Tax Management India. Com
Law and Practice  :  Digital eBook
Research is most exciting & rewarding
  TMI - Tax Management India. Com
Follow us:
  Facebook   Twitter   Linkedin   Telegram

Home Case Index All Cases Insolvency and Bankruptcy Insolvency and Bankruptcy + SC Insolvency and Bankruptcy - 2022 (5) TMI SC This

  • Login
  • Cases Cited
  • Referred In
  • Summary

Forgot password       New User/ Regiser

⇒ Register to get Live Demo



 

2022 (5) TMI 926 - SC - Insolvency and Bankruptcy


Issues Involved:
1. Legality of the sale of assets by the appellant Bank during the Corporate Insolvency Resolution Process (CIRP).
2. Applicability of moratorium under Section 14 of the Insolvency and Bankruptcy Code (IBC).
3. Allegations of mala fide intent in initiating insolvency proceedings.
4. Validity of the sale under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI Act) during the CIRP.
5. Priority of claims and the effect of the moratorium on secured creditors.

Detailed Analysis:

1. Legality of the Sale of Assets by the Appellant Bank During CIRP:
The appellant Bank extended credit facilities to the Corporate Debtor, whose loan account was classified as a Non-Performing Asset (NPA) on 13th June 2016. The Bank issued a Demand Notice under Section 13(2) of the SARFAESI Act and took symbolic possession of the secured assets. An E-auction notice was issued on 27th September 2018, and the sale was confirmed on 13th December 2018. However, the balance 75% of the bid amount was received on 8th March 2019, after the commencement of CIRP on 3rd January 2019. The National Company Law Tribunal (NCLT) set aside the sale, and the National Company Law Appellate Tribunal (NCLAT) upheld this decision. The Supreme Court found that the sale was not complete until the full payment was received, which occurred during the moratorium period, making the sale invalid.

2. Applicability of Moratorium under Section 14 of the IBC:
Section 14(1)(c) of the IBC imposes a moratorium on any action to foreclose, recover, or enforce any security interest created by the Corporate Debtor, including actions under the SARFAESI Act. The Supreme Court emphasized that once CIRP is initiated, all such actions are prohibited. The moratorium aims to provide a breathing space for the Corporate Debtor to resolve its insolvency issues without the threat of asset foreclosure.

3. Allegations of Mala Fide Intent in Initiating Insolvency Proceedings:
The appellant Bank argued that the insolvency proceedings were initiated with mala fide intent to stall the SARFAESI proceedings. However, the Supreme Court found no merit in this contention, noting that the petition filed by the Corporate Debtor clearly mentioned the actions taken by the appellant Bank. The Court did not find any evidence of malicious intent and emphasized that the details of the Bank's actions were transparently disclosed in the insolvency petition.

4. Validity of the Sale Under the SARFAESI Act During the CIRP:
The Supreme Court held that the sale under the SARFAESI Act was not complete until the full payment was received, which occurred during the CIRP moratorium period. The Court referred to various judgments indicating that the sale would be governed by Rules 8 and 9 of the Security Interest (Enforcement) Rules, 2002, and would be complete only upon full payment and issuance of a sale certificate. The Court concluded that the appellant Bank could not have continued the SARFAESI proceedings once the CIRP was initiated and the moratorium was ordered.

5. Priority of Claims and the Effect of the Moratorium on Secured Creditors:
The Supreme Court reiterated that the IBC, being a complete code, has an overriding effect over other laws, including the SARFAESI Act. The moratorium under Section 14 of the IBC prohibits any action to foreclose, recover, or enforce any security interest during the CIRP. The Court emphasized that the provisions of the IBC would prevail, and the secured creditors must submit their claims within the CIRP framework. The appellant Bank's acceptance of the balance sale consideration during the moratorium was deemed violative of Section 14(1)(c) of the IBC.

Conclusion:
The Supreme Court dismissed the appeal, upholding the concurrent orders of the NCLT and NCLAT, which set aside the sale of the Corporate Debtor's assets during the CIRP. The Court emphasized the overriding effect of the IBC provisions and the applicability of the moratorium under Section 14, which prohibits any action to enforce security interests during the CIRP. The allegations of mala fide intent were found to be unsubstantiated, and the sale under the SARFAESI Act was deemed incomplete until the full payment was received, which occurred during the moratorium period.

 

 

 

 

Quick Updates:Latest Updates