IBC Empowers RP to Recover Subsidiary Shares; Unpaid Purchaser Cannot Withhold Documents
- REEDLAW
- 3 hours ago
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REEDLAW Legal News Network reports: In a pivotal ruling, the National Company Law Appellate Tribunal (NCLAT), Principal Bench, clarified that a purchaser who fails to pay the agreed sale consideration cannot retain original share certificates or documents of the Corporate Debtor’s subsidiaries. The Tribunal affirmed that the Resolution Professional (RP), under Sections 18 and 25 of the Insolvency and Bankruptcy Code (IBC), is empowered to take control and custody of such assets to ensure proper conduct of the Corporate Insolvency Resolution Process (CIRP).
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, comprising Justice Rakesh Kumar Jain (Judicial Member) and Mr. Naresh Salecha (Technical Member), while adjudicating a Company Appeal, held that an unpaid purchaser has no legal right to retain the original share certificates or documents belonging to the Corporate Debtor’s subsidiaries. The Bench emphasised that the statutory duties of the Resolution Professional, as outlined under Sections 18 and 25 of the IBC, mandate the recovery and custody of all assets and records to protect the interests of stakeholders and maintain the integrity of the CIRP.
The Appellant had challenged the order of the Adjudicating Authority directing him to return the original share certificates and related documents of Hacienda Infosoftech Pvt. Ltd. and Challengerz Web Solutions Pvt. Ltd. to the Resolution Professional of the Corporate Debtor/Respondent. The Appellant claimed that the Corporate Debtor had executed two Agreements to Sell on 08.10.2018 for the transfer of its entire shareholding in the said companies, pursuant to which the Appellant allegedly paid 2% of the total consideration and was given possession of title deeds and share certificates. He argued that the Corporate Debtor failed to obtain requisite approvals within the stipulated 11 months, thereby breaching its obligations, and that the agreements stood frustrated due to subsequent events. The Appellant further contended that the original documents were lost in August 2019, as reported in a police complaint, and that the Adjudicating Authority lacked jurisdiction to entertain the applications filed by the Resolution Professional.
The Respondent denied the allegations and submitted that the agreements had lapsed by efflux of time and were terminated by notices dated 16.01.2020 due to the Appellant’s failure to pay the balance consideration. It was argued that the Appellant was unlawfully retaining the original share certificates and documents, which formed part of the assets of the Corporate Debtor and its subsidiaries. The Respondent emphasised that under Sections 18 and 25 of the Insolvency and Bankruptcy Code, the Resolution Professional was duty-bound to take control and custody of all assets, including shares held in subsidiaries. The Respondent further highlighted that the alleged payment of 2% consideration was unsubstantiated and not reflected in the Corporate Debtor’s records.
The Appellate Tribunal noted that the Agreements to Sell dated 08.10.2018 stood determined by efflux of time and could not be enforced, particularly after the commencement of CIRP and the moratorium under Section 14. It was observed that the Resolution Professional had statutory authority to reclaim the original share certificates and documents of subsidiaries as part of the Corporate Debtor’s asset pool. The Tribunal found no credible evidence of the alleged initial payment and expressed doubt over the Appellant’s explanation regarding the loss of documents, as the police complaint lacked seriousness and was raised belatedly. It also observed that the Appellant failed to justify why such crucial documents were carried to a public place.
The Tribunal held that the Adjudicating Authority was correct in directing the Appellant to hand over the original share certificates and documents of Hacienda and Challengerz to the Resolution Professional. It concluded that the Appellant, having failed to pay any substantial consideration and lacking legal entitlement, could not retain custody of the documents. Accordingly, the appeal was dismissed, and the impugned order dated 07.08.2020 was upheld.
Ms. Prachi Johri and Mr. Sharad Agnihotri, Advocates, represented the Appellant.
Mr. Abhishek Anand, Ms. Meghna Rao, Mr. Aadhar Nautiyal, and Mr. Harshit Goel, Advocates, appeared for the Resolution Professional (RP).
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