2019 (5) TMI 249 - HC - Indian Laws

Default in repayment of dues - non-performing asset - SARFAESI Act - role of secured creditor in respect of insolvency proceedings - HELD THAT - No fetters can be placed on the right of the secured creditor under the SARFAESI Act and further to direct it to deposit the title deeds of the secured assets with the Official Assignee. The view taken that, as an equitable principle, the appellant cannot be permitted to stand outside the insolvency proceedings and realise its dues and it must deposit the title deeds with Official Assignee, cannot be sustained. The impugned order dated 4th December 2018 is quashed and set aside - appeal allowed.

Summary

Issues Involved:
1. Applicability of SARFAESI Act in insolvency proceedings.
2. Rights of secured creditors under the Insolvency Act.
3. Role of Official Assignee in insolvency proceedings.
4. Equitable principles in insolvency cases.

Issue 1: Applicability of SARFAESI Act in insolvency proceedings:
The appellant sought to enforce its rights under the SARFAESI Act in an insolvency case. The appellant argued that it had the right to opt out of insolvency proceedings and proceed under the SARFAESI Act to recover dues. The appellant relied on legal precedents to support its claim, emphasizing that the SARFAESI Act allowed for independent action by secured creditors. The court noted the appellant's intention to stand outside insolvency proceedings and recover its dues through SARFAESI Act provisions.

Issue 2: Rights of secured creditors under the Insolvency Act:
The court examined the provisions of the Presidency-Towns Insolvency Act, 1909, which governs insolvencies. Section 48 of the Act addresses the rights of secured creditors in insolvency cases. The court highlighted rules related to secured creditors' proofs under the Act, emphasizing scenarios where secured creditors can realize, surrender, or assess their security. The court acknowledged the appellant's actions under the SARFAESI Act and its intention to enforce its rights independently.

Issue 3: Role of Official Assignee in insolvency proceedings:
The Official Assignee played a crucial role in the insolvency case, as highlighted in the court's judgment. The Official Assignee filed reports in the insolvency proceedings and was involved in the dispute regarding possession of mortgaged properties. The court discussed the submissions made by the Official Assignee's counsel, emphasizing the need for secured creditors to involve the Official Assignee in their actions under the SARFAESI Act.

Issue 4: Equitable principles in insolvency cases:
The court deliberated on the equitable principles applicable in insolvency cases, particularly concerning the rights of secured creditors to recover dues. The learned Single Judge had rejected the appellant's request to stand outside insolvency proceedings, citing concerns about prejudicing other creditors. However, the court analyzed legal precedents, including a Supreme Court decision, to establish that secured creditors have the right to enforce their interests under the SARFAESI Act without undue restrictions. The court allowed the appellant to proceed with its intended course of action, quashing the impugned order from the lower court.

In conclusion, the High Court of Bombay allowed the appeal, setting aside the lower court's order and permitting the appellant to pursue its recovery efforts under the SARFAESI Act independently. The judgment clarified the rights of secured creditors in insolvency proceedings, emphasizing the applicability of the SARFAESI Act and the need to involve the Official Assignee in such cases. The decision highlighted the importance of upholding the legal rights of secured creditors while balancing the interests of all stakeholders in insolvency matters.