If part amount of auctioned property received by bank after CIRP started, sale incomplete – SC  

Since part amount of the auctioned property was received by bank after start of CIRP, and order of moratorium, the sale could not be said to have completed – SC  

ABCAUS Case Law Citation
ABCAUS 3592 (2022) (05) SC

Important case law relied referred:
Vidhyadhar vs. Manikrao and Another (1999) 3 SCC 573
B. Arvind Kumar vs. Govt. of India and Others (2007) 5 SCC 745
Kaliaperumal vs. Rajagopal and Another (2009) 4 SCC 193
Hindon Forge Private Limited and Another vs. State of UP (2019) 2 SCC 198
S. Karthik and Others vs. N. Subhash Chand Jain and Others 2020 SCC OnLine SC 787
Anand Rao Korada Resolution Professional vs. Varsha Fabrics Private Limited (2020) 14 SCC 198
Innoventive Industries Limited vs. ICICI Bank and   Another (2018) 1 SCC 407
Edelweiss Asset Reconstruction Company Limited (2021) 9 SCC 657
Shakeena and Another v. Bank of India and Others 2019 SCC OnLine SC 1059

In the instant case, the bank had challenged the order passed by the National Company Law Appellate Tribunal (NCLAT) which has confirmed the order passed by the NCLT in allowing the application filed by the Corporate Debtor setting aside sale of the assets of the Corporate Debtor.

On account of the loan account of the corporate debtor being classified as “Non­ Performing Asset” (NPA), the lending bank issued a Demand Notice u/s 13(2) of the   Securitisation and Reconstruction of Financial Assets   and Enforcement of Security Interest Act, 2002 (“SARFAESI Act”) calling upon the Corporate Debtor and its guarantors to repay the outstanding amount due to the appellant Bank.

The bank took the symbolic possession of secured assets mortgaged exclusively with it and an e-auction notice was issued.

Within a month, the Corporate Debtor filed a petition under Section 10 of the Insolvency and Bankruptcy Code, 2016 (the IBC) before the NCLT.

In the e-auction, the successful bidders deposited 25% of the bid amount including earnest money deposit and the appellant Bank issued a sale certificate to them confirming the sale in favour of the successful bidders/ auction purchasers in the public auction. The auction purchasers were directed to pay the balance 75% of the bid amount within 15 days. On purchaser’s request the bank extended the said date in exercise of its powers under Rule 9(4)(a) of the Security Interest (Enforcement) Rules 2002 for the payment of the balance 75% of the   bid amount.

While the said extended time was in operation, the NCLT, admitted the petition filed by the Corporate Debtor. As a result of the said order passed under Section 10 of the IBC, the Corporate Insolvency Resolution Process (the CIRP) of the Corporate Debtor commenced. A moratorium as provided under Section 14 of the IBC was notified and an Interim Resolution Professional (the IRP) was also appointed.

The appellant Bank upon coming to know about the admission of the insolvency petition, filed its claim in Claim Form­ C with the IRP. According to the appellant   Bank, since the balance 75% of the bid amount was not yet received on the said date, it was not excluded from the claim filed before the IRP. During the pendency of the CIRP, the appellant Bank accepted the balance 75% of the bid amount and submitted its revised claim to the IRP. The appellant Bank also intimated the IRP about the successful sale of the said secured assets

On the application of the Corporate Debtor, NCLT passed order setting aside the sale of the property owned by the Corporate Debtor.

Being aggrieved thereby, the appellant Bank filed an appeal before NCLAT which was rejected by the impugned judgment.

Referring to the provisions of IBC, the Hon’ble Supreme Court stated that once the CIRP is commenced, there is complete prohibition for any action to foreclose, recover or enforce any security interest created by the Corporate   Debtor in respect of its property. The legislative intent is clear that after the CIRP is initiated, all actions including any action under the SARFAESI Act to foreclose, recover or enforce any security interest are prohibited.

The Hon’ble Supreme Court observed that the provisions of the IBC shall have effect, notwithstanding anything   inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law.

The case of the bank was that the sale in question was complete on issue of sale certificate to successful bidder and as such, the admission of the petition later by the NCLT would not affect the said sale. Merely because a   part of the payment was received subsequently after initiation of CIRP, it will not deprive the appellant Bank from receiving the said money in pursuance to the sale which has already been completed.

The Hon’ble Supreme Court distinguished all the cases relied upon by the appellant bank and stated that the instant case, arises out of a statutory sale. The sale would be governed by Rules 8 and 9 of the said Rules.  The sale would be complete only when the auction purchaser makes the entire payment and the authorised officer, issue a certificate of sale of the property in favour of the purchaser in the Form prescribed in the Rules.

The Hon’ble Supreme Court stated that since admittedly, the balance amount was received much after the date on which CIRP commenced and moratorium was ordered, the sale could not be said to have completed upon   receipt of the part payment.

Accordingly, the Apex Court dismissed the appeal of the bank.

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