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2021 (4) TMI 207 - AT - IBCValidity of transactions held during Moratorium period - transaction with respect to the assets of the Corporate Debtor/Corporate Applicant - overriding effect of provisions of IBC over other laws - HELD THAT - The Corporate Applicant i.e., M/s RCM Infrastructure Ltd filed an Application invoking Section 10 of IBC before the Adjudicating Authority. The Appellant is arrayed as a party to the said proceeding. From the records it is evident that the Appellant filed Counter Affidavit to the Application and it is also on record that the Corporate Debtor availed financial facility and also stated that they have initiated proceeding under SARFAESI Act, 2002 and issued Demand Notice dated 17.01.2017 and also issued possession notice dated 18.04.2018 for ₹ 74,72,73,108/- and took symbolic possession of all the secured assets - There is a prohibition with respect to the assets of Corporate Applicant including transfer, encumbered, alienating or disposing of by the Corporate Debtor any of its assets or any legal right or beneficial interest therein. Further, the order prohibits in respect of the Corporate Applicant s property including any action under SARFAESI Act, 2002. Therefore, the Appellant is aware of the order and filed its claim in Form-C dated 21.01.2019 claiming an amount of ₹ 78,92,50,634/-. When the Appellant is having the knowledge of imposition of moratorium, the sale of assets of the Corporate Debtor cannot be proceeded and concluded and they strictly abide by Section 14 of IBC. There is a prohibition with respect to the assets of Corporate Applicant including transfer, encumbered, alienating or disposing of by the Corporate Debtor any of its assets or any legal right or beneficial interest therein. Further, the order prohibits in respect of the Corporate Applicant s property including any action under SARFAESI Act, 2002. Therefore, the Appellant is aware of the order and filed its claim in Form-C dated 21.01.2019 claiming an amount of ₹ 78,92,50,634/- - When the Appellant is having the knowledge of imposition of moratorium, the sale of assets of the Corporate Debtor cannot be proceeded and concluded and they strictly abide by Section 14 of IBC. It is also on record that by filing revised claim in Form-C on 11.02.2019 before the RP by the Appellant, the Appellant clearly violates the order of moratorium. The Appellant Bank lost sight of the fact that IBC is a complete Code itself and Section 238 of IBC has overriding effect over all other laws including SARFAESI Act, 2002. The imposition of moratorium as per Section 14 of IBC is to protect the interest of the Corporate Debtor by protecting the assets of the Corporate Debtor for the sole objective to maximisation the value of assets. This Tribunal in the matter of Encore Asset Reconstruction Company Pvt. Ltd. Vs. Charu Sandeep Desai and Others 2019 (8) TMI 529 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI also held that Section 238 of IBC will prevail over any of the provisions of the SURFAESI Act, 2002 if it is inconsistent with any of the provisions of IBC. The Assets of the Corporate Debtor/Applicant forms part of valuation. Learned Adjudicating Authority has rightly set aside the sale of assets of the Corporate Applicant. The sale of assets of the Corporate Applicant during moratorium is against the spirit of Section 14 of IBC - there are no infirmity in the order passed by the learned Adjudicating Authority. Appeal dismissed.
Issues Involved:
1. Validity of transactions involving the assets of the Corporate Debtor during the moratorium period. 2. Whether the provisions of the Insolvency and Bankruptcy Code (IBC) prevail over other laws. Issue-wise Detailed Analysis: 1. Validity of transactions involving the assets of the Corporate Debtor during the moratorium period: The core issue was whether the sale of the Corporate Debtor's assets during the moratorium period was valid. The Appellant Bank auctioned the Corporate Debtor's assets before the commencement of the Corporate Insolvency Resolution Process (CIRP) but received the balance payment and issued the sale certificate after the moratorium began. The Appellant argued that the sale was confirmed before the CIRP, thus should be considered valid. The Respondent contended that the sale was incomplete as the full payment was received after the moratorium commenced. The moratorium under Section 14 of the IBC prohibits any transactions involving the Corporate Debtor's assets once the CIRP starts. The Respondent further argued that the sale was invalid as the assets remained in the Corporate Debtor's name in revenue records. The Tribunal concluded that mere receipt of 25% of the sale proceeds did not complete the sale. The full payment was necessary before the moratorium. Since the balance 75% was paid after the moratorium, the sale was incomplete and invalid. The Tribunal emphasized that the assets still belonged to the Corporate Debtor at the time of the moratorium, and any transaction during this period violated Section 14 of the IBC. 2. Whether the provisions of the Insolvency and Bankruptcy Code (IBC) prevail over other laws: The Appellant relied on the SARFAESI Act, arguing that the sale process initiated under this act should be considered valid. However, the Respondent and the Tribunal highlighted that the IBC has an overriding effect over other laws, including the SARFAESI Act, as per Section 238 of the IBC. The Tribunal cited various judgments, including "Anand Rao Korada, Resolution Professional Vs. Varsha Fabrics (P) Ltd. and Others," to reinforce that once the CIRP commences, the IBC provisions take precedence. The moratorium aims to protect the Corporate Debtor’s assets and ensure their maximization for the benefit of all stakeholders. The Tribunal also referenced the Supreme Court's judgment in "Duncans Industries Limited Vs. A.J. Agrochem," which underscored that the IBC is a complete code in itself and has an overriding effect over other laws. The primary focus of the IBC is to ensure the revival and continuation of the Corporate Debtor by protecting its assets during the resolution process. Conclusion: The Tribunal upheld the Adjudicating Authority’s decision to set aside the sale of the Corporate Debtor's assets. It ruled that the sale during the moratorium was invalid and violated the provisions of Section 14 of the IBC. The Tribunal affirmed that the IBC has an overriding effect over other laws, including the SARFAESI Act, ensuring the protection and maximization of the Corporate Debtor's assets during the CIRP. The appeal was dismissed, and no costs were awarded.
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