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NCLAT Holds Property Inspection Order in Liquidation Does Not Affect
In a significant clarification for insolvency practitioners, the in New Delhi held on that an order directing inspection and measurement of a property claimed to form part of a corporate debtor’s does not affect disputed ownership or . The appeal, filed by and its partner, was dismissed, with the Bench observing that the order was merely administrative in nature and intended to assist the liquidator in identifying and segregating assets.
The dispute arose from the liquidation proceedings of a corporate debtor, where the liquidator sought possession of Unit A-2, Mumbai, relying on an agreement for sale dated . The appellants, and its partner, claimed ownership through a chain of subsequent transactions, asserting that the property had been sold to third parties before being acquired by them.
Background of the Dispute
The liquidator moved the , Mumbai Bench, seeking an order for inspection and measurement of the property, arguing that it formed part of the . The corporate debtor’s liquidation proceedings were ongoing, and the liquidator needed to take physical possession of the asset. However, the appellants disputed the corporate debtor’s title, contending that the property no longer belonged to the debtor and thus could not be part of the .
The NCLT, while considering the liquidator’s application, acknowledged a fundamental jurisdictional limitation: questions concerning the ownership and possession of immovable property between the corporate debtor and third parties fall outside the purview of the insolvency tribunals and lie with civil courts. Nevertheless, the NCLT directed inspection and measurement of the property, stating that such an order was necessary for the liquidator to segregate the portion belonging to the corporate debtor and to take appropriate steps if any was found.
Appellants’ Challenge and Liquidator’s Response
Aggrieved by the NCLT’s order, the appellants approached the NCLAT. They argued that once the NCLT had admitted it lacked jurisdiction to adjudicate ownership disputes, it could not simultaneously order an inspection of their property. The corporate debtor’s title, they emphasised, was itself in question, and any inspection would effectively prejudice their . The appellants further contended that the NCLT could only deal with property that unequivocally belonged to the corporate debtor and formed part of the .
In response, the liquidator submitted that the inspection was strictly limited to . Without such an order, the liquidator would be unable to ascertain the exact boundaries of the corporate debtor’s property and would be hampered in taking lawful possession of the .
NCLAT’s Ruling and Reasoning
A Bench comprising Judicial Member Justice Mohd Faiz Alam Khan and Technical Member Naresh Salecha examined the scope of the . The NCLAT noted that the NCLT had correctly held that complex and disputed questions of title and possession of immovable property between third parties fell outside its jurisdiction. However, the Bench drew a careful distinction between adjudicating rights and facilitating identification.
The Tribunal observed:
“Therefore, so far as the ownership or of the Appellants are concerned that in our considered opinion are not affected by the as the order of inspection and measurement has been passed with consequential direction of taking appropriate steps to liquidator.”
The Bench further clarified:
“However, keeping in view that the property which according to the Liquidator is included in the of the CD be segregated it directed the inspection and measurement of the same only for the purpose that the Liquidator, in emergence of by the Appellant may take appropriate action in accordance with law.”
The NCLAT emphasised that the did not adjudicate or prejudice the appellants’ ownership or . It was a purely aimed at enabling the liquidator to identify and segregate the assets of the corporate debtor. The order did not confer any substantive right on the liquidator over the property; it merely allowed measurement and inspection.
Implications for Insolvency Practice
This ruling provides critical guidance to liquidators and insolvency professionals who often face resistance when attempting to inspect properties claimed by third parties. The NCLAT has made it clear that a direction for inspection and measurement is not equivalent to a determination of ownership. Liquidators can now seek such orders from the NCLT without the risk of being accused of interfering with third-party rights, provided the order is limited to .
The judgment also reinforces the boundary between the jurisdiction of insolvency tribunals and civil courts. While the NCLT cannot decide title disputes, it can issue that are necessary for the administration of the . This pragmatic approach balances the need for effective asset realisation with the protection of third-party claims.
From a legal perspective, the NCLAT’s reasoning mirrors the principle that administrative directions do not require a full adjudication of contested facts. As long as the liquidator has a basis to believe the property belongs to the corporate debtor, the tribunal can direct inspection to verify the claim without deciding the ultimate ownership.
Broader Context and Future Directions
The case highlights a recurring challenge in insolvency law: the tension between swift asset recovery and the rights of third parties claiming legitimate ownership. The prioritises the maximisation of value for creditors, but it also respects property rights. The NCLAT’s judgment provides a clear procedural roadmap: the liquidator may seek inspection, and if the inspection reveals or wrongful possession, the liquidator can then approach the civil court for appropriate relief.
For legal practitioners, this decision underscores the importance of framing applications before the NCLT carefully. Rather than seeking a declaration of ownership, a liquidator should pray for an order limited to inspection and measurement. This reduces the risk of appeals and delays.
The appellants, represented by advocates , , and , had argued that the NCLT could not act beyond its jurisdiction. The NCLAT, while agreeing that the NCLT cannot decide title, disagreed that inspection was . The respondents, represented by advocates and , successfully argued that the order was necessary for the liquidator to perform his statutory duties.
Conclusion
The NCLAT’s judgment is a welcome clarification for insolvency stakeholders. It confirms that property inspection orders in liquidation do not affect and are permissible to enable of assets. The appeal by was dismissed, and the NCLT’s order was upheld.
Going forward, liquidators can be more confident in seeking such directions, while third-party claimants retain the right to pursue their title in civil courts. The decision strikes a pragmatic balance between the competing interests of expedient liquidation and due process.
