On appeal arising out of an order of the National Company Law Appellate Tribunal dismissing two independent appeals filed against the order of the NCLT wherein the possession of the insolvency professional was confirmed on a property not owned by the corporate debtor, the Hon’ble Supreme Court held that that the rights and interests in the immovable property are liable to be included by the resolution professional and he is duty bound under Section 25 (2) (a) of the IBC to take custody and control of the same.
The matter before the supreme court was a triangular dispute between the parties. The Corporate Debtor Company had entered into a contract with another company, Energy Properties (company ‘B’) to provide financial assistance. The Consideration for the corporate debtor company was 40% share in company ‘B’ and exclusive right to develop over a property purchased by company ‘B’ in pursuance to this agreement. Consequently, the corporate debtor company was handed over the physical possession of the said land. Subsequently, the corporate debtor company entered into another agreement with another company, Victory (company ‘C’) wherein the permissive right to use the said property was given to company ‘C’ under a leave and license agreement.
After that, a Corporate Insolvency Resolution Process was initiated against the debtor company at the instance of another financial creditor. Thereafter, due to some dispute between company ’B’ and the debtor company, over the possession of the said land, the resolution professional filed an application before the Adjudicating Authority, NCLT under section 30 of the IBC r/w Regulation 30 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, for direction to the company ‘B’ not to obstruct the sole and exclusive possession of the property. The Adjudicating Authority, NCLT directed the company ‘B’ & ‘C’ not to obstruct the possession and activities of the resolution professional and also held that the resolution professional shall, however, not interfere in the day-to-day business of company ‘C’. Against the said order of the NCLT appeals were filed before the NCLAT. The NCLAT dismissed the appeals but at the same time held that the property should be continued to be used by company ‘C’ without any interference of the resolution professional.
On appeal before the Hon’ble Supreme Court the order of the NCLT and NCLAT is contended on the ground that under Section 25(2)(a) IBC, the resolution professional is entitled to take custody and control only of the assets of the corporate debtor and not the assets of a third party.
The Hon’ble Supreme Court while taking note of the entire facts of the case stated that the issue for the consideration is “what is the nature of the right or interest that the corporate debtor has over the property in question, for the purpose of deciding the inclusion of the same in the information memorandum prepared by the resolution professional under Regulation 36 of the Regulations?”.
The Hon’ble Court looked into the provisions for the definition of words in sections 3, 5 and 79 for the IBC, in order arrive at the conclusion that whether the development right over the said land is the asset of the corporate debtor under section 18 and section 25 of the IBC. The Court also noted that section 3(27) of the IBC defines “property”, but the word “asset” is not defined anywhere in the Code. The Court further noted that section 18 and section 25 uses the word “asset” and not the word “property”. The Court then took note of section 3(37) which provides that the words and expressions used but not defined in the Code but defined in other mentioned Act(s) shall have the meaning respectively assigned to them in those Acts. The Hon’ble Court then moved on to the definition of the word asset provided in the Income Tax Act, 1961 which includes “property or right if any kind”.
Having taken note of the definition of the expression “property” and the absence of the definition of the word “asset” in IBC, the Hon’ble Apex Court concluded that a bundle of rights & interests was created in favour of the corporate debtor and some of these bundles of rights & interests, partake the character and shade of ownership rights. Hence, the Hon’ble Court held that these rights and interests in the immovable property are definitely liable to be included by the resolution professional in the information memorandum and the resolution professional is duty bound under Section 25 (2) (a) to take custody and control of the same.
Victory Iron Works Ltd. v. Jitendra Lohia
(2023) 7 SCC 227
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