RP, Liquidator Cannot Deal With Third-Party Assets Under IBC Even If In Corporate Debtor's Name: NCLT Mumbai

The National Company Law Tribunal (NCLT) at Mumbai has reiterated that the powers of a Resolution Professional and Liquidator under the Insolvency and Bankruptcy Code, 2016 (“IBC”) are confined strictly to assets owned by the Corporate Debtor, and do not extend to properties belonging to third parties even if such assets are reflected in the Corporate Debtor's records.

The Bench of Judicial Member Sushil Mahadeorao Kochey and Technical Member Prabhat Kumar observed, "It is trite that the powers of the Insolvency Professional under Section 18 and Section 25 of the Code, and of the Liquidator under Section 35, extend only to assets owned by the Corporate Debtor. The Code does not empower the RP/Liquidator to take control of assets belonging to third parties or deal with the rights of third parties in assets even if existing in name of the corporate debtor."

The tribunal was hearing an application filed under Section 60(5) of the IBC seeking protection against eviction and exclusion of a commercial shop from the liquidation estate of the Corporate Debtor, Sanghvi Land Developers Pvt. Ltd.

The applicant traced his claim to a registered Development Agreement, stating that the shop was subsequently allotted to him through a Memorandum of Understanding (MoU), with Allotment and Possession Letters issued in 2012 placing him in occupation.

The liquidator, however, disputed this position. He pointed to the absence of any registered conveyance deed in the applicant's favour and treated the shop as part of the liquidation estate, relying on maintenance bills and tax records that continued to reflect the Corporate Debtor's name.

The tribunal was not persuaded by this line of reasoning. It noted that such records, at best, reflect administrative entries and cannot by themselves establish ownership. It also found that the liquidator had not produced any cogent material to cast doubt on the genuineness of the MoU, Allotment Letter or Possession Letter.

It added that inclusion of an asset in the liquidation estate requires clear evidence showing that ownership vests in the Corporate Debtor

Accordingly, the tribunal directed the liquidator to refrain from auctioning Shop No. 004A as property of the corporate debtor while granting liberty to challenge the applicant's claim upon discovery of cogent evidence.