2020 (9) TMI 1202 - Tri - Insolvency and Bankruptcy

Cancellation of the sale effected by respondent - reversal of sale transaction - Whether the sale of the secured asset in public auction as per Section 13(4) of SARFAESI Act, which ended in issuance of a sale certificate as per Rule 9(7) of the Security Interest (Enforcement) Rules, 2002 is a complete and absolute sale for the purpose of SARFAESI Act or whether the sale would become final only on the registration of the sale certificate? - scope of SARFAESI Act. HELD THAT - The SARFAESI Act is concerned since the sale is by public auction, therefore, the moment bid is accepted and authorised officer confirmed the sale in favour of purchaser, the sale become absolute and the title vests in the purchaser. A sale certificate is issued only when the sale become absolute. Purpose of registration is to pay only the stamp duty and registration charge and due to non registration of sale certificate, sale shall not be treated void and liable to set aside. In this case, auction was conducted on 24/10/2019 and on the same day, Sale confirmation Advice was issued in favour of Respondent no. 3 Alucom Penals Pvt. Ltd. and subsequently on 30/12/2019, sale certificate was issued, therefore, the sale become absolute on the day, when his bid was accepted and sale confirmation advice was issued, i.e. on 24/10/2019 and title is vested with the purchaser and issuance of sale certificate on 30/12/2019 is merely an evidence of that title and the registration of the sale certificate is merely the formality, which is required under the Registration Act. Unlike the transfer of the immovable property made under the TP Act, the sale under the public auction is completed, the moment the bid is accepted and sale confirmation advice is issued. The contention of the Ld. Counsel for petitioner the sale can only be completed when the registration of the sale certificate is made, is not liable to be accepted. Section 52 T.P. Act - HELD THAT - Although this point has not been raised by the Ld. Counsel for petitioner in course of his arguments but since it is stated in the application, therefore, we wanted to make comments on this issue also. It is the settled principle of law that the transactions made during the pendency of the suit or proceeding under Section 52 of the TP Act is not void ab-initio, rather it depends upon the result of the suit. There is no merit in the application filed by the applicant, and there is no violation of Moratorium declared u/s 14 of IBC - application dismissed.

Summary

Issues Involved:
1. Cancellation of the sale effected by the State Bank of India in favor of the auction purchaser.
2. Reversal of the sale transaction by the State Bank of India.
3. Validity of the sale certificate issued before the initiation of the Corporate Insolvency Resolution Process (CIRP).

Detailed Analysis:

Issue 1: Cancellation of the Sale
The applicant, a suspended director of the Corporate Debtor, filed an application under Section 60(5)(a) & (c) of the Insolvency and Bankruptcy Code (IBC), 2016, seeking cancellation of the sale effected by the State Bank of India (SBI) in favor of the auction purchaser. The applicant argued that the sale was conducted in violation of the moratorium declared on 24.01.2020, as the sale certificate was registered on 15.02.2020, after the initiation of the CIRP. The applicant cited judgments from the Hon'ble Supreme Court and High Courts to support the contention that the sale certificate requires registration and that the sale is not complete until such registration.

Issue 2: Reversal of the Sale Transaction
The applicant also sought directions to reverse the sale transaction, arguing that the sale during the moratorium period is null and void. The applicant emphasized that the sale certificate was issued by the Recovery Officer under the SARFAESI Act and does not amount to a transfer of property until it is registered under the Indian Registration Act. The applicant further argued that the transaction is prejudicial to their interest as an MSME intending to submit a Resolution Plan approved by the Committee of Creditors (CoC).

Issue 3: Validity of the Sale Certificate
In response, the SBI and the auction purchaser contended that the sale was completed before the initiation of the CIRP. The SBI argued that the Corporate Debtor had voluntarily surrendered the property, and the sale was conducted following due process under the SARFAESI Act. The sale certificate was issued on 30.12.2019, and the sale was confirmed with the balance payment made by the auction purchaser before the CIRP initiation.

The tribunal examined the legal principles regarding the issuance and registration of sale certificates. It referred to multiple judgments, including those from the Hon'ble Supreme Court and High Courts, to determine when a sale becomes absolute. It was established that a sale by public auction becomes absolute upon the acceptance of the bid and the issuance of the sale certificate, not necessarily upon its registration. The tribunal noted that the sale certificate is merely evidence of title, and the registration of the certificate is a formality for stamp duty and registration charges.

The tribunal concluded that the sale in question was completed on 24.10.2019, when the sale confirmation advice was issued, and the title vested in the auction purchaser. The issuance of the sale certificate on 30.12.2019 was merely an evidence of the title, and the registration of the certificate was a formality. Therefore, the sale was not affected by the moratorium declared under Section 14 of the IBC.

Conclusion:
The tribunal found no merit in the application filed by the applicant and held that there was no violation of the moratorium declared under Section 14 of the IBC. The sale conducted by the SBI in favor of the auction purchaser was deemed valid and absolute, and the application for cancellation and reversal of the sale transaction was dismissed.