Can IRP dispossess a person from Corporate Debtor’s property which is under litigation? – Question referred to NCLT, Principal Bench
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Can IRP dispossess a person from Corporate Debtor’s property which is under litigation? – Question referred to NCLT, Principal Bench

Aditi Singh

The issue of whether an interim resolution professional (IRP) can dispossess a person in possession of a property owned by the Corporate Debtor when the said property is a subject matter of litigation has been referred to the Principal Bench of the National Company Law Tribunal (NCLT) by the Mumbai Bench.

The reference was made by a two-member bench of NCLT Mumbai comprising Member (Judicial) Bhaskara Pantula Mohan and Member (Technical) V Nallesenapathy in a case concerning insolvency proceedings pursuant to an application under Section 10 of the Insolvency and Bankruptcy Code, 2016.

The Section 10 application was admitted by NCLT, Mumbai and Suresh Taluja was appointed as the IRP.

During the corporate insolvency resolution process, the IRP found that one Pravin Blaggan (applicant) was “illegally” occupying a shed owned by the Corporate Debtor.

He thus wrote to the applicant, directing him to hand over the possession of this shed within 24 hours. The applicant, therefore, sought the intervention of the Tribunal.

The applicant argued that he was not in illegal occupation of the shed and had been occupying it pursuant to an agreement between him and the Corporate Debtor since 1997. He further informed the NCLT that he was an employee of the Corporate Debtor and a dispute between them arose with respect to payment of rent which resulted into the filing of a civil suit before Civil Judge, Senior Division, Goa, in March 2009.

The applicant pointed out that the issue of possession/occupation of the shed was sub judice before the Civil Court and therefore, the IRP should be directed to refrain from acting in furtherance of his direction.

In response, the IRP argued that it was his duty to take control and custody of any asset owned by the Corporate Debtor including the assets which are not in its possession. It was further submitted that the right of the applicant claiming a lien on the shed was pending before Civil Court but there was no interim order. Therefore, the pendency of the civil suit would not prejudice the right of the IRP under IBC, the IRP stated.

After hearing the parties, while Member (Judicial) Bhaskara Pantula Mohan agreed with the arguments put forth by the IRP, Member (Technical) V Nallesenapathy held a contrary view.

Bhaskara Pantula Mohan observed that IBC authorized and empowered the IRP to take possession of the shed as the suit filed by the applicant merely pertained to issues of possession and mesne profits and not the question of ownership. He held that the power of the IRP even extended to properties which are the subject matter of court proceedings.

The IRP was thus allowed to take possession of the shed.

However, since the time period of the moratorium was over and no result had come out of it, Mohan stated that the possession of the shed would be passed on to the liquidator appointed by an order of the Tribunal.

Meanwhile, Nallesenapathy observed that as per Section 18 (1)(f)(vi) the IRP was duty-bound to take control and custody of assets, subject to the determination of a court of authority.

Explaining the object of the Section, he observed that property under dispute is included in the Information Memorandum by the IRP to enable a prospective resolution applicant to “take a call” after considering the litigation and accordingly, submit a resolution plan.

The object of this provision is never to dispossess anyone who is in the occupation of the property belonging to the Corporate Debtor, he said.

“Taking control” only meant taking symbolic possession and not physical possession specially when the same is sub judice before a civil court, he added.

Observing that IRP could take possession of a property only by due process, Nallesenapathy held that the IRP was not empowered to dispossess any person in this case.

In view of the divergent takes on a legal issue, the question of whether an interim resolution professional (IRP) can dispossess a person in possession of a property owned by the Corporate Debtor when the said property is a subject matter of litigation was thus referred to the Principal Bench.

Meanwhile, since the period of 270 days was over without any result, an order to initiate liquidation procedure was passed.

IRP was represented by Advocate Rahul Dev of Argus Partners.

The applicant was represented by Nirav Parmar.

Read the Order:

Goa-Auto-Accessories-vs-IRP_watermark.pdf
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