Actual Control of Assets by IRP Under IBC: No Concept of Symbolic Possession

Introduction

The Insolvency and Bankruptcy Code, 2016 (IBC) represents a watershed moment in India’s insolvency regime, fundamentally transforming how corporate distress is managed. At the heart of this transformative legislation lies a critical principle that distinguishes it from previous debt recovery mechanisms: the Interim Resolution Professional (IRP) must take actual, physical control of the corporate debtor’s assets, not merely symbolic possession. This principle was recently reinforced by the National Company Law Appellate Tribunal (NCLAT), which categorically stated that the IBC does not recognize the concept of symbolic possession during the Corporate Insolvency Resolution Process (CIRP).

The distinction between symbolic and actual possession carries profound implications for the success of insolvency resolution. Unlike the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), which permits secured creditors to take symbolic possession of assets, the IBC mandates that the IRP must assume complete operational control over all assets of the corporate debtor. This requirement stems from the fundamental objective of the Code: to preserve the corporate debtor as a going concern and maximize the value of its assets for the benefit of all stakeholders. The NCLAT’s recent pronouncement serves as a powerful reminder that half-measures and token gestures have no place in the insolvency resolution framework established under the IBC.

The Legislative Framework Governing Asset Control Under IBC

The Insolvency and Bankruptcy Code, 2016, establishes a comprehensive framework for managing corporate insolvency in India. The Code came into force on December 1, 2016, and introduced a paradigm shift from the debtor-in-possession model to a creditor-in-control regime. Section 18 of the IBC forms the cornerstone of the IRP’s authority and delineates the duties that the professional must discharge during the CIRP.

Section 18(1)(f) of the IBC explicitly mandates that the IRP shall “take control and custody of any asset over which the corporate debtor has ownership rights, including but not limited to: (a) assets over which the corporate debtor has ownership rights which may be located in a foreign country; (b) assets of any Indian or foreign subsidiary of the corporate debtor; and (c) such other assets as may be notified by the Central Government in consultation with any financial sector regulator.”[1] This provision is unambiguous in its requirement that the IRP must assume actual custody and control, not merely nominal or symbolic possession.

The legislative intent behind this provision becomes clear when examined in the context of the IBC’s objectives. The Code was designed to consolidate and amend laws relating to insolvency resolution of corporate persons in a time-bound manner for maximization of value of assets of such persons. The moratorium under Section 14 of the IBC prohibits the institution of suits or continuation of pending suits or proceedings against the corporate debtor, including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority. This moratorium creates a protective umbrella under which the IRP can effectively manage the corporate debtor’s assets without external interference.

Section 17 of the IBC further strengthens the IRP’s position by vesting the management of the corporate debtor in the IRP. From the date of appointment, the powers of the board of directors or the partners of the corporate debtor, as the case may be, stand suspended and are exercised by the IRP. This complete displacement of existing management is essential to ensure that the IRP can take unfettered control of all assets and operations. The corporate debtor’s personnel, officers, managers and other employees are required to report to the IRP and provide access to all documents and records of the corporate debtor.[2]

Distinguishing IBC from SARFAESI: The Symbolic Possession Debate

The concept of symbolic possession finds its genesis in the SARFAESI Act, 2002, which was enacted to enable banks and financial institutions to realize long-term assets, manage problem loans, and sustain credit delivery in the economy. Under Section 13(4) of the SARFAESI Act, secured creditors are empowered to take possession of secured assets, including the right to transfer by way of lease, assignment or sale. The courts have interpreted this provision to permit symbolic possession in certain circumstances, particularly where physical possession is impractical or where the borrower does not resist the creditor’s assertion of ownership.

However, the IBC operates on an entirely different premise. The NCLAT has repeatedly emphasized that the IBC is a complete code in itself, designed to achieve specific objectives that differ fundamentally from those of the SARFAESI Act. Where the SARFAESI Act focuses on enabling individual secured creditors to enforce their security interests, the IBC aims to resolve insolvency in a collective manner that balances the interests of all stakeholders while preserving the corporate debtor as a viable economic entity.

The distinction between symbolic and actual possession becomes particularly relevant when examining the interface between these two legislative frameworks. When CIRP is initiated against a corporate debtor, the moratorium under Section 14 comes into effect automatically. Section 14(1)(c) specifically prohibits any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property. This means that even if a secured creditor had taken symbolic possession under the SARFAESI Act before the commencement of CIRP, such possession must yield to the IRP’s right to take actual control under Section 18 of the IBC.

The rationale for this distinction lies in the different stages of debt recovery at which these legislations operate. The SARFAESI Act is an early-stage intervention mechanism that allows secured creditors to bypass lengthy judicial processes. Symbolic possession may suffice at this stage because the creditor’s primary objective is to assert its right over the secured asset and prevent the borrower from alienating or encumbering it. In contrast, the IBC comes into play when the corporate debtor is in severe financial distress, and piecemeal enforcement of individual securities would undermine the collective resolution process. At this stage, actual possession is non-negotiable because the IRP must actively manage the corporate debtor’s operations, preserve asset value, and explore resolution possibilities.[3]

Judicial Interpretation: Key Case Laws on IRP’s Right to Actual Possession

The Indian judiciary has developed a robust jurisprudence on the IRP’s right to take actual control of the corporate debtor’s assets. These decisions have consistently upheld the primacy of Section 18 of the IBC and rejected attempts to limit the IRP’s authority through concepts borrowed from other legislations.

One of the landmark judgments in this area is the NCLAT’s decision in Dena Bank v. C. Shivakumar Reddy. In this case, the bank had taken possession of the corporate debtor’s property under the SARFAESI Act before the initiation of CIRP. When the IRP sought to take control of the property, the bank resisted, arguing that it had already taken possession under the SARFAESI Act and that this possession should be respected. The NCLAT categorically rejected this argument and held that upon the commencement of CIRP, the IRP is entitled to take custody and control of all assets of the corporate debtor, regardless of whether any secured creditor had earlier taken possession under the SARFAESI Act. The tribunal observed that the property continued to reflect as an asset in the balance sheet of the corporate debtor, and therefore, the IRP was bound under Section 18 of the IBC to take control and custody of such property. The NCLAT further held that any action by the bank to enforce its security interest after the commencement of CIRP would be in violation of the moratorium under Section 14.[4]

The Supreme Court of India has also addressed the scope of the IRP’s authority over assets. In Phoenix ARC Private Limited v. Ketulbhai Ramubhai Patel, the Supreme Court examined whether the exclusion of assets owned by third parties but in possession of the corporate debtor applies across all provisions of the IBC. The Court held that the exclusion of assets owned by a third party but in the possession of the corporate debtor under contractual arrangements is limited to Section 18 of the IBC. This means that while the IRP cannot take control of assets that belong to third parties, the IRP has comprehensive authority over all assets that the corporate debtor owns, regardless of who may be in possession of those assets.[5]

These judicial pronouncements establish several important principles. First, the IRP’s right to take actual control of assets is not contingent upon the absence of competing claims by secured creditors. Second, the moratorium under Section 14 operates as a statutory shield that protects the IRP’s authority to assume custody and control of assets. Third, the concept of symbolic possession, which may be relevant under the SARFAESI Act, has no application in the IBC framework. Fourth, the IRP’s duty to take control of assets is mandatory, not discretionary, and flows directly from the language of Section 18.

Regulatory Framework and Practical Implementation

The Insolvency and Bankruptcy Board of India (IBBI), established under Section 188 of the IBC, serves as the principal regulator for insolvency professionals and insolvency professional agencies. The IBBI has issued detailed regulations that operationalize the provisions of the IBC and provide guidance to IRPs on the discharge of their duties. The IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, prescribe the manner in which the CIRP shall be conducted and specify the timelines within which various steps must be completed.

Regulation 7 of the IBBI Regulations requires the IRP to make a public announcement within three days of his appointment. This announcement must include details of the corporate debtor, the last date for submission of claims, and other relevant information. Following this announcement, the IRP must begin the process of taking control of the corporate debtor’s assets. This involves identifying all assets, verifying ownership rights, assessing the physical condition and location of assets, and implementing measures to secure and preserve asset value.

The practical challenges in taking actual control of assets are significant. In many cases, assets may be scattered across multiple locations, including foreign jurisdictions. Section 18(1)(f)(a) specifically contemplates this scenario by empowering the IRP to take control of assets located in foreign countries. However, enforcing this authority in foreign jurisdictions requires navigating complex issues of private international law and may necessitate cooperation from foreign courts or authorities. The IRP must also deal with situations where third parties may be using the corporate debtor’s assets under various contractual arrangements, such as leases, licenses, or bailments.

The IBBI has issued guidance notes and circulars to assist IRPs in addressing these practical challenges. For instance, the IBBI has clarified that the IRP should take physical custody of tangible assets, change passwords and access credentials for digital assets, assume control over bank accounts, and implement appropriate security measures to prevent theft, damage, or unauthorized removal of assets. The IRP must also prepare a detailed inventory of all assets, including their description, location, condition, and estimated value.[6]

Asset Identification and Valuation During CIRP

Once the IRP assumes control of the corporate debtor’s assets, one of the most critical tasks is to identify and value these assets accurately. This process forms the foundation for the preparation of the information memorandum, which is a key document that potential resolution applicants use to formulate their resolution plans. Section 29 of the IBC requires the resolution professional (who replaces the IRP after the first meeting of the committee of creditors) to prepare an information memorandum containing all relevant information about the corporate debtor.

The definition of “assets” under Section 18 is deliberately broad and includes not only tangible property like land, buildings, plant and machinery, but also intangible assets such as intellectual property rights, goodwill, contractual rights, and development rights. The NCLAT has held that development rights constitute property within the meaning of Section 3(27) of the IBC and can be included in the information memorandum by the resolution professional. This expansive interpretation ensures that all value-bearing assets are brought within the ambit of the CIRP and made available for the benefit of stakeholders.

The valuation of assets must be conducted by registered valuers in accordance with the provisions of the Companies Act, 2013, and the rules made thereunder. Regulation 27 of the IBBI Regulations mandates that the resolution professional shall appoint two registered valuers to determine the fair value and liquidation value of the corporate debtor. One valuer must estimate the fair value and liquidation value of the assets of the corporate debtor, while the other must estimate the fair value and liquidation value of the business of the corporate debtor as a going concern.

The distinction between fair value and liquidation value is crucial. Fair value represents the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Liquidation value, on the other hand, represents the estimated amount that would be realized if the assets were sold piecemeal under distress conditions. The IBC requires both valuations to establish a floor price for resolution plans, ensuring that stakeholders receive at least as much under a resolution plan as they would receive in liquidation.

Rights and Obligations of Secured Creditors During CIRP

The commencement of CIRP has profound implications for secured creditors who may have enforcement proceedings pending under the SARFAESI Act or other mechanisms. Section 14 of the IBC imposes a comprehensive moratorium that prohibits various actions against the corporate debtor, including the enforcement of security interests. This moratorium is automatic and takes effect immediately upon the admission of the insolvency application by the National Company Law Tribunal (NCLT).

The moratorium serves multiple purposes in the IBC framework. First, it provides breathing space to the corporate debtor and prevents a race among creditors to enforce their claims. Second, it preserves the corporate debtor’s assets and prevents their dissipation during the CIRP. Third, it creates a level playing field among creditors by ensuring that individual enforcement actions do not prejudice the collective resolution process. Fourth, it enables the IRP to take stock of the corporate debtor’s financial position and explore resolution possibilities without external pressures.

However, the moratorium is not absolute. Section 14(3) lists certain actions that are permitted notwithstanding the moratorium. These include proceedings under the Prevention of Money Laundering Act, 2002, or the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976. Additionally, the moratorium does not affect the right of a secured creditor to realize the value of its security interest after the liquidation order is passed.

Secured creditors play a crucial role in the CIRP through their participation in the committee of creditors (CoC). Section 21 of the IBC provides for the constitution of a CoC, which comprises all financial creditors of the corporate debtor. The CoC is the primary decision-making body during the CIRP and has the authority to approve or reject resolution plans, decide on the extension of the CIRP period, and take various other decisions relating to the conduct of the CIRP. Each financial creditor’s voting share in the CoC is proportionate to the financial debt owed to it.[7]

The Supreme Court has emphasized that the CoC must exercise its commercial wisdom in evaluating resolution plans. In Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta, the Supreme Court held that the CoC is the ultimate authority to approve a resolution plan and that the adjudicating authority’s role is limited to checking whether the resolution plan complies with the requirements specified in Section 30(2) of the IBC. This decision recognizes the business judgment of financial creditors and minimizes judicial interference in commercial decisions.[8]

Enforcement Mechanisms and Penalties

The IBC contains robust enforcement mechanisms to ensure compliance with its provisions and to penalize violations. Section 69 of the IBC empowers the adjudicating authority to punish any person who makes a statement that is false in material particulars or intentionally omits any material fact knowing it to be material with imprisonment for a term which may extend to two years or with fine which may extend to one crore rupees, or with both. This provision applies to all stakeholders, including the corporate debtor, its officers, creditors, and insolvency professionals.

The IBBI also has disciplinary powers over insolvency professionals. Section 220 of the IBC empowers the IBBI to impose penalties on insolvency professionals for professional misconduct, negligence, or contravention of the Code or the regulations. The penalties may include warnings, reprimands, monetary penalties, or even cancellation of registration as an insolvency professional. The IBBI has established a Disciplinary Committee to inquire into allegations of professional misconduct and recommend appropriate action.

In cases where the IRP encounters resistance in taking control of assets, the NCLT has the power to pass appropriate orders to facilitate compliance with Section 18. The NCLT may direct the corporate debtor’s officers and employees to cooperate with the IRP, order the police to assist the IRP in taking physical possession of assets, and even initiate contempt proceedings against persons who obstruct the IRP in the discharge of his duties. These coercive powers ensure that the IRP’s authority is not merely theoretical but can be enforced effectively on the ground.

Section 235 of the IBC provides for the punishment of contravention of orders of the adjudicating authority. Any person who contravenes any order of the NCLT or the NCLAT shall be punishable with imprisonment for a term which may extend to three years or with fine which may extend to one crore rupees, or with both. This provision serves as a powerful deterrent against non-compliance and reinforces the authority of the adjudicating bodies.

Challenges in Implementation and Emerging Issues

Despite the clear legislative mandate and supportive judicial precedents, IRPs continue to face practical challenges in taking actual control of corporate debtors’ assets. One recurring challenge is the lack of cooperation from the corporate debtor’s management and employees. Although Section 17 suspends the powers of the board of directors and Section 19 requires personnel to cooperate with the IRP, in practice, many corporate debtors attempt to obstruct or delay the transfer of control. This may involve withholding information, concealing assets, transferring assets to related parties, or creating artificial obstacles to the IRP’s access to premises and records.

Another challenge arises in cases involving complex corporate structures with multiple subsidiaries and holding companies. Section 18(1)(f)(b) empowers the IRP to take control of assets of Indian or foreign subsidiaries of the corporate debtor. However, determining what constitutes effective control over a subsidiary and implementing that control across different legal entities can be complex. Subsidiaries may have their own boards of directors, management teams, and operational autonomy. The IRP must navigate these organizational structures carefully to ensure that control is established without disrupting the subsidiary’s operations or violating the corporate law of the jurisdiction in which the subsidiary is incorporated.

The treatment of third-party assets in the possession of the corporate debtor presents another area of difficulty. Many corporate debtors operate using assets that they do not own, such as leased properties, licensed intellectual property, or goods held on consignment. The Supreme Court’s decision in Phoenix ARC clarified that the exclusion of third-party assets from the IRP’s control is limited to Section 18, meaning that these assets are not under the IRP’s custody and control. However, the IRP must still manage the corporate debtor’s contractual rights and obligations relating to these assets, which requires careful analysis of the underlying agreements and coordination with the asset owners.

The interface between the IBC and other regulatory regimes also creates challenges. For instance, certain industries are subject to sector-specific regulations that impose conditions on the transfer of control or ownership. The IRP must ensure compliance with these regulations while exercising authority under the IBC. Similarly, labor laws continue to apply during the CIRP, and the IRP must manage workforce issues, including payment of wages, compliance with minimum wage laws, and handling of labor disputes.[9]

Conclusion

The principle that the IRP must take actual, not symbolic, possession of the corporate debtor’s assets is fundamental to the operation of the Insolvency and Bankruptcy Code, 2016. This requirement flows directly from Section 18 of the IBC and has been consistently upheld by Indian courts and tribunals. The distinction between the IBC and the SARFAESI Act in this regard reflects the different objectives and mechanisms of these two legislative frameworks. While symbolic possession may suffice for individual enforcement actions under the SARFAESI Act, the collective and rehabilitative nature of the IBC demands that the IRP exercise actual control over all assets to preserve their value and facilitate meaningful resolution.

The judicial pronouncements discussed in this article establish that the IRP’s right to take control of assets is paramount and cannot be defeated by prior actions of secured creditors under other laws. The moratorium under Section 14 creates a statutory shield that protects this right, and the adjudicating authorities have the power to enforce compliance with Section 18. However, practical challenges remain in implementing this principle, particularly in cases involving complex corporate structures, third-party assets, and resistance from existing management.

Going forward, it will be important for stakeholders to recognize and respect the IRP’s authority from the outset of the CIRP. Secured creditors must understand that their enforcement rights under the SARFAESI Act are suspended during the CIRP and that cooperation with the IRP serves the broader goal of maximizing asset value for all stakeholders. The corporate debtor’s management and employees must similarly recognize that obstruction of the IRP’s duties is not only counterproductive but also punishable under the IBC. With greater awareness, better coordination, and continued judicial support, the principle of actual control by the IRP can be implemented effectively to achieve the IBC’s objectives of timely resolution and value maximization.