Unregistered Slump Sale No Ground to Reclaim Property After Acting on Transaction: NCLT Hyderabad

Unregistered Slump Sale No Ground to Reclaim Property After Acting on Transaction: NCLT Hyderabad

Introduction

The National Company Law Tribunal (NCLT), Hyderabad Bench, has held that a corporate debtor cannot reclaim immovable property sold under a slump sale transaction merely on the ground that the agreement was unregistered, where the transaction was fully acted upon and consideration was received. The Tribunal ruled that such a claim is barred by the doctrine of estoppel and contrary to settled principles of equity in insolvency proceedings.

Factual Background

Handum Industries Ltd., the corporate debtor, had availed a term loan of ₹15 crore from IDBI Bank in March 2001 and created a mortgage over its industrial property in October 2001. The debt was later assigned to the Stressed Assets Stabilisation Fund. Moreover, by February 2012, the outstanding dues exceeded ₹21.68 crore.

In 2012, Handum Industries entered into a slump sale agreement with Splendid Metal Products Limited (SMPL), selling its land, building, plant, and machinery for a total consideration of approximately ₹61.08 crore. After adjustment of liabilities, a net amount of about ₹39.40 crore was paid to the corporate debtor, and possession of the property was handed over to SMPL.

Procedural Background

Following commencement of liquidation proceedings against Handum Industries in June 2021, the liquidator filed applications before the NCLT seeking directions against SMPL to hand back possession of the property. The liquidator contended that since the slump sale agreement was unregistered, ownership of the property continued to vest with the corporate debtor and the asset ought to form part of the liquidation estate.

Issues

1. Whether a corporate debtor, acting through its liquidator, can reclaim property sold under an unregistered slump sale agreement.

2. Whether acceptance of full consideration and transfer of possession bars such a claim under the doctrine of estoppel.

3. Whether the property formed was part of the liquidation estate.

Contentions of the Parties

The liquidator argued that the slump sale agreement, being unregistered, could not transfer title in immovable property. It was submitted that post the 2001 amendment to the Transfer of Property Act, 1882, an unregistered agreement could not be relied upon even for protection under Section 53A, and therefore ownership remained with the corporate debtor.

SMPL opposed the applications, contending that the transaction had been fully acted upon. It highlighted that full consideration was paid, secured liabilities were discharged, possession was transferred, and the property was reflected only in SMPL’s financial statements. It argued that the corporate debtor was estopped from resiling from the transaction after having enjoyed its benefits.

Reasoning and Analysis

The Tribunal drew a clear distinction between the enforceability of an unregistered document for transfer of title and the conduct of parties who have fully acted upon such a transaction. It noted that the corporate debtor had accepted the entire sale consideration, enabled discharge of its secured debts, and induced SMPL to irreversibly alter its position.

The NCLT held that while an unregistered agreement may not confer statutory protection under Section 53A of the Transfer of Property Act, it is nevertheless admissible for collateral purposes, including proof of payment of consideration and delivery of possession.

Emphasising the equitable doctrine of estoppel, the Tribunal observed that the corporate debtor could not be permitted to approbate and reprobate by retaining the benefits of the transaction while repudiating its obligations. Such conduct, the Tribunal held, is impermissible, particularly in insolvency proceedings where equity and commercial certainty are paramount.

Decision

The NCLT held that the property sold to SMPL under the slump sale agreement did not form part of the liquidation estate of Handum Industries Ltd. The applications filed by the liquidator were dismissed, and the Tribunal ruled that the corporate debtor was estopped from reclaiming the property solely on the ground of non-registration of the slump sale agreement.

In this case the applicant was represented by Mr. K Poorna Chandra Rao, Advocate. Meanwhile the respondent was represented by Mr. T Ravichandran, Advocate.