NCLAT New Delhi Clarifies Property Inspection For Liquidation Does Not Affect Possessory Rights

The New Delhi National Company Law Appellate Tribunal (NCLAT) on 21 August held that an order directing inspection and measurement of property claimed to form part of a corporate debtor's liquidation estate does not affect disputed ownership or possessory rights when the inspection is limited to identifying and segregating the corporate debtor's property.

A Bench of Judicial Member Justice Mohd Faiz Alam Khan and Technical Member Naresh Salecha held that the National Company Law Tribunal (NCLT), Mumbai Bench had only directed inspection and measurement of the property and dismissed the appeal filed by Middle East Management Services LLP and its partner. It observed:

“Therefore, so far as the ownership or possessory rights of the Appellants are concerned that in our considered opinion are not affected by the Impugned Order as simpliciter the order of inspection and measurement has been passed with consequential direction of taking appropriate steps to liquidator.”

The dispute arose during the liquidation proceedings of a corporate debtor, where the liquidator sought possession of Unit A-2, Mumbai. The liquidator claimed that the property formed part of the liquidation estate by virtue of an agreement for sale dated 1 October 2009.

Middle East Management Services LLP and its partner, however, claimed ownership through subsequent transactions, asserting that the property had earlier been sold to third parties and was subsequently acquired by them.

While considering the liquidator's application, the NCLT observed that questions concerning ownership and possession of immovable property fell within the jurisdiction of civil courts. It nevertheless directed inspection and measurement of the property so that the liquidator could segregate the portion belonging to the corporate debtor and take appropriate steps if there was any encroachment.

The appellants challenged the order before the NCLAT, arguing that once the NCLT had acknowledged that it lacked jurisdiction to decide ownership disputes, it could not direct inspection of their property when the corporate debtor's title to the property was itself disputed. They also contended that the NCLT could deal only with property belonging to the corporate debtor and forming part of the liquidation estate.

The liquidator submitted that inspection was necessary to identify and take possession of the corporate debtor's property forming part of the liquidation estate.

The NCLAT noted that the NCLT had correctly held that complex and disputed questions concerning title and possession of immovable property between third parties fell outside its jurisdiction. The Bench further observed:

“However, keeping in view that the property which according to the Liquidator is included in the liquidation estate of the CD be segregated it directed the inspection and measurement of the same only for the purpose that the Liquidator, in emergence of encroachment by the Appellant may take appropriate action in accordance with law.”

The Tribunal also observed that the impugned order was confined to inspection and measurement and was intended to assist the liquidator in identifying and segregating the corporate debtor's assets.

Accordingly, the NCLAT held that the inspection order did not adjudicate or prejudice the appellants' ownership or possessory rights and dismissed the appeal.

For Appellants: Advocates Abhishek Anand, Akash Chatterjee, Tejas Deshpandey & Laukik Palekar

For Respondents: Advocates Malhar Zatakia & Alishay Jain