NCLAT: Leaseholder Cannot Be Treated as Encroacher While Validity of Lease is Sub Judice

April 6, 2026 : The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, has held that a party in possession of property under a lease deed cannot be treated as an encroacher so long as the validity of such lease remains pending adjudication before the competent authority.

The Bench comprising Justice N. Seshasayee (Judicial Member), Arun Baroka (Technical Member), and Indevar Pandey (Technical Member) allowed the appeal filed by M/s Rose Constructions and set aside the order of the Adjudicating Authority directing eviction from the disputed property.

The dispute arose from a lease transaction dated 20.12.2017 executed in favour of a partner of the appellant firm, allegedly pursuant to a settlement dated 20.04.2017 resolving earlier payment disputes relating to civil contract work awarded in 2014. Subsequently, Corporate Insolvency Resolution Process (CIRP) was initiated against the corporate debtor on 03.07.2018.

During CIRP, the Resolution Professional (RP) filed an application under Section 45 of the Insolvency and Bankruptcy Code, 2016 challenging the lease transaction, which remains pending adjudication. Parallelly, another application was filed alleging that the appellant had encroached upon the corporate debtor’s property and constructed a sample flat. The Adjudicating Authority allowed this application ex parte and directed eviction.

The appellant challenged the eviction order, contending that its possession over approximately 1,830 sq. metres of property was intrinsically linked to the lease deed, the validity of which was already under consideration. It argued that until the lease dispute was adjudicated, treating it as an encroacher was legally untenable.

The RP opposed the appeal, submitting that notices had been duly served and alleging misuse of the premises, including permitting third-party occupation. It was also pointed out that the approved resolution plan required the Successful Resolution Applicant (SRA) to pursue the challenge to the lease transaction.

After considering the rival submissions, the Appellate Tribunal observed that two parallel proceedings were pending: one concerning the legitimacy of the lease deed and the other alleging encroachment. The Tribunal held that as long as the application challenging the lease (I.A. 1197 of 2019) remained pending, it would be difficult to sustain a finding that the appellant was an encroacher.

The Bench noted that eviction during the pendency of proceedings examining the lease “cannot be reconciled with the allegation of unlawful occupation of the property.”

Taking note of the fact that the resolution plan had already been approved and that the SRA would prosecute the challenge to the lease, the Tribunal held that all related issues, including any settlement between the parties, could be addressed before the Adjudicating Authority.

Accordingly, the NCLAT set aside the impugned order and remanded the matter to the Adjudicating Authority to be considered along with the pending application concerning the lease deed. It further directed that the appellant’s possession of the property covered under the lease shall continue until disposal of the pending applications and requested expeditious adjudication, preferably within three months.

Case Details:
Case Title: M/s Rose Constructions v. Atul Kumar Kansal, Resolution Professional
Case No.: Company Appeal (AT) (Ins) No. 965 of 2023