When a company buys land for you, do you own it? SC answers
Avani Towers funded the purchase of 10 acres in Howrah. In return, it got development rights. When insolvency hit, the RP claimed those rights as assets—and the Supreme Court agreed.
10
acres.
Avani Towers funded the purchase of 10 acres in Howrah. In return, it got development rights. When insolvency hit, the RP claimed those rights as assets—and the Supreme Court agreed.
A company bought 10 acres of land—but the money came from someone else. Who owns the rights? The answer, the Supreme Court ruled in March 2023, depends on what you mean by "own."
In Victory Iron Works Ltd. v. Jitendra Lohia & Anr., the court was asked a question that cuts to the heart of how modern Indian business works: when a company funds the purchase of land in exchange for development rights, and that company then goes bankrupt, do those rights belong to the company's creditors—or to the landowner?
THE PLAY: If your company funds a land purchase in exchange for development rights, those rights are your company's assets in insolvency—even if the legal title to the land is in someone else's name.
Energy Properties bought the land. Avani Towers paid for it.
The Howrah land—10.19 acres of it—sat somewhere in the industrial sprawl west of Kolkata, near the Hooghly River. Dusty, perhaps, or dotted with old structures. What was certain was its value. Energy Properties bought it. But the money came from Avani Towers—the company that would later go bankrupt. In return for financing the purchase, Avani Towers received 40% shares in Energy Properties and, crucially, exclusive development rights over the entire 10.19 acres.
Avani Towers then licensed 10,000 square feet of that land to Victory Iron Works under a Leave and License Agreement. Victory moved in, set up operations, and for a time, everything worked. The agreement was straightforward: Victory could use the space, Avani Towers retained ownership of the development rights over the rest, and the land itself sat in Energy Properties' name. Three parties, one piece of land, a tangle of rights that would take years to untangle.
Then Avani Towers defaulted on its debts. A financial creditor filed an application under Section 7 of the Insolvency and Bankruptcy Code (IBC)—the provision that allows a creditor to initiate the Corporate Insolvency Resolution Process, or CIRP (the formal process of trying to revive or liquidate a company). The NCLT, Kolkata Bench admitted the CIRP on October 15, 2019. The hearing room that day would have been filled with the rustle of files and the low murmur of lawyers, the weight of a company's collapse settling on the shoulders of those present. The order of admission was typed, signed, and sealed—a few pages that set in motion a chain of legal events no one in that room could fully predict.
The Resolution Professional came knocking. Victory said no.
Once the CIRP was admitted, the Resolution Professional (RP—the person appointed to manage the company during insolvency) had a job to do: identify, protect, and eventually sell the Corporate Debtor's assets to recover money for creditors. The RP filed applications under Section 25 read with Regulation 30 of the IBBI (CIRP) Regulations—essentially asking the tribunal to protect the Corporate Debtor's development rights over the 10.19 acres. The RP argued that these rights were valuable assets that belonged to Avani Towers, not to Energy Properties, and that they must be preserved for the benefit of all creditors.
Victory Iron Works and Energy Properties pushed back. Victory claimed it was in possession of the entire land—not just the 10,000 square feet it held under license. Both companies argued that the development rights belonged to Energy Properties, not to Avani Towers, and therefore could not be treated as assets of the Corporate Debtor. The legal title was in Energy Properties' name, they said. That should be the end of the matter.
The NCLT, Kolkata Bench heard both sides. On February 12, 2020, it issued an order. The tribunal directed Victory and Energy Properties not to obstruct the RP. It protected Victory's license over the 10,000 square feet it occupied—acknowledging that Victory had a legitimate right to use that space. But it held that the development rights over the rest of the land must be preserved as assets of Avani Towers. The order was typed, signed, and stamped—a thin sheaf of paper that would reshape the legal landscape for everyone involved.
Neither side was satisfied. Victory and Energy Properties believed the tribunal had gone too far, treating rights that belonged to Energy Properties as if they belonged to the bankrupt company. The RP, meanwhile, believed the tribunal had not gone far enough, leaving Victory in possession of land that should be available to creditors. Both sides appealed.
The legal question: what counts as an 'asset' in insolvency?
The case turned on a deceptively simple question: are development rights 'property' under the IBC? And if so, do they belong to the Corporate Debtor or to the third party that holds the legal title to the land?
The court examined three key provisions of the IBC. Section 3(27) defines 'property' broadly—the definition is designed to capture every kind of asset, tangible or intangible, that has economic value. Section 18(f) lists the duties of the Interim Resolution Professional (IRP—the person appointed immediately after CIRP is admitted, before the RP takes over) to take control of the Corporate Debtor's assets. Section 25(2)(a) imposes a similar duty on the RP, requiring the RP to take custody of all assets of the Corporate Debtor.
But Section 18 also contains an Explanation that excludes assets owned by third parties from the IRP's control. Victory and Energy Properties seized on this. They argued that because Energy Properties held the legal title to the land, the development rights were third-party assets and fell outside the RP's reach. The Explanation, they said, was clear: assets belonging to third parties are not assets of the Corporate Debtor.
The court disagreed. It examined the structure of the IBC carefully. The Explanation under Section 18, the court held, is limited to that section 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 IRP and the RP have different roles, and the Code gives them different powers. The Explanation that limits the IRP's reach does not limit the RP's reach.
The court also looked at how the development rights had been created. Avani Towers had financed the entire purchase of the 10.19 acres. In return, it received exclusive development rights—the right to build on, use, and profit from the land. This was not a gift or a favour. It was a commercial transaction for valid consideration (something of value given in exchange). The rights had been paid for, and they had real economic value.
The court's reasoning: development rights are 'property'
The bench of Justice V. Ramasubramanian and Justice Pankaj Mithal delivered the judgment on March 14, 2023. The courtroom that day would have been quiet, the air still, as the judges read out their findings. The court held that development rights created in favour of a Corporate Debtor over immovable property constitute 'property' under Section 3(27) IBC and 'assets' under Sections 18(f) and 25(2)(a).
The court stated: "Development rights created in favour of a Corporate Debtor over immovable property constitute 'property' under Section 3(27) IBC and 'assets' under Sections 18(f) and 25(2)(a) IBC, especially when created for valid consideration and the Corporate Debtor financed the purchase of the property."
This was the heart of the judgment. The key factor was that Avani Towers had paid for the land and received the rights in return. Those rights had real economic value. They could be sold, transferred, or licensed—as Avani Towers had done with the 10,000 square feet to Victory. They were not mere contractual entitlements. They were assets in every meaningful sense of the word.
The court also addressed the relationship between the NCLT's powers and the RP's duties. Where the Corporate Debtor has development rights and possession was contractually handed over, the RP is entitled to seek protection of such possession through Regulation 30. This includes seeking directions to the local district administration to assist in preserving the assets. The court was clear: the RP is not powerless. The Code gives the RP the tools needed to protect the Corporate Debtor's assets, even when those assets are tied up in complex ownership structures.
The court also considered several precedents. It cited Sushil Kumar Agarwal v. Meenakshi Sadhu & Others (2019), Embassy Property Developments Pvt. Ltd. v. State of Karnataka & Others (2020), Gujarat Urja Vikas Nigam Ltd. v. Amit Gupta & Others (2021), and Tata Consultancy Services Ltd. v. SK Wheels Pvt. Ltd. (2022). These cases had established the broad framework for what constitutes 'property' and 'assets' under the IBC. The court applied that framework to the specific facts before it.
The appeals that went nowhere
Victory and Energy Properties appealed to the NCLAT, Principal Bench. On April 8, 2021, the NCLAT dismissed the appeals and confirmed the NCLT order. It directed that the development rights be disclosed in the Information Memorandum (the document that sets out the Corporate Debtor's assets and liabilities for potential bidders). This was a significant direction: it meant that any potential resolution applicant—anyone looking to buy Avani Towers out of insolvency—would know that the development rights over the 10.19 acres were available as part of the deal.
Victory and Energy Properties then appealed to the Supreme Court. On March 14, 2023, the Supreme Court dismissed the appeals. It upheld the NCLT and NCLAT orders in full.
The court protected Victory's possession over the 10,000 square feet under the Leave and License Agreement. Victory could stay where it was, operating its business from that space. But the court confirmed that the development rights over the remaining land are assets of Avani Towers and must be included in the Information Memorandum. The RP's possession over the remaining property was protected, with the assistance of the local district administration if needed.
The court also made clear that the RP could seek the assistance of the local district administration to protect the assets. This was a practical direction: the RP might need help from the local authorities to take physical possession of the land or to prevent interference from third parties. The court gave the RP that power.
What this means for Indian insolvency law
The judgment clarifies several important points. First, development rights are 'property' under the IBC. This is not a minor point. Development rights are a common feature of Indian real estate transactions. A company funds a land purchase, gets development rights in return, and uses those rights to build and profit. If that company goes bankrupt, those rights are available to creditors.
Second, the Explanation under Section 18 is limited to that section. It does not extend to Section 25. This means the RP has broader powers than the IRP when it comes to taking custody of assets. The distinction matters: the IRP is a temporary appointment, while the RP manages the entire resolution process. The Code gives the RP the tools needed to do the job properly.
Third, the RP can seek assistance from the local district administration to protect assets. This is a practical remedy that gives the RP teeth. When a third party is in possession of assets that belong to the Corporate Debtor, the RP is not limited to filing applications and waiting. The RP can get help from the local authorities to take physical possession.
The court ended where it began: with 10 acres of land, two companies, and a question about who really owns what. The answer, the court said, depends not on who holds the legal title, but on who paid for the rights and what those rights are worth. In insolvency, economic reality matters more than legal form.
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