2026 (3) TMI 205 - AT - IBC

Lease instrument validity denied where execution by unauthorised signatories and lack of payment evidence precludes CIRP inclusion.

Whether a lease deed can establish leasehold rights for CIRP inclusion was decided by reference to execution authority, proof of consideration, corporate ... Validity of lease deed executed by authorised signatory - leasehold interest - burden of proof for consideration - proof of consideration for transfer of leasehold rights - inclusion of disputed asset in information memorandum - scope of adjudicating authority to determine fraud or forgery in IBC proceedings. Validity of lease deed executed by authorised signatory - Whether the Lease Deed dated 24.09.2007 was executed by persons authorised to bind BSIDC and Magadh such that it could vest leasehold rights in the Corporate Debtor. - HELD THAT: - The Tribunal found that the Lease Deed itself recorded that specific officers (A.K. Srivastava and B.B. Lal in respect of BSIDC; J.S. Misra and B.B. Lal in respect of Magadh) were authorised to execute the deed, but the deed was in fact executed on behalf of BSIDC by one Dashrath Prasad (a typist) and on behalf of Magadh by a person not shown to be a director. On this basis the Adjudicating Authority was justified in concluding that the Lease Deed was not executed by authorised persons and therefore could not confer any right on the Corporate Debtor. The Tribunal accepted that conclusion and held that the deed was unenforceable for want of execution by authorised signatories. [Paras 16, 28, 29, 30, 31] Lease Deed dated 24.09.2007 was not executed by authorised persons on behalf of BSIDC and Magadh and therefore did not vest leasehold rights in the Corporate Debtor. Proof of consideration for transfer of leasehold rights - Whether the Corporate Debtor proved payment of the upfront consideration and lease rent recorded in the Lease Deed so as to make the deed enforceable. - HELD THAT: - The Adjudicating Authority noted the Memorandum of Consideration in the Lease Deed alleging payments by various cheques, but the bank statement produced showed no debits corresponding to those cheques and no other reliable documentary evidence of payment was placed on record by the Corporate Debtor or the Resolution Professional. In the absence of proof of the alleged upfront payment and lease rent, the transaction could not be treated as having transferred leasehold rights. The Tribunal upheld this conclusion that the required proof of consideration was not produced and made the deed unenforceable on this ground as well. [Paras 16, 31, 33, 34] No admissible evidence was produced to prove the upfront payment or lease rent alleged in the Lease Deed; absence of such proof renders the Lease Deed unenforceable. Scope of adjudicating authority to determine fraud or forgery in IBC proceedings - inclusion of disputed asset in information memorandum - HELD THAT: - It is well settled that fraud and forgery are issues, which require evidence to be taken for returning any finding of fraud and forgery. The Adjudicating Authority conducts the IBC proceedings in accordance with the IBC and CIRP Regulations and it cannot act as a Civil Court to enter into issues of fraud and forgery, take evidence and return any findings. However, whether an asset, which is claimed by the CD is asset of the CD, is a question, which needs to be considered and answered by the Adjudicating Authority and Adjudicating Authority has ample jurisdiction to decide the issue whether the particular asset, which is claimed by the CD as its asset can be treated to be asset of the CD or not. However, above is with a caveat that while deciding such question, the Adjudicating Authority cannot embark upon the issues pertaining to fraud and forgery. Any document, which is alleged to have been obtained by fraud or manipulation, becomes a voidable document, which requires a declaration to lose its enforceability. However, when a document can be established as void or unenforceable, it does not require any declaration. Thus, the limited jurisdiction, which can be exercised by the Adjudicating Authority is as to whether any document claimed in the proceedings is void or unenforceable. We have to consider the submissions of the parties in the light of the above principles, which are well established. As noted, the bone of contention between the parties are on the Lease Deed dated 24.09.2007, which is claimed to have been executed in favour of the CD, on the basis of which the CD claims leasehold rights, which was shown by the RP in the Information Memorandum. On the other hand, both BSIDC and Magadh have denied to have executed the said Deed and further denied to have received any consideration as was claimed in the document. [Paras 23, 24, 35] Given the unenforceability of the Lease Deed, the Adjudicating Authority rightly excluded the disputed land and plant from the Corporate Debtor's assets and declined plan approval; this conclusion was within its limited IBC jurisdiction and did not amount to an impermissible adjudication of fraud or forgery. Final Conclusion: The impugned decision of the Adjudicating Authority is upheld: the Lease Deed dated 24.09.2007 was found unenforceable for want of execution by authorised signatories and for failure to prove consideration, the disputed land and plant cannot be treated as assets of the Corporate Debtor for inclusion in the Information Memorandum, and the appeals are dismissed; the order does not preclude the financial creditor from pursuing other lawful remedies to recover its dues. Issues: (i) Whether the Lease Deed dated 24.09.2007 can be treated as conferring leasehold rights in the disputed land and therefore included in the Corporate Debtor's Information Memorandum for the purposes of CIRP and plan approval.Analysis: The Tribunal examined (a) the execution clauses of the Lease Deed identifying authorised signatories and the fact that the Deed was executed by persons who were not shown to be authorised; (b) documentary and account evidence said to demonstrate payment of the upfront consideration and lease rents alleged in the Deed, including bank statements and the absence of debits corresponding to the cheques listed in the Deed; (c) contemporaneous corporate records (Magadh balance sheet and Form-20B) and conveyance deeds showing the timeline of title transfers; and (d) settled law limiting the Adjudicating Authority in IBC/CIRP to summary adjudication with respect to fraud/forgery while retaining jurisdiction to decide whether an asserted asset is the debtor's asset for inclusion in the Information Memorandum. On facts, the Deed itself recorded authorised officers but was executed by other persons; no reliable proof of the alleged Rs.16 crore upfront payment or lease rentals was produced; the Magadh balance sheet and conveyance deeds did not corroborate transfer of lease rights to the Corporate Debtor; and criminal investigation and civil complaints regarding the Deed were on record. Applying the legal framework, the Tribunal held that a registered instrument executed by unauthorised persons and unsupported by evidence of consideration is unenforceable for the purpose of establishing title/leasehold rights in the CIRP; and that inclusion of an asset in the Information Memorandum requires sufficient proof that the asset is the Corporate Debtor's asset, which was lacking here.Conclusion: Issue decided in favour of Respondent; the Lease Deed dated 24.09.2007 is unenforceable for purposes of establishing leasehold rights of the Corporate Debtor and the disputed land with plant and machinery is not to be included in the Corporate Debtor's Information Memorandum.