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TMI Blog2017 (11) TMI 780X X X X Extracts X X X X X X X X Extracts X X X X ..... onstrued imperatively Lord Brougham in Queen v. Allooparao [1847] 3MLA 488 P 492, it has been held “if the words are it “shall and may” be so and so done, by such and such officer and body then the word “may” is held in all soundness of construction to confer, a power but the word “shall” is held to make that power, or the exercise of that power compulsory.” Insolvency & Bankruptcy Code operates in the following manner: 1. Notwithstanding clause under Section 238 of the Code will have effect on any other law inconsistent with the provisions of the Code, SARFAESI Act also being an Act dealing with creditor and debtor relation and operation of law in both the enactments being on the same field, Insolvency & Bankruptcy Code will prevail over SARFAESI Act. 2. Section 14 having categorically mentioned that declaration of moratorium will prohibit enforcement of security interest created by the Corporate Debtor in respect of its property including any action under SARFAESI Act, 2002, it can’t be said that sale in progress will not remain under suspension during the moratorium period. As already said sale is not concluded because full payment is not made till date and confirmat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above referred. On the said proceedings, as the Corporate Debtor invoked Section 17 of SARFAESI Act before Debt Recovery Tribunal, Pune by filing Securitisation Application 41/2013, the said Corporation Bank on 30.3.2013, instead of itself proceeding, assigned this debt to JM by an Assignment Agreement, whereupon JM has filed OA 286/2013 before Debt Recovery Tribunal, Pune, upon which, the DRT on 5.5.2014 ordered this Corporate Debtor to pay to JM a sum of ₹ 14,58,46,527 with further interest @12% per annum from 9.5.2013 till the date of realisation. In addition to the aforesaid original application, JM has also taken measures under the provisions of SARFAESI Act by issuing notice u/s 13(2) and obtained an order u/s 14 for getting necessary assistance from the District Magistrate for taking physical possession of the immovable property mentioned above. Since the Corporate Debtor has felt aggrieved of the orders mentioned above, this Corporate Debtor once again filed a fresh Securitisation Application 75/2016 in DRT, Mumbai challenging the measures taken by JM. On which, DRT, Mumbai, has refused to grant any interim relief to this Corporate Debtor challenging the sale notice i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. Now JM submits that this Corporate Debtor threadbare litigated with JM at all stages, above this, Indus, sailed along with the Corporate Debtor before DRT until before initiating Insolvency proceedings before this Bench. JM says since Indus filed this CP colluding with the corporate debtor by misusing the avowed object of Insolvency Bankruptcy Code, this Bench ought not to have declared Moratorium without hearing and considering the case of JM - the only secured creditor of the Corporate Debtor. By the time this Insolvency proceeding initiated, JM already conducted sale of the asset of the debtor, wherein Omni deposited 25% of the sale price, pursuant to which, the authorised officer confirmed sale in favour of Omni. Since the sale of secured asset being a concluded transaction, JM says that the impugned order dated 29.5.2017 shall have no effect on the concluded sale, therefore this sale transaction cannot be read down as hit by the moratorium declared on 29.5.2017. The Applicant further submits that the sale of the impugned asset by JM in enforcement of its security in view of the default committed by the Corporate Debtor would not in any manner prejudice the rights of Indu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he sale of it happens on the supervision of IRP, Indus interest will also be taken care of. 8. It has further submitted that in order to protect the interest of unsecured creditors, Indus filed the CP u/s 7 of the Insolvency Bankruptcy Code, 2016, but not to frustrate the claim of JM. It can t be said that Indus manoeuvred the proceedings to frustrate the rights of JM. Assuming Indus had not initiated these proceedings, could it become an impediment to the Corporate Debtor to initiate proceedings u/s 10 of Insolvency Bankruptcy Code, 2016? Definitely not, therefore, it could not be said that Indus moved this petition by colluding with the Corporate Debtor. Indus further submits that it had deposited ₹ 5 crores on debtor company behalf with the Hon ble DRT on 24.4.2017 seeking further six months to deposit ₹ 14.06 crores. Since that application was not heard, as Indus filed this case hoping for resolution protecting the interest of all the stakeholders under one roof for preparation of resolution plan. In view of the same, this Petitioner submits that this application has to be dismissed in limine because there is no provision under Insolvency Bankruptcy Code fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... admitting this Company Petition after having dealt with the issue of pendency of SARFAESI proceedings before DRT, Mumbai. The contentious issue before this Bench is JM and Omni submit that sale is concluded thereby not hit by moratorium u/s 14, whereas Indus says that it is not a concluded sale therefore, it is hit by moratorium given u/s 14. In the backdrop of fact of Omni paying 25% consideration to the sale held, let us see what happens in SARFAESI proceeding and examine how moratorium operates over the SARFAESI proceedings pending. On reading SARFAESI Act, 2002, a separate chapter is set out as Enforcement of Security Interest wherein a section has been culled out to deal with enforcement of security interest, i.e. Section 13 under which sub- section 6 deals with transfer of secured interest by the secured creditor. In respect to Enforcement of Security Interest, the right of transfer of title to third party is set out in the section 13(6), how it has to be accomplished is set out in The Security Interest (Enforcement) Rules, 2002 . These Rules have been drawn out in exercise of powers conferred by Sub section 1 and Clause (b) of Sub Section 2 of Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay, if the thinks fit, allow the purchaser to deposit with him the money required to discharge the encumbrances and any interest due thereon together with such additional amount that may be sufficient to meet the contingencies or further cost, expenses and interest as may be determined by him. (8) On such deposit of money for discharge of the encumbrances, the authorised officer may issue or cause the purchaser to issue notices to the persons interested in or entitled to the money deposited with him and take steps to make the payment accordingly. (9) The authorised officer shall deliver the property to the purchaser free from encumbrances known to the secured creditor on deposit of money as specified in sub-rule (7) above. (10) The certificate of sale issued under sub-rule (6) shall specifically mention that whether the purchaser has purchased the immovable secured asset free from any encumbrances known to the secured creditor or not. According to sub Rule 1, Public Notice of Sale shall be published in newspapers as referred in Rule 8 of these Rules thereafter, on conducting sale, under Sub Rule 2, the said sale shall be confirmed in favour of the purchaser who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same day auction held, in default a right to the authorised officer to resale it, sub - rule 3 speaks of payment of remaining 75% of sale price within 15 days of confirmation given by authorised officer under Sub Rule-2, on failure of payment of balance sale price by the purchaser - the deposit will be forfeited and the property will be resold. If the entire payment has been made by the purchaser as envisaged under sub-rule 4, then under sub-rule 6, the secured creditor will confirm the sale if the terms of payment have been complied with on such confirmation, the authorised officer, exercising the power of sale will issue the certificate of sale of the immovable asset in favour of the purchaser in the form given under these Rules. By this incisive reading, it is evident that the word confirmation employed in sub rule -2 is different from the word confirmation employed in sub rule- 6, the context, object and purpose of employment of the word confirmation at these two places is different. The persons given confirmation is also different. In sub rule-2, it is confirmation determining sale price and auction purchaser in the auction held by auction purchaser, but confirmation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in SARFAESI is equivalent to confirmation by court under Rule 92 of Order 21 of CPC. It is contextual if I say here itself that Courts have laid ratio that issuing sale certificate to purchaser under Rule 94 of Order 21 as administrative in nature, it is right, here in the case of SARFAESI also, if Sub Rule 4 and first part of Sub-Rule 6, i.e., confirmation of sale by the secured creditor after full payment is made complete, then issuing sale certificate will arise. But that is not the case here, so far only 25% payment is made, remaining acts yet not being completed, it has to be construed mandate under sub-rule 6 has not been complete. All I say is the procedure that is to be complete under sub rule 6 is not complete; therefore case has to be considered as not reached to the stage of issuing sale certificate. Since case has not reached to the stage of issuing sale certificate, the counsel on behalf of secured creditor and the purchaser cannot say that since only sale certificate is to be issued, it has to be treated as sale process is complete under section 13 of SARFAESI Act. In effect, transfer has not been effected, leave of issuing sale certificate. On the top of it, Enf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te Debtor or the institution or suits against the corporate Debtor are to be suspended during the moratorium period, likewise, the Corporate Debtor cannot transfer or create any third party rights in relation to any of its assets or any legal right or beneficial interest therein. If we come to clause (c) of this Section, it is evident that whenever any recourse for enforcement of any security interest created by the Corporate Debtor is in progress, it has to be suspended. By seeing this provision, we are in no doubt that whenever any issue to enforcement of security interest created by the Corporate Debtor is pending that has to be suspended in the moratorium period. Since sale has already been construed as not a concluded sale as prescribed under Enforcement Rules, the sale proceedings in progress under SARFAESI proceedings are covered under Clause (c) of Section 14 of Insolvency Bankruptcy Code, whereby this Bench hereby holds that the sale is not a concluded sale, therefore, the proceedings pending under SARFAESI will remain suspended until Moratorium period is completed. Point No. 2 for consideration : Whether this application can be taken as a grievance under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licant herein. 11. JM Counsel has relied upon Indian Bank v. Satyam Fibres (India) Pvt. Ltd. [1996] 5 SCC 550; S.P. Chengalvaraya Naidu v. Jagannath AIR 1994 SC 853 to say that when fraud is committed, the Court is empowered to recall its judgement when fraud is played against the court or any party, since fraud vitiates all proceedings, proceedings pending will get vitiated. But here in this case, since no fraud is found either in the Petition filed by the petitioner or in the order passed by this Adjudicating Authority, the proceedings cannot be vitiated just by being sought. 12. JM Counsel relied upon Innoventive Industries Ltd. v. ICICI Bank and Anr. (Company Appeal (AT) (Insolvency) 1 2/2017 NCLAT) to say that hearing has not been given to this applicant at the time of passing impugned order, to which our answer is there is no obligation or a mandate upon this Bench to give a notice to another Financial Creditor at the time of hearing insolvency petition therefore, passing an order before hearing JM would not become a ground to say that hearing has not been given to JM because law says that notice is only to be given to the Corporate Debtor therefore, unless manda ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the purchaser in completing the formalities of issuing a sale certificate will not make any difference to the title accrued upon the purchaser after claim has been made absolute. 15. As to this point is concerned, it has already been decided that sale will become absolute and confirmation of sale will happen only after purchase price is fully paid and the same has thereafter been confirmed by the secured creditor, Since full payment has not yet been paid, sale according to the Enforcement Rules is to be construed as not been confirmed because full payment as envisaged under sub Rule 6 of Rule 9 of Enforcement Rules has not been made and confirmed by secured creditor, sale cannot be construed as concluded sale, therefore the ratio decided in the aforesaid case is not applicable to the present case. 16. JM Counsel relied upon a case in between Aatam Gems v. Oriental Bank of Commerce 2009 (1) Mh Li 892 to say that Petitioners are not permitted to raise issues in respect to non compliance of Rule 54 of the Rules as well as non service of form no. 17 upon JDR will not become objections when auction purchaser has deposited the entire sale consideration, accordingly the object ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uty of the court to try to get at the real intention of the legislature by carefully analysing the whole scope of the statute or Section or phrase under consideration. 2. Construction of the any word or phrase shall be read in a way to give effect to the objects of the section and enactment. 3. The meaning and intention of the legislature would govern design and purpose of the Act seeks to achieve. 4. Whether mandate under Section 4 of Land Acquisition Act is mandatory or directory is decided on the fulcrum of Section 17 of Land Acquisition Act. 21. In the backdrop of the ratio abovesaid, now the point for determination is whether the word may employed in Section 7(5)(a) of Insolvency Bankruptcy Code, 2016 can be stretched to invalidate the purpose and object of the Section 7 of the Code or not. Generally, the word may or the word shall cannot be used to go against the mandate of the Section - mandate is if debt and default is ascertained, if other conditions are fulfilled, then the petition has to be admitted. If that is so, the Adjudicating Authority is limited to see and to all conditions requisite for admitting the petition have been set out or not. That bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. (NCLT principal Bench CA (IB) 13/PB/2017) to say that since the Principal Bench dealt with the fraud under Section 65, the same shall be applied to this case. By going through the facts of the case, it appears that the petitioner filed defective petition and statutory auditor certificate is found manipulated, the petition is dismissed due to lack of bonafides. Since the case referred being dismissed for lack of bonafides, that analogy cannot be applied in this case where neither the petitioner nor corporate debtor concede the fact of SARFAESI proceedings pending before DRT. 28. There is another point that is raised by JM and Omni is that the debt in the Main petition is time barred therefore, this Bench should have dismissed instead of admitting the petition. If at all it is point to be canvassed by them they ought to have filed a appeal before Hon ble NCLAT not before this Bench for recalling the order. Therefore, this Bench has not dealt with that point. 29. On reading the plethora of cases, filed by JM and Omni counsel, we have not seen any of the case facts and ratio applicable to the present case facts whereby it is hereby held that the ratio decided in the respect ..... X X X X Extracts X X X X X X X X Extracts X X X X
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