Unauthorised Lease Deed Invalidates Corporate Debtor’s CIRP Property Claim: NCLAT Confirms
- REEDLAW
- 4 hours ago
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REEDLAW Legal News Network reports: In a landmark ruling, the National Company Law Appellate Tribunal (NCLAT), Principal Bench, held that a lease deed executed by unauthorised persons without consideration is invalid in law. The Appellate Tribunal clarified that no leasehold rights accrue to the Corporate Debtor, confirming that the disputed property cannot be included in the Corporate Insolvency Resolution Process (CIRP) information memorandum.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, comprising Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member), while adjudicating a batch of two Company Appeals, held that a lease deed executed by unauthorised persons without consideration is invalid in law, and no leasehold rights accrue to the Corporate Debtor, confirming that the disputed property cannot be included in the CIRP information memorandum.
The Appellate Tribunal dealt with a group of appeals challenging a common order dated 14 March 2024, passed by the Adjudicating Authority, which had disposed of several intervention applications filed during the Corporate Insolvency Resolution Process (CIRP) of the Corporate Debtor. The Committee of Creditors (CoC) and the Resolution Professional (RP) assailed the order, contending that the Adjudicating Authority had erred in refusing to approve the resolution plan and in questioning the genuineness of a lease deed dated 24 September 2007. The said lease deed was relied upon by the Corporate Debtor to assert leasehold rights over certain land, which the Adjudicating Authority found to be forged and lacking evidentiary support. Consequently, the Adjudicating Authority directed that the property be excluded from the information memorandum and remitted the matter to the CoC for limited reconsideration.
The Appellate Tribunal noted that the controversy originated from a series of transactions dating back to 1961, when the land was acquired from Gayday Iron and Steel Company Ltd., later sold in liquidation proceedings to the Bihar State Industrial Development Corporation (BSIDC). Subsequently, BSIDC established Magadh Spun Pipe Ltd. in 1985 and facilitated the incorporation of the present Corporate Debtor in 1999. The Corporate Debtor claimed to have obtained a lease from BSIDC and Magadh in 2007 for ₹16 crores and had secured financial assistance from the State Bank of India on that basis. However, the ownership of the property and the authenticity of the 2007 lease deed remained heavily disputed.
The CoC and the RP argued that the Adjudicating Authority had exceeded its jurisdiction under the Insolvency and Bankruptcy Code, 2016, by adjudicating on allegations of forgery and fraud, which fell outside the scope of summary insolvency proceedings. They further produced the original lease deed before the Appellate Tribunal, asserting that its execution carried a presumption of validity. On the other hand, BSIDC, Magadh, and the intervenors contended that the lease deed was executed by unauthorised individuals without consideration, rendering it a fraudulent and void document. They pointed out that BSIDC did not possess ownership over the land in 2007 since the conveyance deed in its favour was executed only in 2009 and registered in 2011.
Upon evaluating the rival submissions, the Appellate Tribunal found that the Adjudicating Authority had indeed erred in drawing conclusions on forgery despite acknowledging that such matters were beyond its jurisdiction. However, the Tribunal undertook a careful factual and documentary examination of the records. It was observed that the Balance Sheet of Magadh Spun Pipes Ltd. for FY 2011–12 reflected a lease in favour of M/s Machineries and Allied Products Pvt. Ltd. in 2006 and made no mention of any lease in favour of the Corporate Debtor. Moreover, it noted that BSIDC’s shares in Magadh were transferred to the Corporate Debtor in 2011, which was subsequent to the alleged 2007 lease, thereby contradicting the Corporate Debtor’s claim.
The Tribunal found that the disputed lease deed was executed by a typist of BSIDC, who lacked any authorisation, whereas the corporation’s Board Resolution had empowered two other officers to execute such documents. Similarly, the individual who signed the deed on behalf of Magadh was not a registered Director. The Appellate Tribunal held that the deed, being executed by unauthorised persons, was invalid in law and incapable of conferring any leasehold rights upon the Corporate Debtor. It further found no credible evidence of payment of the alleged ₹16 crores consideration or lease rent as claimed. In the absence of proof of payment and proper authorisation, the document could not be recognised as a valid lease.
Accordingly, the Appellate Tribunal concluded that no leasehold rights had accrued to the Corporate Debtor under the impugned deed. It upheld the Adjudicating Authority’s decision to exclude the disputed property from the information memorandum and reaffirmed that the Corporate Debtor’s claim over the land was legally untenable. The lease deed was declared void and unenforceable, and the appeals were dismissed as devoid of merit.
Mr Abhinav Vashisht, Sr. Advocate, Mr Indranil Ghosh, Mr Saildendra Tiwari, Ms Akshita Sachdeva and Ms. Mrinal Chaudhary, Advocates, represented the Appellant in Comp. App. (AT) (Ins) No. 950-954 of 2024.
Mr Ramji Srivnivasan (Sr. Adv.), Mr Drijit Chatterjee, Ms Swati Dalmia, Ms Neha Sinha, Mr Shubham Raj, Ms Safura Ahmed, Ms Shefal Munde, Mr Arjun Bhatia, Advocates, represented the Appellant in Comp. App. (AT) (Ins) No. 955-959 of 2024.
Ms Tanvi, Mr. Vikash Singh, Mr. Ujwal Chaudhary, and Mr. Tejasvi, Advocates, appeared for the Respondent No. 1.
Ms. Divya Gupta, Advocate, appeared for Respondent No. 2 and Respondent No. 6.
Mr Abhijeet Sinha, Sr. Advocate, Mr Shanak Mitra, Mr. Saiket Sarkar and Mr Keshav Tibarwala, Advocates, appeared for the Respondent No. 5.
Mr. Sajeve Deora and Ms. Tanvi Luhariwala, Advocate, appeared for the Respondent No. 3.
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