Grounds for Excluding Property from CIRP Proceedings

In the high-stakes world of corporate insolvency in India, the Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code (IBC), 2016, plays a pivotal role in restructuring distressed companies. However, not all assets seamlessly integrate into these proceedings. A common query arises: What are the Grounds for Claiming Exclusion of Property from CIRP Proceedings? This question is critical for creditors, resolution professionals (RPs), and corporate debtors navigating the complexities of insolvency.

This blog explores the primary legal grounds for exclusion, drawing from established regulations, judicial precedents, and key principles. While this provides general insights, it is not legal advice—consult a qualified professional for your specific situation.

Understanding CIRP and Property Exclusion

CIRP commences upon admission of an insolvency petition, imposing a moratorium that freezes individual actions against the corporate debtor's assets. Yet, certain properties may warrant exclusion to uphold fairness, procedural integrity, or pre-existing rights. Exclusions prevent dilution of legitimate claims and ensure the process focuses on viable resolution.

Key regulations like the CIRP Regulations, 2016 (e.g., Regulations 7, 8, 8-A, 9, 9-A) govern claim submissions, while Section 60(5)(c) of the IBC allows tribunals to exclude procedural delays. Courts, including NCLT and NCLAT, have clarified scenarios where properties or related periods fall outside CIRP scope. 2024 2 Supreme 309 2025 Supreme(Online)(NCLT) 8281

Key Grounds for Exclusion

1. Inadequate Proof of Claims

Claims must be substantiated under CIRP Regulations. Failure to provide adequate proof—such as documents under Regulations 7-9A—renders claims unrecognized, potentially excluding associated properties. A claim must be submitted with proof under the relevant regulations... If a claimant fails to provide adequate proof, the claim may not be recognized. 2024 2 Supreme 309

This procedural safeguard ensures only verifiable interests influence the resolution plan.

2. Moratorium Prohibiting Actions

Post-CIRP initiation, a moratorium bars actions against the corporate debtor's property, including under SARFAESI Act, 2002. Once CIRP is initiated, there is a moratorium that prohibits any action against the corporate debtor concerning its property. This includes actions under the SARFAESI Act, 2002, which cannot continue once the CIRP is in effect.

Narendra Singh Panwar VS Pashchimanchal Vidyut Vitran Nigam Limited - Allahabad

Properties under such halted actions may thus be excluded from active CIRP inventory.

3. Independence from Other Proceedings

CIRP operates independently, even alongside winding-up. Properties entangled in parallel litigations may be excluded. CIRP proceedings are independent and can proceed concurrently with winding-up proceedings. This independence may lead to the exclusion of properties that are already subject to other legal proceedings. 2022 0 Supreme(Mad) 2250

4. Failure to File Exclusion Applications

Procedural lapses, like not filing timely exclusion applications in inventory matters, justify exclusions. This extends to CIRP where similar non-compliance occurs. 2008 0 Supreme(Bom) 62

5. Resolution Professional's Discretion

The RP assesses claim viability. Properties irrelevant to resolution or non-contributory may be excluded at RP's discretion. The Resolution Professional (RP) has the authority to determine the viability of claims and the associated properties. 2019 0 Supreme(NCLAT) 802

Additional Grounds from Judicial Precedents

NCLT and NCLAT rulings expand these grounds, emphasizing property status and external factors.

Property Not an Asset at CIRP Commencement

If a lease terminates or property transfers pre-CIRP, it ceases being a corporate debtor asset. The termination of the Lease Deed preceded the commencement of CIRP of the Corporate Debtor. Therefore, as on the date of commencement of CIRP, the Property did not constitute an asset or property of the Corporate Debtor. 2025 Supreme(Online)(NCLT) 8078

Challenges Outside IBC Jurisdiction

Disputes like sale deed challenges or fraud allegations pre-CIRP fall outside IBC. The NCLAT has specifically held that challenges to sale deeds, allegations of fraud in execution, or objections to transfer of property prior to initiation of CIRP do not fall within the scope of IBC proceedings. 2025 Supreme(Online)(NCLT) 8281

Section 60(5)(c) IBC: Excluding Delay Periods

Tribunals may exclude timelines lost to jurisdictional flaws, stays, or good-faith litigations. Section 60(5)(C) of the IBC permits excluding periods from CIRP's 270/330-day limit for delays in non-incidental proceedings, e.g., title disputes or court stays. Section 60(5)(C) of the IBC allows tribunals to exclude certain periods, such as delays due to incidental proceedings or legal challenges. 2024 Supreme(Online)(NCLAT) 1281 2025 Supreme(Online)(NCLT) 8231

Examples include:- Supreme Court stays or civil court moratoriums. 2025 Supreme(Online)(NCLT) 8107- Pandemic-induced delays in property processes. 2022 Supreme(Online)(NCLAT) 6638- Non-cooperation by debtors. 2025 Supreme(Online)(NCLT) 7957

Possession and Agreement Issues

Properties where possession precedes CIRP or construction remains incomplete may qualify for exclusion, absent valid claims. As per Regulation 46A, a property can be excluded when possession of the property has been handed over prior to CIRP. 2025 Supreme(Online)(NCLT) 3223

Exceptions and Limitations

Exclusions aren't absolute:- Committee of Creditors (CoC) Approval: CoC safeguards collective interests. Any exclusion of properties must consider the interests of all creditors. The CoC plays a crucial role. 2022 5 Supreme 515- Collective Approach: Courts prioritize creditor parity over individual claims. 2020 0 Supreme(Del) 1461

Pre-CIRP exclusions require balancing against fraud allegations or partition disputes, but CIRP moratoriums generally prevail. 2017 0 Supreme(Ker) 157

Practical Recommendations

To navigate exclusions effectively:- Submit claims with robust proof promptly.- File exclusion applications without delay if grounds exist.- Monitor RP and CoC actions closely.- Seek NCLT intervention for delay exclusions under Section 60(5)(c).

Conclusion and Key Takeaways

Claiming exclusion of property from CIRP hinges on proof deficiencies, moratorium effects, procedural independence, RP discretion, and precedents like pre-CIRP transfers or jurisdictional exclusions. Section 60(5)(c) further protects against uncontrollable delays, ensuring equitable timelines.

Key Takeaways:- Prioritize documented claims to avoid automatic exclusions.- Leverage moratorium and independence for strategic positioning.- Use judicial ratios for title/sale disputes outside IBC.- Balance individual rights with CoC's collective mandate.

Stay informed on evolving NCLT/NCLAT rulings. For tailored guidance, engage insolvency experts.

References:2024 2 Supreme 309

Narendra Singh Panwar VS Pashchimanchal Vidyut Vitran Nigam Limited - Allahabad

(Word count: 1028. This article is for informational purposes only and does not constitute legal advice.)