A company went insolvent. Its 'development rights' over land were treated as an asset — and the Supreme Court agreed.

A company bought land with someone else's money. In return, it got development rights — and possession. When it went bankrupt, the question was: does the insolvency officer get to control that land?

Energy Properties bought 10.19 acres from UCO Bank. But the money came from Avani Towers (the Corporate Debtor). In exchange, Avani got a 40% stake in Energy Properties, exclusive development rights over the land, and physical possession of the entire plot. Later, Avani gave a license for 10,000 square feet to Victory Iron Works. Then Avani collapsed into insolvency. The Resolution Professional (RP — the person appointed to manage a bankrupt company's affairs and take custody of its assets) wanted to list those development rights as assets. Victory and Energy Properties fought back. The Supreme Court had to decide: are development rights really 'property' under the Insolvency and Bankruptcy Code (IBC)?

The file before the RP was thin — a development agreement, a possession letter, a share certificate for 40% of Energy Properties. The courtroom in the Supreme Court was quiet as counsel for Victory argued that the land itself was not Avani's. The smell of old paper hung in the air as the bench of Justice V. Ramasubramanian and Justice Pankaj Mithal leaned forward. The question was narrow but deep: what happens when a company holds rights over land it does not own, and then goes bankrupt?

When the money came from someone else

The arrangement was unusual but common in Indian real estate. Energy Properties bought the land. Avani Towers paid for it. In return, Avani got development rights — the legal authority to build on that land — and took physical possession. The land registry showed Energy Properties as the owner, but the keys were with Avani. Avani also became a 40% shareholder in Energy Properties. It was a partnership built on trust and commercial convenience.

Later, Avani granted Victory Iron Works a Leave and License Agreement for 10,000 square feet. Victory moved in. The land was not empty — it had a structure, a gate, a presence. Victory's workers came and went. Everything worked until Avani's money ran out.

The insolvency officer's dilemma

When Avani entered the Corporate Insolvency Resolution Process (CIRP — the formal bankruptcy process under the IBC), the RP faced a problem. He had to identify all assets of the company and take control. But the land was registered in Energy Properties' name. Avani only held development rights and possession. The RP's file contained a single sheet: the development agreement. Were those rights valuable enough to be treated as assets?

The RP filed an application under Section 25 of the IBC (which defines the RP's duties to manage the corporate debtor's affairs) read with Regulation 30 (which allows the RP to seek court directions for taking possession with the help of local authorities). He argued that development rights were assets and must be included in the Information Memorandum (the document given to potential buyers of the bankrupt company, listing all assets and liabilities). He also sought protection of possession with help from local authorities.

Victory Iron Works and Energy Properties objected. Victory claimed it had lawful possession of the entire land through its license. Energy Properties argued that since the land was registered in its name, the development rights were not Avani's assets at all. The courtroom in the NCLT, Kolkata Bench, was tense as these arguments unfolded. The RP's counsel pointed to the development agreement — a thick document with signatures, maps, and clauses — as proof that Avani held a real, valuable interest.

Why the NCLT said yes

The National Company Law Tribunal (NCLT — the special court that handles insolvency cases) ruled in favour of the RP. It held that the development rights were assets of Avani and must be included in the Information Memorandum. However, it protected Victory's possession of the 10,000 square feet under its license. The RP could take control of the rest of the land, with help from the district administration if needed.

Victory and Energy Properties appealed to the National Company Law Appellate Tribunal (NCLAT — the appeals court for insolvency cases). The NCLAT agreed. The appeals were dismissed. The smell of stale coffee lingered in the NCLAT corridors as counsel for Victory prepared the next round.

The fight over the Explanation

Before the Supreme Court, the appellants raised a key argument. They pointed to the Explanation under Section 18 of the IBC. That Explanation says that 'assets' under Section 18 do not include assets owned by a third party in possession of the corporate debtor. Since Energy Properties owned the land, the appellants argued, the development rights could not be treated as Avani's assets.

The RP countered with a different reading. He said the Explanation applies only to Section 18 — which deals with the Interim Resolution Professional's duties during the initial phase of insolvency. Section 25, which governs the RP's duties after the initial phase, has no such limitation. Under Section 25(2)(a), the RP must take "immediate custody and control of all assets" of the corporate debtor. That duty is broader.

The appellants also cited the Supreme Court's earlier judgment in Embassy Property Developments Pvt. Ltd. v. State of Karnataka. That case held that certain rights and interests in property may fall outside the IBC's scope. They argued that development rights were not 'property' under the Code.

The bench listened. Justice Ramasubramanian asked a pointed question: if development rights are not property, what are they? The courtroom fell silent. Counsel for Victory had no immediate answer.

What the Supreme Court decided

The bench of Justice V. Ramasubramanian and Justice Pankaj Mithal ruled against the appellants. The Court held that development rights created in favour of a corporate debtor constitute 'property' under Section 3(27) of the IBC (which defines property broadly to include every kind of interest in property, whether tangible or intangible). These rights are also 'assets' under Section 18(f) and Section 25(2)(a). The Court stated, in its ratio, that "such rights and interests in immovable property must be included by the Resolution Professional in the Information Memorandum and the RP is duty-bound to take custody and control." The courtroom fell silent as Justice Ramasubramanian read the operative order: the development rights were to be included in the Information Memorandum.

The Court clarified the scope of the Explanation under Section 18. That Explanation, the Court said, is limited to Section 18 alone. It does not extend to Section 25. The RP's duty under Section 25(2)(a) to take custody of all assets is not restricted by the Explanation. This was a critical distinction — the Explanation, the Court reasoned, was designed to protect third-party assets from being taken over by the Interim Resolution Professional in the initial phase, but it did not limit the RP's broader duty under Section 25 to manage all assets of the corporate debtor for the benefit of creditors.

The Court also held that the NCLT and NCLAT have jurisdiction to protect the corporate debtor's possession over property in which it holds development rights. They can issue directions under Regulation 30 to local district administration for this purpose. The bench noted that without such jurisdiction, the insolvency process could be thwarted by a third party holding the registered title while the corporate debtor holds the real value — the right to develop and the physical possession.

The 10,000 sq.ft. that stayed with Victory

Victory Iron Works had one victory. The Court protected its possession of the 10,000 square feet under the Leave and License Agreement. The RP could not evict Victory from that specific area. But the rest of the land — the development rights over the entire 10.19 acres — would be included in the Information Memorandum and controlled by the RP.

The Court upheld the NCLT and NCLAT orders. The appeals were dismissed. The land itself remained in Energy Properties' name, but the value — the right to build, to sell, to profit — now belonged to Avani's creditors.

THE PLAY: When a corporate debtor holds development rights over land it does not own, treat those rights as assets — include them in the Information Memorandum and seek court directions for possession under Regulation 30.

What this means for insolvency practitioners

The ruling has practical consequences. Resolution Professionals must now scrutinise every development agreement, every lease, every license held by the corporate debtor. If the debtor has paid for the land and holds development rights and possession, those rights are assets — even if the registered title sits with another entity. The Information Memorandum must reflect this value.

For third parties like Energy Properties, the message is clear: lending your name to a land transaction does not shield the development rights from the insolvency process. The economic reality — who paid, who possesses, who controls — matters more than the registry entry.

The Court ended where it began: with a company that bought land with someone else's money, and the question of who controls what when the money runs out. The answer: the Resolution Professional controls the development rights, and the creditors get the value.