Eviction for encroachment cannot be sustained pending adjudication of the legitimacy of the underlying lease under Section 45.

The Appellant, a partnership firm, was awarded civil contract work by the Corporate Debtor (CD) on 31.12.2014.

Following payment disputes, a settlement deed was executed on 20.04.2017

On 20.12.2017, the CD executed a lease deed for 1,380 sq. mt. in favor of the Appellant's partner, allegedly pursuant to the settlement

CIRP was initiated against the CD on 03.07.2018.

Subsequently, the Resolution Professional (RP) filed I.A. 1197/2019 under Section 45 of the IBC (Avoidance of Undervalued Transactions) challenging the transaction, which remains pending

During its pendency, the RP filed I.A. 2738/2020 alleging the Appellant was an encroacher and seeking eviction.

The Adjudicating Authority (AA) allowed I.A. 2738/2020 on 13.01.2023, ordering eviction.

The Appellant’s subsequent application (I.A. 1298/2023) to set aside this order on grounds of non-service of notice and merits was dismissed by the AA on 23.05.2023

Insolvency and Bankruptcy Code, 2016 (IBC), specifically Section 45 regarding the avoidance of undervalued transactions

The primary legal principle applied is that the status of an occupant cannot be classified as "unlawful encroachment" while the legal validity of the title/lease deed through which they claim possession is currently sub-judice in a separate avoidance proceeding under the same insolvency process

The NCLAT observed a procedural contradiction in the RP's actions.

While the RP challenged the legitimacy of the Appellant's lease through I.A. 1197/2019, he simultaneously sought eviction via I.A. 2738/2020 by treating the Appellant as a simple encroacher

The Tribunal reasoned that as long as the lease deed dated 20.12.2017 is under scrutiny in the Section 45 application, it is legally inconsistent to hold that the Appellant is an unlawful encroacher

The Tribunal noted that although the Appellant may not have contested the eviction application (I.A. 2738/2020) diligently, the pendency of the avoidance application (I.A. 1197/2019) is a material factor that must be reconciled before ordering eviction

Furthermore, the Successful Resolution Applicant (SRA) is currently in settlement talks with the Appellant, though the SRA's right to continue the avoidance litigation must be preserved

The matter was remanded to the Adjudicating Authority with directions to consider I.A. 1298/2023 and I.A. 1197/2019 together

The Tribunal held that the Appellant's possession of the property covered under the lease deed dated 20.12.2017 shall be protected until the disposal of these applications

The Adjudicating Authority was directed to dispose of both applications within three months