Appeal dismissed, Section 36 IBC liquidation estate upheld for leased premises assets; appellant failed evidence, acquiesced during process

NCLAT dismissed the appeal, upholding the HC's order permitting the Liquidator to treat the assets/inventory lying in the leased premises as part of the liquidation estate of the corporate debtor. The Tribunal held that the burden to rebut the presumption of ownership lay on the Appellant, who failed to produce reliable contemporaneous evidence or invoices to prove that the disputed assets belonged to it. The Appellant's prolonged silence during CIRP and liquidation was treated as tacit acquiescence. As the assets had already been auctioned, sale certificate issued, and proceeds distributed, NCLAT found no infirmity in the Liquidator's actions and restrained the Appellant from obstructing removal of the assets.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether, in a dispute over movable assets lying in leased premises and in possession of the liquidator, the burden of proving ownership lay on the liquidator or on the lessor claiming third-party ownership.

1.2 Whether the lessor established ownership or superior rights over the disputed movable assets through the share purchase agreement, the unexecuted draft premise-use agreement, historical lists, and SAP records.

1.3 Whether the lessor's prolonged inaction and failure to object during CIRP and liquidation, despite public notices and inspections, constituted acquiescence and justified inclusion of the assets in the liquidation estate under the Insolvency and Bankruptcy Code.

1.4 Whether the auction sale of the assets and the consequent direction permitting the liquidator and successful auction purchaser to access the premises and remove all movable assets were legally sustainable.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Burden of proof regarding ownership of movable assets in leased premises

Legal framework

2.1 The judgment considers Sections 18(1)(f), 34, 35 and 36 of the Insolvency and Bankruptcy Code, 2016, the IBBI (Liquidation Process) Regulations, 2016, and the general rules on burden of proof under the Bharatiya Sakshya Adhiniyam, 2023.

2.2 Section 18(1)(f) empowers the resolution professional to take control and custody of assets over which the corporate debtor has ownership rights. Sections 35(1)(b) and (c) mandate the liquidator to take into custody all assets of the corporate debtor and sell them. Section 36 provides that assets over which the corporate debtor has ownership rights form part of the liquidation estate, and third-party owned assets are to be excluded.

Interpretation and reasoning

2.3 The Court noted that the resolution professional, upon commencement of CIRP, took control and custody of assets at the leased premises under Section 18(1)(f), after preparing a detailed inventory of 1,874 items, countersigned by the ex-CEO of the corporate debtor, and after audit by statutory auditors.

2.4 The premises remained under lock and key with the liquidator during CIRP and liquidation. The Adjudicating Authority found, and the Court affirmed, that the liquidator had lawful and continuous possession and legal custody of the assets during the insolvency process.

2.5 The Court held that where movable property is in the lawful possession and custody of the liquidator as assets of the corporate debtor, and no contrary ownership is asserted in time, a presumption under Section 36 of the Code operates that such assets form part of the liquidation estate.

2.6 Applying general evidentiary principles under the Bharatiya Sakshya Adhiniyam, the Court held that the burden of proving ownership lies on the person asserting ownership contrary to the party in possession. Thus, once the liquidator is in possession claiming the assets of the corporate debtor, the burden to displace this presumption rests on the third party (here, the lessor) asserting a competing title.

2.7 The Court approved the Adjudicating Authority's reasoning that it was "misplaced" for the lessor to demand ownership proof from the liquidator instead of producing its own purchase memos, asset register, books of account or financial statements.

Conclusions

2.8 The burden of proving ownership over the disputed movable assets lay on the lessor (Appellant) and not on the liquidator. The liquidator was not required to further prove title in the face of mere assertions unaccompanied by cogent evidence from the lessor.

Issue 2 - Whether the lessor established ownership through SPA, Draft Agreement, lists and SAP records

Interpretation and reasoning

2.9 The Court examined the share purchase agreement dated 27.11.2017 and found that the Appellant was not a party or signatory to it. Any rights or claims based on that agreement properly lay with the signatory company (RCL), which is itself in liquidation. The liquidator of RCL had never raised any claim over the assets.

2.10 The Draft Agreement for premise use (relied on by the lessor to show installation of its own assets such as rack space, power, HVAC and other infrastructure) was found to be unsigned, undated, inchoate, and lacking an effective date. It was treated as a mere draft annexed to the SPA, evidencing only a contemplated service arrangement, not a concluded contract conferring title.

2.11 The Court held that neither the SPA nor the Draft Agreement expressly conferred ownership or title over specific movable assets in favour of the lessor, nor did they identify any item-wise list of such assets within the leased premises.

2.12 The Court noted that the list of assets relied upon by the lessor (purportedly as of 2017):

(a) did not specifically correlate to the assets lying inside the premises occupied by the corporate debtor,

(b) mixed items allegedly belonging to the lessor and to RCL,

(c) included assets of common use in common areas (e.g., roof installations) distinct from fixtures installed inside the leased premises by the corporate debtor, and

(d) was therefore incomplete and insufficient as a foundational basis to establish specific ownership.

2.13 On SAP records, the Court recorded the contention that they are internal, editable and self-generated documents. It further held that the SAP records were not placed before the Adjudicating Authority and that even before the Appellate Tribunal, the underlying invoices referred to in the SAP system, which could have substantiated ownership, were admittedly not filed.

2.14 Given (i) the lack of any executed agreement conferring specific asset-wise ownership, (ii) the absence of a clear, demarcated and substantiated list correlated to the disputed inventory, and (iii) the failure to produce purchase documents or financial statements evidencing ownership, the Court held that the Appellant had failed to discharge the burden of proof.

Conclusions

2.15 The lessor did not establish ownership or superior title to the movable assets lying in the leased premises. The SPA and unexecuted Draft Agreement did not confer enforceable rights over the disputed inventories, and the lists and SAP records filed were inadequate and unproven.

Issue 3 - Effect of the lessor's inaction and acquiescence during CIRP and liquidation

Legal framework

2.16 The Court considered the conduct of parties in the context of Sections 18, 35 and 36 of the Code, the time-bound nature of CIRP and liquidation, and the public auction process under the Liquidation Regulations.

Interpretation and reasoning

2.17 The corporate debtor entered CIRP on 26.02.2020. The resolution professional repeatedly visited the premises, took inventory and control, and conducted statutory audits. Emails were sent to RCL (a party to the SPA) in July 2020 seeking information; RCL's reply of 28.07.2020 did not raise any objection or conflicting claim of ownership over the assets.

2.18 During CIRP, no objection or competing ownership claim was raised by either RCL or the Appellant regarding assets lying in the leased premises.

2.19 Upon commencement of liquidation on 17.03.2023, the liquidator issued several public e-auction notices (June 2023, August 2023, September 2024 and October 2024) and repeatedly sought access to the premises for inspection and valuation. The Appellant was fully aware that inspections were being carried out for the purpose of auction.

2.20 The Court noted that the Appellant's first objection (July 2023) concerned non-payment of rent, not ownership. In IA No. 4065 of 2023, the Adjudicating Authority on 06.11.2023 directed that rent be paid on ALV basis and directed the Appellant to allow inspections. Even at this stage, the Appellant raised no dispute about ownership of the inventory.

2.21 In a separate application for recovery of outstanding rent and maintenance (IA No. 1342 of 2023), the Appellant itself pleaded that it had permitted inspections by potential bidders of "goods/assets of ITV lying in the building", again without asserting any contrary ownership.

2.22 The Court emphasised that:

(a) despite repeated communications from the liquidator in February and June 2024 requesting access for inspection and valuation, the Appellant did not seek joint inspection for ownership determination;

(b) the first demand for proof of ownership and claim that some assets belonged to the Appellant and RCL was raised only on 24.12.2024, after completion of the auction, issuance of the sale certificate (10.12.2024), and full payment by the successful auction purchaser; and

(c) the proposal for a joint inspection from the Appellant came as late as February 2025, long after the auction had concluded.

2.23 On these facts, the Court agreed with the Adjudicating Authority that the Appellant's prolonged silence and failure to object during both CIRP and most of the liquidation process amounted to tacit acquiescence to the treatment of the assets as belonging to the corporate debtor.

2.24 The Court held that once the inventory was found in the leased premises, in the possession of the resolution professional and then the liquidator, and no contrary claims were timely received, inclusion of the assets in the liquidation estate under Section 36 operated in favour of the liquidator.

Conclusions

2.25 The lessor's conduct during CIRP and liquidation-raising no timely ownership claim while being fully aware of inspections and auctions-constituted acquiescence. This justified treating the movable assets as part of the liquidation estate and placed the onus firmly on the lessor to prove any contrary entitlement, which it failed to do.

Issue 4 - Validity of auction sale and direction permitting removal of assets

Legal framework

2.26 The Court considered the objectives of the Code and the Liquidation Regulations, especially provisions requiring value maximisation, time-bound completion, and distribution of sale proceeds (including Regulation 42(2) of the Liquidation Regulations).

2.27 The Appellant relied on a precedent holding that a liquidator cannot confer a better title than the company itself had, and that sale of property with defective title may be voidable. The Court examined that proposition in context.

Interpretation and reasoning

2.28 The Court accepted the legal proposition that a liquidator cannot transfer better title than that of the corporate debtor and that buyers should be cautious about title. However, it distinguished the precedent relied on by the Appellant as involving assignment of a lease requiring statutory permission which was absent there; the factual matrix was held to be different from the present case.

2.29 Here, there was:

(a) no concrete evidence that the assets were not owned by the corporate debtor;

(b) continuous lawful custody and control by the resolution professional and liquidator;

(c) timely, public and multiple auction notices;

(d) completion of auction on "as is where is, as is what is and no recourse" basis, with the successful bidder paying the full consideration of Rs. 4.18 crore, and issuance of a sale certificate and possession memo specifying 1,874 units; and

(e) distribution of sale proceeds to stakeholders in terms of Regulation 42(2).

2.30 The Court noted that the Appellant had not challenged the conduct of the auction itself, the declaration of the highest bidder, or the fairness of the process. Its objection arose only after sale completion, focusing on ownership without supportive evidence.

2.31 Emphasising that liquidation is a time-bound process and that undue interference post-completion of auction and distribution of proceeds would derail the insolvency resolution framework, the Court held that there were no grounds to unsettle the sale or to deny access to the successful auction purchaser.

2.32 The Court endorsed the Adjudicating Authority's finding that insisting on proof of ownership from the liquidator and obstructing access without producing any credible contrary evidence amounted to unlawful obstruction of the liquidator's statutory duties.

Conclusions

2.33 The auction sale of the movable assets was valid and unimpeached. The liquidator lawfully sold assets forming part of the liquidation estate, and the proceeds were already distributed. The direction permitting the liquidator and successful auction purchaser to access the premises and remove all movable assets and restraining the lessor from causing obstruction was held to be correct. The appeal challenging that direction was dismissed as devoid of substance.

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