No Encumbrances on Corporate Debtor's Assets After CIRP Initiation: NCLT Chennai

No Encumbrances on Corporate Debtor's Assets After CIRP Initiation: NCLT Chennai

Introduction

The National Company Law Tribunal (NCLT), Chennai Bench has delivered a significant judgment, holding that after the initiation of the Corporate Insolvency Resolution Process (CIRP), there can be no encumbrances on the assets of the corporate debtor, and all claims must be dealt with in accordance with Section 53 of the Insolvency and Bankruptcy Code (IBC). This ruling provides clarity on the treatment of claims and encumbrances on corporate debtor's assets during CIRP.

Factual Background

The applicants, Navneet Kumar Ranka & Babulal Ranka & Sons (HUF), filed an application under Section 60(5) of the IBC, seeking impleadment in the Resolution Plan approval application filed by the Resolution Professional. The applicants claimed to be allottees under an unregistered Agreement of Sale and an unregistered Construction Agreement, both dated November 16, 2017, in relation to Apartment No. 1906.

The applicants submitted that they had paid the consideration amount to the suspended director of the corporate debtor, and their rights arose out of a binding Tamilnadu Real Estate Regulatory Authority (TNRERA) order, which has not been challenged by the Corporate Debtor. The applicants argued that the RP treated their claim as a "refund on cancellation" and misclassified the claims in the Information Memorandum (IM) and plan documents.

Procedural Background

The respondent countered that the applicants' claim is based on an unregistered agreement, and the payment was made to a suspended director, not to the corporate debtor. The respondent submitted that the applicants did not obtain a valid title or title to the property before the RERA and only sought refund. The respondent argued that the applicants' claim should be dealt with in accordance with Section 53 of the IBC.

Issues

1. No Encumbrances on Corporate Debtor's Assets: The NCLT held that after the initiation of CIRP, there can be no encumbrances on the assets of the corporate debtor.

2. Claims Must Be Dealt with in Accordance with Section 53 of IBC: The Tribunal emphasized that all claims must be dealt with in accordance with Section 53 of the IBC.

Contentions of the Parties

Applicants' Contentions: The applicants submitted that they are allottees under the RERA and their rights should be protected. They relied on the Supreme Court's judgment in Vishal Chelani & Others vs. Debashis Nanda, which held that homebuyers can pursue remedies under the RERA and should be treated equally under the IBC.

Respondent's Contentions: The respondent argued that the applicants' claim is based on an unregistered agreement, and the payment was made to a suspended director, not to the corporate debtor. The respondent submitted that the applicants did not obtain a valid title or title to the property before the RERA and only sought refund.

Reasoning and Analysis

The NCLT carefully examined the facts and circumstances of the case and held that the applicants' claim must be dealt with in accordance with Section 53 of the IBC. The Tribunal distinguished the present case from the judgment in Vishal Chelani & Others vs. Debashis Nanda, noting that the sale and construction documents are unregistered, and the payment was made to a suspended director, not to the corporate debtor.

The bench of Justice Sanjiv Jain (Judicial Member) and Shri. Ravichandran Ramasamy (Technical Member) observed that there is no privity of contract between the parties, and the applicants did not obtain a valid title or title to the property before the RERA. The Tribunal emphasized that after the initiation of CIRP, there can be no encumbrances on the assets of the corporate debtor, and all claims must be dealt with in accordance with Section 53 of the IBC.

The NCLT noted that the apartment was sold to another homebuyer after obtaining a proper NOC, and the applicants cannot be considered as financial creditors. The Tribunal held that the claim must be resolved accordingly, and the encumbered assets cannot be allocated.

In this case the applicant was represented by Mr. S Kishandan, Advocate. Meanwhile the respondent was represented by Mr. Ravi Rajagopalan, Advocate.

Outcome

The NCLT rejected the applicants' plea to intervene, holding that their claim must be resolved in accordance with Section 53 of the IBC, and the encumbered assets cannot be allocated.