NCLAT held that the absent possession by the Corporate Debtor and proof of a valid assignment, the RP lacks authority to inspect or control the assets of a third party.
National Company Law Appellate Tribunal (NCLAT), New Delhi Bench comprising Justice Ashok Bhushan (Chairperson) and Barun Mitra (Technical Member) was hearing an appeal and observed that under the IBC, absent possession by the Corporate Debtor and proof of valid assignment, the Resolution Professional lacks authority to inspect or control assets of a third party, affirming that the moratorium does not extend to properties not in the debtor's possession.
The appeal under Section 61 of the Insolvency and Bankruptcy Code 2016 (IBC) was filed by the Appellant against the NCLT Mumbai’s order dated October 5, 2023, which dismissed their application to set aside a notice from the Resolution Professional (RP) seeking inspection of premises owned by the Appellant.
The Appellant owned the "Regent Point" building in Bangalore, leased to M/s Food World Super Markets Pvt Ltd (FWSL) from July 19, 2018, for three years and five months. Allegedly, the lease was assigned to Future Retail Ltd (FRL) without the Appellant's consent. The lease expired on November 14, 2021, and the RP issued an inspection notice on March 29, 2023, after FRL entered the Corporate Insolvency Resolution Process (CIRP) on July 20, 2022.
The Appellant contested the validity of the lease assignment to FRL, claiming no consent was given as required by the lease agreement. They argued the property was no longer in the possession of FRL or the Corporate Debtor during CIRP, making the RP’s notice invalid under IBC.
The Appellate Tribunal found no evidence of consent for the lease assignment to FRL and confirmed the lease had expired without extension. It concluded the property was not in the possession of the Corporate Debtor during CIRP initiation.
Under Section 18(1)(f) of the IBC, the RP is empowered to control Corporate Debtor assets, excluding those owned by third parties. Section 14 imposes a moratorium on asset transfers to maintain the status quo. As the lease had expired and no possession by the Corporate Debtor was established, the RP’s notice to inspect third-party property was deemed inappropriate.
The NCLAT allowed the appeal, setting aside the NCLT’s order and directing the RP to withdraw the inspection notice. It restrained the RP and his staff from dealing with the property and made no cost orders.
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