Section 55(6)(b) of TPA - Statutory charge on the seller’s interest in the property

Section 55(6)(b) of TPA - Statutory charge on the seller’s interest in the property

Basic idea of the statutory charge

Section 55(6)(b) TPA creates, by operation of law, a statutory charge on the seller’s interest in the property for the purchase money (and interest/costs) properly paid by the buyer, so long as the buyer has not “improperly declined to accept delivery.” This charge is in the nature of a security interest, not a transfer of ownership, and it is enforceable against the seller and all persons claiming under him.

The key practical questions are: how is this charge enforced, against whom , and within what limitation period

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Courts have consistently treated the buyer’s charge under section 55(6)(b) as a charge enforceable by a civil suit, akin to suits to enforce a mortgage or charge under Article 62 of theLimitation Act. In practice, enforcement typically takes one of these forms:

Suit to enforce charge on the property: A buyer who has paid advance/purchase money and is not in default can sue for recovery of that money with interest and seek enforcement of the statutory charge on the property, including sale of the charged property to realise the amount, under the Code of CivilProcedure’s execution machinery, in the same manner as a mortgage/charge decree.

Enforcement against “substituted security” 

The Supreme Court in Delhi Development Authority v. Skipper Construction Co. (P) Ltd.  AIR 2000 SC 573, held that the buyer’s charge under section 55(6)(b) is a statutory charge on the vendor's interest, and if that property is converted into another property or money, the charge fastens on such substituted property or money as well. Thus, a decree enforcing the charge can reach the substituted asset.

Against persons claiming under the seller:

The charge is enforceable “against all persons claiming under him”, whether or not theyhad notice of the charge. Following DDA v. Skipper Construction, courts have recognised that subsequent purchasers or claimants under the seller can be proceeded against to theextent of the charged interest.

Procedurally, the buyer typically frames the suit as one for:

• (a) refund of purchase money with interest/costs, and

• (b) enforcement of the statutory charge under section 55(6)(b) on the property (or substituted security), including, where necessary, sale of the property and application of proceeds to satisfy the decree.

Limitation period: Courts (including Kerala High Court and the Supreme Court) have treated enforcement ofthis statutory charge as falling under Article 62 of the Limitation Act, 1963, giving 12 years from the date when the money secured by the charge becomes due, not 3 years as for a simple money claim. This applies even when the charge is enforced on substituted security. 

Buyer’s conduct (“improperly declined to accept delivery”):

The statute expressly provides that the charge exists “unless the buyer has improperly declined to accept delivery”; therefore, a substantial part of the adjudication is often whether the buyer’s refusal or non‑performance was “improper.” If the buyer is found to have improperly declined delivery, the statutory charge is lost; if not, the charge remains and can be enforced.

Recent Kerala High Court decisions have emphasised that where both sides drag their feet on performance, but the buyer has paid substantial consideration and is not solely at fault, the buyer will still be entitled to the statutory charge.

Core Supreme Court authority, along with helpful High Court decisions, includes:

1. Delhi Development Authority v. Skipper Construction Co. (P) Ltd. & Ors. , AIR 2000 SC 573;also reported at 2000(1) All MR 736 (SC)

• Buyer’s charge under section 55(6)(b) is a statutory charge on the vendor’s interest.

• Enforceable against the seller and all persons claiming under him.

• Charge fastens on substituted security (converted property or money).

• Limitation for enforcing the charge is 12 years from the date when the money becomes due (Art. 62).

2. AIR 2009 Kerala 2 (Kerala High Court) Recognises buyer’s charge under section 55(6)(b) as enforceable against seller and all persons claiming under him. Holds that limitation for enforcing such statutory charge is 12 years under Article 62 ,not 3 years.

3. Other instructive decisions collected in secondary research tools (for doctrinal support on scope and commencement of charge):

i). Puthiya Purayil Ramakrishnan v. Pullani Prabhakaran (Kerala HC, 2015),

ii). Hotel ChandraTowers Ltd. v. Henry Isidore (Madras HC, 2012) – on commencement and enforcement of buyer's charge.

Various High Court decisions compiled in recent analyses clarifying the requirement that the buyer must not have improperly declined to accept delivery.

From a practical litigation strategy perspective, how would you prefer to frame the prayer clause to maximise the enforceability of this statutory charge while preserving a simple money decree as an alternative?

Nature of the buyer’s statutory charge

Section 55(6)(b) gives the buyer a statutory charge on the seller’s interest in the property to secure the purchase money (and interest/costs), provided the buyer has not improperly declined to accept delivery. Courts have treated this as a charge created by operation of law,distinct from a purely contractual charge, but functionally similar to a security interest under section 100 TPA in many respects.

That charge is an actionable property right : it can be enforced by suit, binds persons claiming under the seller, and can even fasten on substituted security as per DDA v. Skipper Construction. 

Whether this right can itself be dealt with - assigned or mortgage - by the buyer.

There is no express statutory prohibition in the TPA against the assignment or further encumbrance of a buyer’s statutory charge under section 55(6)(b). Secondary commentary on charges under the TPA recognises that, as a general rule, any actionable claim or beneficial interest in property can be assigned, and a charge-holder may create a sub‑charge or mortgage over the charged interest, subject to the nature of the underlying right.

Doctrinally: The buyer’s right under section 55(6)(b) is a proprietary security interest , not merely a personal claim for money. Such a proprietary interest can, in principle, be assigned

(as an actionable claim) or used as security (mortgaged or sub‑charged) if the parties clearly intend to transfer or encumber the benefit of the charge, and the transaction complies with TPA requirements on assignment and mortgage (including writing and registration where necessary).

Courts in related contexts (e.g., contractual charges or equitable interests) have accepted that a beneficiary of a charge can deal with that charge, though there appears to be limited direct authority specifically on “assignment of a section 55(6)(b) charge” in reported case law. The absence of prohibition plus the general principles on transfer of actionable claims supports an answer in favour.

In practice, an assignment of the buyer’s statutory charge would be structured as: 

• An assignment deed in writing, reciting:

• The underlying sale agreement and payment of purchase money.

• The existence of the statutory charge under section 55(6)(b).

• The buyer’s intention to assign to the assignee:

• the right to recover the secured amount, and the benefit of the statutory charge on the property (or substituted security).

Compliance with the law on assignment of actionable claims (section 130 TPA), including: Written instrument signed by the assignor. Proper notice to the seller and any subsequent transferees, so the assignee can assert the charge against “persons claiming under” the seller. Depending on how the right is characterised (actionable claim vs interest in immovable property), registration under the Registration Act may be advisable or required if the assignment purports to transfer a right in immovable property valued above the threshold;conservative practice would be to register.

A buyer who wishes to use the statutory charge as collateral can:

Execute a mortgage or sub‑charge deed in favour of a lender, expressly charging: The buyer’s beneficial interest under section 55(6)(b), i.e., the right to enforce the charge on the seller’s interest in the property for the specified amount and interest.

The deed should:

• Identify the underlying property and sale transaction.

• Clarify that the buyer’s statutory charge is being further charged in favour of the lender as security for the loan.

• Provide that any amounts realised by enforcing the section 55(6)(b) charge will first satisfy the lender’s secured claim, subject to priorities.

Given that this relates to immovable property, such a mortgage/sub‑charge would ordinarily need to be registered to be effective and enforceable against third parties. Priority conflicts (between the original buyer and his mortgagee, and between them and subsequent transferees of the property) would be resolved using general principles of notice and registration under theTPA and Registration Act.

Conceptualise this right in a pleading or transaction document: as an “actionable claim secured by a statutory charge” or as a “beneficial interest in immovable property by way of charge,” and what are implications for registration and priority?

Step 1: Clarify the two rights involved 

Under section 55(6)(b) TPA, the buyer has: 

• A personal right : a claim to get back the purchase money (with interest/costs) from the seller.

• A proprietary security right: A statutory charge on the seller’s interest in the immovable property to secure that money, enforceable against the seller and persons claiming under him.

Courts and commentary treat this as a charge arising by operation of law, fitting within the broader concept of “charge” under section 100 TPA. It is not a title, but a security to realise the money paid.

Step 2: What is an equitable mortgage in this context? 

In Indian law, an “equitable mortgage” usually refers to a mortgage by deposit of title deeds. Under section 58(f) TPA—creation of a security interest over immovable property by depositing title documents with intent to create a mortgage, without a formal registered mortgage deed.

So the conceptual question is: can the buyer, who holds only a statutory charge (not legal title), equitably mortgage that charged interest? 

Step 3: Can the statutory charge itself be equitably mortgaged? 

The mortgagee’s right is a proprietary security in the mortgagor’s interest in the immovable property. So the conceptual question is: can the buyer, who holds only a statutory charge (not legal title), equitably mortgage that charged interest ?

There is no direct authority saying “a section 55(6)(b) charge can/cannot be equitably mortgaged," but applying general principles:

1. Nature of the buyer’s interest

• The buyer does not have legal title to the property (section 54 TPA makes that clear),but has a charge over the seller’s interest to secure the advance. That charge is a proprietary security interest created by statute, not a mere personal claim.

2. Transferability/further encumbrance 

• Charges created by law or contract are ordinarily capable of being assigned or further charged , unless the statute expressly prohibits it.

• There is nothing in section 55 or section 100 TPA that prohibits the buyer from dealing with the benefit of the charge—courts have emphasised that section 55 is “elastic” and does not forbid parties from modifying or dealing with the rights it creates.

3. Equitable mortgage over the buyer’s interest

• The buyer cannot deposit title deeds of the property (they are with the seller), so cannot equitably mortgage the property in the usual sense under section 58(f).

• However, the buyer can treat his beneficial interest (the statutory charge plus the secured money claim) as an asset and create a sub‑charge or equitable mortgage over that interest in favour of a lender, by a suitable agreement or by deposit of documents evidencing his charged interest (e.g., the sale agreement, receipts, and an acknowledgment of the charge).

On principle, therefore:

• The buyer’s interest under section 55(6)(b) can be equitably mortgaged as a security interest over a security interest (a sub‑charge), not as a direct mortgage of the immovable property itself.

• The mortgagee then steps into the buyer’s shoes to enforce the statutory charge against the seller's interest, subject to general rules of notice and priority.

Step 4: How to structure an equitable mortgage over this statutory charge 

• Practically, if you want to structure it:

• The buyer and lender agree that the buyer’s statutory charge under section 55(6)(b) and the underlying debt (refund claim with interest) will stand as security for the lender’s loan.

• The buyer deposits the key documents with the lender (sale agreement, payment proofs,any acknowledgment or decree recognising the charge) with clear intention to create a security over his charged interest—similar to deposit of title deeds, but here the “title” is to the charge and the money secured, not to the property.

• The arrangement is documented (or at least evidenced) to confirm that the lender can, in default, enforce the buyer’s section 55(6)(b) rights directly, including filing or continuing suits to enforce the charge on the property or substituted security.

Because this is a more complex, two‑tier security, careful drafting and (ideally) registration of a short mortgage/sub‑charge deed are advisable to avoid disputes on nature and priority.

Given this, if a lender is taking security over a buyer’s section 55(6)(b) rights,frame the security clause to make it clear that what is being mortgaged is the buyer's statutory charge and the proceeds of its enforcement, rather than the underlying property itself ?

Disclaimer: The sole purpose of this article is for creating awareness and must not be used as a guide for taking or recommending any action or decision, commercial or otherwise. One must do its own research or read the original text of the judgment or seek professional advice if it intends to take any action or decision using the material covered here.

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(Courtesy - Perplexity AI)

Claims collated/admitted by IRP/RP constitute ack. under S.18 of the Limitation Act. & extend limitation.

Claims collated/admitted by IRP/RP constitute ack. under S.18 of the Limitation Act. & extend limitation.

Hon’ble NCLAT (2025.10.15) in Shankar Khandelwal Vs. Omkara Asset Reconstruction Pvt. Ltd. and Anr. [(2025) ibclaw.in 845 NCLAT, Company Appeal (AT) (Ins) No. 293 of 2025 with Company Appeal (AT) (Ins) No. 294 of 2025] held that;

• This tribunal, therefore, holds that while the date of default in payment of the debt as mentioned in Part IV of the petition under Sec.7 IBC deserves to be factored in for the purpose of computation of limitation in instituting the petition, yet it is not always bound by it, as it has a statutory duty to perform under Sec.3 of the Limitation Act.

• This would signify the keenness of both the Court and the legislature to preserve the right to repayment of debt- dues when the latter included Sec.238A of the Code and the former did not attempt to stretch the effect of Article 137 of the Limitation Act to obliterate the effect of its other provisions.

• In the instant case, if the date of default is reckoned as 16.11.2016 or 23.11.2016, the SRA of the creditor has still made its Claim before the IRP or the RP in the first CIRP against the CD within 12 years, when the right to enforce the right to recover secured debt is still alive and not barred by limitation.

• Admission of a Claim either by the IRP or the RP would amount to admission of a liability of the CD to repay the creditor, to emphasis, based on a pre-existing and enforceable right of payment. And, acknowledgement of a debt within the meaning of Sec.18 of the Limitation Act in essence is but an admission of the liability to repay.

• A mere choice of expression such as ‘acknowledgement’ or ‘admission’ used in different statutory schemes cannot alter the fundamentals: existing of a liability, correlatable to a pre-existing and enforceable right to repayment.

• Therefore, where an IRP or a RP has admitted a claim, it does constitute an acknowledgement under Sec.18 of the Limitation Act. To state it differently, if the RP has the authority to admit a claim and if admission of a Claim also constitutes an acknowledgement of liability, it follows that the RP has the authority to acknowledge a liability on behalf of the CD.

• There is therefore, little difficulty in holding that the date of admission of a Claim by the IRP grants a fresh date for commencement of limitation and when the Claims are subsequently updated it pushes the date of terminus a quo to that date.

• This tribunal holds that that the admission of the Claim by the RP in the first CIRP against the CD on 22.05.2022 constituted a valid acknowledgement and its subsequent updating on 21.02.2024 constituted the second acknowledgement, and if terminus a quo is reckoned from any of these dates, then both the petitions laid by the respondent are validly instituted as the debts are not time barred on the respective dates when they were so instituted.

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Contra view;

2. Let’s notice the provisions of the Code & The Limitation Act.

2.1. The Limitation Act.

• Sec.3 Bar of limitation:

• Subject to the provisions contained in Sec.4 to 24 (inclusive), every suit instituted, appeal preferred, and application made after the prescribed period shall be dismissed, although limitation has not been set up as a defence.”

2.2. Insolvency and Bankruptcy Code, 2016.

• Sec. 3. Definitions. –

• XXXX

• (6) “claim” means –

• (a) a right to payment, whether or not such right is reduced to judgment, fixed, disputed, undisputed, legal, equitable, secured, or unsecured;

• (b) right to remedy for breach of contract under any law for the time being in force,  if such breach gives rise to a right to payment, whether or not such right is reduced to judgment, fixed, matured, unmatured, disputed, undisputed, secured or unsecured;

• XXXX

• (11) “debt” means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt;

3. Hon’ble Supreme Court in B.K. Educational Services Private Limited Vs. Parag Gupta and Associates [Civil Appeal  No.23988 of 2017] noticed the proposition that debts “due and payable” must be differentiated from debts “due and recoverable”.

• “ In the case of Bombay Dyeing & Mfg. Co. Ltd. v. State of Bombay [AIR 1958 SC 328] it has been held that when the debt becomes time-barred the amount is not recoverable lawfully through the process of the court, but it will not mean that the amount has become not lawfully payable. Law does not bar a debtor to pay nor a creditor to accept a barred debt.”

4. The claims (a right to payment) as defined under section 3(6) are admitted/collated by IRP and updated by RP are governed by the “Doctrine of Debts due & Payable” whereas the limitation is looked into while filing insolvency application following the “Doctrine of Debts Due and Recoverable”. Thus, admitting or collating the claims by IRP and or updating of the claims by RP, does not have any nexus with extension or fresh start of limitation of the underlying debt.

5. Hon’ble SCI (1992.04.20) Punjab National Bank And Ors vs Surendra Prasad Sinha (Criminal Appeal No. 254 of 1992.) held that;

• "The rules of limitation are not meant to destroy  the rights of the parties.  Section 3 of  the Limitation Act only bars the remedy, but does not destroy the right which the remedy relates to. The right to  the debt continues to exist notwithstanding the remedy is barred by the limitation. Only exception in which the remedy also becomes  barred  by limitation is the right is destroyed.  Though the right to enforce the debt by judicial process  is barred, the right to debt remains. The time barred debt does not cease to exist by reason of s.3. That right can be exercised in any other manner than by means of a suit. The debt is not extinguished, but the remedy to enforce the liability is destroyed.  What s.3. refers only to the remedy but not to the right of the creditors. Such debt continues to subsists so long as it is not paid. It is not obligatory to file a suit to recover the debt."

6. In the above mentioned judgement Hon’ble Appellate Authority has merged the identity of IRP/RP with the identity of Corporate Debtor. Now the following question arise;

1. Whether IRP/RP can create any liability for CD ?

IRP/RP works as custodian of CD for the specific purpose of Resolution of insolvency of the corporate debtor. He is neither authorised to create any liability of CD, nor acknowledge any liability of the CD during CIRP. Insolvency Resolution Process Cost (IRPC) is neither treated as liabilities of CD, nor mentioned in Information Memorandum as part of assets & liabilities of the CD. Even the cost of operation of the CD, of a going concern during CIRP is part of IRPC, along with other expenses & fees etc. [section 5(13)], treated separately under the resolution plan.

Disclaimer: The sole purpose of this blog is to create awareness on the subject and must not be used as a guide for taking or recommending any action or decision, commercial or otherwise. One must do his own research and seek professional advice if he intends to take any action or decision in the matters covered in this blog.

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Frivolous Section 19(2) Applications - Scope of information & extent of co-operation

 Frivolous Section 19(2) Applications - Scope of information & extent of co-operation 

In most of the CIRP cases Section 19(2) applications are being filed, demanding a wide range of information & records, sometime as late as (a) after the resolution for liquidation has been approved by the CoC (b) after issuing a series of IM’s (Information Memorandums). This raises the credibility/sanctity of section 19(2) application filed by the IRP/RP. With the passage of time this section 19(2) application has become a tool of harassment in the hands of  RP, being precursor to the prosecution under section 70 of the Code.

2.  It will be interesting to find, whether  application filed under section 19(2) is frivolous or not in light of the provisions of Regulations 3A (CIRP Regulations) read with Section 18, which broadly provide for the parameters of information & extent of co-operation required from the personnel of the corporate debtor, its promoters or any other person associated with the management of the corporate debtor. Further Hon’ble Appellate Authority in the matter of Mr. Venugopal Dhoot & Anr. Vs. Mr. Pravin R. Navandar RP & Ors.  [(2021) ibclaw.in 298 NCLAT, Company Appeal (AT) (Insolvency) No. 173 of 2021], questioned the requirement of the information demanded by the RP in section 19(2) application. 

3. Let’s notice the provisions of the Code (IBC, 2016) & Regulation (CIRP Regulations)  on this aspect., 

3.1. Insolvency and Bankruptcy Code, 2016.

# Section 19. Personnel to extend co-operation to interim resolution professional. - 

(1) The personnel of the corporate debtor, its promoters or any other person associated with the management of the corporate debtor shall extend all assistance and cooperation to the interim resolution professional as may be required by him in managing the affairs of the corporate debtor.

(2) Where any personnel of the corporate debtor, its promoter or any other person required to assist or cooperate with the interim resolution professional does not assist or cooperate, the interim resolution professional may make an application to the Adjudicating Authority for necessary directions.

(3) The Adjudicating Authority, on receiving an application under sub-section (2), shall by an order, direct such personnel or other person to comply with the instructions of the resolution professional and to cooperate with him in collection of information and management of the corporate debtor.

# Section 18. Duties of interim resolution professional. -

The interim resolution professional shall perform the following duties, namely: -

(a) collect all information relating to the assets, finances and operations of the corporate debtor for determining the financial position of the corporate debtor, including information relating to -

• (i) business operations for the previous two years;

• (ii) financial and operational payments for the previous two years;

• (iii) list of assets and liabilities as on the initiation date; and

• (iv) such other matters as may be specified;

(b) receive and collate all the claims submitted by creditors to him, pursuant to the public announcement made under sections 13 and 15;

(c) constitute a committee of creditors;

(d) monitor the assets of the corporate debtor and manage its operations until a resolution professional is appointed by the committee of creditors;

(e) file information collected with the information utility, if necessary; and

(f) take control and custody of any asset over which the corporate debtor has ownership rights as recorded in the balance sheet of the corporate debtor, or with information utility or the depository of securities or any other registry that records the ownership of assets including -

• (i) assets over which the corporate debtor has ownership rights which may be located in a foreign country;

• (ii) assets that may or may not be in possession of the corporate debtor;

• (iii) tangible assets, whether movable or immovable;

• (iv) intangible assets including intellectual property;

• (v) securities including shares held in any subsidiary of the corporate debtor, financial instruments, insurance policies;

• (vi) assets subject to the determination of ownership by a court or authority;

(g) to perform such other duties as may be specified by the Board.

Explanation. – For the purposes of this 1[section], the term “assets” shall not include the following, namely: -

(a) assets owned by a third party in possession of the corporate debtor held under trust or under contractual arrangements including bailment;

(b) assets of any Indian or foreign subsidiary of the corporate debtor; and

(c) such other assets as may be notified by the Central Government in consultation with any financial sector regulator.

3.2. Implications of non compliance of provisions of section 19. 

# Section 70. Punishment for misconduct in course of corporate insolvency resolution process. -

(1) On or after the insolvency commencement date, where an officer of the corporate debtor;

• (a) does not disclose to the resolution professional all the details of property of the corporate debtor, and details of transactions thereof, or any such other information as the resolution professional may require; or

• (b) does not deliver to the resolution professional all or part of the property of the corporate debtor in his control or custody and which he is required to deliver; or 

• (c) does not deliver to the resolution professional all books and papers in his control or custody belonging to the corporate debtor and which he is required to deliver; or

• (d) fails to inform their resolution professional the information in his knowledge that a debt has been falsely proved by any person during the corporate insolvency resolution process; or

• (e) prevents the production of any book or paper affecting or relating to the property or affairs of the corporate debtor; or 

• (f) accounts for any part of the property of the corporate debtor by fictitious losses or expenses, or if he has so attempted at any meeting of the creditors of the corporate debtor within the twelve months immediately preceding the insolvency commencement date, 

he shall be punishable with imprisonment for a term which shall not be less than three years, but which may extend to five years, or with fine, which shall not be less than one lakh rupees, but may extend to one crore rupees, or with both:

Provided that nothing in this section shall render a person liable to any punishment under this section if he proves that he had no intent to do so in relation to the state of affairs of the corporate debtor.

(2) If an insolvency professional deliberately contravenes the provisions of this Part the shall be punishable with imprisonment for a term which may extend to six months, or with fine which shall not less than one lakh rupees, but may extend to five lakhs rupees, or with both.

3.3. Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

# 3A. Assistance and cooperation by the personnel of the corporate debtor.

(1) The interim resolution professional or resolution professional, as the case may be, shall take custody and control as specified under this regulation from the personnel of the corporate debtor, its promoters or any other person associated with the management of the corporate debtor as the case may be, of the following:-

1. the records of information relating to the assets, finances and operations of the corporate debtor referred in clause (a) of section 18 and such other information required under regulation 36;

2. the assets recorded in the balance sheet of the corporate debtor or in any other records referred in clause (f) of section 18.

(2) The personnel of the corporate debtor, its promoters or any other person associated with the management of the corporate debtor shall provide to the interim resolution professional or resolution professional, as the case may be, a list of assets and records while handing over their custody and control, and the interim resolution professional or resolution professional may, after taking such custody and control, if deemed necessary, identify person(s) in whose possession these assets and records will be held.

(3) Where any asset or record has not been handed over or the list has not been provided under sub-regulation (2), the interim resolution professional or resolution professional, as the case may be, shall himself prepare a list of assets and records while taking custody and control of assets and records, and the interim resolution professional or resolution professional may, after taking such custody and control, if deemed necessary, identify person(s) in whose possession these assets and records will be held.

(4) Each list of assets and records under sub-regulation (2) and (3) shall be signed by the parties present and by at least two individuals who have witnessed the act of taking control and custody of such assets and records.

(5) The interim resolution professional or resolution professional, as the case may be, shall requisition from the personnel of the corporate debtor, its promoters or any other person associated with the management of the corporate debtor as the case maybe, the information relating to the assets, finances and operations of the corporate debtor referred in clause (a) of section 18 and such information required under regulation 36 which were required to be maintained by the corporate debtor but have not yet been handed over.

(6) The interim resolution professional or resolution professional, as the case may be, shall requisition from the personnel of the corporate debtor, its promoters or any other person associated with the management of the corporate debtor as the case maybe, the assets which are recorded in the balance sheet or in any other records referred in clause (f) of section 18 and whose custody has not been handed over.

(7) An application made under sub-section (2) of section 19 in respect of failure to provide any asset or record as requisitioned under the Code and this regulation, shall show presence of such asset or record in the notice of requisition and absence of such asset or record in the list of assets and records taken in control and custody under sub-regulation (2) and (3)

3.4. Case Law;

NCLAT (2021.07.05) in Mr. Venugopal Dhoot & Anr. Vs. Mr. Pravin R. Navandar RP & Ors.  [(2021) ibclaw.in 298 NCLAT, Company Appeal(AT)(Insolvency) No. 173 of 2021], held that; 

• This Appellate Tribunal was repeatedly asking the parties the requirement of various documents and sources from where the documents can be obtained. Based on these observations on 10.06.2021 both the parties agreed the suggestions for a list of requisite documents and from where the documents can be obtained by the RP.

• The sum and substance of both the submissions of Appellant and Respondents reveals that the Financial Statement of the CD is available with RP. What he is seeking is the details of the assets of the subsidiaries which is governed by the explanation to Section 18 of the Code and the same is stated as below:…..

• The most important thing is the tally data of the CD which has to be obtained from Resolution Professional of VIL i.e. its holdings Company of CD. The bank accounts details for the last five years can be obtained by the Respondent No.1 from the Bank which are under his control at the moment and details of the Directors can be obtained from the MCA website.

• On a specific query by the Bench, why RP for more than one year could not get the books reconstructed with the assistance of expert IT Professional from outside to ascertain avoidable transactions of the Code, if he suspects something based on inputs available with him.

• What we find basically that a culture has come were Accounts people wants to do the job of Auditor, Auditor wants to do the job of Vigilance and Vigilance wants to do the job of CBI.

• The RP being a competent professional and bankers within his charge, he should have reconstructed a book showing cash flow for the specified period as per the Code and by this time could have detected that whether any preliminary finding is for avoidance transactions and then the other party could have proved either way by this time.

• The RP can take the assistance of concerned Registrar of Company / MCA website and could have obtained financial statements /annual return and his apprehension could have been proved either way.

• Hence, we are unable to confirm that Appellants are fully responsible for non- availability of the documents with whatever data what has been provided to us. Hence, we are unable to sustain the Adjudicating Authority order at this juncture which has been passed in haste.

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Disclaimer: The sole purpose of this blog is to create awareness on the subject and must not be used as a guide for taking or recommending any action or decision, commercial or otherwise. One must do his own research and seek professional advice if he intends to take any action or decision in the matters covered in this blog.