IBC | High Court Cannot Direct Handing Over Of Possession At Interim Stage When Estate Has Vested In Bankruptcy Trustee & Title Has Not Passed: Supreme Court

"Prima facie we are of the opinion that with the vesting of the property(ies) with the Bankruptcy Trustee under Section 128 read with 154 of the IBC on 24.04.2026, title having not passed on to the purchaser-respondent no.1, we are of the opinion that the High Court could not made an interim order directing handing over of the possession of the property(ies) in question." Holding that property statutorily vests in the Bankruptcy Trustee immediately upon appointment without conveyance or assignment, a Supreme Court bench comprising Justice K.V. Viswanathan and Justice Arun Palli on October 15, 2026, set aside an interim direction of the Bombay High Court that mandated physical possession of mortgaged property to be handed over to a private treaty purchaser.

The dispute arose after secured creditors sought to sell residential premises situated at Vile Parle (West), Mumbai under the SARFAESI Act, confirming a sale via private treaty to the purchaser. While only a part of the agreed sale consideration had been deposited, the National Company Law Tribunal, Mumbai admitted a bankruptcy petition under Section 122 of the IBC against the debtor-guarantor and appointed a Bankruptcy Trustee. The purchaser challenged the interim moratorium and proceedings before the Bombay High Court, which passed an interim order directing the Bankruptcy Trustee to deliver physical possession of the property to the purchaser.

Whether the High Court, exercising jurisdiction under Article 226 of the Constitution, was justified in directing the Bankruptcy Trustee at an interim stage to hand over physical possession of an asset to a private treaty purchaser where the estate had already vested in the Bankruptcy Trustee under Sections 128 and 154 of the IBC and full title had not passed to such purchaser?

Whether the debtor's right of redemption under Section 13(8) of the SARFAESI Act was extinguished so as to exclude the mortgaged asset from the estate of the bankrupt prior to the admission of the insolvency proceedings?

The Supreme Court examined the statutory interplay between the enforcement of security interest under the SARFAESI Act and the vesting provisions embedded under the Insolvency and Bankruptcy Code, 2016. The Court noted that on April 24, 2026, the Adjudicating Authority had admitted the bankruptcy petition and appointed the petitioner as the Bankruptcy Trustee of the debtor.

Immediate vesting of the bankrupt's estate under the Insolvency and Bankruptcy Code leaves no room for interim dispossession.

Under Section 128 read with Section 154 of the IBC, the entire estate of the bankrupt vests in the Bankruptcy Trustee from the date of the appointment order. This statutory vesting takes effect instantaneously and automatically without the requirement of any separate conveyance, deed, assignment, or transfer.

Part payment of consideration under a private treaty does not transfer title prior to bankruptcy order.

The bench observed that while the secured creditors had entered into a private treaty and confirmed the transaction, the purchaser had initially paid only a portion of the total sale consideration prior to the order of bankruptcy. In the absence of a completed transfer conveying full title to the purchaser prior to the vesting date, the property formed an integral part of the estate of the bankrupt.

The Court addressed the argument raised under the amended Section 13(8) of the SARFAESI Act concerning the extinction of the borrower's right of redemption upon the issuance of an auction notice. Noting that rival parties contested whether the right of redemption was lost where a purchaser defaulted in depositing the balance consideration within the prescribed time, the bench declined to validate an interim direction disturbing possession.

High Court's interim mandatory relief altered the statutory status quo contrary to bankruptcy mechanism.

The Supreme Court underscored that the High Court could not have directed the Bankruptcy Trustee to yield physical possession back to the purchaser at an interlocutory stage while substantive writ proceedings challenging the DRT orders and the interim moratorium under Section 124 of the IBC were still pending adjudication.

The Supreme Court accordingly set aside the impugned interim order of the Bombay High Court and directed the private treaty purchaser to restore physical possession of the property in question to the Bankruptcy Trustee on or before October 30, 2026. The Court left all substantive contentions, including the maintainability of the writ petition, open for determination by the High Court and requested the High Court to endeavour to dispose of the writ petition within twelve weeks uninfluenced by any interim observations.

Date of Decision: October 15, 2026

SUPREME COURT OF INDIA - NON-REPORTABLE

Bench: Justice K.V. Viswanathan and Justice Arun Palli