Development Rights falls under definition of "Property" u/s 3(27) of IBC: NCLAT allows Appeal [Read Order]

In a recent case, the New Delhi bench of the National Company Law Appellate Tribunal ( NCLAT ) held that the Development Rights falls under definition of Property under Section 3(27) of the Insolvency Bankruptcy Code ( IBC ), 2016. It was held that development rights can be claimed by a Developer in assets.

The appellant challenged the order passed by the National Company Law Tribunal ( NCLT ) in the Corporate Insolvency Resolution Process ( CIRP ) of the 'M/s. Today Homes and Infrastructure Pvt. Ltd ( Corporate Debtor ). The Respondents (owners) own agricultural land measuring 35.2062 acres situated in village Behrampur, Gurugram, Haryana. The owners entered into a Development Agreement on 03.03.2007 with New India City Developers Private Limited ( Developer ) to develop a group housing project and an IT Park on the said land after obtaining the required approvals.

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The owners executed an irrevocable Special Power of Attorney in favour of the developer in order to enable it to approach different authorities for obtaining licences, clearances, approvals etc. Later the owners executed another irrevocable Special Power of Attorney registered on 20.01.2010 in favour of the Corporate Debtor with respect to the land which is to be developed for the Group Housing Project and the Cyber Park. The rights and obligations in favour of the developer was transferred to the Corporate Debtor as per Development Agreement.

The DTCP issued a License to the owners with New India as collaborator for development of the IT Park on an area measuring 12.55 acres. The Sole Arbitrator as per Consent Award dated 05.09.2009 after obtaining the licence on 11.10.2010 by order dated 12.10.2010 directed the joint receivers to handover the possession of the said land to the developer.

The owners issued a notice to the corporate debtor stating that the Power of Attorney dated 19.01.2010 was revoked on 30.08.2019. On an order passed by the Adjudicating Authority dated 31.10.2019 on a petition under Section 9 of the IBC, CIRP was initiated against the Corporate Debtor. The Corporate Debtor who was assigned the rights and obligation of the developer had carried on a project namely— 'Canary Greens' on developer shares of 10.81 acres. The IRP of the Corporate Debtor had taken possession of the project.

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The Resolution Professional sought direction against the owners to restore the peaceful, vacant and physical possession of the “Canary Greens” and an interim order was issued on 24.08.2020 by the Adjudicating Authority.

The owners filed an application seeking a direction to the Resolution Professional to exclude the project land ad-measuring 10.81 acres situated in Village Behrampur from the proposed Resolution Plan.

Adjudicating Authority disposed all the three applications and held that the Resolution Professional could not place on record any evidence to show that the physical possession of the land in question was handed over to him and the Resolution Professional is in possession of the land.

It was further observed that the issue of possession has to be decided by a Civil Court having jurisdiction on the basis of oral and documentary evidence and the Adjudicating Authority is not competent to decide the same.

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The appellant submitted that the Adjudicating Authority committed an error in observing that the Resolution Professional has not been able to prove that it is in Resolution Professional who is in possession. It is submitted that when the corporate debtor has development rights in the land, Resolution Professional is fully entitled in law to take possession. Reference has been made to Sections 18, 20 & 25 of the IBC.

The NCLAT observed that owners have entrusted to the Developer exclusive and irrevocable rights for development of the scheduled property. Clause 7 deals with 'right to sub-contract' which clearly mentioned that the developer shall be bound to promote and develop the project as a Today Group Project.

The Bench of Justices Ashok Bhushan ( Chairperson ) Barun Mitra ( Technical Member ) held that the Development Rights are Rights which can be claimed by a Developer in assets. Development Rights are also fully covered by the definition of Property under Section 3(27) of the IBC.

The NCLAT referred to the Supreme Court judgment in Victory Iron Works Ltd. Vs. Jitendra Lohia & Anr. (2023) wherein it was held that the development rights created in favour of the corporate debtor constitute “property” within the meaning of the expression under Section 3(27) IBC. At the cost of repetition, it must be recapitulated that the definition of the expression “property” under Section 3(27) includes “every description of interest, including present or future or vested or contingent interest arising out of or incidental to property”.

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The tribunal disagreed with the observation of the Adjudicating Authority pertaining to its incompetency to decide the question of disputed land and referred the judgment in Victory Iron Works Ltd (supra). Further observed that the decision regarding it being part of the assets of the Corporate Debtor or not is essential to be decided in CIRP Process and Adjudicating Authority committed error in observing that said issues i.e., Rights of the Development which is claimed by the Corporate Debtor are to be decided by the Civil Court is wholly erroneous and against the Scheme of the IBC.

The tribunal concluded that the observations of the Adjudicating Authority in Order dated 05.12.2023 that the RP could not place on record the evidence to show that physical possession of land in question was handed over to him and its incompetency to decide the disputed land question, are unsustainable.

To Read the full text of the Order CLICK HERE

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