Leasehold Rights Transferred by Amalgamation Constitute Liquidation Estate Assets under IBC
- REEDLAW
- 3 hours ago
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REEDLAW Legal News Network reports: In a significant ruling on the scope of liquidation estates under the Insolvency and Bankruptcy Code, 2016, the National Company Law Appellate Tribunal reaffirmed that leasehold rights lawfully vested in a Corporate Debtor constitute intangible assets capable of being controlled and sold during liquidation. The decision clarifies that continued ownership of land with the lessor does not, by itself, exclude leasehold interests from the liquidation estate where the lease remains subsisting and has not been lawfully determined.
The Appellate Tribunal, comprising Justice Mohd. Faiz Alam Khan (Judicial Member) and Mr. Arun Baroka (Technical Member) examined whether leasehold land could be excluded from the liquidation estate on the ground of restrictive covenants and statutory bar under Section 36(4)(a)(iv) of the Code. The Tribunal held that leasehold rights transferred through a duly approved and rectified amalgamation scheme, coupled with implied consent and absence of termination under the Transfer of Property Act, vest with the Corporate Debtor as assets distinct from ownership of land. It further held that the Liquidator was legally empowered to include and auction such rights, subject to proper disclosure.
The appeal arose from the rejection of an application seeking exclusion of leasehold land from the liquidation estate of the Corporate Debtor on the ground that the lease prohibited assignment and that ownership of land vested with the Appellant. It was contended that in the absence of express consent and in view of the bar under Section 36(4)(a)(iv) of the Code, the Liquidator lacked authority to include or auction the leased property.
The Appellate Tribunal examined the scope of its jurisdiction and held that questions relating to the inclusion of assets in the information memorandum or liquidation estate lie at the core of the insolvency process and are squarely within the jurisdiction of the Adjudicating Authority and the Appellate Tribunal. The Tribunal relied upon authoritative precedents, including Victory Iron Works Limited v. Jitendra Lohia and Another, REEDLAW 2023 SC 03511, Rajendra K. Bhutta v. Maharashtra Housing and Area Development Authority and Another, REEDLAW 2020 SC 02501, and a consistent line of NCLAT decisions holding that leasehold and development rights constitute “property” and “assets” under the Code.
It was observed that the amalgamation scheme, as approved by the High Court and later rectified, transferred only leasehold rights and not ownership of land. The Appellant was found to have full knowledge of the amalgamation and its rectification, had participated in correspondence relating thereto, and had neither objected nor lawfully determined the lease under Section 111 of the Transfer of Property Act prior to commencement of CIRP, thereby establishing implied consent.
The Tribunal further held that leasehold rights constitute intangible assets of the Corporate Debtor and ownership to the extent of such rights vests with the Corporate Debtor. Since the asset in question was not the land per se but the leasehold rights, the statutory bar under Section 36(4)(a)(iv) was held to be inapplicable. The Liquidator was therefore legally empowered to take control, custody, and proceed with the sale of such rights, subject to disclosure that the land was leasehold.
The belated plea of secured creditor status was declined to be adjudicated, having not been raised before the Adjudicating Authority and involving disputed questions, including limitation. The appeal was consequently dismissed, affirming the inclusion of leasehold rights in the liquidation estate and the validity of the Liquidator’s actions.
Mr. Palash S. Singhai, Mr. Harshal Sareen, Mr. Manish Srivastava, and Ms. Kamakshi S. Rao, Advocates, represented the Appellant.
Mr. Soorjya Ganguli, Ms. Kiran Sharma, Mr. Anand Amit and Ms. Pooja Chakraborti, Advocates, appeared for the Respondent.
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