2025 (10) TMI 923 - HC - Companies Law

No proprietary right in liquidated company under ATS; vendor validly terminated and forfeited 20% sale consideration

Cosmic Victims Association, Nishant Muttreja, Cuba & Anr. Versus Surya Jyoti Software Pvt Ltd And Others

HC held no proprietary right vested in the company in liquidation under the ATS; the payment schedule required full payment within 12 months and the ... Right in the property is created in favour of the Company in Liquidation by virtue of an Agreement to Sell or not - Section 54 of the Transfer Property Act, 1882 - HELD THAT:- Upon a bare perusal of the ATS, it is evident that the schedule of payment was specified in the ATS, and the entire payment was to be made within a period of 12 months starting from the payment date of the first installment as per the payment Schedule. As per Clause 12 of the ATS, SJS was entitled to forfeit 20% of the total sale consideration while terminating the ATS - the Company in Liquidation, i.e., CSL, is not the owner of the property. On careful reading of Clause 16 of the ATS, it becomes evident that although CSL was permitted to take bookings in the Cosmic Masterpiece Project (the Project), however, it was specified that CSL shall have no right to execute a sub-lease or transfer unless and until the entire sale consideration mentioned in the ATS has been paid by CSL to SJS. In these circumstances, the contention of the learned counsel that permission to take bookings, granted under the ATS, creates a right in favour of the alleged Unit Holders, lacks substance. On a careful reading of Clause 18 of the ATS, it is evident that SJS has not waived its right to terminate the ATS, particularly when SJS vide notice dated 25.02.2016 terminated the ATS. It is evident that SJS is entitled to forfeit 20% of the total sale consideration. Certain payments were made to the NOIDA Authority, however, for the remaining amount; CSL has never filed a suit which could be tried by the Company Judge in view of Section 446 (2) - this Court is not expected to decide such disputes without permitting the parties to lead evidence. SJS is required to be given an opportunity to prove the actual damages/loss suffered by it, particularly on account of the consistent default of CSL to pay the amount to the NOIDA Authority. The total dues are stated to be more than Rs. 25 crores, which is payable by CSL to the NOIDA Authority. All three Appeals lack merit and are hence dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether an Agreement to Sell (ATS) creates any right, interest or charge in immovable property in favour of a company in liquidation or prospective buyers/unit-holders prior to completion/registered transfer. 2. Whether permission in an ATS to 'take bookings' and receive consideration in the name of the purchaser grants any transferable proprietary right or creates enforceable sub-lease/transfer rights in favour of unit-holders before full payment and formal transfer. 3. Whether, on breach of the payment schedule in an ATS, the seller is entitled to terminate the ATS and forfeit a contractual percentage of the consideration or recover liquidated/actual damages; and the extent to which proof of actual loss is necessary. 4. Whether communications by a director common to buyer and seller are sufficient to infer collusion defeating contractual or liquidation rights in the absence of substantive material. 5. Whether pending revival schemes for a company in liquidation can affect title or rights in a leasehold plot that was not transferred to the company in liquidation. 6. Jurisdictional scope: whether the Tribunal/Court of liquidation has jurisdiction to adjudicate claims related to the company in liquidation arising out of such ATS (reference to company law jurisdiction noted). ISSUE-WISE DETAILED ANALYSIS Issue 1 - ATS and Creation of Proprietary Rights in Immovable Property Legal framework: Section 54 (definition of 'sale' and 'contract for sale') of the Transfer of Property Act provides that a contract for sale does not, of itself, create any interest in or charge on such immovable property; transfer of ownership of immovable property must be by registered instrument (where value >= prescribed sum). Precedent treatment: The Court applied the statutory rule as foundational and did not treat prior case law as overruling Section 54; instead it relied on the statutory principle. Interpretation and reasoning: On a plain reading of Section 54 and the ATS, the ATS is a contract for sale and therefore does not create proprietary rights in favour of the purchaser/company in liquidation until the formal/registered transfer is effected. The company in liquidation thus did not become owner of the leasehold by virtue of the ATS alone. Ratio vs. Obiter: Ratio - ATS, standing alone, does not create or transfer proprietary rights in immovable property; this is a decision grounded in statutory interpretation of Section 54. Conclusion: No right, title or proprietary interest in the leasehold passed to the company in liquidation merely by entering into the ATS. Issue 2 - Effect of Clause Permitting 'Bookings' and Receipt of Consideration Legal framework: Contractual autonomy (ATS clauses) must be read subject to statutory requirements for transfer of immovable property and the express terms limiting transfer/sub-lease until full payment. Clause 16 expressly disallowed sub-lease/transfer unless full consideration paid. Precedent treatment: The Court considered authority relied upon by parties but distinguished it on facts where a binding/licenced right might have been created; no authority was treated as establishing a contrary principle to Section 54 in the facts of this case. Interpretation and reasoning: Allowing bookings and receiving payments in the name/risk of the company does not, in itself, create transferable proprietary rights when ATS explicitly conditions sub-lease/transfer on full payment. No statutory provision was shown that authorises the company in liquidation to create proprietary rights it does not possess. The Court also noted operational reasons (development steps taken in the seller's name) that explain certain communications without proving creation of property rights. Ratio vs. Obiter: Ratio - contractual permission to take bookings does not equate to creation of a proprietary right in immovable property where the ATS conditions transfer on full payment and registration; therefore prospective buyers do not obtain enforceable proprietary interests merely by booking. Conclusion: Bookings/receipts under Clause 16 do not create enforceable proprietary rights in favour of unit-holders prior to completion of contractual payment obligations and formal transfer. Issue 3 - Termination, Forfeiture, Liquidated and Unliquidated Damages Legal framework: The ATS contained express provisions (Clause 12, Clause 18) making timely payment essence, providing for liquidated damages, and authorising forfeiture of 20% of total consideration upon termination; contract law principles (including Section 73 Contract Act concept of damages) govern recovery of actual/unliquidated damages. Precedent treatment: The Court distinguished authorities cited by parties where fact patterns (no breach, or different contractual matrices) differed; the Court cited established Supreme Court authority recognizing forfeiture of earnest money where breach occurs, and treated those authorities as supportive of contractual forfeiture when breach is established. Interpretation and reasoning: Given the clear contractual clauses: (a) liquidated damages clause obviates the need for proof of actual loss for the specified liquidated amount; (b) express contractual forfeiture on termination is enforceable where breach is established; (c) for unliquidated damages or amounts not covered by the liquidated sum, the seller must be given opportunity to prove actual loss. The Court emphasised that an appellate forum should not adjudicate disputed factual claims of loss without evidence and trial opportunity. Ratio vs. Obiter: Ratio - where an ATS contains a valid liquidated damages and forfeiture clause, and breach of payment obligations is established, the seller is entitled to enforce those contractual remedies; unliquidated damages require proof of actual loss and cannot be adjudicated in appeal without evidentiary opportunity. Conclusion: The ATS-stipulated forfeiture and liquidated damages are enforceable upon CSL's default; however, claims for unliquidated/actual damages require evidentiary trial and cannot be determined on appeal without permitting the seller to lead evidence. Issue 4 - Allegation of Collusion Based on Common Directorship and Communications Legal framework: Collusion allegations require substantive material and proof; mere identity of individuals acting in different capacities or communications in project development do not automatically establish collusion sufficient to defeat contractual or liquidation rights. Precedent treatment: The Court treated the allegation as an evidentiary matter and did not adopt any prior case as overruling the need for material evidence. Interpretation and reasoning: Communications signed by a director who operated on behalf of the seller in project development were explicable by the ATS terms (development to be undertaken in seller's name pending transfer). The Court found no adequate material to infer collusion; contested litigation and active representation by the Official Liquidator further undermined the collusion inference. Ratio vs. Obiter: Ratio - inference of collusion cannot be drawn from isolated communications or common directorship alone; substantive material is required to establish collusion that would affect contractual/insolvency rights. Conclusion: Allegations of collusion were not substantiated on the record and cannot negate the contractual and statutory positions otherwise established. Issue 5 - Effect of Revival Schemes on Leasehold Not Transferred to Company in Liquidation Legal framework: Revival schemes relate to rights and assets of the company in liquidation; they cannot affect title to property that was not transferred to the company prior to liquidation. Interpretation and reasoning: Since proprietary title in the leasehold never vested in the company in liquidation (see Issue 1), pending revival schemes cannot confer or alter rights in that leasehold for the company or its prospective buyers. Ratio vs. Obiter: Ratio - revival proceedings cannot create retroactive proprietary rights in an immovable not vested in the company. Conclusion: Revival schemes do not subsume or affect the leasehold interest that remained vested in the seller. Issue 6 - Jurisdictional Note on Adjudication of Related Claims Legal framework: Reference made to statutory provision conferring jurisdiction on the Tribunal/Court in liquidation proceedings to adjudicate claims relating to the company in liquidation (noted by argument but not determinatively applied in place of trial evidence). Interpretation and reasoning: The Court observed that while the Tribunal has jurisdiction to entertain claims related to the company in liquidation, factual and evidentiary disputes (e.g., proof of actual damages, dues paid to authority) require opportunity for evidence and cannot be resolved on appeal without trial. Ratio vs. Obiter: Obiter (procedural): jurisdiction exists but does not obviate the need for trial/evidence before adjudicating disputed claims concerning amounts and losses. Conclusion: Tribunal/Court jurisdiction is acknowledged but parties must be afforded opportunity to lead evidence on disputed factual claims arising out of the ATS before final adjudication of unliquidated claims.