Property In Possession Of Corporate Debtor Sold When Petition U/S 7 Of IBC Was In Consideration Cannot Be Excluded From Assets: NCLAT
The NCLAT Chennai bench of Justice Sharad Kumar Sharma (Judicial Member) and Jatindranath Swain (Technical Member) has held that property that is sold which was in possession of the corporate debtor immediately before the judgment in a petition under section 7 of the IBC was reserved cannot be excluded from the purview of the assets of the corporate debtor. Brief Facts The...
The NCLAT Chennai bench of Justice Sharad Kumar Sharma (Judicial Member) and Jatindranath Swain (Technical Member) has held that property that is sold which was in possession of the corporate debtor immediately before the judgment in a petition under section 7 of the IBC was reserved cannot be excluded from the purview of the assets of the corporate debtor.
Brief Facts
The Appellant is a third party to the Corporate Insolvency Resolution Process (CIRP) proceedings which was conducted in relation to the Corporate Debtor M/s. Sovereign Industries Limited. The Appellant contends that he is the owner of the land in dispute and has been in continuous possession of the same.
As far as the Respondents are concerned, Respondent No. 1 is the Resolution Professional and Respondent No. 2 is the Corporate Debtor (CD). A proceeding under Section 7 was initiated against the Corporate Debtor and as a consequence thereto, the Corporate Debtor was admitted to the CIRP proceedings by an order of 28.03.2023.
An IA was filed by the appellant in which it was prayed that all the Prospective Resolution Applicants, may be informed that the schedule property belongs to the Appellant, and it is not in possession of the Resolution Professional and that it cannot be made part of any Resolution Plan to be submitted under CIRP proceedings in respect of the Corporate Debtor.
Another IA was filed by the appellant in which it was prayed that the direction may be issued to the Resolution Professional to supply the information memorandum, resolution plan of the SRA and minutes of CoC meeting to the Adjudicating Authority with copy to be given to the Appellant herein.
Both these applications stood rejected by the Impugned Order under challenge i.e., the order dated 22.10.2024.
The Appellant filed a Civil Suit being O.S. No. 16/2024, seeking grant of a decree of Permanent Injunction on 16.01.2024. On the initiation of the Civil Suit, the Appellant has portrayed himself as to be a third party to CIRP proceedings with respect to the scheduled property,
The appellant is alleged to have purchased the property which was not encumbered in any manner whatsoever, he has claimed to have purchased the same by virtue of the registered Sale Deed of 24.02.2023, with the right protected in his favour, that the property which was thus conveyed by the aforesaid Sale Deed said to have been described in the map which was forming part of the sale deed.
The RP filed its objections on the ground that the suit was not maintainable because it was hit by section 14 of the IBC. When the suit was instituted, the corporate debtor had already been admitted into the insolvency. It was also contended that the suit is also liable to be rejected under Order VII Rule 11 of the CPC.
The appellant submitted that owing to the provisions contended under Section 18 of the I & B Code, 2016 since the property was not the part of the property of the Corporate Debtor, it could not have been included as an asset in the assets of the Corporate Debtor in view of the provisions contained under Section 18.
NCLAT's Analysis
The tribunal noted that the land in dispute which is subject matter of the suit has been, at all stages, the part and parcel of the factory premises and it had been under the ownership of one Mr. Basavraj Ningappa Arekeri, who happens to be the suspended director and shareholder of the Corporate debtor, if this be so the property would fall to be part and parcel of the assets of the Corporate Debtor because as against the mortgage of the said property, the loan facilities were extended.
The tribunal further noted that the acquisition of alleged title made by the Appellant from Mr. Chidanand Sangappa Patil on 24.02.2023 in fact is bad in law because the erstwhile owner, the suspended director of the Corporate Debtor, Mr. Basavraj Ningappa Arekeri, had sold the property which was and is in possession of the Corporate Debtor for industrial purposes, to the predecessor seller of the Appellant by a Sale Deed on 23.01.2023
The tribunal noted that all this happened when Section 7 application against the Corporate Debtor was under active consideration and this fact was very well known to the Suspended Director that alienation of Corporate Debtor's assets should not be done in normal course.
The tribunal also noted that it has been stated that the property in question is being used for the industrial purposes of the Corporate Debtor, which is a fact not denied by the appellants and it was falling within the premises of the Corporator Debtor which is already in custody of the Resolution Professional.
After noting the facts of the case, the tribunal came to the conclusion that in these circumstances, sale of the said property immediately after the judgment in section 7 application was reserved on 06.02.2023, itself is an avert act, and actions of the Appellant with regard to the aforesaid transaction which is subject matter of the Civil Suit, which has been instituted at his behest together with chronological sequence of transactions in the scheduled land during the pendency of CIRP proceedings shows that the sale was not bonafide.
It was further observed that apart from this, since the appellant himself has already questioned the rights of the respondent in a regular Civil Suit, and his rights over the property are yet to be determined by the competent Civil Court, which he himself has invoked at this stage the pendency of the Civil Suit cannot be taken as a reason for interference in the CIRP proceedings.
The resolution plan as filed through IA No. 02/2024 in its Clause 5, describes the assets of the Corporate Debtor, which also refers to the ensuing litigation being Suit O.S. No. 16/2024. The apprehension expressed on the basis of the written submissions is without basis, as the Resolution Plan since it does not in any manner transfer or affect the title of the subject property and there is no immediate change of ownership or the Applicant's right, the tribunal noted.
The tribunal concluded that it does not call for any interference at this stage and that too, while exercising the inherent powers under Rule 11 of the NCLT Rules, 2016.Accordingly, the present appeal was dismissed.
Case Title: Mr. Bhagawant Narayan Naik, Versus Ritesh R. Mahajan and Ors.
Case Reference:Company Appeal (AT) (CH) (Ins.) No. 394/2024 (IA Nos. 1072 & 1074/2024 & 1073/2024)
Judgment Date: 21/11/2024