IRP entitled to possession of corporate debtor's assets despite occupants' resistance after notice period expires

NCLAT Principal Bench dismissed appeal challenging Adjudicating Authority's order directing handover of corporate debtor's assets to IRP. Appellants occupied two flats owned by corporate debtor and resisted IRP's possession application. Court held IRP's application was maintainable as flats belonged to corporate debtor and IRP had obligation to take possession of all assets. Ten-month notice period had expired, appellants had no right to continue possession, and board resolution did not confer right to resist handover. Appeal dismissed with direction to vacate premises.

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The core legal questions considered in this judgment include: (1) Whether the application filed by the Interim Resolution Professional (IRP) under Section 60(5) of the Insolvency and Bankruptcy Code (IBC) seeking physical possession of the Corporate Debtor's assets was maintainable before the Adjudicating Authority; (2) Whether the Appellants, suspended directors occupying two flats owned by the Corporate Debtor, had any legal right or entitlement to continue possession based on a prior Board Resolution; (3) The extent and scope of the IRP's powers under Section 18 of the IBC to take control and custody of assets of the Corporate Debtor; (4) Whether the Appellants were entitled to a notice period or any protection to continue possession under the Board Resolution or other legal principles; (5) The applicability of precedents concerning possession rights during Corporate Insolvency Resolution Process (CIRP), including distinctions between lease, license, and tenancy rights; and (6) The impact of the Appellants' continued possession on the CIRP process and the rights of Resolution Applicants.

Regarding the maintainability of the IRP's application, the Court examined Section 18(1)(f) of the IBC, which mandates that the IRP shall take control and custody of any asset over which the Corporate Debtor has ownership rights. The Court emphasized that the two flats in question indisputably belong to the Corporate Debtor and that the Appellants did not claim ownership, lease, or license rights over the flats. The Court noted that the IRP's duty to take possession of the Corporate Debtor's assets is a statutory obligation and that an application under Section 60(5) to the Adjudicating Authority for this purpose is permissible and maintainable. The Court rejected the Appellants' argument that the IRP should have pursued eviction through ordinary civil proceedings, holding that such a route would unduly delay the time-bound CIRP process.

The Court analyzed the Board Resolution dated 14.09.2017 relied upon by the Appellants, which permitted them to occupy the flats subject to their undertaking to vacate within 10 months of receiving intimation from the company. The Court found that the IRP's email dated 31.05.2024 constituted such intimation, and that more than 10 months had elapsed without vacation. The Court held that this undertaking did not confer any right to continue possession beyond the stipulated period and that the Appellants' continued occupation was unauthorized.

The Court considered precedents cited by the Appellants, including the Supreme Court's decision in Victory Iron Works Limited, where possession rights were protected based on a leave and license agreement. The Court distinguished that case, noting that the Appellants here did not hold any lease or license rights but merely occupied the flats as suspended directors under a Board Resolution. The Court further examined a prior Tribunal judgment relied upon by the Appellants concerning tenancy rights and eviction proceedings, clarifying that those facts involved a pending civil suit and tenancy rights that are distinct from the present case. The Court emphasized that the IBC framework does not permit the IRP to bypass lawful tenancy protections but also does not require the IRP to pursue protracted civil eviction suits when no tenancy or lease rights subsist.

In support of the Respondents, the Court referred to a Tribunal judgment in Jhanvi Rajpal Automotive Pvt. Ltd., which upheld the maintainability of an application under Section 60(5) for possession where lease rights had expired. The Court relied on this precedent to affirm that the Adjudicating Authority has jurisdiction to order vacation of premises to facilitate the CIRP and implementation of the Resolution Plan. The Court underscored that allowing the Appellants to continue possession without legal basis was hindering the resolution process, as evidenced by the withdrawal of Resolution Applicants citing lack of clarity on possession.

The Court applied the legal framework to the facts by noting that the IRP had issued a clear request for possession, the Appellants had given an undertaking to vacate within a fixed period upon intimation, and that period had elapsed. The Appellants' failure to vacate despite the Adjudicating Authority's oral directions and subsequent order warranted a firm directive for possession handover within 10 days. The Court rejected the Appellants' request for extended time or reliance on general principles of equity or prior undertakings to continue possession.

Competing arguments regarding the nature of possession rights were treated with reference to the statutory scheme of the IBC and relevant case law. The Appellants' reliance on tenancy or license-like protections was found inapplicable given the absence of such rights in the facts. The Respondents' emphasis on the statutory duties of the IRP and the need for expeditious resolution was accepted as paramount. The Court balanced the interests of all stakeholders, giving priority to the integrity and time-bound nature of the CIRP over the Appellants' claims.

The Court concluded that the application filed by the IRP was maintainable, that the Appellants had no legal right to continue possession beyond the stipulated period, and that the Adjudicating Authority's order directing vacation within 10 days was justified and lawful. The Appeal was dismissed with a direction for the Appellants to vacate accordingly.

Significant holdings include the following verbatim excerpts that crystallize the Court's reasoning:

"The above provision empowers the IRP to take control and custody of any assets over which the Corporate Debtor has ownership rights. The present is a case where Appellants are not claiming any ownership rights in the assets nor any rights on the basis of lease/license."

"Accepting the contention of the Learned Counsel for the Appellant that RP is obliged to file a suit for eviction of the Appellant under MP Accommodation Control Act, 1961 even though lease in favour of the Appellant has expired shall be unduly prolonging the insolvency process which is a time bound process."

"Therefore, we hereby direct Respondent Nos. 2 and 4 to vacate the Flats Nos. 601 and 1101 within 10 days from the date of this order ... and hand over the physical possession of these properties to the Resolution Professional without any further delay."

Core principles established include that the IRP has statutory authority and obligation under the IBC to take possession of the Corporate Debtor's assets, including immovable property, without being required to pursue protracted civil eviction proceedings where no tenancy or lease rights subsist; that undertakings to vacate premises within a stipulated period must be honored, and failure to do so justifies directions for possession; and that the Adjudicating Authority has jurisdiction to entertain applications under Section 60(5) for possession to facilitate the CIRP and protect the interests of stakeholders.

On each issue, the Court's final determinations were: (1) The IRP's application was maintainable; (2) The Appellants had no right to continue possession beyond the 10-month notice period; (3) The Board Resolution did not confer any right to resist possession handover after intimation; (4) The Adjudicating Authority's order directing vacation within 10 days was lawful and necessary; and (5) The Appeal was dismissed with directions for immediate vacation.

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