K. Parthipan Rasu vs R. Venkatakrishnan

[Per: Justice Sharad Kumar Sharma, Member (Judicial)]

The Appellant, in the capacity of being the suspended director of the Corporate Debtor, M/s Star Trace Private Limited, challenges the propriety of the impugned order dated 23.06.2025, which was rendered by the Ld. NCLT, Special Bench, Court-II, Chennai in IA (IBC)/931(CHE)/2025. The said interlocutory application was preferred in CP (IBC)/304/CHE/2020, in a proceeding that was being held under Sections 35(2) and 35(1), read with Section 60(5) of the I&B Code, 2016. The Ld. Adjudicating Authority issued directions to the Appellant to vacate and hand over possession of Assets No. 2 to 4, as mentioned in Paragraph 16 of IA (IBC)/931/CHE/2025, within two weeks from the date of the order.

The order also directed the Liquidator to obtain police assistance, if necessary, to secure possession of the assets in the event that the Appellant failed to vacate within the prescribed two-week period. The Ld. Counsel for the Appellant primarily challenges the impugned order on three limited grounds, as follows:

Before dealing with the aforesaid three grounds raised by the Appellant, it is clarified that the auction process, as per the documents and orders on record, stood concluded, and on 24.05.2025, M/s Rashmi Cements was declared the purchaser of the assets. It is an undisputed fact that the Liquidator, in consultation with the Stakeholders’ Consultation Committee during its 6th meeting held on 17.04.2025, issued the process memorandum on 21.04.2025 for conducting the e-auction sale on 22.05.2025. The letter of intent was issued to the purchaser on 26.05.2025, and the Sale Certificate was issued on 11.06.2025.

As far as the Appellant is concerned, it is admitted that he had participated in the earlier e-auction process, was declared unsuccessful, and was thus estopped from contending that the third e-auction, pursuant to which the Sale Certificate dated 11.06.2025 was issued, was conducted without his knowledge. From the very inception of the auction process commencing on 17.04.2025, the Appellant had been regularly contesting the proceedings. However, to date, he has not challenged any of the auction proceedings leading to the issuance of the Sale Certificate dated 11.06.2025. Having participated in the auction process, he cannot now contend that the e-auction initiated on 17.04.2025 and concluded on 11.06.2025 was defective or unknown to him. Since the auction process was in the public domain, no personal intimation was required or contemplated under law to be given to an earlier unsuccessful bidder. Publication of the auction notice itself is deemed sufficient notice to the Appellant. Moreover, an unsuccessful bidder has no vested legal right, which will be sustainable under law.

Another argument advanced by the Appellant is that the third auction process, culminating in the Sale Certificate dated 11.06.2025, violated the terms of a lease. Under the lease, only one of the five assets pertained to the leasehold rights; the remaining assets lay outside its purview. The auction in question related to Assets No. 2, 3, 4, and 5, which were not subject to the lease deed. The Ld. Counsel for the Respondent thus correctly contends that the Appellant cannot argue that the auction violated the lease conditions, particularly since the lease deed was unregistered and the lessor raised no objections even during the first auction process, which had failed.

Once the Appellant failed to deposit the Earnest Money Deposit (EMD) and was consequently disqualified from participation in the auction process, he cannot challenge the subsequent e-auction concluded on 11.06.2025, which was conducted on an “as is where is” basis.

The grounds raised by the Appellant are vehemently opposed by the Respondent-Liquidator and the successful bidder. They contend that it is incorrect to argue that all assets (Assets No. 1 to 5) were covered under the lease deed. Asset No. 1 alone pertained to the lease; Assets No. 2, 3, 4, and 5, which were auctioned on 22.05.2025, were not covered by the lease deed and hence the objection raised by the Appellant is not sustainable.

The Respondents further submit that since the Appellant participated in the e-auction and was declared unsuccessful for failure to deposit the EMD, and since he did not challenge the auction proceedings, he has no locus to file the present appeal against the order directing delivery of possession of Assets No. 2 to 4 in IA (IBC)/931(CHE)/2025, which was made to enforce the sale certificate consequent to the finalization of the same.

The attempt made by the Ld. Counsel for the Appellant regarding the effect of the two pending interlocutory applications, IA No. 504/2025 and IA No. 576/2025, contending that during their pendency IA (IBC)/931(CHE)/2025 ought not to have been considered or decided and that the proceedings should have been deferred, is denied by the Ld. Counsel for the Respondent. The Respondent submits that IA No. 504/2025 and IA No. 576/2025, both filed by the Liquidator, concerned Asset No. 1, as detailed in Paragraph 16 of IA (IBC)/931(CHE)/2025, and as noted in the impugned order, those matters were directed to be listed on 18.07.2025. On this basis, the Appellant has no locus to challenge the impugned order by raising arguments relating to the leased property. Since the lease is not a registered document, it cannot be considered for determining the controversy arising from the order passed in IA (IBC)/931(CHE)/2025 relating to delivery of possession. Asset No. 1 is distinct and independent from the properties forming the subject matter of IA (IBC)/931(CHE)/2025.

As regards the argument made by the Appellant that, since the controversy relating to Asset No. 1 was directed to be listed on 18.07.2025, IA (IBC)/931(CHE)/2025 should also have been considered along with the other pending IA's, the Ld. Counsel for the Respondent submits that IA (IBC)/576/2024 was considered by the Tribunal and was disposed of as infructuous by order dated 18.07.2025. Only IA (IBC)/504/2025 remained pending thereafter. By the time IA (IBC)/931(CHE)/2025 was considered by the NCLAT, IA (IBC)/576/2025 had already been rejected on 18.07.2025. Hence, the contention that IA (IBC)/931(CHE)/2025 should not have been considered solely because IA No. 504/2025 was pending is misconceived, because the relief sought in IA No. 504/2025 has no direct bearing on the decision required in IA (IBC)/931(CHE)/2025.

The Ld. Counsel for the Respondent further contended that the contention that IA (IBC)/931(CHE)/2025 ought not to have been allowed lack merit because the arguments now raised concerning the leased property and the auction of leased assets cannot be permitted at this appellate stage, particularly when such grounds were never raised in the appeal before Ld. NCLT, and when the Appellant has already been disqualified from the auction process.

More importantly, Assets No. 2, 3, 4, and 5 were earlier also part of the auction process initiated on 22.04.2025. The Appellant participated in that process, was declared unsuccessful, and did not challenge either the auction confirmation or the issuance of the Sale Certificate. The Appellant therefore cannot now agitate a challenge to the impugned order directing the handing over of possession of Assets No. 2, 3, 4, and 5 when the confirmation of sale and issuance of the Sale Certificate have never been challenged.

Considering the controversy in its entirety, along with the pleadings, it is evident that the submissions now advanced by the Appellant are beyond the scope of the appeal, particularly in the absence of any specific pleading supporting such grounds. At the appellate stage, being a continuation of the proceedings before the Adjudicating Authority, no new grounds can be raised unless specifically pleaded and substantiated, enabling the opposite party to respond on merits. Findings cannot be rendered on unpleaded grounds, as doing so would require prior testing of evidence. Proper pleadings are essential to allow the opposing party an opportunity to contest them. Since no such grounds have been pleaded, raising them now would amount to agitating issues outside the ambit of the main controversy.

The Appellant voluntarily participated in the earlier auction concerning the same property and was declared unsuccessful due to his own failure to deposit the EMD within the stipulated time. Once the auction proceedings closed against him, and particularly since the auction was never challenged, and in light of the order dated 18.07.2025 passed in IA No. 504/2025 and IA No. 576/2025, no cause of action survives for the Appellant to question the impugned order, which is merely consequential, ensuring the enforcement of the direction to hand over possession of the assets, confirmed by the Sale Certificate dated 11.06.2025, which has attained finality.

Another significant aspect is that the Appellant challenges the impugned order on the ground of the issuance of the Sale Certificate without having challenged the sale itself. Furthermore, no Sale Certificate has been placed on record by the Appellant for scrutiny by this Tribunal even at the stage of arguments. The terms of the lease deed have also not been produced. The impugned order merely enforces the auction sale conducted on 22.05.2025, which has never been challenged and has attained finality. The pendency of an appeal against the liquidation order will have no bearing on the present controversy, as the mere pendency of proceedings does not amount to an automatic stay of actions taken pursuant to the impugned order.

With respect to the challenge against the impugned order directing delivery of possession and, in default, deployment of police assistance, the Appellant made an unsuccessful attempt to rely on the NCLAT judgment reported in 2018 SCC OnLine 899, Raj Builders v. Raj Oil Mills Ltd. & Another. The reliance placed on Paragraph 3 of the said judgment is misplaced, as the factual circumstances in Raj Builders are entirely distinct and not applicable to the present case. The said authority and particularly, the observation made in para 3, which has been relied upon by the Ld. Counsel for the Appellant, is extracted hereunder: -

The facts and circumstances detailed above show that the process adopted in the present case cannot be faulted on the basis of the authority in Raj Builders (supra), since that decision is based on materially distinct facts and has no applicability here.

Factually, the said judgment is based on an entirely different set of facts and does not relate to the circumstances under which the impugned order in the present case has been passed. In Raj Builders (supra), the Ld. Adjudicating Authority had approved a Resolution Plan which had not been approved by the Committee of Creditors. The grievance raised there concerned the expiry of a tenancy agreement, pursuant to which the Corporate Debtor was required to hand over possession of the premises upon lapse of the lease period. Such a situation is wholly dissimilar to the facts at hand and therefore the said authority cannot be relied upon by the Appellant.

From the records, it is apparent that the application preferred by the Liquidator on 12.06.2025 was filed under Section 35(2) read with Section 60(5) of the I & B Code, 2016.

In that application, the Liquidator primarily sought a direction for handing over possession of the scheduled assets to the Liquidator of the Corporate Debtor and for grant of police protection. The application also detailed the assets forming the subject matter of liquidation and the related auction proceedings. It was noted that the Liquidator had sent an email dated 25.05.2025 to Respondent No. 1 (the Appellant herein), requesting delivery of possession of the assets mentioned in the schedule. The Appellant responded to the same on 31.05.2025, alleging that the representative of Respondent No. 1, Ms. P. Leela, the authorised representative and daughter of the discharged directors, had participated in the Stakeholders’ Consultation Committee meeting and was fully aware of the intended auction process and the conditions attached.

Furthermore, it was observed that the auction was conducted through BAANKNET, a platform duly empanelled as mandated by the Insolvency and Bankruptcy Board of India (IBBI). It is an IBBI-recognised and regulated e-auction portal, ensuring adherence to all prescribed legal protocols and maintaining the highest standards of transparency. The application, therefore, was properly filed under Section 35(2) read with Section 35(1)(i) of the I&B Code, 2016.

The Ld. NCLT proceeded to pass an order dated 18.07.2025, wherein, while considering IA (IBC)/931(CHE)/2025, it directed that possession of the assets be handed over by 26.03.2025, failing which the Station House Officer (SHO), M4 Police Station, Red Hills, Chennai, should provide assistance to ensure delivery of possession. Appropriate directions to this effect were issued in the order dated 18.07.2025.

It is clear from the record that neither the pleadings nor any document indicates that the order dated 18.07.2025, granting police assistance to ensure delivery of possession, was ever challenged by the Appellant. On the contrary, as reflected from the application itself, the Appellant was fully aware of the process initiated by the Liquidator for securing possession of the assets.

The Ld. Counsel for the Appellant has relied on the judgment in Raj Builders, which dealt with the implications of Section 31 of the I&B Code, 2016, read with the moratorium under Section 14 of the Code, to fortify his case. However, that principle is inapplicable to the present case. One must bear in mind that a statutory obligation is imposed upon the Corporate Debtor, its promoters, and any other persons connected with it to assist and cooperate with the Interim Resolution Professional (IRP) or the Liquidator for the effective implementation of the Code. This obligation, embodied in Section 19(2) of the I & B Code, 2016, mandates such assistance. The Appellant was therefore required to comply with the statutory duty to hand over possession of the assets that had already been auctioned.

The Ld. Counsel for the Respondent, in support of his contention, referred to the judgment reported in 2024 SCC OnLine NCLAT 1486, rendered in M/s Bhagyanagar Hotel Private Limited v. Mr. Krishna Mohan Gollamudi, Liquidator of Sai Nath Estates Private Limited. In that case, the director of M/s Bhagyanagar Hotel Private Limited had preferred a company appeal before this Appellate Tribunal, being aggrieved by an order passed under Sections 35 and 36 of the I&B Code, 2016, read with Regulation 9 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016. The Ld. Adjudicating Authority, on an application filed by the Liquidator, had issued directions contained in Paragraphs 7.11 and 7.12 of the order, which have been relied upon by the Appellant.

However, for the purpose of dealing with the present controversy, reference must be made to Paragraphs 72 and 73 of the said judgment, which have a direct bearing on the issue. These paragraphs clarify that, under Section 107 of the Transfer of Property Act, 1882, a right claimed on the basis of an unregistered lease deed or even an oral lease agreement, cannot be recognised in law.

Additionally, the said judgment emphasises that, under law, a person is not entitled to continue in possession of a secured asset beyond the permissible period. The relevant observations made in Paragraphs 72 and 73 underscore this principle. The relevant observation has been made in para 72 and 73, which is extracted hereunder: -

In a nutshell, therefore, the arguments advanced by the Ld. Counsel for the Appellant cannot be sustained in light of the findings already discussed. The Appellant cannot take advantage of his own conduct, having participated in the proceedings, having failed to comply, and thereafter attempting to challenge the auction proceedings and the consequential directions for handing over possession. Since the confirmation of sale was never challenged by the Appellant before any forum, the plea advanced is not available to him.

Moreover, yet another impediment arises against the Appellant. When the proceedings reached the stage of Section 31 of the I & B Code, 2016 for approval of the Resolution Plan, the Appellant, if aggrieved by any of its terms, ought to have exercised the remedy of an appeal under Section 32 of the I&B Code, 2016, against the order approving the Resolution Plan under Section 31. Since no such appeal was preferred, and given that the Resolution Plan has already been affirmed and the sale has proceeded in accordance with law, wherein the Appellant voluntarily participated and was declared unsuccessful due to non-compliance with the stipulated conditions, the Appellant cannot now challenge the directions issued for delivery of possession. He is bound by his own conduct and by the orders passed in IA (IBC)/931(CHE)/2025 and the consequential interlocutory orders affirming the sale. As the impugned order is merely consequential, it clearly falls within the ambit of Section 19(2) of the I & B Code, 2016.

The directions issued by the impugned order did not require granting the Appellant any exclusive opportunity of hearing, particularly since, as already noted, the Appellant was at all times, through the email communications placed on record, fully aware of the proceedings. He himself submitted to the auction process, the issuance of the Sale Certificate, and the subsequent steps taken in furtherance of Section 19(2) of the I & B Code, 2016.

Hence, the contention raised by the Ld. Counsel for the Appellant is limited to the context of the issues raised in para 2 of the instant judgment. No case is made out by the Appellant to be interfered with in the exercise of our Appellate jurisdiction. Hence, the ‘company appeal’ lacks merit and the same is accordingly ‘dismissed’. Consequentially, all pending ‘interlocutory applications’ would stand ‘closed’.