Unregistered MoDT & Mere Sale Agreement Confer No Title: NCLAT Upholds Liquidator’s Right to Recover CD’s Title Deeds [Read Order]

In a recent case, the National Company Law Appellate Tribunal (NCLAT), Chennai Bench, considered whether the appellant could retain the original title deeds of a property belonging to the corporate debtor.

The appeal arose from an order of the NCLT, Chennai, which had directed the appellant to hand over the deeds to the liquidator appointed in the liquidation proceedings of the corporate debtor.

The background traces to insolvency proceedings initiated under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) by State Bank of India against Ganga Foundations Pvt. Ltd. The corporate debtor was admitted into CIRP on 10 January 2022. With no resolution plan forthcoming, liquidation was ordered on 15 March 2023.

The liquidator invited claims and proceeded to sell the corporate debtor as a going concern through e-auction. During verification, he discovered that the original title deeds of a property at Beulah Nagar, Pallikaranai Village, Chennai, were owned by the appellant.

The appellant resisted the surrender of the deeds, claiming ownership based on a registered agreement for sale dated 30 November 2020. He argued that he had paid ₹34 lakh out of the agreed consideration of ₹45.6 lakh, and that Clause 4 of the agreement provided for delivery of title deeds pending execution of a sale deed within two years.

He further asserted that he had advanced a loan of ₹50 lakh to the corporate debtor, secured by deposit of the same title deeds, evidenced by an unregistered memorandum of deposit of title deeds (MoDT) dated 30 December 2020, thereby creating an equitable mortgage in his favour. On this basis, he claimed status as a secured creditor and entitlement to retain the deeds.

The two-member bench of Sharad Kumar Sharma (Judicial Member) and Jatindranath Swain (Technical Member)rejected these contentions. It reiterated the settled principle that a mere agreement for sale does not transfer title to immovable property.

Since no sale deed was executed within the stipulated period, ownership continued to vest with the corporate debtor. The tribunal also noted that the appellant had not pursued any civil remedy for specific performance of the agreement.

On the claim of equitable mortgage, the tribunal found no evidence in the corporate debtor’s books of accounts to support the alleged ₹50 lakh loan. The only recorded transactions were two RTGS transfers totalling ₹34 lakh, corresponding to part payment under the sale agreement.

The MoDT was unregistered and therefore incapable of creating a valid charge under Section 77 of the Companies Act, 2013. The tribunal emphasised that under Section 77(3), no charge can be recognised in liquidation unless duly registered with the Registrar of Companies.

Further, under Section 17 of the Registration Act, 1908, documents purporting to create rights in immovable property must be compulsorily registered. The appellant’s MoDT failed both requirements.

Consequently, the tribunal held that the property formed part of the liquidation estate and the liquidator was entitled to recover the title deeds. The appellant could not claim ownership or secured creditor status based on the agreement for sale or the unregistered MoDT. Upholding the NCLT’s order, the NCLAT directed the appellant to hand over the deeds to the liquidator.