2025 (9) TMI 1167 - AT - IBC

Appeal dismissed; IRP entitled to actual possession under Section 18, symbolic possession would defeat CIRP purpose under Section 10

Mr. M. Bhaskaran and Mr. M. Radhakrishnan Versus Mr. Sandeep Kothari, Chennai

NCLAT dismissed the appeal and upheld the NCLT order directing transfer of actual possession of the corporate debtor's assets to the IRP/RP, rejecting the ... Initiation of CIRP Proceedings u/s 10 of the I & B Code - permission to appellant to hand over the symbolic possession and not the actual possession of the assets of the Corporate Debtor or the assets - HELD THAT:- Since Section 18 is clear in its mandate that, it is rather the responsibility of the IRP to take control over any asset over which the Corporate Debtor has ownership rights, there cannot be any reason as such for handing over of a symbolic possession of such assets as being prayed by the Appellants. Thus, the nature of the relief sought for in the IA i.e., IA(IBC)/913(CHE)/2025 and consequently in this instant Company Appeal, is alien to the concept of the CIRP Proceedings under Section 10 of the I & B Code which could not have been granted by Learned NCLT and which cannot be granted by this Appellate Tribunal under the I & B Code. Thus, allowing of the application filed by the IRP by the Tribunal on the ground that since the CIRP Process has been ordered, as back as on 18.10.2024 and ever since then, the possession has not been handed over, and consequent issues of directions the Appellants herein to handover the possession of the assets of Corporate Debtor to the RP is not contrary to any of the provisions contained under the I & B Code. Neither it has been pointed out as such by the Appellant’s Counsel, who is pleading for a direction to hand over a symbolic possession of the assets of the Corporate Debtor. Even otherwise also, in a proceedings of CIRP under Section 10 of I & B Code, which stood initiated in the instant case, as back as on 18.10.2024, handing over of “symbolic possession”, as expected and prayed for by the Appellants, will deceive the very purpose of initiation of the Corporate Insolvency Resolution Process under Section 10 of the I & B Code, which aim at resolving the insolvency of the applicant Corporate Debtor herein which has committed a default. In that eventuality, the reasons which has been given by the Learned Tribunal do not seem to be suffering from any legal or factual error calling for interference in the exercise of Appellate Jurisdiction. Further, no factual interpretation is required to be done because there is no dispute with regards to the facts of the case. Owing to the above, the Appeal would stand dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether the concept of 'symbolic possession' of the assets of the Corporate Debtor is recognised or permissible in Corporate Insolvency Resolution Process (CIRP) proceedings initiated under Section 10 of the Insolvency and Bankruptcy Code, 2016. 2. Whether, upon admission of an application under Section 10 and commencement of CIRP, the Interim Resolution Professional (IRP) is entitled to take control and custody of the assets of the Corporate Debtor as mandated by the Code, thereby precluding retention of actual or symbolic possession by the Corporate Debtor or its officers. 3. Whether the NCLT's direction to the Appellants to cooperate with the IRP and vacate and hand over premises, inventories, assets and records to the IRP was contrary to the provisions of the IBC or vitiated by any legal or factual error warranting appellate interference. ISSUE-WISE DETAILED ANALYSIS Issue 1: Recognition of 'symbolic possession' in CIRP under Section 10 Legal framework: Section 10 of the IBC permits voluntary initiation of CIRP by the Corporate Debtor. Commencement of CIRP (per order admitting the Section 10 application) triggers functions under Section 13 (appointment of IRP, imposition of moratorium, public announcement) and Section 17/18 which vest management control and custody of assets with the IRP; specifically Section 18(f) empowers the IRP to take control and custody of assets in which the Corporate Debtor has ownership rights. Precedent Treatment: The judgment contains no discussion or reliance on earlier judicial precedents recognising a distinct doctrine of 'symbolic possession' in IBC proceedings. No authority was cited by the Appellants to substantiate the concept. Interpretation and reasoning: The Court examined the statutory scheme and concluded that there is no textual basis in the IBC for permitting 'symbolic possession' as an alternative to actual control and custody taken by the IRP once CIRP is commenced. The initiation under Section 10 and consequent appointment of IRP contemplates an effective transfer of management and custody functions to the IRP; allowing symbolic possession would be inconsistent with the statutory purpose of CIRP, which is to enable the IRP to manage assets and affairs for resolution of insolvency. Ratio vs. Obiter: Ratio - The IBC does not recognise a right to retain symbolic possession of Corporate Debtor assets once CIRP is commenced under Section 10; symbolic possession is not an available relief that can defeat the IRP's statutory functions under Sections 13, 17 and 18. Obiter - None specific; the analysis is grounded in statutory interpretation. Conclusions: The concept of symbolic possession has no source in the IBC and cannot be permitted in CIRP proceedings under Section 10; therefore a plea to hand over only symbolic possession must fail. Issue 2: IRP's entitlement to take control and custody of assets upon commencement of CIRP Legal framework: Section 13 mandates commencement consequences (including appointment of IRP and moratorium). Section 17(a) vests management of affairs in the IRP, and Section 18(f) specifically obliges the IRP to take control and custody of assets over which the Corporate Debtor has ownership rights, including those recorded in balance sheets, information utilities, depositories and registries. Precedent Treatment: The judgment does not rely on or distinguish prior case law. The Tribunal applied the statutory provisions directly. Interpretation and reasoning: The Court interpreted Section 18(f) as imposing a clear responsibility on the IRP to assume control and custody of assets that belong to the Corporate Debtor. Because the statutory text vests these powers in the IRP upon commencement, there is no residual right in the Corporate Debtor (or parties opposing the IRP) to retain possession that would impede the IRP's control. The Appellants' contention that they should hand over only symbolic possession was found unsupportable given the statutory allocation of functions and the objective of CIRP. Ratio vs. Obiter: Ratio - On commencement of CIRP under Section 10, the IRP must take control and custody of Corporate Debtor assets per Sections 17 and 18; parties cannot insist on retaining physical or symbolic possession inconsistent with these provisions. Obiter - Observations on the purposive effect of symbolic possession undermining CIRP's objectives, while supportive of the ratio, are explanatory. Conclusions: The IRP was entitled and obliged to take actual control and custody of the assets and records; directions to hand over assets to the IRP were consistent with the Code. Issue 3: Validity of the NCLT order directing cooperation and handing over of premises, inventories, assets and records to the IRP Legal framework: The NCLT's direction flowed from Sections 13, 17 and 18 of the IBC which, upon commencement of CIRP, transfer management control and asset custody to the IRP and impose duties on other persons to cooperate. Precedent Treatment: No precedents were cited or treated in the judgment to challenge the statutory compliance of the NCLT order. Interpretation and reasoning: The Tribunal assessed whether the NCLT committed any legal or factual error in directing the Appellants to cooperate and hand over possession. The Court found that the order implements the statutory mandate and that the Appellants failed to demonstrate any statutory basis for retaining possession or for the novel remedy of symbolic possession. There was no dispute on material facts to warrant a different conclusion. The Court also reasoned that permitting symbolic possession would defeat the purpose of CIRP initiated voluntarily by the Corporate Debtor who had admittedly defaulted. Ratio vs. Obiter: Ratio - The NCLT's direction to hand over premises, inventories, assets and records to the IRP is consistent with the IBC and does not suffer from legal or factual error warranting appellate interference. Obiter - The view that symbolic possession would frustrate CIRP objectives elaborates why the order is necessary but is ancillary to the main legal conclusion. Conclusions: The NCLT's order was legally sustainable; appellate interference was unwarranted. The appeal was dismissed and interlocutory applications were closed. Cross-references and final synthesis Cross-reference: Issues 1 and 2 are interlinked - absence of statutory recognition for symbolic possession (Issue 1) directly supports the IRP's statutory entitlement to actual control and custody (Issue 2). Issue 3 follows from the combined application of Issues 1 and 2 to the NCLT's order. Synthesis: The statutory scheme under Sections 10, 13, 17 and 18 of the IBC does not permit a regime of symbolic possession that would impede the IRP's mandated control and custody of assets once CIRP is commenced; therefore directions compelling cooperation and transfer of assets and records to the IRP are lawful and not susceptible to appellate reversal.