Leasehold Rights Not Proved: NCLAT Holds Industrial Unit Cannot Be Treated as Corporate Debtor’s Asset for CIRP [Read Order]
The bench ruled that the NCLT acted within its jurisdiction in declining to approve the plan and directing reconsideration by the Committee of Creditors (CoC).
In a significant ruling addressing the scope of asset verification during insolvency proceedings, the National Company Law Appellate Tribunal (NCLAT) principal bench, New Delhi has upheld the National Company Law Tribunal’s refusal to approve a resolution plan for Jupiter Spun Pipes & Casting Pvt. Ltd.
The appellate tribunal held that the corporate debtor failed to establish valid leasehold rights over a large industrial unit, and therefore, the asset could not be treated as part of its estate for CIRP purposes.
The appeals arose from a common NCLT order, which declined to approve the resolution plan submitted for Jupiter Spun Pipes & Casting Pvt. Ltd, the corporate debtor. after the tribunal found that the corporate debtor’s claim of leasehold rights over an industrial property was not supported by authentic documentation.
The property, comprising more than 340 acres of land with plant and machinery, was historically owned by Gayday Iron and Steel Company Ltd., whose assets were purchased by the Bihar State Industrial Development Corporation (BSIDC) in liquidation proceedings overseen by the Calcutta High Court and confirmed by the Supreme Court in 1982.
After the acquisition, BSIDC placed the assets under the management of Magadh Spun Pipes Ltd., a company it had promoted, and later executed a registered conveyance deed in favour of Magadh in 2012.
The corporate debtor, however, claimed that it had obtained leasehold rights over the industrial unit pursuant to a 24 September 2007 lease deed allegedly executed jointly by BSIDC and Magadh.
Both entities denied executing such a deed and disputed the authenticity of the document. The NCLT found that the deed was signed by individuals who were not authorised signatories of BSIDC or Magadh and that there was no evidence of payment of the stated consideration of ₹16 crore or annual lease rent.
The tribunal held that the corporate debtor failed to establish any enforceable leasehold interest and therefore the asset could not be included in the information memorandum. Since the disputed property constituted the primary asset forming the basis of the resolution plan, the NCLT declined approval and directed the CoC to reconsider the plan after excluding the property.
In appeal, the CoC and the resolution professional argued that the NCLT had effectively examined allegations of fraud and forgery, matters outside its jurisdiction in summary IBC proceedings, and wrongly excluded a registered lease deed from consideration. However, the NCLAT rejected this contention, noting that the NCLT had expressly refrained from adjudicating on fraud or forgery. T
The appellate bench observed that the NCLT had confined itself to examining whether the corporate debtor had established a valid and enforceable right capable of inclusion in the CIRP asset pool.
The NCLAT further held that determining whether a document is void for lack of authority or unenforceable due to the absence of consideration falls squarely within the adjudicating authority’s jurisdiction.
The two-member bench comprising Ashok Bhushan(Chairperson) and Barun Mitra (Technical Member) underscored that both BSIDC and Magadh had consistently denied execution of the alleged lease and that the document itself referred to authorisations granted to specific officers, none of whom had signed the deed.
The absence of proof of payment of consideration further weakened the corporate debtor’s claim. In these circumstances, the NCLAT held that the NCLT rightly refused to treat the asset as belonging to the corporate debtor and correctly directed reconsideration of the resolution plan. The appeals were accordingly dismissed.
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