Whether NCLT or NCLAT has the power to adjudicate a dispute which had already occurred prior to the initiation of the Corporate Insolvency Resolution Process?

Brief Facts of the Case:

On 03.09.1998, M/s Kitply Industries Limited (“Corporate Debtor”) and SICOM Limited (“Appellant”) entered into an Agreement to Sale (“Agreement”) with regards to Igatpuri Unit (“Property Land”) of the Appellant. As per the Agreement, it was agreed that after the payment of the consideration amount within the specified time frame, the possession of the Property Land would be handed over to the Corporate Debtor. However, the Corporate Debtor defaulted in making payments in terms of the conditions stipulated in the Agreement.

Proceedings before the NCLT

Vide an order dated 01.05.2018, the National Company Law Tribunal, Guwahati Bench (“NCLT”) initiated the Corporate Insolvency Resolution Process (“CIRP”) of the Corporate Debtor and declared moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 (“Code”). Subsequently, the Successful Resolution Applicant of the Corporate Debtor filed an application under Section 60(5) read with Section 74(3) of the Code against the Appellant seeking directions to transfer the Property Land to the nominee of the Corporate Debtor.

The NCLT vide an order dated 31.08.2021 (“Impugned Order”) allowed the application filed by the Successful Resolution Applicant of the Corporate Debtor. Aggrieved by the decision of the NCLT, the Appellant preferred an appeal before the National Company Law Appellate Tribunal (“NCLAT”) wherein the Impugned Order passed by the NCLT was challenged.

Observations and Decision of the NCLAT

The Hon’ble NCLAT observed that in the present case, till date, the title of the Property Land has not been transferred in the name of the Corporate Debtor. Further, the present dispute is regarding either payment of the remaining consideration amount as per the Agreement or non-execution of sale deed. The said dispute arose much before the initiation of the CIRP of the Corporate Debtor. Furthermore, on the basis of the Agreement, the Property Land could not by any stretch of imagination be treated as an ‘asset’ of the Corporate Debtor under Section 18 of the Code as the title of the Property Land does not vest with the Corporate Debtor.

NCLAT also observed that as per the Resolution Plan submitted by the Successful Resolution Applicant, the transfer of the Property Land was to be effected only after the settlement of the dispute and in the instant case, the dispute between the parties is still existing. Furthermore, as per the Agreement, the sale deed shall only be executed after payment of the full consideration amount, failing which the title of the Property Land still lies with the Appellant.

Thus, the Hon’ble NCLAT held that the NCLT has exceeded its jurisdiction and made a grave error while passing the Impugned Order. The NCLAT further held that in the present case, the question whether the Appellant has breached the terms of the Agreement is not amenable to adjudication in the present proceedings. Therefore, the title of the Property Land still vests with the Appellant, and the dispute between the parties is required to be examined by the court of competent jurisdiction.

Reference: SICOM Ltd. Vs. Kitply Industries Limited [C.A (AT) (Ins) No. 849 of 2021]