2025 (7) TMI 1210 - AT - IBC

Unregistered sale agreement violates Section 17(1) Registration Act, no property rights under Section 53A Transfer of Property Act

NCLAT ruled that the appellant company could not claim rights under Section 53A of Transfer of Property Act as their Agreement to Sell was unregistered, ... CIRP - Entitlement for benefit of Section 53A of Transfer of Property Act having part performance been made - Agreement to Sell is an unregistered document - HELD THAT:- The Agreement to Sell, admittedly being an unregistered document, Atul Paper Pvt. Ltd., cannot claim any right under Section 53A of the Property Act, which is clearly stipulated by provisions of Section 17 (1) of the Registration Act, 1908 as noted above. We, thus, do not find any substance in the submission of the Appellant - Atul Paper Pvt. Ltd. that it was entitled for benefit of Section 53A of the Transfer of Property Act. Atul Paper Pvt. Ltd. having no right in the asset, directions issued by Adjudicating Authority to Atul Paper Pvt. Ltd. to vacate the premises, cannot be faulted. All assets of the CD are part of the liquidation estate, which liquidation estate are to be utilized for distribution to the stakeholders. The Appellant has also filed a claim both before the RP and the Liquidator for an amount of Rs.2.51 crores, as noted above, which claim was rejected by the Liquidator on the ground of delay in filing the claim. An Appeal was also filed by Atul Paper Pvt. Ltd. challenging the order of the Liquidator rejecting the claim under Section 42 of the IBC, being CA No.26 of 2023. The Adjudicating Authority after issuing direction to Atul Paper Pvt. Ltd. to vacate the premises, it further directed the Liquidator to pay an amount of Rs.2.01 crores and CA No.26 of 2023 filed by Atul Paper Pvt. Ltd. challenging the order of the Liquidator was dismissed as infructuous. The claim submitted by Atul Paper Pvt. Ltd. was required to be admitted by the Liquidator. Atul Paper Pvt. Ltd. had also filed the claim before the RP, which was not admitted. The Liquidator, however, rejected the claim only on the ground of delay in filing of the claim. We, thus, are of the view that CA No.26 of 2023 deserved to be allowed by setting aside the order of Adjudicating Authority, disposing the same as having become infructuous. We partly allow the appeal and direct the Liquidator to admit the claim of the Atul Paper Pvt. Ltd. in appropriate category, which claim shall be dealt with in distribution in accordance with law. Now coming to the direction of the Adjudicating Authority to pay an amount of Rs.2.01 crores to Atul Paper Pvt. Ltd., it is opined that when stakeholder filed a claim in the CIRP and in the liquidation, the claim is entitled to be dealt with as per Section 53 of the IBC. The Adjudicating Authority could not have issued any direction to make any payment to any stakeholder, dehors, the distribution as contemplated by the IBC. The direction of the Adjudicating Authority for payment of Rs.2.01 crores to Atul Paper Pvt. Ltd., cannot be sustained. The said amount be refunded by the Liquidator to Atul Paper Pvt. Ltd. along with interest it has earned, if any, in event the said amount is kept in the interest-bearing account, within a period of 30 days - Appeal dismissed. ISSUES: Whether an unregistered Agreement to Sell confers any right under Section 53A of the Transfer of Property Act, 1882 to a purchaser in possession against the owner or liquidator during CIRP/liquidation.Whether possession of immovable property pursuant to an Agreement to Sell, without execution of Sale Deed, entitles the purchaser to retain possession against the Liquidator during insolvency proceedings.Whether the Liquidator is obligated or entitled to refund amounts paid by a purchaser under an Agreement to Sell outside the distribution mechanism prescribed under the Insolvency and Bankruptcy Code, 2016.Whether a claim filed by a purchaser before the Resolution Professional and Liquidator, even if delayed, must be admitted and adjudicated in accordance with the provisions of the IBC.Whether the Adjudicating Authority can direct the Liquidator to make payment to a stakeholder outside the statutory distribution framework under the IBC. RULINGS / HOLDINGS: The Court held that an unregistered Agreement to Sell does not confer any right under Section 53A of the Transfer of Property Act, 1882, as per the mandate of Section 17(1-A) of the Registration Act, 1908, which provides that such documents must be registered to have effect for Section 53A purposes.The possession held by the purchaser under the Agreement to Sell, without execution and registration of the Sale Deed, does not create any interest or charge in the property under Section 54 of the Transfer of Property Act, 1882; thus, the Liquidator is entitled to take possession of the asset as part of the liquidation estate.The direction of the Adjudicating Authority to the Liquidator to refund Rs.2.01 crores to the purchaser is unsustainable and cannot be sustained, as payments to stakeholders must be made strictly in accordance with the distribution scheme under the IBC.The claim filed by the purchaser before the Resolution Professional and Liquidator, though rejected on ground of delay, must be admitted and dealt with in the appropriate category under Section 53 of the IBC; the appeal challenging rejection of the claim is allowed accordingly.The Adjudicating Authority erred in issuing any direction to make payment to a stakeholder dehors the distribution mechanism under the IBC; such directions are set aside. RATIONALE: The Court applied the statutory provisions of Section 53A of the Transfer of Property Act, 1882, which protects transferees in possession under a contract for transfer, but only if the contract is registered as required by Section 17(1-A) of the Registration Act, 1908; unregistered agreements have no effect for Section 53A purposes.The principle under Section 54 of the Transfer of Property Act, 1882 was relied upon to affirm that a contract for sale does not create any interest or charge in the property until the Sale Deed is executed and registered.The Insolvency and Bankruptcy Code, 2016, particularly Section 53, governs the distribution of assets in liquidation, and no stakeholder is entitled to preferential payment outside this scheme; the Adjudicating Authority's direction to refund amounts outside this process was contrary to the IBC framework.The Court recognized the procedural requirement that claims filed before the Resolution Professional and Liquidator must be admitted and adjudicated in accordance with the IBC, even if there is a delay, subject to the Liquidator's discretion and applicable provisions.No dissent or doctrinal shift was noted; the Court reaffirmed established principles regarding registration of contracts, possession rights, and insolvency distribution mechanisms.