Unregistered Profit-Sharing Agreements Cannot Confer Occupancy Rights During CIRP: NCLAT upholds Eviction of Occupant

The National Company Law Appellate Tribunal (NCLAT) has upheld the eviction of Tru Prime Pvt. Ltd. from portions of a hotel owned by the corporate debtor and held that unregistered profit-sharing agreements cannot confer any occupancy rights over immovable property during the Corporate Insolvency Resolution Process (CIRP).

The dispute arose after the Resolution Professional (RP) of Majestic Hotels Ltd., which operates Hotel Majestic Park Plaza in Ludhiana sought possession of various portions of the hotel occupied by former promoters, their associates and related entities following commencement of CIRP on July 3, 2024. Tru Prime Pvt. Ltd. claimed entitlement to continue occupying a salon on the second floor and thirteen shops on the third floor based on profit-sharing agreements executed in 2019 and 2020.

The appellant contended that the agreements granted it a contractual right to remain in possession and argued that such rights could not be extinguished merely because insolvency proceedings had commenced. It further submitted that the RP lacked jurisdiction to seek eviction through insolvency proceedings and that any dispute regarding the validity of the agreements required adjudication before a competent civil forum.

The Resolution Professional argued that the agreements were sham and unsupported by the records of the corporate debtor. It was pointed out that the documents were neither registered nor adequately stamped and that no profit-sharing payments had ever been made to the corporate debtor as contemplated under the agreements. The RP further maintained that the assets belonged to the corporate debtor and were required to be brought under its custody and control for the purposes of CIRP.

The Bench comprising Justice Ashok Bhushan (Chairperson) and Barun Mitra (Technical Member) dismissed the appeal and held that agreements were merely profit-sharing arrangements and did not constitute either a lease or a licence. The Tribunal observed that occupancy rights in immovable property can only arise through legally recognized instruments and that unregistered agreements cannot create any interest in such property.

Thus, the bench held that the appellant failed to establish any legal right to continue occupying the premises, the Appellate Tribunal concluded that the RP was fully entitled to recover possession of the corporate debtor’s assets.

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