Corporate Debtor’s Unauthorized Possession Declared Non-Asset in Insolvency Proceedings
In a significant ruling, the National Company Law Appellate Tribunal (NCLAT) has determined that the property owned by Calcutta Pinjrapole Society, unlawfully held by the corporate debtor R.S. Iron Industries Pvt. Ltd., must be excluded from the Corporate Insolvency Resolution Process (CIRP). The decision, issued by the Principal Bench in New Delhi on June 30, 2026, underscores that assets where a corporate debtor has no subsisting rights cannot be included in the insolvency process.
The case revolved around a 14-bigha property in Howrah, leased to R.S. Iron Industries in 1958 for 21 years. Despite the lease's expiration in 1978, the company continued its occupancy, prompting the Calcutta Pinjrapole Society to seek legal recourse. The eviction decree, affirmed up to the Supreme Court, was challenged by the corporate debtor in various legal forums, delaying the society’s efforts to regain possession.
Justice Ashok Bhushan and Barun Mitra, in their judgment, criticized the National Company Law Tribunal's (NCLT) earlier decision, which had erroneously questioned the society's ownership despite the Supreme Court's affirmation of the eviction decree. The NCLAT emphasized that the corporate debtor's unauthorized possession does not constitute a legitimate asset under the Insolvency and Bankruptcy Code (IBC), 2016.
The Tribunal also addressed the ongoing litigation concerning the vesting of the property in the State of West Bengal under the Land Reforms Act, 1955. It clarified that such matters were between the society and the state, irrelevant to the corporate debtor's insolvency proceedings.
The judgment mandates the exclusion of the disputed property from the CIRP, rendering any subsequent actions concerning the asset as non-est. The Tribunal upheld the society's right to pursue execution proceedings in civil court, as directed by both the Supreme Court and the Calcutta High Court.
Bottom line:-
Ownership of a property cannot be questioned by a corporate debtor in a CIRP process if the eviction decree against the corporate debtor has been affirmed up to the Hon'ble Supreme Court. Further, assets where the corporate debtor has no subsisting right cannot be included in the CIRP process.
Statutory provision(s): Insolvency and Bankruptcy Code, 2016 Sections 3(27), 18(1), 18(1)(f), 25, 30
