Can a Lender Claim Ownership of Flats Without a Registered Sale Deed? NCLAT Clarifies in Gaurav Katiyar v. Nisus Finance & Investment Managers LLP

In real estate insolvency proceedings, conflicts often arise between financial lenders and homebuyers over ownership of project assets. A common question is:

Can a lender claim exclusive ownership of flats merely because they were allotted under an investment agreement, even if no registered sale deed or Builder Buyer Agreement exists?

The National Company Law Appellate Tribunal (NCLAT) answered this important question in Gaurav Katiyar v. Nisus Finance and Investment Managers LLP & Ors. (Company Appeal (AT) (Insolvency) No. 593 of 2021), decided on 25 January 2023.

The Tribunal held that transactions which are, in substance, loans secured by project assets cannot be treated as genuine sales merely because they are described as such in the documents. It further ruled that without a registered conveyance, no legal ownership over immovable property passes to the lender.

The judgment is a significant precedent protecting the interests of homebuyers and reinforcing the principle that courts will examine the real nature of a transaction rather than its label.

Background of the Case

A real estate developer entered into financial arrangements with Nisus Finance and Investment Managers LLP and Beacon Trusteeship Limited for raising funds to develop its housing project.
As part of these arrangements, 268 flats were earmarked in favour of the lenders.
When the developer subsequently entered the Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016 (IBC), the Resolution Professional prepared the Information Memorandum, which included these 268 flats as assets of the Corporate Debtor.
The lenders objected.
According to them, the flats had already been transferred in their favour under the investment agreements and therefore could not be treated as assets available for resolution.
They argued that the Resolution Professional should exclude these flats from the insolvency estate.

The Questions Before the NCLAT

The Tribunal was required to answer three important legal questions:

1. Were the transactions genuine sales or merely financial arrangements?

The Tribunal had to determine whether the agreements actually transferred ownership of the flats or merely created security for repayment of loans.

2. Can ownership of immovable property pass without registration?

Even if the parties described the transaction as a sale, could ownership legally pass in the absence of a registered document?

3. Can a creditor challenge the Resolution Plan after approving it?

The Tribunal also examined whether a lender who had already voted in favour of the Resolution Plan could later seek exclusion of those very assets from the insolvency process.

What Did the Tribunal Observe?

The NCLAT carefully analyzed the structure of the transaction.
Although the agreements referred to the allotment of flats, the surrounding circumstances indicated that the arrangement was essentially a financing transaction.
The Tribunal noted that the so-called purchase price of the flats was approximately one-third of their actual market value.
Such a substantial difference indicated that the parties never intended an actual sale.
Instead, the flats were being used as security for repayment of financial assistance extended to the developer.
The Tribunal therefore looked beyond the wording of the agreements and examined their true commercial purpose.

Substance Prevails Over Form

One of the most significant principles reaffirmed by the judgment is that courts examine the substance of a transaction rather than merely its description.
Merely describing an agreement as a “sale” does not make it a genuine sale.
Where the surrounding circumstances demonstrate that the real intention was to secure repayment of a loan, the transaction will be treated accordingly.
In this case, the Tribunal concluded that the flats were never intended to be sold in the ordinary commercial sense.
Instead, they formed part of the security mechanism for financing the project.

Why Registration Was Crucial

The lenders argued that they had already acquired ownership of the flats.
The Tribunal rejected this contention.
Referring to the Transfer of Property Act, 1882 and the Registration Act, 1908, the NCLAT observed that ownership of immovable property valued above ₹100 can pass only through a registered instrument.
The agreements relied upon by the lenders had not been registered.
Consequently, no legal title had passed in their favour.
The Tribunal made it clear that unregistered builder-buyer agreements or similar documents cannot create ownership rights in immovable property where registration is mandatory under law.

Why Were the Flats Included in the Insolvency Estate?

Since no legal ownership had passed to the lenders, the Tribunal held that the flats continued to remain assets of the Corporate Debtor.
Accordingly, the Resolution Professional had correctly included them in the Information Memorandum prepared under the Insolvency and Bankruptcy Code.
These assets therefore formed part of the insolvency estate available for implementation of the approved Resolution Plan.

Can a Creditor Change Its Stand After Approving the Resolution Plan?

An equally important issue arose from the conduct of the lenders themselves.
The Tribunal found that Nisus Finance had actively participated in the meetings of the Committee of Creditors (CoC).
More importantly, the lender had voted in favour of the Resolution Plan, which treated these flats as assets belonging to the Corporate Debtor.
After approving the Resolution Plan, the lenders attempted to argue that the flats actually belonged to them.
The Tribunal refused to permit this.
It observed that once a creditor knowingly approves a resolution plan, it cannot subsequently adopt an inconsistent position by seeking exclusion of assets that formed part of the very plan it had approved.
Such conduct would undermine the certainty and finality of insolvency proceedings.

Protection of Homebuyers

The Tribunal also considered the interests of genuine homebuyers.

It noted that many purchasers had:

- paid the full consideration,

- taken possession of their flats, and

- were already residing in the project.

Allowing one financial lender to claim exclusive ownership over a large number of flats would adversely affect the interests of numerous homebuyers and other stakeholders.

The Insolvency and Bankruptcy Code seeks to balance the rights of all creditors and stakeholders rather than permitting one creditor to obtain an unfair advantage.

This consideration also weighed heavily in the Tribunal’s decision.

Legal Principles Established

The judgment lays down several important legal principles.

1. Substance-Over-Form

Courts will determine the true nature of a transaction by examining its commercial purpose rather than merely relying upon the terminology used by the parties.

2. Registration Is Mandatory

Ownership of immovable property cannot pass without registration wherever the law requires a registered instrument.
Unregistered agreements cannot confer legal title.

3. Finality of Resolution Plans

A creditor who has approved a resolution plan cannot subsequently seek to remove assets forming part of that approved plan merely because doing so would benefit the creditor individually.

The NCLAT’s Final Decision

After examining the facts and the applicable legal principles, the National Company Law Appellate Tribunal allowed the appeal.

The Tribunal:

- set aside the earlier order that had directed transfer of 205 flats to the lenders;

- held that the flats continued to remain assets of the corporate debtor;

- directed that they should remain part of the approved resolution plan; and

- protected the interests of all stakeholders, including homebuyers and other creditors.

The decision ensured that the insolvency resolution process would proceed in accordance with the approved Resolution Plan rather than allowing one lender to claim exclusive ownership over project assets.

Practical Lessons for Developers, Lenders, and Homebuyers

For Financial Institutions

Before claiming ownership over project assets, lenders should ensure that transactions comply with all legal requirements, including registration wherever necessary.
Merely describing an agreement as a sale may not be sufficient.

For Developers

Financing arrangements should be carefully structured.
Using sale agreements merely as security documents may create disputes during insolvency proceedings.

For Homebuyers

The judgment provides reassurance that insolvency courts will consider the interests of genuine purchasers who have paid consideration and acquired legitimate rights.
Courts are unlikely to permit financing arrangements to override the rights of bona fide homebuyers.

For Resolution Professionals

The decision reinforces that assets should be included in the Information Memorandum based upon their true legal ownership rather than merely the labels used in commercial documents.

Why This Judgment Matters

This judgment strengthens three important principles of insolvency law.
First, it prevents lenders from disguising secured financing arrangements as property sales.
Second, it reinforces the mandatory requirement of registration for transfer of immovable property.
Third, it preserves certainty in the Corporate Insolvency Resolution Process by preventing creditors from changing their position after approving a Resolution Plan.
The decision ultimately protects the collective interests of all stakeholders instead of permitting individual creditors to obtain disproportionate benefits.

Conclusion

The decision in Gaurav Katiyar v. Nisus Finance and Investment Managers LLP is a significant judgment for the real estate and insolvency sectors.
The NCLAT reaffirmed that courts will always examine the substance of a transaction over its form, that legal ownership of immovable property cannot pass without a registered instrument, and that creditors are bound by the Resolution Plans they approve.
For homebuyers, the judgment is reassuring because it prevents project assets from being diverted through disguised financing arrangements. For lenders and developers, it highlights the importance of properly documenting and registering transactions in accordance with law.
As insolvency disputes in the real estate sector continue to evolve, this judgment serves as an important reminder that legal rights are determined by the true nature of a transaction—not merely by the language chosen by the parties.