The New Delhi Principal Bench of the National Company Law Appellate Tribunal (NCLAT) has held that a hire purchase agreement of this nature does not create ownership in favour of the corporate debtor, but it can create valuable contractual possession and development rights. Such rights, if subsisting on the insolvency commencement date, are capable of constituting assets under Sections 18 and 25 of the IBC and may be considered in CIRP and a resolution plan. However, the RP and CoC cannot treat land owned by a statutory authority as if it belongs to the corporate debtor, and no resolution plan can compel transfer of ownership, compulsory regularisation of unauthorised construction, or grant of statutory approvals contrary to law.
The Tribunal further held that the NCLT was wrong to reject the resolution plan only on the narrow ground that ownership of land did not vest in the corporate debtor. The correct inquiry was whether any contractual or developmental rights survived in favour of the corporate debtor and how those rights, along with the interests of homebuyers and the statutory powers of UPAVP, had to be accommodated within the IBC framework. But since the plan as framed wrongly dealt with third-party land itself and assumed mandatory regularisation, the remand to the CoC was justified.
The NCLAT therefore allowed UPAVP’s appeal against the de-sealing order, holding that the basis for de-sealing was factually unsustainable because sealing and confiscation had taken place before CIRP and for unauthorised construction.
On the de-sealing issue, the Division Bench comprising Justice Mohd. Faiz Alam Khan (Judicial Member) and Naresh Salecha (Technical Member) found that the NCLT had proceeded on an incorrect factual basis while directing de-sealing. The appellate tribunal noted that the sealing and confiscation of the property had happened much before commencement of CIRP and moratorium, and that these actions were taken because of unauthorised construction in violation of the approved plan, not because of non-payment of instalments. On that basis, NCLAT held that the NCLT’s de-sealing order dated 17 October 2023 could not survive.
At the same time, NCLAT clarified that the real legal question was not confined to who owned the land. It held that even if ownership remained with UPAVP, the adjudicating authority still had to examine whether the corporate debtor had any contractual, possessory or development rights in the land that could form part of the insolvency estate and be reflected in the information memorandum and resolution plan.
After examining the hire purchase agreement, NCLAT held that the arrangement was not a simple lease, not a bare licence, and not an outright sale. It described the agreement as a composite hire-purchase development arrangement under which ownership remained with UPAVP, but the corporate debtor was granted valuable rights such as possession, construction, commercial exploitation, transfer of units subject to the contract, and eventual conveyance upon payment of dues. These rights were held to have clear economic value.
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The tribunal held that such contractual and developmental rights are capable of constituting “assets” under Sections 18 and 25 of the IBC, even though the underlying land is owned by a third party. It relied on the broader understanding of “property” and “asset” under insolvency law and commercial jurisprudence, while also making clear that the RP cannot claim rights higher than those actually held by the corporate debtor.
On UPAVP’s argument that the agreement had automatically stood cancelled on account of default under Clause 3(o), NCLAT found that this was not sufficient by itself to conclude that all rights had come to an end before CIRP. The tribunal noted that no formal order cancelling the agreement or allotment had been passed, the sealing action was linked to illegal construction and not instalment default, and no eviction proceedings under the relevant Public Premises Act had been shown. These facts created serious doubt about whether all contractual rights of the corporate debtor had truly been extinguished before insolvency commencement.
NCLAT also treated UPAVP’s own conduct as significant. It observed that UPAVP had filed a claim in CIRP not merely for damages, but for balance land consideration, instalments, interest, map charges, FAR charges and compounding charges. According to the tribunal, while filing a claim did not by itself amount to waiver, the nature of the claim showed that UPAVP itself was asserting continuing obligations under the original arrangement, and that the project and its regulatory consequences had not been treated as entirely non-existent.
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The Tribunal placed heavy emphasis on the fact that third-party rights had already been created in favour of 144 flat buyers and 44 shop buyers. It said these allottees could not be ignored in the insolvency process, especially because allottees are recognised as financial creditors in a class. At the same time, it balanced this by holding that homebuyers cannot get a better title than the corporate debtor itself had. So, their presence strengthens the case for examining surviving contractual rights, but does not defeat UPAVP’s ownership.
When NCLAT examined the actual resolution plan, it found a serious flaw. The plan effectively treated the land as if it could be transferred to the corporate debtor on payment of Rs. 20 crore as full and final dues, and it also sought to bind UPAVP to approve revised maps, extend approvals, waive future penalties and compounding fees, de-seal the property, and permit mortgage over the project land. NCLAT held that this impermissibly dealt with third-party land as though it belonged to the corporate debtor and sought to compel regularisation of illegal construction without examining whether such regularisation was permissible under the governing legal framework.
Briefly, the case arose out of a dispute over a commercial plot at Vasundhara, Ghaziabad, originally allotted by Uttar Pradesh Housing and Development Board/UPAVP to Ramesh Kumar Prasad through auction in December 2006, with the allotment letter issued in April 2008. The total land price was about Rs. 25.62 crore, payable partly upfront and the balance in instalments with interest. Later, on the allottee’s request, K.S.N. Buildwell Pvt Ltd. was added as a joint allottee in March 2010, though the ownership of the original allottee was stated to remain intact.
A hire purchase agreement dated 30 March 2010 was then executed between UPAVP, the original allottee and K.S.N. Buildwell. Under this arrangement, the corporate debtor was put in possession of the land, was required to pay instalments, and was given rights to construct on the plot. The agreement also contemplated that a conveyance deed would be executed only after full payment of dues, and until then the allottee’s status remained that of a tenant/hire purchaser. Construction permissions were granted over time, including approval of a map for commercial and group housing development.
However, UPAVP maintained that land use change and enhanced FAR would be considered only after arrears were cleared and registration was completed. Despite repeated notices and even consideration of a one-time settlement, the dues remained unpaid. UPAVP also alleged that K.S.N. Buildwell made unauthorised construction beyond the approved plan. A show cause notice and demolition-related communications were issued in 2017, and the property was ultimately sealed on 27 August 2019 under the Uttar Pradesh City Planning and Development Act, 1973. Later, a recovery certificate for over Rs. 81.62 crore was issued in January 2021 for recovery through the District Magistrate, and the property was also subjected to confiscation proceedings.
Meanwhile, CIRP against K.S.N. Buildwell commenced on 11 October 2022 on a Section 7 application filed by Omkara Assets Reconstruction Company Ltd., and an IRP/RP was appointed. During CIRP, the RP moved an application seeking de-sealing of the property, and the NCLT allowed that application on 17 October 2023. Separately, UPAVP filed a claim of about Rs. 139 crores in Form B. A resolution plan submitted by Bhati Associates was approved by the CoC with 100% voting share, but UPAVP objected to it.
The project had, by then, substantially progressed. The record showed that 4 buildings had been constructed and 144 flats and 44 commercial shops had been allotted to homebuyers and shop buyers. The NCLT later remanded the resolution plan back to the CoC on 27 March 2025 on the ground that third-party land had been included in the plan. This led to three connected appeals: one by UPAVP against the de-sealing order, one by the RP against the remand of the resolution plan, and one by the authorised representative of homebuyers also challenging the remand.
