2025 (4) TMI 1195 - AT - IBC

Admission of claims for the reimbursement of the property tax paid based on an unregistered agreement for sale relating to immovable commercial property - HELD THAT - The claim for the reimbursement of the property tax paid by the Appellant (claim No. 2) for the alleged temporary office accommodation said to have been provided by the Corporate Debtor for the office purpose of the Appellant no right would accrue in favor of the Appellant for the reason being that if the unregistered agreement for sale which has been placed on record and relied by the Ld. Counsel for the Appellant before this Appellate Tribunal as well as before the Ld. Adjudicating Authority is taken into consideration and scrutinized Ld. Adjudicating Authority did not find any reference to any specific observation which has been made in the said agreement towards parting over the rights over any of the area for the purpose of being utilized as the office of the appellant society. In the absence of there being any specific observation made in the said agreement for providing space for the office of the appellant society there arises no legal liability to reimburse the amount paid by the Appellant towards GHMC property tax for the temporary office accommodation. Apart from it nothing on record has been brought by the appellant to establish that a right was created in favor of the Appellant society by execution of a sale deed for the alleged office space for Appellant society. In fact the Appellant had attempted to make a plea for the purposes of the remittance of the balance claims by referring to the unregistered agreement for sale as though it is a registered document. The agreement for sale dated 05.08.2010 which is placed on record is not a document which has been registered in the eyes of the law so as to make it to be read in evidence; for determining of a claim or any right arising from it. The claim raised by the Appellant in the application thus preferred for a sum of Rs. 4, 47, 161/- payable towards the reimbursement of the property tax as alleged to have been paid by the Applicant based on the unregistered agreement for sale dated 05.10.2010 would not be sustainable and that when creation of right and handing of possession is not proved there cannot be any tax liability. The contention raised by the Appellant in the instant appeal that the said aspect was not taken into consideration while rejecting its claims by the impugned order is not sustainable owing to the findings which have been recorded by the Ld. Adjudicating Authority. In order to appreciate further the arguments which had been extended by the Ld. Counsel for the Appellant in fact the Burden of proof to collate the claim by virtue of evidence is a responsibility which is cast upon the claimant itself who submits Form-F before the Resolution Professional for the verification of the claim by receiving all the claims submitted by the creditors which is supported by the documents which are to be submitted in compliance with the provisions contained under Section 18 (b) of I B Code 2016 - What is relevant herein is to point out that the entire basis of the claim did not satisfy the parameters as prescribed under Regulation 7(1) to be read with Regulation 7(2) as they were contrary to the records which were made available before the Resolution Professional. Hence the Appellants were not entitled to any amount for which they could claim as defined under Section 3 (6) of the Regulations where accrual of the right of payment is only subject to when the amount is fixed undisputed and legally established to equitable secured debt. As per claim No. 7 the Appellant themselves have prayed for that an appropriate direction may be issued for the purposes of execution of the sale deed which is an admission of fact that there is no sale deed so far conferring any right over an immovable property. Thus it becomes a tacit admission made by the Appellant society that there was no validly executed sale deed in favor of the society and its members. If that be the situation the other preceding claims except for the claim of corpus fund cannot be admitted as grant of those claims would have arisen only when there was a valid sale deed executed without which the debt due cannot be established. Conclusion - i) The unregistered agreement for sale which is mandatorily required to be registered under Section 17 of the Registration Act 1908 being unregistered cannot be received as evidence to create or confer any right title or interest in immovable property under Section 49 of the Registration Act 1908. ii) The claims raised by the Appellant based on such unregistered agreement for sale including reimbursement of property tax costs of integrated building management system maintenance expenses and other related claims are not legally tenable and cannot be admitted as debt due under the Insolvency and Bankruptcy Code 2016. Appeal dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal include:

- Whether claims raised by the Appellant, based on an unregistered agreement for sale relating to immovable commercial property, can be admitted and enforced under the Insolvency and Bankruptcy Code, 2016 (I&B Code) during Corporate Insolvency Resolution Process (CIRP) proceedings.

- Whether the unregistered agreement for sale can be read as evidence to establish legal rights or debts due to the Appellant in the absence of a registered sale deed.

- Whether the claims for reimbursement of property tax, costs of building management systems, maintenance expenses, and other related claims are legally tenable in the absence of valid title and possession.

- Whether the Resolution Professional's partial admission of the corpus fund claim and rejection of other claims was justified under the applicable legal framework.

- Whether the Appellant's intervention application following dismissal of the primary claim application was maintainable.

- The applicability of the Registration Act, 1908, specifically Sections 17 and 49, and provisions of the Transfer of Property Act, 1882, notably Sections 5 and 54, in determining the validity of claims based on unregistered agreements.

- The burden of proof and evidentiary requirements for admission of claims under the I&B Code and related regulations.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Admissibility of Claims Based on Unregistered Agreement for Sale

Relevant Legal Framework and Precedents: The Registration Act, 1908 mandates registration of certain documents relating to immovable property under Section 17. Section 49 of the same Act bars unregistered documents, which are compulsorily registrable, from being received as evidence to affect immovable property or confer rights. The Transfer of Property Act, 1882 defines "sale" under Section 54 as a transfer of ownership by a registered instrument for immovable property valued over Rs. 100. Section 5 defines "transfer of property."

Court's Interpretation and Reasoning: The Tribunal held that the unregistered agreement for sale relied upon by the Appellant, which forms the foundation of their claims, is not a registered document as mandated by Section 17 of the Registration Act. Consequently, under Section 49, it cannot be admitted as evidence to create or confer rights over immovable property. The Appellant's failure to produce a registered sale deed or prove valid transfer of title and possession rendered the claims legally untenable.

Key Evidence and Findings: The Appellant admitted that the sale deeds were not executed due to disputes between the Corporate Debtor and Telangana Housing Board. The unregistered agreement did not confer any valid rights or possession to the Appellant or its members, particularly in respect of office accommodation claimed. The Tribunal noted absence of any specific reference in the agreement for provision of office space or transfer of such rights.

Application of Law to Facts: Since the agreement was unregistered and no sale deed was executed, the claims arising from it, including reimbursement of property tax and other expenses, could not be recognized as debts payable by the Corporate Debtor under the I&B Code. The bar under Section 49 of the Registration Act precluded the unregistered agreement from being used as evidence to establish such claims.

Treatment of Competing Arguments: The Appellant argued that the claims should be admitted based on documentary evidence and correspondence with the Corporate Debtor and Resolution Professional. However, the Tribunal emphasized that the burden to prove existence of a legally enforceable debt rests on the claimant and mere submission of unregistered agreements and emails could not override statutory requirements of registration and valid title transfer.

Conclusions: Claims based solely on the unregistered agreement for sale were rightly rejected. The Tribunal affirmed the legal principle that unregistered documents, which are compulsorily registrable, cannot confer rights or be admitted as evidence to establish debts under insolvency proceedings.

Issue 2: Validity of Specific Claims Raised by the Appellant

Relevant Legal Framework: The claims were evaluated in light of the I&B Code, 2016, and the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, particularly Regulation 7(1) and 9, which govern submission and admission of claims supported by documentary evidence.

Court's Interpretation and Reasoning: The Tribunal considered each claim on its merits:

• Corpus Fund Claim: Partially admitted by the Resolution Professional and not disputed by the Appellant. The Tribunal accepted the admitted amount as a valid debt.
• Reimbursement of GHMC Property Tax: Denied due to lack of valid title, possession, or any contractual obligation in the unregistered agreement to reimburse such tax. The Tribunal held that tax liability arises only upon valid title and possession.
• Costs of Integrated Building Management System, Maintenance Expenses, Installation of Exhaust Pipes, and Permanent Accommodation Cost: Denied for lack of evidence, absence of agreement or approval by Corporate Debtor, and absence of valid title or possession. These claims were deemed mere demands without legal foundation.
• Execution of Registered Sale Deeds: The Appellant's prayer for directions to execute sale deeds was held to be outside the scope of claims under the I&B Code and constituted a civil dispute that cannot be resolved in insolvency proceedings.

Key Evidence and Findings: The Tribunal relied on the books of accounts, correspondence, and the admitted facts that sale deeds were not executed and possession was not handed over for the office premises claimed. The absence of registered documents and valid transfer was critical.

Application of Law to Facts: The Tribunal applied the definitions of "debt" and "claim" under the I&B Code, requiring the debt to be fixed, undisputed, and legally enforceable. The Appellant failed to meet these criteria for all claims except the corpus fund.

Treatment of Competing Arguments: The Appellant's reliance on Regulation 9 of the Insolvency Regulations to argue for admission of claims based on documentary evidence was rejected because the documentary foundation itself was legally deficient. The Tribunal underscored the claimant's burden to establish the claim with admissible proof.

Conclusions: Except for the corpus fund claim, all other claims were rightly rejected as they lacked legal foundation, valid title, possession, or proper evidentiary support.

Issue 3: Burden of Proof and Evidentiary Requirements for Admission of Claims

Relevant Legal Framework: Section 18(b) of the I&B Code and Regulation 7 of the Insolvency Regulations require submission of claims with admissible proof. The claimant bears the burden to establish the existence and amount of debt.

Court's Interpretation and Reasoning: The Tribunal emphasized that the Appellant failed to discharge the burden of proof by not submitting registered documents or evidence establishing a debt due from the Corporate Debtor. The Resolution Professional's rejection of claims was in accordance with the law.

Key Evidence and Findings: The Appellant's submissions were based on unregistered agreements and email correspondences, which were insufficient to establish legally enforceable claims.

Application of Law to Facts: The Tribunal applied the statutory burden of proof requirements, concluding that the Appellant's claims did not meet the threshold for admission under the insolvency process.

Treatment of Competing Arguments: The Appellant's contention that the Resolution Professional and Adjudicating Authority failed to consider documentary evidence was rejected, as the documentary evidence was legally inadmissible or insufficient.

Conclusions: The burden of proof lies with the claimant, and failure to meet evidentiary standards justifies rejection of claims during CIRP.

Issue 4: Maintainability of Intervention Application Following Dismissal of Primary Claim

Court's Interpretation and Reasoning: The Tribunal held that the intervention application became infructuous following dismissal of the primary claim application due to lack of credible material to sustain the claim.

Conclusions: The intervention application was rightly dismissed as it lacked independent merit.

Issue 5: Whether the Appellant's Claims Constituted an Attempt to Circumvent Proper Legal Remedies

Court's Interpretation and Reasoning: The Tribunal observed that the Appellant's attempt to raise claims under insolvency proceedings, rather than pursuing a suit for specific performance or other civil remedies, was an ill-conceived attempt to circumvent the correct legal process.

Conclusions: The Appellant's claims were not maintainable under the I&B Code and should have been pursued through appropriate civil litigation.

3. SIGNIFICANT HOLDINGS

"The unregistered agreement for sale, which is mandatorily required to be registered under Section 17 of the Registration Act, 1908, being unregistered, cannot be received as evidence to create or confer any right, title or interest in immovable property under Section 49 of the Registration Act, 1908."

"The claims raised by the Appellant based on such unregistered agreement for sale, including reimbursement of property tax, costs of integrated building management system, maintenance expenses, and other related claims, are not legally tenable and cannot be admitted as debt due under the Insolvency and Bankruptcy Code, 2016."

"A valid sale under Section 54 of the Transfer of Property Act, 1882 requires a registered instrument and transfer of possession; in the absence of which, no right or title can be conferred."

"The burden of proof to establish admissible claims under the Insolvency and Bankruptcy Code lies on the claimant, who must submit proper documentary evidence; failure to do so justifies rejection of claims by the Resolution Professional."

"The prayer for execution of registered sale deeds cannot be entertained as a claim under insolvency proceedings and constitutes a civil dispute outside the ambit of the I&B Code."

"The intervention application filed subsequent to dismissal of the primary claim application is infructuous and rightly dismissed."

"The appeal lacks merit and is dismissed."