Unregistered Leases Hold No Legal Weight, NCLAT Upholds Liquidator Power To Evict Tenants Under IBC

The National Company Law Appellate Tribunal ruled that unregistered lease deeds cannot serve as admissible evidence and liquidators do not need separate rent control proceedings to take possession.

Entering into a rental or commercial property agreement without formal registration strips the lease of its legal standing, according to a significant ruling by the National Company Law Appellate Tribunal. The appellate authority clarified that an unregistered lease deed cannot be admitted as evidence to assert tenancy rights, clearing the path for insolvency liquidators to reclaim corporate properties directly without wading through state rent control litigation. This decision firmly places federal bankruptcy proceedings above local tenancy protections whenever a corporate debtor enters liquidation.

Appeals Dismissed Against Chandigarh NCLT Eviction Directives
The controversy originated from a dispute involving two Ludhiana entities, Duke Fashions along with UV&W Products. Both corporate entities had approached the appellate authority to overturn a directive from the Chandigarh bench of the National Company Law Tribunal. That original ruling had instructed the two occupants to vacate two commercial premises situated in Karabara and Hussainpura within a strict timeframe of two weeks. A two-member bench of the appellate tribunal rejected their pleas, determining that the lower tribunal acted well within its legal jurisdiction.

Rejection Of Thirty Year Tenancy Claim And Unregistered Deeds
In their challenge, the appellant firms maintained that they enjoyed protected tenancy status through a 30-year lease deed. They further asserted that any lawful eviction could solely be pursued before a designated rent controller pursuant to the East Punjab Urban Rent Restriction Act, 1949, rather than through summary tribunal proceedings. The appellate tribunal categorically turned down these contentions, observing that because the lease documents were never registered, they failed to qualify as admissible evidentiary material in the eyes of the law. Furthermore, the bench highlighted an internal link, noting that directors across the appellant firms were close relatives of the suspended directors belonging to the corporate debtor.

Statutory Mandate Under Section 35 And Primacy Of IBC
The appellate bench highlighted that Section 35 of the Insolvency and Bankruptcy Code imposes a mandatory statutory obligation upon the liquidator to take custody and control of all properties owned by the corporate debtor. Furthermore, the tribunal emphasized the overriding effect established by Section 238 of the Code, which gives bankruptcy statutes precedence over inconsistent state enactments. As a result, a liquidator is not legally obliged to launch separate, protracted proceedings under rent restriction legislation simply to recover assets belonging to an insolvent enterprise.

Origins In Venus Garments Insolvency And Liquidation
The underlying asset controversy stems from the insolvency proceedings of Venus Garments (India). The textile firm was initially admitted into the corporate insolvency resolution process by the Chandigarh bench of the NCLT. Following resolution efforts, an official liquidation decree was issued on July 22, 2025, enabling the court-appointed liquidator to identify, consolidate, and retrieve corporate holdings occupied by external commercial tenants.

What this means for you
This judgment directly impacts business tenants and landlords operating long-term commercial leases without statutory registration.

• Across India: Commercial occupiers relying on unregistered lease deeds must formalize and register their documentation without delay. Unregistered lease paperwork can no longer protect tenants during federal corporate insolvency or liquidation actions.
• In Ludhiana: Local business units operating from unverified or unregistered tenancy arrangements face immediate eviction risks if the landlord entity enters insolvency. Occupants must re-evaluate their lease instruments to prevent sudden eviction notices.
• For Corporate Tenants: Commercial lessees occupying property owned by distressed entities will not receive procedural shelters under state rent control laws. Court-appointed liquidators have direct powers to seek eviction orders through tribunal channels.
• For Real Estate Buyers and Lenders: Asset recovery and liquidation sales will proceed with fewer delays since unauthorized or informal tenancies can be rapidly terminated. Prospective buyers in bankruptcy auctions can secure physical possession far more swiftly.

Why this happened
This ruling emerged from a jurisdictional conflict between local tenancy protections and federal bankruptcy mandates involving an insolvent garment enterprise.

• Unregistered Lease Claims: The appellant firms asserted rights under a three-decade tenancy pact that lacked statutory registration. Without official registration, court authorities determined the lease deed could not serve as admissible evidence of tenancy.
• Conflict of Statutes: The tenants sought procedural protection under the East Punjab Urban Rent Restriction Act of 1949. However, Section 238 of the Insolvency and Bankruptcy Code grants overriding authority to federal insolvency law over state rent regulations.
• Undisclosed Family Ties: The tribunal observed that directors of the tenant entities were close relatives of the suspended directors of the corporate debtor, undermining the independence of the tenancy claims.
• Liquidation Directives: Following the NCLT liquidation decree on July 22, 2025, the liquidator was under a strict statutory duty under Section 35 to recover and safeguard corporate assets for creditors.

Questions & Answers

1. What did the NCLAT rule regarding unregistered lease deeds?
The appellate tribunal ruled that unregistered lease deeds hold no legal validity and cannot be admitted as evidence in court.

2. Does a corporate liquidator need to approach a rent controller to evict tenants?
No, under Sections 35 and 238 of the IBC, a liquidator can take possession directly through the NCLT without separate rent control proceedings.

3. Which companies saw their eviction appeals dismissed by the NCLAT?
The appellate tribunal dismissed the appeals filed by Ludhiana-based Duke Fashions and UV&W Products.

4. Where are the disputed commercial properties situated?
The commercial units are located in Karabara and Hussainpura, which the tribunal ordered vacated within two weeks.

5. Which corporate debtor is at the centre of this dispute?
The litigation centers on Venus Garments (India), whose liquidation was ordered by the NCLT on July 22, 2025.

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