Burden To Prove Ownership Of Assets Lies On Claimant; Liquidator Not Required To Establish Title To Assets In His Custody: NCLAT

The National Company Law Appellate Tribunal (NCLAT) New Delhi upheld an order passed by National Company Law Tribunal (NCLT) allowing liquidators to remove moveable assets from the leased premises owned by Reliance Realty Limited (RRL) and restraining RRL from obstructing access to such assets. A bench of Justice Ashok Bhushan and Mr. Barun Mitra (Technical Member) held that “when the Liquidator took control and possession of the goods/assets lying in the leased premises, this was also not objected to by the Appellant until completion of the auction process. The Adjudicating Authority was therefore not off the mark to hold that the onus of proof now lay on the entity which challenged the ownership after conduct of auction.” Background: RRL had leased Dhirubhai Ambani Knowledge City (DAKC) premises to Independent TV Limited (Corporate Debtor) for its Direct-to-Home (DTH) operations. Upon default in rental payments, the corporate debtor was admitted into Corporate Insolvency Resolution Process (CIRP) and thereafter liquidation commenced in 2023. During liquidation, the liquidator prepared a list of items to be removed from the leased premises and auctioned them under Regulation 32A of the IBBI (Liquidation Process) Regulations, 2016. M/s Shree Sai Baba Ship Breaking Co. emerged as the Successful Auction Purchaser (SAP). However, Reliance Realty objected to the removal of assets stating that many items belonged to it and its parent company. The NCLT rejected these objections directing the corporate debtor not to obstruct the liquidator or the auction purchaser. Aggrieved, RRL had filed an appeal before the NCLAT. The Appellant submitted that the NCLT wrongly equated possession with ownership and ignored the appellant's claims that the assets belonged to it and RCL. It was further contended that the draft agreement annexed to the Share Purchase Agreement showed that its own items were installed by RRP for use by the corporate debtor. It was further submitted that third party assets in possession of the corporate debtor cannot form part of liquidation estate. It was also argued that the liquidator failed to verify ownership titles or provide documentary proof before auctioning the assets. Per contra, the Respondents submitted that the assets were in possession of the corporate debtor during CIRP and liquidation and no ownership claims were raised during that time period. It was further argued that despite public notices, no objections either by RRL or RCL were raised. Lastly, it was submitted that the burden of proof of ownership rests on the party who claims ownership, not on the Liquidator. The Successful Auction Purchaser submitted that they had paid full consideration amount and still were being denied access which constituted an obstruction under section 70 of the IBC. Findings: The Tribunal rejected the RRL's contentions and upheld the NCLT's findings that the Liquidator lawfully held custody and control of the assets and that the burden of proof rested on RRP to establish its claims. It held that “It is not in dispute that the Corporate Debtor was occupying the Navi Mumbai Premises on the Insolvency Commencement Date and the Liquidation Commencement Date… Thus, it is evident that the Applicant, as Liquidator, holds legal custody of the assets lying at Navi Mumbai Premises. In such a scenario, in a dispute over ownership of movable property lying at Navi Mumbai Premises, the burden of proof rests on the person claiming to be the owner.” The Tribunal further observed that since no objections were raised during the CIRP or liquidation, there was a tacit acceptance that the assets belonged to the corporate debtor. The Tribunal further agreed with the NCLT's findings that the Liquidator cannot be compelled to furnish proof of ownership for assets under his lawful custody. It noted that “No person has the right to retain the custody of the Corporate Debtor's assets or demand the Liquidator to produce proof of ownership in respect of those assets… Requesting ownership documents from the Liquidator, without any valid basis or authority, constitutes an unlawful obstruction of the Liquidator's statutory duties.” The Tribunal further rejected the contention regarding Draft Premise Use Agreement holding that it was unsigned, undated and unenforceable and therefore could not confer ownership rights. It further held that the Appellant's reliance on SPA was misplaced as RRL was not a signatory to that agreement. It held that “there are no signatures of executants thereto. Besides being an unsigned document there is no effective date of commencement or termination provided therein. Furthermore, both the SPA and Draft Agreement, at best, merely contemplated service arrangements but does not expressly confer any right of title or ownership over the inventory/assets lying in the leased premises and therefore did not ...

Burden To Prove Ownership Of Assets Lies On Claimant; Liquidator Not Required To Establish Title To Assets In His Custody: NCLAT

Mohd Malik Chauhan

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Burden To Prove Ownership Of Assets Lies On Claimant; Liquidator Not Required To Establish Title To Assets In His Custody: NCLAT

Mohd Malik Chauhan

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INR 1099+GST

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