2023 (12) TMI 961 - SCH - Insolvency and Bankruptcy

Auction sale under the SARFAESI Act, 2002 - legitimacy of the transaction resulting from sale of the subject property through auction - Sale concluded while commencing the resolution process - HELD THAT - The Liquidator (now representing the Corporate Debtor in liquidation), the erstwhile Director/Promoter of the Corporate Debtor as also the Bank does not dispute the factual position that the sale stood concluded before declaration of moratorium. No reason was cited to demonstrate as to why the sale certificate would be held illegal. No case has been made out on behalf of the respondents about any defect or default in forwarding the sale certificate in terms of Section 89(4) of the Registration Act, 1908. On the other hand, all the three respondents have concurred at the time of hearing on the point that the sale stood concluded. The present appeal shall stand allowed to the extent the properties in question are concerned. These properties cannot be treated to be liquidation assets of the Corporate Debtor for the purpose of further steps to be taken in the liquidation proceeding. The impugned order is set aside.

Summary

Issues Involved:
The issues involved in this case are the legality of an auction sale of properties under the SARFAESI Act, 2002, the declaration of moratorium under the Insolvency and Bankruptcy Code, 2016, and the subsequent resolution process initiated by the National Company Law Tribunal (NCLT).

Issue 1: Legality of Auction Sale and Declaration of Moratorium:
The appellant was the purchaser in an auction sale of properties of a defaulting borrower, for which a sale certificate was issued under the SARFAESI Act. Subsequently, a moratorium was declared by the NCLT initiating the Corporate Insolvency Resolution Process. The NCLT found the sale illegal and directed the subject-property to remain assets of the Corporate Debtor. The Punjab National Bank appealed against this order, which was dismissed by a 2:1 majority decision.

Issue 2: Concession of Legitimacy of Auction Sale:
Both the erstwhile Director and the Liquidator contested the auction sale initially but later conceded the legitimacy of the transaction, agreeing that the sale was concluded before the declaration of moratorium. This change in position left the appeal without effective contest.

Key Legal Precedents:
Referring to the case of Esjaypee Impex Private Limited vs. Assistant General Manager and Authorised Officer, Canara Bank, the Court highlighted the requirement for the authorised officer under the SARFAESI Act to hand over the sale certificate to the auction-purchaser. This view was also followed in a subsequent case titled "Inspector General of Registration and Another vs. G. Madhurambal and Another."

Court's Decision:
Considering that all parties agreed that the sale was concluded before the moratorium declaration, the Court allowed the appeal, setting aside the NCLT's order. The properties in question were not to be treated as liquidation assets of the Corporate Debtor, invalidating the Adjudicating Authority's order concerning these properties in the district of Howrah. Any pending applications were also disposed of accordingly.