Can a company own land it never bought? SC says yes, if it has development rights

A company paid Rs.3 crore for land—but put it in someone else's name. When it went bankrupt, the RP said: that land is ours. The landowner disagreed, insisting the property was never the company's to begin with. The Supreme Court had to decide a question that cuts to the heart of every insolvency: what counts as an "asset" when the company never held the title?

The answer could determine whether a resolution professional can recover property that a company paid for but never legally owned.

When the money came from one pocket, but the deed went to another

Energy Properties bought a piece of land worth roughly Rs.3 crore. But the money did not come from Energy Properties' own account. It came from Avani Towers — a company that would later face insolvency proceedings under the Insolvency and Bankruptcy Code, 2016 (IBC, the law that governs how financially distressed companies are restructured or liquidated). The cheque for that sum, drawn from Avani's accounts, carried the weight of a transaction that would later define an entire insolvency battle.

In return for funding the purchase, Avani Towers received two things: a 40% stake in Energy Properties, and exclusive development rights over the entire 10.19-acre plot — a tract of land whose boundary lines would become the subject of legal dispute. These rights meant Avani could build on the land, sell constructed units, or license portions to others — essentially treating the land as its own for commercial purposes, even though the registered title remained with Energy Properties.

Later, Avani licensed a small portion — about 10,000 square feet — to Victory Iron Works for Rs.5,000 per month. Victory moved in and began operating from that spot. But Victory soon claimed it had possession of the entire 10.19 acres, not just the licensed patch. This dispute simmered in the background, with the licensed area marked by a fence line that separated Victory's small claim from the vast remainder.

Insolvency hits — and the Resolution Professional comes knocking

In October 2019, the National Company Law Tribunal (NCLT, the specialised court that handles insolvency cases) admitted a petition under Section 7 of the IBC (the provision that allows a financial creditor to initiate insolvency proceedings against a defaulting company) against Avani Towers. A Resolution Professional (RP, the person appointed to manage the company's affairs during the insolvency process and find a buyer or a revival plan) took over. The NCLT order sheet, dated 15 October 2019, marked the formal beginning of the Corporate Insolvency Resolution Process (CIRP, the structured process under the IBC for reviving or liquidating a distressed company).

The RP filed an application under Section 25 of the IBC read with Regulation 30 of the IBBI (CIRP) Regulations, 2016 (the rules that govern how an RP must take control of a company's assets during the resolution process). The RP wanted the development rights over the 10.19 acres to be included in the asset pool — the collection of all assets available to pay creditors or to offer to a potential buyer. The application, filed on 12 February 2020 before the Kolkata Bench of the NCLT, sought directions to the local administration to assist in taking custody of these rights.

Both Energy Properties (the registered landowner) and Victory Iron Works (the licensee) objected. Their argument was straightforward: the NCLT had no jurisdiction over property that belonged to a third party. The land was in Energy Properties' name, not Avani's. How could the insolvency court claim it?

The NCLT draws a line — and both sides appeal

In February 2020, the NCLT's Kolkata Bench delivered a split decision. It protected Victory's possession of the 10,000 square feet it had licensed — Victory could stay there, its small patch of ground secure. But the tribunal held that the development rights over the remaining land belonged to Avani Towers' asset pool. The RP could take custody of those rights and include them in the Information Memorandum (the document that tells potential buyers what the company owns).

Both Energy Properties and Victory appealed to the National Company Law Appellate Tribunal (NCLAT, the appellate body for insolvency cases). In April 2021 — on 8 April 2021, to be precise — the NCLAT dismissed the appeals and confirmed the NCLT's order with some directions. The matter then reached the Supreme Court.

The central legal question: what is an 'asset' under the IBC?

The Supreme Court bench — Justices V. Ramasubramanian and Pankaj Mithal — had to resolve a tension built into the IBC itself. Section 18 of the Code lists the duties of the Interim Resolution Professional (IRP, the person appointed immediately after insolvency begins, who later becomes the RP). Section 18(f) says the IRP must take custody of all assets of the corporate debtor. But the Explanation to Section 18 carves out an exception: assets owned by third parties are excluded. The courtroom fell silent as counsel for Energy Properties pressed this point — the land, they argued, was a third-party asset, and the NCLT had no business touching it.

The RP, however, pointed to Section 25(2)(a) — a separate provision that governs the RP's duties after the IRP phase ends. Section 25(2)(a) says the RP must take custody and control of all assets of the corporate debtor. Crucially, the Explanation that excludes third-party assets applies only to Section 18. It does not extend to Section 25. The file before the bench, thin but dense with legal argument, contained the Development Agreement that spelled out Avani's rights — a document that the court would scrutinise closely.

The court also examined Section 3(27) of the IBC, which defines 'property' broadly to include every kind of right and interest, whether tangible or intangible. The question was whether a development right — a contractual right to build on and exploit land that someone else owns — could qualify as 'property' or an 'asset' under the Code.

The court also considered several precedents that shaped its reasoning. In Sushil Kumar Agarwal v. Meenakshi Sadhu & Ors. — (2019) 2 SCC 241 — the court had examined the scope of assets in insolvency. Embassy Property Developments Pvt. Ltd. v. State of Karnataka & Ors. — (2020) 13 SCC 308 — dealt with the limits of NCLT jurisdiction over third-party property. Gujarat Urja Vikas Nigam Ltd. v. Amit Gupta & Ors. — (2021) 7 SCC 209 — addressed the interplay between statutory duties of the RP. And Tata Consultancy Services Ltd. v. SK Wheels Pvt. Ltd. — (2022) 2 SCC 583 — clarified the definition of 'assets' under the IBC. Together, these cases formed the legal architecture within which the court would decide.

Why the Supreme Court said development rights are assets

The court held that development rights created in favour of a corporate debtor for valid consideration (meaning Avani had paid for them) and that partook the character of ownership rights constitute 'property' under Section 3(27) and 'assets' under Sections 18(f) and 25(2)(a). The key fact was that Avani had not just a bare contractual right — it had paid Rs.3 crore for the land purchase and received exclusive development rights in return. These rights gave Avani effective control over the land's commercial value.

The court then addressed the Explanation to Section 18. Yes, it excludes third-party assets from the IRP's duties under Section 18. But the Explanation does not apply to Section 25. The RP's duty under Section 25(2)(a) is broader — it covers all assets of the corporate debtor, even if the legal title sits with a third party, as long as the corporate debtor holds a bundle of rights that give it effective ownership or control. The court noted that the Explanation's language was expressly limited to Section 18, and could not be read into Section 25 without doing violence to the statutory scheme.

The court also rejected Victory's claim over the entire 10.19 acres. Victory had a licence for only 10,000 square feet. The NCLT had correctly protected that small area. The rest of the land's development rights belonged to Avani's asset pool. The court also drew on Section 202 of the Indian Contract Act, 1872 — which deals with agency coupled with interest — to reinforce that Avani's rights were not merely contractual but carried the character of a proprietary interest.

Finally, the court held that the NCLT had jurisdiction under Regulation 30 to issue directions to local authorities to help the RP take possession of assets that fall within the corporate debtor's bundle of rights — even when the title stands in a third party's name. This was a practical necessity: without such power, an RP could be blocked by a friendly landowner holding paper title while the real economic interest belongs to the insolvent company. The court also referenced Regulation 36 of the IBBI (CIRP) Regulations, 2016, which governs the Information Memorandum, to underscore that development rights must be disclosed to potential resolution applicants.

What this means for insolvency practitioners

This judgment closes a loophole that companies might have exploited. If a corporate debtor funds a land purchase and takes development rights in return, those rights are assets of the debtor — and the RP can claim them. The registered titleholder cannot hide behind the Explanation to Section 18 to defeat the RP's claim. The key is whether the debtor holds a real, valuable interest in the property, not whether the debtor's name appears on the title deed.

The court's ratio — its binding legal reasoning — established three principles. First, development rights created for valid consideration and partaking the character of ownership rights constitute 'property' under Section 3(27) and 'assets' under Sections 18(f) and 25(2)(a). Second, the Explanation under Section 18 excluding third-party assets is limited to Section 18 and does not extend to Section 25, which governs the RP's duty to take custody of all assets. Third, the NCLT has jurisdiction under Regulation 30 to direct local administration to assist the RP in protecting possession of assets that fall within the corporate debtor's bundle of rights, even when title stands in a third party's name.

The operative order was clear: the appeals were dismissed. The NCLT and NCLAT orders were confirmed. The development rights of Avani Towers were to be included in the Information Memorandum. Victory's possession of the 10,000 square feet under the Leave and License Agreement was protected — but no more.

THE PLAY: When evaluating a corporate debtor's asset pool, do not limit yourself to registered title — examine every development agreement, licence, and lease under which the debtor holds rights created for valid consideration; those rights are assets under Section 25(2)(a) even if a third party holds the deed.

The court ended where it began: with a company that paid for land it never owned, and a law that saw through the paper to the real interest beneath. The Rs.3 crore cheque, the 10.19-acre boundary, the 10,000-square-foot licensed patch — all of it told a story that the IBC was designed to read.