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Home Case Index All Cases Insolvency and Bankruptcy Insolvency and Bankruptcy + AT Insolvency and Bankruptcy - 2021 (3) TMI AT This

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2021 (3) TMI 1378 - AT - Insolvency and Bankruptcy


Issues Involved:
1. Validity of transactions involving the assets of the Corporate Debtor during the moratorium period.
2. Whether the provisions of the Insolvency and Bankruptcy Code (IBC) prevail over other laws, specifically the SARFAESI Act, 2002.

Issue-wise Detailed Analysis:

1. Validity of transactions involving the assets of the Corporate Debtor during the moratorium period:

The Appellant, a Financial Creditor, challenged the order by the National Company Law Tribunal (NCLT), Hyderabad, which set aside the sale of the Corporate Debtor's assets. The Appellant argued that the auction and sale of the assets were conducted before the commencement of the Corporate Insolvency Resolution Process (CIRP) and thus should be considered valid. The auction was held on 12.12.2018, and the sale was confirmed on 13.12.2018, with 25% of the bid amount received on the same day. The balance 75% was paid on 08.03.2019, after the CIRP commenced on 03.01.2019.

The Respondents contended that the sale was incomplete as the full payment and issuance of the sale certificate occurred after the moratorium under Section 14 of IBC was imposed. The moratorium prohibits any transfer, encumbrance, or alienation of the Corporate Debtor's assets. The NCLT held that continuing the sale process after the commencement of CIRP violated the moratorium, and thus, the sale was set aside.

The Tribunal affirmed that the moratorium aims to protect the assets of the Corporate Debtor and maximize their value for the benefit of all stakeholders. It stated that the sale was not concluded as the full payment was received during the moratorium period, and the assets remained in the name of the Corporate Debtor in revenue records. Therefore, the sale was deemed invalid.

2. Whether the provisions of the Insolvency and Bankruptcy Code (IBC) prevail over other laws, specifically the SARFAESI Act, 2002:

The Appellant argued that the sale process initiated under the SARFAESI Act should not be affected by the moratorium under IBC. However, the Tribunal emphasized that IBC is a complete code in itself, and Section 238 of IBC has an overriding effect over other laws, including the SARFAESI Act. This means that any action under SARFAESI Act during the moratorium period is invalid.

The Tribunal cited several judgments, including the Supreme Court's rulings in "Anand Rao Korada, Resolution Professional Vs. Varsha Fabrics (P) Ltd. and Others" and "Duncans Industries Limited Vs. A.J. Agrochem," which reinforced the principle that IBC provisions prevail over other laws. The Tribunal also referred to its own decision in "Encore Asset Reconstruction Company Pvt. Ltd. Vs. Charu Sandeep Desai and Others," which held that Section 238 of IBC overrides any inconsistent provisions of the SARFAESI Act.

The Tribunal concluded that the moratorium under Section 14 of IBC prohibits any transaction involving the Corporate Debtor's assets, including actions under the SARFAESI Act. Therefore, the receipt of the balance sale consideration during the moratorium was illegal, and the sale transaction was rightly set aside by the NCLT.

Conclusion:

The Tribunal dismissed the appeal, affirming that the sale of the Corporate Debtor's assets during the moratorium period was invalid and that the provisions of IBC have an overriding effect over other laws, including the SARFAESI Act. The order of the NCLT setting aside the sale was upheld, and the appeal was found to be devoid of merit.

 

 

 

 

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