2021 (1) TMI 1229 - AT - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Creditors - existence of debt and dispute or not - continuation of Status-Quo Order till the next date of hearing - possession of the immovable asset of the Corporate Debtor mortgaged to the Bank has been taken possession by resorting measures under Section 13(4) of the Act - H ELD THAT - The Adjudicating Authority has taken into consideration of taking possession by Appellant before expiry of 60 days. The possession having not been taken in accordance with law the title of the property still vests in Corporate Debtor which need to be protected to safeguard the interests of Corporate Debtor as well as other Creditors. The Order passed by the Adjudicating Authority on 31st December 2021 indicates that the Status-Quo Order dated 30.09.2021 has been continued till the next date of hearing. We have been informed by the Learned Counsel for the parties that the matter both on I.A. 4516 of 2021 as well as the main CP (IB) No. 472/2021 has been fixed for 15th February 2022. The Order dated 30.09.2021 is now continuing for last more than three months and now 15th February 2022 is the next date fixed in the matter we are of the view that at this stage it is not necessary for us to express any final opinion regarding the various issues raised by the parties regarding title and ownership of the immovable properties whether it is still in ownership of the Corporate Debtor or stand transferred to Yes Bank Limited. What is nature of claim of the Financial Creditor-Dewan Housing Finance Corporate Limited quo the immovable property which is also mortgaged to Yes Bank Limited all these issues have to be considered and decided by the Adjudicating Authority finally. Appeal disposed off.

Summary

Issues Involved:
1. Jurisdiction of Adjudicating Authority to pass interim orders before admission of Section 7 application.
2. Legitimacy of possession taken by Yes Bank Limited under SARFAESI Act, 2002.
3. Impact of interim status quo order on the secured creditor's rights.

Detailed Analysis:

Jurisdiction of Adjudicating Authority to Pass Interim Orders Before Admission of Section 7 Application:
The core issue was whether the Adjudicating Authority (National Company Law Tribunal) had the jurisdiction to pass interim orders before the admission of a Section 7 application under the Insolvency and Bankruptcy Code (IBC). The Tribunal referred to its own precedent in the case of 'NUI Pulp and Paper Industries Pvt. Ltd. Vs. M/s. Roxcel Trading GMBH', where it was established that the Adjudicating Authority has the power to pass interim orders to prevent the abuse of process or to meet the ends of justice. This was affirmed by the Supreme Court. The Tribunal concluded that the Adjudicating Authority had jurisdiction to pass the interim status quo order to protect the assets of the Corporate Debtor until the application under Section 7 was either admitted or rejected.

Legitimacy of Possession Taken by Yes Bank Limited Under SARFAESI Act, 2002:
Yes Bank Limited argued that it had taken possession of the Corporate Debtor's assets on 10th September 2021 under Section 13(4) of the SARFAESI Act, 2002, and thus the Adjudicating Authority's interim order was unwarranted. The Tribunal noted that the possession was claimed before the expiry of the 60-day notice period required under Section 13(2) of the SARFAESI Act, raising questions about the legality of the possession. The Tribunal cited the Supreme Court's judgment in 'Hindon Forge (p) Ltd. Vs. State of U.P.', which emphasized that possession taken before the expiry of the notice period is not in conformity with the Act. Therefore, the Tribunal held that the title and ownership of the property still vested in the Corporate Debtor, necessitating protection through the interim order.

Impact of Interim Status Quo Order on the Secured Creditor's Rights:
Yes Bank Limited contended that the interim status quo order impeded its rights as a secured creditor to enforce its security interest. The Tribunal acknowledged that the Adjudicating Authority's order was ex-parte but noted that Yes Bank Limited was issued notice and had the opportunity to present its case. The Tribunal emphasized that interim orders are essential to prevent the alienation of assets and protect the interests of all creditors, not just the secured creditor. The Tribunal decided not to interfere with the interim order, given that the main application and related interim application were scheduled for an early hearing.

Conclusion:
The Tribunal upheld the jurisdiction of the Adjudicating Authority to pass interim orders before the admission of a Section 7 application under the IBC. It also questioned the legitimacy of the possession taken by Yes Bank Limited under the SARFAESI Act, 2002, before the expiry of the required notice period. The interim status quo order was deemed necessary to protect the assets of the Corporate Debtor and the interests of all creditors. The Tribunal directed the Adjudicating Authority to expedite the hearing and resolution of the main application and related interim application.