IBC Moratorium | Unregistered Profit-Sharing Agreements Do Not Create Enforceable Possessory Rights Over Corporate Debtor's Assets : NCLAT

The National Company Law Appellate Tribunal has clarified that post-commencement of Corporate Insolvency Resolution Process (CIRP), no party can claim continued possession of corporate debtor’s assets based on unregistered profit-sharing arrangements, even if such arrangements purport to grant operational rights. The judgment reinforces the primacy of the Insolvency and Bankruptcy Code, 2016, in ensuring swift asset consolidation under the Resolution Professional’s control.

Background & Facts

The Dispute

The Corporate Debtor, Majestic Hotels Ltd., operated a five-star hotel in Ludhiana. After defaulting on financial obligations to Tourism Finance Corporation of India (TFCI), a Section 7 application under the Insolvency and Bankruptcy Code, 2016 (IBC) was admitted on 03.07.2024. Navneet Gupta was appointed as Interim Resolution Professional (IRP) and later confirmed as Resolution Professional (RP). The RP sought to take full possession of the hotel’s assets, including premises occupied by the Suspended Director, his family, and associates, including the Appellant, Tru Prime Pvt. Ltd.

Key Facts

• The Corporate Debtor (CD) had outstanding dues of Rs. 14,35,57,30,109/- to TFCI, later assigned to UV Asset Reconstruction Company Ltd.
• The RP took custody of the hotel’s assets on 08.07.2024, except for certain areas occupied by the Suspended Director and others.
• The Appellant, Tru Prime Pvt. Ltd., claimed occupation of:
  • A salon on the 2nd floor
  • 12-13 shops on the 3rd floor
  • Five rooms (Nos. 1802 - 1806) on the 8th floor
• The Appellant relied on two Profit Sharing Agreements (PSAs):
  • PSA dated 17.06.2019 for the 2nd floor salon (8-year term)
  • PSA dated 13.03.2020 for the 12-13 shops on the 3rd floor (10-year term)
• The Appellant alleged that the PSAs entitled it to occupy the premises in lieu of profit-sharing obligations.
• The Appellant also claimed that the 8th-floor rooms were occupied by its key managerial personnel to offset outstanding dues for milk and ghee supplies.
• The RP challenged the authenticity of the PSAs, noting:
  • No record of the agreements existed in the CD’s books or bank statements
  • No profit-sharing payments had ever been received by the CD
  • The invoices for ghee supply (7,000 litres over six months) were grossly disproportionate to the hotel’s normal consumption (40 - 50 litres/month)
  • The invoices were entered in seriatim, lacked supporting consumption records, and were inconsistent with normal accounting practices
• The Appellant’s director, Mrs. Amandeep Khangura, was found to have close familial and directorial ties with the Suspended Director of the CD, Mr. Jasbir Singh Khangura, and shared directorships in other companies with common addresses and personnel.
• The PSAs were unregistered and unstamped.
• The CoC, in its 3rd meeting on 11.10.2024, was informed by the RP that the 2nd and 3rd floor premises, along with the 8th and 9th floor rooms, remained under unauthorized occupation.
• The Suspended Director, Mr. Kewal Krishan Sharma, confirmed during the CoC meeting that he had no knowledge of the Appellant’s occupancy rights and that management of the CD had been fully transferred to the RP post-CIRP.

Procedural History

• 03.07.2024: Section 7 application admitted by NCLT, Chandigarh Bench; IRP appointed
• 08.07.2024: RP took possession of hotel assets, except contested premises
• 02.08.2024: First CoC meeting; RP reported unauthorized occupation
• 04.10.2024: RP issued legal notice to Suspended Director and occupants demanding vacation of premises
• 05.05.2025: NCLT impleaded Tru Prime Pvt. Ltd. as Respondent No. 3 in IA(IBC)/2486(CH)/2024
• 17.03.2026: NCLT allowed RP’s application and directed eviction of Appellant from 2nd, 3rd, and 8th floors
• 28.03.2026: Appeal filed before NCLAT challenging the eviction order

The Parties' Positions

Appellant (Tru Prime Pvt. Ltd.):

• Claimed lawful occupation under PSAs dated 17.06.2019 and 13.03.2020
• Argued that CIRP does not terminate third-party contractual rights
• Relied on Deepak Sakharam Kulkarni v. Manoj Kumar Agarwal, K.K. Jute Products v. Tirupati Jute Industries, and Sumati Suresh Hegde v. Anand Sonbhadra to assert that lease/license rights survive CIRP
• Contended that RP cannot summarily adjudicate alleged fraud or forgery
• Offered to pay outstanding profit shares to the RP

Respondent (RP & CoC):

• Argued PSAs were sham, unregistered, unstamped, and never recorded in CD’s books
• Highlighted absence of any profit-sharing payments or bank credits
• Emphasized that the PSAs did not create lease or license rights under the Transfer of Property Act
• Cited Gir Vanvaso Resort v. Pancard Clubs Ltd. and Classic Marble Co. v. Truvisory IP to affirm RP’s authority to evict unauthorized occupants
• Stated that any claim for dues should have been filed under Section 6 of IBC, not enforced through physical occupation
• Asserted that the Appellant’s occupation was illegal and prejudicial to the insolvency process

Relief Sought

The Appellant sought:

• Setting aside of the NCLT order dated 17.03.2026
• Permission to continue occupation of the salon on the 2nd floor and 12-13 shops on the 3rd floor
• Stay on eviction from the 8th-floor rooms
• Recognition of its rights under the PSAs

The Legal Issue

Can a party claim continued possession of corporate debtor’s premises after initiation of CIRP based on unregistered, unrecorded, and unenforced profit-sharing agreements, and does the Resolution Professional have jurisdiction under the IBC to direct eviction of such occupants?

Arguments Presented

For the Appellant

The Appellant contended that the PSAs constituted binding commercial arrangements that survived the commencement of CIRP. It relied on Deepak Sakharam Kulkarni, where NCLAT held that contractual rights of third parties, including lessees, cannot be extinguished without due process. It argued that the RP’s application under Section 19 was an improper attempt to bypass civil court procedures and that the NCLT lacked jurisdiction to adjudicate allegations of forgery. The Appellant further submitted that it was ready to pay outstanding profit shares to the RP, indicating good faith.

For the Respondent

The RP countered that the PSAs were not leases or licenses and therefore conferred no proprietary or possessory rights. The documents were unregistered, unstamped, and absent from the CD’s records. The RP emphasized that the IBC mandates complete asset consolidation under the RP’s control, and unauthorized occupation undermines the insolvency process. The RP cited Gir Vanvaso Resort and Classic Marble Co., where NCLAT upheld eviction of occupants relying on unregistered MoUs. The RP also noted that the Appellant failed to file any claim under Section 6 of the IBC, rendering its assertion of dues legally invalid.

The Court's Analysis

The NCLAT conducted a rigorous analysis of the nature of the PSAs and the statutory framework of the IBC. It held that the PSAs, even if genuine, did not create any interest in immovable property under the Transfer of Property Act, 1882, as they were neither registered nor stamped. The Tribunal emphasized that a profit-sharing arrangement, by its nature, is a revenue-sharing mechanism and not a grant of possession or occupancy rights.

"The Profit Sharing Agreements relied by the Appellant dated 17.06.2019 and 13.03.2020 are neither a lease nor license to continue the Appellant to occupy the premises. What the Appellant claimed is that they entered into Profit Sharing Agreements with the CD and it was to share 25% of the profit out of the business. The record indicate that RP has never permitted the Appellant to continue after commencement of the CIRP and has asked for eviction of the premises and filed an application before the Adjudicating Authority for eviction."

The Tribunal distinguished the precedents cited by the Appellant. In Deepak Sakharam Kulkarni, the claimant was a lessee with a registered lease; in Sumati Suresh Hegde, the claimant held a court-decreed tenancy. Neither case involved unregistered agreements lacking any legal recognition of possession. The Tribunal further noted that the Appellant’s failure to file a claim under Section 6 of the IBC rendered its assertion of dues legally irrelevant post-CIRP.

The Court affirmed the RP’s authority under Sections 19, 25, and 60(5) of the IBC to seek possession of corporate assets. It held that the Adjudicating Authority has jurisdiction to determine whether an occupant is unauthorized, especially when the asset’s ownership is undisputed. The Tribunal rejected the Appellant’s argument that the RP must file a civil suit for eviction, stating that such a requirement would defeat the time-bound nature of the insolvency process.

"The Adjudicating Authority is not empowered to pass an order of eviction in a lease dispute, but where there is no lease or license, and the occupant is merely in unauthorized possession, the RP is entitled to seek eviction under the IBC."

The Court also noted the Appellant’s close nexus with the Suspended Director, reinforcing the inference that the PSAs were created to circumvent the insolvency process and grant preferential treatment to a related party.

The Verdict

The NCLAT dismissed the appeal. The order of the Adjudicating Authority dated 17.03.2026 directing the Appellant to vacate the salon on the 2nd floor, the 12-13 shops on the 3rd floor, and the five rooms on the 8th floor of Hotel Majestic Park Plaza is upheld. The Appellant is directed to vacate the premises within 30 days from the date of this order. There shall be no order as to costs. The Appellant’s claim for outstanding dues, if any, must be pursued through the insolvency process under Section 6 of the IBC.

What This Means For Similar Cases

Occupancy Rights Require Legal Title, Not Commercial Arrangements

• Practitioners must distinguish between contractual revenue-sharing arrangements and legally recognized leases/licenses
• Unregistered agreements, even if signed, cannot confer possessory rights over immovable property under the Transfer of Property Act
• Any claim to possession based on profit-sharing, revenue-sharing, or MoUs will be treated as unauthorized occupation post-CIRP

RP’s Authority to Evict Is Broad and Summary

• The RP need not file a civil suit to evict unauthorized occupants if the asset’s ownership is clear
• The Adjudicating Authority has jurisdiction to determine the legitimacy of occupancy claims during CIRP
• Delay in filing claims under Section 6 does not validate continued possession

Related Party Transactions Are Scrutinized Heavily

• Any transaction between the CD and a related party post-default will be presumed suspect

• Absence of accounting records, bank credits, or prior disclosure will be treated as evidence of fabrication

• Claims by related parties must be filed formally under Section 6; physical occupation is not a substitute

• Practitioners representing creditors should immediately identify and report unauthorized occupation during CIRP

• Practitioners representing occupiers must ensure any claim is documented, registered, and filed as a financial claim under Section 6 - not enforced through physical retention

• Insolvency professionals must document all occupancy issues at the earliest stage and report to the CoC for authorization to act