCLT to decide questions of law or fact arising out of or relating to insolvency or liquidation proceedings), the Liquidator approached the Mumbai Bench of the NCLT seeking removal of the obstruction, declaration of the right of way, and incorporation of the easement in the land records. The NCLT granted the reliefs, leading to the present appeal.

The appellants argued that an easement dispute is a civil dispute requiring a full trial and that the NCLT has no jurisdiction to determine third party property rights. They also contended that the 1999 Non Agricultural (NA) Order was only an administrative communication issued to the corporate debtor and was not binding on subsequent purchasers. They further relied on the closure of a police complaint lodged by the Liquidator in June 2021 for want of documentary proof and argued that no easement had been established.

The Liquidator submitted that blocking the only access road materially affected the value and marketability of the liquidation asset. It was argued that the corporate debtor had openly and peacefully used the pathway since 1999 and that the 1999 NA Order, issued after approvals from multiple government authorities, expressly recorded the right of way. It also contended that the wall was constructed only after commencement of the corporate insolvency resolution process, indicating a mala fide attempt to depress the asset's value. The suggested alternative route, it argued, was not viable because it passed through land belonging to a third party.

Justice Seshasayee, in his dissenting opinion, held that disputes relating to easementary rights involve complex factual questions requiring local inspection, commissioner's reports and cross examination, which cannot be effectively undertaken by the NCLT. He observed:

“Where are these facilities in a tribunal under the Code for a trial of a dispute? It will be therefore, dangerous to understand and apply the Code as enabling exercise of a jurisdiction merely because it comforts the authority of the tribunals.”

He further held that the Liquidator had failed to establish uninterrupted and hostile use of the pathway for the statutory period and that Section 60(5)(c) could not be used to create new rights merely because doing so would facilitate liquidation. He added:

“What could therefore be deduced from the above is that no tribunal can create any new right or new obligation which did not exist when a CIRP commenced, merely because creating them is considered ideal for the completion of the CIRP or the liquidation process.

It should be realised that IBC does not have solutions for all the problems that may affect a liquidation-estate. Where civil suit is the remedy, the Code enables it vide Sec.33(5) when it authorises liquidator to institute civil suits, but with the leave of the Adjudicating Authority.”

He concluded that the "core issue is whether the Adjudicating Authority has the authority to entertain a dispute of prescriptive right of way. The answer is an emphatic No.”

The majority, however, held that Section 60(5)(c) is widely worded and covers "any question of law or fact arising out of or in relation to insolvency or liquidation." The Technical Members held that the dispute directly affected the realisation of the liquidation estate and therefore squarely fell within the NCLT's jurisdiction. They observed:

“A dispute over access necessary to realise the value of an estate asset, arising in the course of and because of the liquidation, falls squarely within this wide sweep. We thus find no error in the Adjudicating Authority's assumption of jurisdiction.”

Further, the majority Bench held that the NCLT had not created a new right but merely recognised and enforced a pre existing right of way recorded in the 1999 NA Order. It noted that the order had been issued after approvals from thirteen government authorities and that the appellants, as subsequent purchasers, acquired the adjoining property subject to that existing burden.

It also held that continuous and open use of the pathway for over two decades established a prescriptive easement under Section 15 of the Easements Act, that the suggested alternative access was not feasible because it crossed third party land, and that the obstruction was intended to depress the value of the liquidation asset.

Accordingly, the majority of the NCLAT dismissed the appeal, imposed costs of Rs. 5 lakh on each appellant, and directed that the right of way remain unobstructed, with police assistance to be provided if necessary.

For Appellants: Advocates Purti Gupta, Henna George, Sunidhi Sah and Khushi Sharma

For Respondents: Advocates Ravi Raghunath and Namanjeet S. Bhatia for R1