Unauthorised lease deed and unproved consideration cannot create leasehold rights or justify asset inclusion in insolvency proceedings

A lease deed relied on in insolvency proceedings was found incapable of creating leasehold rights where the persons signing it were not shown to be authorised, so the document lacked legal sanctity and was unenforceable. The corporate debtor also failed to prove payment of the stated consideration and lease rent, as the records did not corroborate actual receipt or payment. On that basis, the disputed land could not be treated as part of the corporate debtor's assets, and its inclusion in the information memorandum and plan approval process was unsustainable.

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Issues: (i) Whether the lease deed dated 24.09.2007, on which the corporate debtor claimed leasehold rights, was executed by authorised persons and was enforceable in law; (ii) Whether the corporate debtor proved payment of the stated consideration and lease rent so as to sustain inclusion of the disputed land as its asset and the plan approval based on that claim.

Issue (i): Whether the lease deed dated 24.09.2007, on which the corporate debtor claimed leasehold rights, was executed by authorised persons and was enforceable in law.

Analysis: The disputed lease was examined only for the limited purpose of determining whether it could confer any leasehold right on the corporate debtor. The persons shown in the deed as authorised to execute it on behalf of BSIDC and Magadh were not the persons who actually executed it. The deed itself indicated different authorised signatories, while the execution was by persons who were not shown to possess authority. On that basis, the deed lacked legal sanctity and could not operate as a valid transfer of leasehold interest in favour of the corporate debtor.

Conclusion: The lease deed was held to be unenforceable and incapable of conferring leasehold rights on the corporate debtor.

Issue (ii): Whether the corporate debtor proved payment of the stated consideration and lease rent so as to sustain inclusion of the disputed land as its asset and the plan approval based on that claim.

Analysis: The deed recited an upfront consideration of Rs. 16 crores and annual lease rent, but no reliable material established actual receipt of those sums by BSIDC or proof of payment from the corporate debtor. The bank material and financial records did not support the claimed payments, and the contemporaneous balance sheet and related documents did not corroborate the asserted lease in favour of the corporate debtor. In the absence of proof of consideration, the claim that the land formed part of the corporate debtor's assets could not be accepted, and the inclusion of the property in the information memorandum was unsustainable.

Conclusion: The claimed consideration and lease rent were not proved, and the disputed property was rightly excluded from the corporate debtor's assets for plan approval purposes.

Final Conclusion: The appeals failed because the corporate debtor did not establish any valid leasehold interest in the disputed property, and the impugned order refusing plan approval and directing reconsideration by the CoC was upheld.

Ratio Decidendi: A document claimed to create leasehold rights in insolvency proceedings cannot be treated as the debtor's asset unless its execution by authorised persons and the underlying consideration are satisfactorily proved; a deed found to be unauthorised and unsupported by proof of payment is unenforceable and cannot justify inclusion of the property in the information memorandum.

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