NCLAT: Resolution Plan Cannot Be Approved Without Valid Leasehold Rights Over Primary Assets
Pranav B Prem
The National Company Law Appellate Tribunal (NCLAT), New Delhi Bench, has upheld an order of the NCLT Kolkata refusing to sanction a resolution plan where the corporate debtor’s claim of leasehold rights over a disputed parcel of land was found invalid. The Bench comprising Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member) dismissed the appeal, holding that since the lease deed over the land was void and unenforceable, and the said land was the primary asset forming part of the resolution plan, the plan could not be approved.
Background
The land in dispute was originally acquired by the State of Bihar in 1961 and vested in the Bihar State Industrial Development Corporation (BSIDC) following the liquidation of Gayday Iron and Steel Co. Ltd. in 1982. BSIDC subsequently established Magadh Spun Pipes Ltd. and handed over possession of the land and assets of the factory to it.
The corporate debtor, Jupiter Spun Pipes & Casting Pvt. Ltd., claimed leasehold rights over the land on the basis of a registered lease deed allegedly executed in 2007 by BSIDC and Magadh in its favour for a consideration of ₹16 crores. On this basis, the corporate debtor also obtained credit facilities from the State Bank of India (SBI). During the CIRP, a resolution plan submitted by Agile Metaliks Ltd. was approved by the Committee of Creditors. However, BSIDC and Magadh challenged the claim of leasehold rights before the NCLT, arguing that no such lease had been executed and alleging that the document was forged.
The NCLT Kolkata held that since the original deed was not produced, payment of consideration was unsubstantiated, and the individuals executing the deed were unauthorised, the corporate debtor’s claim of leasehold rights could not be accepted. It therefore rejected the plan approval application and directed reconsideration by the CoC.
Appellants’ Submissions
The appellants argued before NCLAT that the lease deed was a registered document, the validity of which was presumed in law. They stressed that SBI had undertaken a title investigation before disbursing loans, which confirmed the corporate debtor’s rights. It was further contended that BSIDC, being the auction purchaser of the land (as confirmed by the Supreme Court in 1982), was authorised to grant the lease in 2007. The appellants submitted that allegations of fraud and forgery could not be adjudicated summarily under the Insolvency and Bankruptcy Code (IBC), and that rejection of the plan jeopardised the CIRP and the recovery of SBI’s dues.
Respondents’ Submissions
The respondents countered that BSIDC became the legal owner of the land only in 2009, as per registered conveyance deeds. Therefore, the land could not have been leased out in 2007. They also argued that the signatories to the lease deed had no authority, no proof of ₹16 crore consideration was produced, and no annual rent payments were ever made. These circumstances rendered the lease deed fabricated and void.
NCLAT’s Findings
The Appellate Tribunal observed that while the NCLT cannot adjudicate on allegations of fraud and forgery in detail under the IBC, it is competent to determine whether a particular asset forms part of the corporate debtor’s estate during CIRP.
It noted that BSIDC became owner of the land only in 2009, casting serious doubt on its authority to lease the land in 2007. No documentary evidence was produced to show payment of consideration or lease rent. Importantly, the individuals who allegedly executed the lease deed were not authorised. Neither the subsequent conveyance deeds of 2009 and 2012, nor the financial records of Magadh, made any reference to the alleged lease. Holding that the lease deed was void and unenforceable, the Tribunal concluded that the land could not be claimed as the corporate debtor’s asset. Since this disputed land was the primary basis of the resolution plan, the plan itself could not be approved.
The NCLAT dismissed the appeal and upheld the NCLT’s rejection of the resolution plan. While acknowledging SBI’s concerns, the Appellate Tribunal observed that the bank was free to pursue other remedies to recover its dues. The ruling reiterates that resolution plans cannot be approved when based on assets whose ownership or leasehold rights are not legally established.
Appearance
For Appellant: Mr Abhinav Vashisht, Sr. Advocate, Mr Indranil Ghosh, Mr Saildendra Tiwari, Ms Akshita Sachdeva, Ms Mrinal Chaudhary, Advocates
For Respondents: Mr Abhijeet Sinha, Sr. Advocate, Mr Shanak Mitra, Mr Saiket Sarkar, Mr Keshav Tibarwala, Advocates for R5. Mr. Sajeve Deora, Ms. Tanvi Luhariwala, Advocate for R3. Ms Tanvi, Vikash Singh, Ujwal Chaudhary, Tejasvi, Advocates for R1. Ms. Divya Gupta, Advocate for R2 and R6.
Cause Title: Committee of Creditors of Jupitar Spun Pipes & Casting Pvt. Ltd. Through its leading Financial Creditor State Bank of India V. Bihar State Industrial Development Corporation Ltd. & Ors.
Case No: Comp. App. (AT) (Ins) No. 950-954 of 2024
Coram: Justice Ashok Bhushan (Chairperson), Mr. Barun Mitra (Technical Member)
