1. Introduction

1.1. The Supreme Court of India ("SC") by way of a judgment in Victory Iron Works v. Jitendra Lohia & Anr., 2023 SCC OnLine SC 260 held that the term "property" under Section 3(27) of the Insolvency and Bankruptcy Code, 2016 ("the Code"), includes any interest that a Corporate Debtor may hold over an asset, in this case, development rights over a parcel of land that is owned by or in the possession of a third party. It also held that the Resolution Professional ("RP"), in discharge of his duties under the Code, may take control of the property.

1.2. The land in question was a 10 acre plot owned by Energy Properties ("Energy") in Howrah, West Bengal. Energy received financial assistance from Avani Towers Private Limited ("CD") for the purchase of the land and had also executed a joint development agreement ("JDA") with the CD for its development. A portion of the land (about 10,000 sq.ft.) was licensed to Victory Iron Works ("Victory"), even though Victory contended that it was in possession of the entire land.

1.3. The CD was admitted into corporate insolvency resolution process ("CIRP") on 15 April 2019 through an application under Section 7 by the National Company Law Tribunal("NCLT"). After the first meeting of the committee of creditors ("CoC"), the suspended board of directors informed the RP that Energy was forcefully removing the security guards from the property in question. Accordingly, the RP filed an application under Section 25 of the Code read with Regulation 30 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 ("Regulations") praying for (i) a direction to Energy and Victory not to obstruct the sole and exclusive possession of the property; and (ii) a direction to the local district administration to assist the RP in taking possession of the property so as to discharge his duties under the Code.

1.4. While contesting the jurisdiction of the NCLT to entertain such an application, Victory also filed an independent application seeking to restrain the RP from disturbing its day-to-day activities in the plot. NCLT directed Victory and Energy not to obstruct RP's possession and his activities as part of CIRP. NCLT further directed that Victory's activities in the part of the land in its possession was not to be affected until Energy took a decision on the further course of action. Appeals were filed by Victory and Energy before the National Company Appellate Law Tribunal ("NCLAT") which were dismissed by the NCLAT by an order dated 08 April 2021.

1.5. Victory and Energy then filed Appeals before the SC and inter alia contended that it was Energy who was the owner of the land, and that the RP was not entitled to take control of the same as it was not an asset of the CD. Further it was argued that the NCLT did not have power under the Code to evict a tenant/lessee/licensee in possession of the property. The RP contended that development rights constitute intangible assets of the CD and by virtue of the same, he was entitled to take control of the same.

1.6. The question that arose in the appeals before the SC was whether the development rights held by the CD over the property could be included in the Information Memorandum under Regulation 36 of the Regulations and whether the NCLT or NCLAT exceeded their jurisdiction by passing the impugned orders.

2. Summary of findings

2.1. The SC noted that Sections 18 and 25 of the Code refer to "assets" and not "properties" of the CD. It embarked on a study of the meaning assigned to these terms in the legislations mentioned in Section 3(27) of the Code and the documents pertaining to the property in question and held that a bundle of rights and interests were created in favour of the CD for a valid consideration, and that the same would constitute an "asset" within the meaning of Section 18(f) and Section 25(2)(a) of the Code.

2.2. The SC observed that Explanation (a) to Section 18 of the Code excludes assets owned by a third-party in possession of the CD from the scope of Section 18(f) and could not be extended to Section 25, which places a duty on the RP to take immediate custody and control of all the assets of the CD.

2.3. The SC juxtaposed the rights of a 'licensee' as against a 'lessee', noting that a licensee does not have any interest in the property, and held that the NCLT and NCLAT rightly balanced the interests of both parties by protecting the interest of Victory to the extent of land occupied, while also protecting the possession of the CD.

3. KCO comment

3.1. This judgment from the SC is notable for two reasons. Firstly, the judgement explains the nature of rights under a JDA, which is commercially relevant in a time where brownfield development projects are gaining momentum in the country. Secondly, the judgement reiterates the powers of the NCLT or NCLAT to issue directions regarding rights of possession held by a tenant/lessee/licensee over a property in which the CD has an interest in the course of CIRP, following the principles laid down by a three-judge bench of the SC in Rajendra K Bhuta v MHADA & Anr., (2020) 13 SCC 208.

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