Whether an IRP can dispossess any person from Corporate Debtor's property which is under litigation

Corporate debtors

Question of Law referred to NCLT, Principal Bench:


The above question of law has been referred by the Bench of NCLT, Mumbai. Ld. Member Judicial, Shri Bhaskara Pantula Mohan while deciding the Application filed by one Pravin Blaggan (who was in occupancy of the Shed) held that the IRP is allowed to take possession of the shed, whereas, Ld. Member Technical, Shri Nallesenapathy held that the IRP was not empowered to dispossess any person in the case in hand, especially when the same is sub judice before a civil court.


Pursuant to an Order dated 11.12.2018 passed by the Adjudicating Authority, Mumbai, in an Application filed under Section 10 of the I & B Code by the Corporate Debtor, Goa Auto Accessories Ltd., the Corporate Debtor underwent Corporate Insolvency Resolution Process (hereinafter referred as CIRP). The Application under Section 10 of the I&B Code was admitted by the Adjudicating Authority and Mr. Suresh Taluja was appointed as an Interim Resolution Professional and a moratorium was imposed under Section 14 of the I&B Code.

That during the Corporate Insolvency Resolution Process, the IRP found that one Pravin Blaggan, (the Applicant before the Adjudicating Authority, Mumbai) was illegally occupying a shed owned by the Corporate Debtor.

The Insolvency Resolution Professional vide its letter dated 21.12.2018 informed Pravin Blaggan about the Company undergoing CIRP and called upon the Applicant to handover the possession of the shed to the IRP within 24 hours.

The Applicant vide its letter dated 29.12.2018 informed the IRP about various other on-going litigations between the Corporate Debtor and himself related to the property in question. However, the applicant, in the interest of justice and equity sought the intervention of the Tribunal with a prayer to restrict the IRP from acting any furtherance of its letter dated 21.12.2018.



Whether an Insolvency Resolution professional can dispossess any person from the property owned by the Corporate Debtor which is under litigation?


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



The IRP argued that as per Section 18 (1) (f) of the I & B Code, 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, as per the Resolution Professional the same cannot prejudice the right of the Resolution Professional under the provisions of the Code.



After hearing both the parties, the Members of the Bench had a contrary view to the issue that was putforth to the Adjudicating Authority. That the Ld. Member (Judicial), Shri Bhaskara Pantula Mohan agreed with the arguments advanced by the Resolution Professional, Ld. Member (Technical) V Nallesenapathy had a contrary view.

Ld. Member Judicial, Shri Bhaskara Pantula Mohan observed that I & B Code authorizes and empowers the Resolution Professional to take control and custody of any property which the Corporate Debtor has the complete ownership of. The Ld. Member further observed that IBC authorized and empowered the IRP to take possession of the shed as the suit filed by the applicant merely pertained to the 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.

Ld. Member Technical, Shri 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. That he further added taking control of the assets by the IRP only meant taking symbolic possession and not physical possession specially when the same is sub judice before a Civil Court. That the Ld. Member while taking into consideration the object of Section 18(1)(f)(vi), he observed that property under dispute is included in the Information Memorandum to enable a prospective resolution applicant to "take a call" after considering the litigation and accordingly, submit a resolution plan. He further added that the object of this provision is never to dispossess anyone who is in the occupation of the property belonging to the Corporate Debtor.

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

Disclaimer: - This article is for the general information and awareness of its readers, In-case of any legal matter in relation with readers, they are expected to have legal opinion before placing reliance on it. Further it contains completely author's views on the subject and completely unbiased based on authors own experience, study and understanding. 

By: EasyLegalTax Team

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