The National Company Law Appellate Tribunal has affirmed that possessory rights over immovable property, established through a valid Agreement to Sell, full payment of consideration, physical possession, and a binding Consent Decree from a Civil Court, cannot be disturbed by a Resolution Professional under the Insolvency and Bankruptcy Code. This judgment reinforces the principle that IBC proceedings cannot function as a substitute for civil litigation on title and ownership.
Background & Facts
The Dispute
The dispute centers on two industrial properties - Nalagarh Property and Baddi Property - owned by RCI Industries and Technologies Limited (Corporate Debtor). AKJ Metals Private Limited (Appellant) purchased both properties through Agreements to Sell executed prior to the initiation of Corporate Insolvency Resolution Process (CIRP). Despite full payment of consideration and physical possession being transferred to the Appellant, registered conveyance deeds were never executed due to incomplete statutory formalities. The Appellant filed civil suits for specific performance, which culminated in Consent Decrees dated 24.12.2021, appointing a Court Receiver to complete transfer formalities. The Resolution Professional (RP) later sought possession of these properties under Sections 18 and 25 of the IBC, claiming they formed part of the Corporate Debtor’s assets.
Key Facts
- The Corporate Debtor-RCI was admitted into CIRP on 25.11.2022 following a Section 9 application filed on 15.01.2019.
- AKJ Metals was incorporated on 16.12.2019, after the Agreements to Sell were executed.
- Nalagarh Property: Agreement to Sell dated 24.01.2020 for Rs. 2.29 Cr; payment completed; possession delivered; permission granted by Government of Himachal Pradesh on 07.06.2021; Deed of Endorsement executed on 17.06.2021.
- Baddi Property: Agreement to Sell dated 31.12.2020 for Rs. 3.53 Cr; payment made via adjustment against dues owed to UG Agro Capital and bank transfers; possession delivered.
- Civil Suit No. 756/2021 (Nalagarh) and Civil Suit No. 755/2021 (Baddi) filed before Senior Civil Judge, New Delhi.
- Consent Decrees dated 24.12.2021 passed in both suits, appointing a Court Receiver to complete statutory formalities.
- High Court of Himachal Pradesh, in judgment dated 10.03.2023, directed HPSIDC to transfer Baddi Property to Appellant.
- Leases executed: Nalagarh Property leased to Rikayaa Enterprises Ltd. via registered Leave and License Agreement dated 19.04.2022; Baddi Property leased to Rikayaa Greentech Pvt. Ltd. via agreement dated 11.02.2022.
- Resolution Plan approved by Committee of Creditors on 17.08.2024 with 98.05% voting share.
- Successful Resolution Applicant (SRA) filed affidavit dated 17.04.2025 expressly relinquishing all rights, title, and interest in both properties.
- RP filed I.A. No. 5153/2023 under Section 66 of IBC on 22.08.2023, alleging fraudulent and undervalued transactions.
Procedural History
- 24.01.2020: Agreement to Sell executed for Nalagarh Property.
- 31.12.2020: Agreement to Sell executed for Baddi Property.
- 15.01.2019: Section 9 petition filed against RCI.
- 25.11.2022: CIRP admitted.
- 13.12.2021: Settlement Agreement executed between Appellant and Corporate Debtor.
- 24.12.2021: Consent Decrees passed by Senior Civil Judge, New Delhi.
- 10.03.2023: Himachal Pradesh High Court directs HPSIDC to transfer Baddi Property.
- 22.08.2023: RP files I.A. No. 5153/2023 under Section 66 of IBC.
- 08.06.2023: Adjudicating Authority orders status quo on Baddi Property.
- 21.07.2023: Adjudicating Authority orders status quo on Nalagarh Property.
- 06.09.2024: RP files I.A. No. 51/2024 seeking approval of Resolution Plan.
- 17.04.2025: SRA files affidavit relinquishing claim over both properties.
- 09.10.2025: Adjudicating Authority approves Resolution Plan and directs Appellant to hand over possession of both properties to RP.
- 09.10.2025: Adjudicating Authority allows I.A. Nos. 3156/2023 and 3793/2023 seeking possession.
- 28.03.2026: Appeals filed before NCLAT.
- 30.06.2026: NCLAT delivers judgment.
The Parties' Positions
Appellant (AKJ Metals): Contended that it had acquired possessory rights under Section 53A of the Transfer of Property Act, 1882, through full performance of the Agreements to Sell, payment of consideration, physical possession, and a binding Consent Decree. Argued that the Adjudicating Authority had no jurisdiction to override a civil court decree or disturb possession in summary proceedings.
Resolution Professional and Financial Creditors: Alleged that the transactions were fraudulent, undervalued, and collusive, designed to siphon assets from creditors. Argued that the Consent Decree was a sham and that the properties remained part of the Corporate Debtor’s estate under Sections 18 and 25 of IBC. Asserted that Section 66 empowered the RP to seek both monetary contribution and possession.
Relief Sought
The Appellant sought: (1) Setting aside of the Adjudicating Authority’s order dated 09.10.2025 directing handover of possession; (2) Declaration that the Nalagarh and Baddi Properties are not part of the Corporate Debtor’s assets; (3) Maintenance of status quo pending disposal of I.A. No. 5153/2023 under Section 66; (4) Prohibition on transfer or encumbrance of the properties by the Appellant until final adjudication.
The Legal Issue
Can a Resolution Professional, under Sections 18 and 25 of the Insolvency and Bankruptcy Code, seek possession of immovable property whose possessory rights have been legally recognized and crystallized by a Consent Decree of a competent Civil Court, despite non-execution of a registered conveyance deed?
Arguments Presented
For the Appellant
The Appellant relied on Giriyappa v. Kamalamma and Ghanshyam v. Yogendra Rathi to establish that Section 53A of the Transfer of Property Act protects possessory rights upon part-performance of a contract, even without registration. It emphasized that the Consent Decree dated 24.12.2021, passed under Order 23 Rule 3 CPC, was final and binding, and could not be nullified by the Adjudicating Authority. Reliance was placed on Piramal Capital v. 63 Moons Technologies to argue that Section 66 of IBC permits only monetary contribution, not dispossession. The Appellant further contended that the RP’s simultaneous pursuit of possession under Sections 18/25 and relief under Section 66 was legally contradictory and jurisdictionally impermissible.
For the Respondent
The Financial Creditors and RP argued that the transactions were sham, undervalued, and collusive, designed to defeat creditor claims. They contended that the Consent Decree was obtained in collusion and was not a product of trial, thus lacking evidentiary weight. They asserted that the Adjudicating Authority has wide powers under Sections 25, 43, 45, 49, and 66 to investigate and set aside fraudulent transactions, including the power to take possession of assets. They relied on Gujarat Urja Vikas v. Amit Gupta to argue that IBC is not an omnibus forum, but insisted that fraud and avoidance of assets fall squarely within its purview.
The Court's Analysis
The NCLAT undertook a rigorous analysis of the interplay between civil law protections under the Transfer of Property Act and the summary jurisdiction of the Adjudicating Authority under the IBC. The Tribunal emphasized that the Consent Decree dated 24.12.2021 was not merely a settlement but a judicial order with finality, immune from collateral attack under Section 21 of the CPC, as affirmed in Manjunath Tirakappa Malagi v. Gurusiddappa Malagi.
"Once the Court passes a compromise decree after such a satisfaction, the decree cannot be challenged in an appeal as no appeal lies against a compromise decree. The only remedy against a compromise decree is to file a recall application."
The Tribunal held that the Adjudicating Authority, while empowered to examine fraudulent transactions under Section 66, lacks jurisdiction to sit in appeal over or nullify a decree passed by a competent Civil Court. The Court cited Gujarat Urja Vikas v. Amit Gupta to reiterate that IBC is not an omnibus forum for all disputes involving the Corporate Debtor.
The Tribunal further distinguished Piramal Capital to clarify that while Section 66 permits monetary contribution from wrongdoers, it does not authorize the Adjudicating Authority to divest possession from a third party whose rights have been judicially recognized. The simultaneous prayer for possession under Sections 18/25 and relief under Section 66 was deemed legally inconsistent.
The Court also rejected the argument that the Consent Decree was a sham merely because it arose from mediation, noting that compromise decrees carry the same legal force as trial decrees. The fact that the SRA had expressly relinquished all claims over the properties further undermined the basis for the RP’s possession application.
The Tribunal acknowledged the RP’s legitimate concern regarding potential alienation of assets but held that the solution lay in maintaining status quo pending the outcome of the pending Section 66 application, not in summary dispossession.
The Verdict
The Appellant succeeded. The NCLAT set aside the Adjudicating Authority’s order dated 09.10.2025 directing handover of the Nalagarh and Baddi Properties to the Resolution Professional. The Tribunal directed that status quo be maintained with respect to possession of both properties until final disposal of I.A. No. 5153/2023 under Section 66 of the IBC. The Appellant is prohibited from transferring, alienating, or creating any encumbrance on the properties during this period. No costs were awarded.
What This Means For Similar Cases
Consent Decrees Are Binding Even in IBC Proceedings
- Practitioners must argue that any Consent Decree passed under Order 23 Rule 3 CPC, even if based on settlement, is final and immune from collateral challenge by the Adjudicating Authority.
- IBC proceedings cannot be used to circumvent civil court orders on title or possession.
- The mere non-execution of a registered conveyance deed does not invalidate possessory rights protected under Section 53A of the Transfer of Property Act.
Section 66 Does Not Authorize Possession
- Applications under Section 66 of IBC are strictly limited to seeking monetary contribution from directors or persons involved in fraudulent trading.
- RP cannot simultaneously seek possession under Sections 18/25 and relief under Section 66 - such dual prayers are legally inconsistent.
- Any attempt to use Section 66 as a vehicle for dispossession will be struck down by appellate tribunals.
Status Quo Is the Only Appropriate Interim Relief
- Where possession is disputed and a civil decree exists, the Adjudicating Authority must preserve status quo pending adjudication under Section 66.
- Prohibitory orders against transfer or encumbrance, as imposed here, are the correct mechanism to protect creditor interests without violating third-party rights.
- Financial creditors must pursue remedies under Section 66 for asset recovery, not summary possession.
