NCLAT Reaffirms RP’s Authority: Sham Agreements Cannot Bar Eviction During CIRP

The National Company Law Appellate Tribunal ( NCLAT ), Principal Bench, has delivered a decisive judgment reinforcing the mandate of the Insolvency and Bankruptcy Code (IBC) regarding the control of a Corporate Debtor’s (CD) assets. In the appeal filed by Tru Prime Pvt. Ltd. v. Navneet Gupta , the tribunal upheld the eviction of unauthorized occupants from the premises of Hotel Majestic Park Plaza, affirming that the Resolution Professional (RP) is duty-bound to take possession of all company assets when a Corporate Insolvency Resolution Process (CIRP) is in play.

Background of the Dispute

The dispute centers on the Ludhiana-based Hotel Majestic Park Plaza, which entered CIRP following an application under Section 7 of the IBC by the Tourism Finance Corporation of India . Upon his appointment, the Resolution Professional took control of the hotel’s assets, but encountered resistance from parties occupying specific areas—including a salon, several shops, and multiple rooms—under the guise of "profit-sharing agreements."

The appellant, Tru Prime Pvt. Ltd., claimed a right to occupy these areas based on agreements dated 2019 and 2020. However, the RP argued that these documents were fabrication, were not reflected in the company’s books of accounts, and lacked any supporting proof of consideration—essentially rendering them "sham" documents created to frustrate the insolvency process.

The Arguments: Proprietary Rights vs. Insolvency Mandate

The appellant contended that the Adjudicating Authority ( NCLT ) abused its summary jurisdiction by declaring the agreements as "forged." Citing precedents like Deepak Sakharam Kulkarni and K.K. Jute Products , the appellant argued that CIRP does not automatically terminate contractual rights and that the RP must follow specific legal procedures for eviction.

Conversely, the RP, supported by the Committee of Creditors (CoC) , argued that the hotel is owned by the CD and the appellant had no valid lease or license. They asserted that the documents were produced as a convenient afterthought after the initiation of CIRP, and failing to secure possession would hinder the time-bound objectives of the IBC.

Legal Analysis and the NCLAT 's Stance

The NCLAT distinguished the present case from those relied upon by the appellant. Crucially, the court observed that previous judgments cited by the appellant involved subsisting, valid lease agreements. In this instance, the alleged profit-sharing agreements were unregistered, inadequately stamped, and failed to prove any legal interest in the immovable property.

The bench emphasized that once a CIRP has commenced, the RP has an statutory obligation to regain possession of assets to ensure the maximization of value for creditors. The court noted that attempting to resolve such disputes via separate civil suits would negate the time-bound nature of the IBC.

Key Observations

The judgment clarifies the reach of the NCLT / NCLAT in protecting assets:

• On the RP's Duty: "The Resolution Professional can take steps for taking possession of the assets... the Adjudicating Authority has rightly allowed the application filed by the RP."
• On Validity of Agreements: "The Profit Sharing Agreements... are unregistered Agreements and cannot create any interest in immovable property."
• On the Nature of Occupation: "After commencement of the CIRP, it is the obligation of the Resolution Professional to take possession of all assets of the corporate debtor on which corporate debtor has ownership right."
• On Summary Jurisdiction: "When the Corporate Debtor has the ownership rights over the premises... filing a suit is not contemplated in the statutory scheme contained in IBC."

A Clear Path for Future Insolvencies

The NCLAT ’s decision serves as a significant precedent, warning entities that attempts to claim "occupancy rights" through undocumented or suspicious arrangements during insolvency will not be entertained. By affirming the Adjudicating Authority ’s power to direct evictions in a summary manner, the tribunal ensures that the CIRP remains a streamlined, effective process dedicated to the restructuring of the Corporate Debtor’s assets rather than being bogged down by peripheral property disputes. The appeal was dismissed, clearing the way for the RP to solidify control over the hotel’s full premises.