Unexecuted Sale Agreement: Property Retains Status in Liquidation Estate, Title Deeds Recoverable
- REEDLAW
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REEDLAW Legal News Network reports:Â In a critical liquidation-related ruling, the National Company Law Appellate Tribunal, Chennai Bench, clarified that possession of title deeds under an unexecuted Agreement for Sale does not confer ownership or create a valid security interest. The Tribunal emphasised that such property continues to form part of the liquidation estate, and the Liquidator retains the right to recover the original documents to protect the interests of creditors.
The National Company Law Appellate Tribunal, Chennai Bench, comprising Justice Sharad Kumar Sharma (Judicial Member) and Mr. Jatindranath Swain (Technical Member), while adjudicating a Company Appeal, held that possession of title deeds under an unperformed Agreement for Sale did not create ownership rights or a valid security interest. Consequently, the property remained part of the liquidation estate, and the Liquidator was entitled to recover the original documents to ensure proper administration of the estate.
The Appellant challenged the common order dated 27.09.2024 by which the Adjudicating Authority disposed of three interlocutory applications in the liquidation proceedings of the Corporate Debtor. Only the order on IA(IBC)/1701/2023, directing the Appellant to hand over the original title deeds of a specified immovable property, was under challenge. The Appellant had separately filed IA(IBC)/1757/2023 seeking enforcement of a registered Agreement for Sale dated 30.11.2020 and claiming rights over the same property, but that order had attained finality as it was not appealed.
A Section 7 application initiated by the Financial Creditor resulted in the commencement of CIRP on 10.01.2022, followed by liquidation on 15.03.2023 after no resolution plan was received. The Liquidator issued public notice, invited claims, prepared the asset memorandum, and initiated multiple rounds of e-auction. Only in the fifth round did a Successful Bidder emerge. During verification of title, the Liquidator discovered that the original title deeds of a key asset were with the Appellant, who refused to hand them over on the ground that he was the bona fide purchaser under a registered Agreement for Sale dated 30.11.2020 and that he had also advanced a loan of Rs. 50,00,000/- by way of an alleged equitable mortgage created through an unregistered memorandum of deposit of title deeds dated 30.12.2020.
The Appellant contended that the Agreement for Sale created rights in his favour and that his possession of the property and title deeds established ownership. He further asserted that he was a secured creditor who had elected to retain security and was therefore entitled to refuse surrender of the documents. The Liquidator disputed the loan entirely and asserted that the property formed part of the liquidation estate.
The Appellate Tribunal noted that no sale deed had ever been executed despite the Agreement for Sale requiring completion of the transaction within two years, subject to satisfaction of title. The Appellant had never taken steps for specific performance. The Agreement for Sale itself only recorded that Rs. 34 lakhs had been paid, and the books of accounts of the Corporate Debtor corroborated only this amount through bank transfer entries. No record existed to substantiate the alleged loan of Rs. 50,00,000/-, and the alleged MoDT was unregistered. The Tribunal agreed with the Adjudicating Authority that a registered Agreement for Sale did not convey title and that the absence of any attempt to complete the sale or initiate civil proceedings confirmed that ownership continued to vest in the Corporate Debtor. The surrender of title documents under the Agreement for Sale could not, by itself, confer ownership or create a valid mortgage, particularly when CIRP had commenced long thereafter.
The Tribunal also recorded that the Appellant’s own application seeking specific reliefs regarding the same property had already been decided against him and had attained finality. Consequently, the Appellant remained bound by that order and could not reassert rights contrary to it in the present appeal. As the property indisputably formed part of the liquidation estate and the Liquidator was empowered under Sections 19 and 35 of the Code to take custody of all assets and records, the direction to the Appellant to hand over the original title deeds was found to be lawful and proper. The appeal was accordingly dismissed.
Ms. Aditya Sarangarajan and Mr. Abhineeth Saravanan, Advocates, represented the Appellant.
Mr. T.K. Bhaskar, Advocate for Mr. A.G. Sathyanarayana, Advocate, appeared for the Respondent No. 1.
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