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TMI Blog2024 (7) TMI 812X X X X Extracts X X X X X X X X Extracts X X X X ..... on in relation to all the debts. Section 96(1)(b) provides that during the interim moratorium period, any legal action or proceedings pending in respect of any debt, shall be deemed to have been stayed - in terms of the law of the land, any legal action or proceeding pending in respect of any debt of the petitioner, shall be deemed to have been stayed, upon commencement of the interim moratorium in terms of Section 96 of IBC, 2016. In the present case, after taking possession of the property in question, sale of the said property has still not taken place and the process under the SARFAESI Act, is still not complete. Therefore, in terms of Section 238 of the IBC, 2016, which has overriding effect over any other law, any further action by the bank, under the SARFAESI Act, is prohibited. Thus, the respondent-bank cannot continue the proceedings under the SARFAESI Act, once proceedings under the IBC, 2016, have commenced - In the present case, no sale process has commenced with respect to the property that had been mortgaged by the petitioner with the respondent-bank, as a personal guarantor. It is no longer res integra that where a remedy is available under Section 17 of the SARFAESI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aulted on the debt, the respondent no.1-bank enforced its security interest against the mortgaged property/secured asset under Section 13 of the SARFAESI Act. 5. Thus, pursuant to the proceedings initiated by respondent no.1-bank under the SARFAESI Act, vide CC No. 47/4, the learned CMM (West), Tis Hazari Court, vide his order dated 12th March, 2020, appointed a Receiver for taking over physical possession of the secured asset. Subsequently, by order dated 24th September, 2020, the learned CMM (West), Tis Hazari Court, extended the time period for the Receiver to take possession of the secured asset. 6. Pursuant to the aforesaid, the Court Receiver issued Possession Notices dated 19th March, 2020 and 03rd October, 2020, pursuant to which, physical possession of the property in question/secured asset, was taken over by the respondent no.1-bank. 7. Thus, the present writ petition has been filed seeking to quash/set aside the said Possession Notices issued by the Court Receiver. There is further prayer for setting aside the orders dated 12th March, 2020 and 24th September, 2020 passed by the learned CMM (West), Tis Hazari Court, pursuant to which the aforesaid Possession Notices, had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20, issued by the Court Receiver are null and void, illegal and bad in law. 8.7 The personal insolvency proceedings under Section 95(1) of the Insolvency and Bankruptcy Code, 2016 ( IBC ), has been initiated by the Union Bank of India against the petitioner herein, before National Company Law Tribunal ( NCLT ), New Delhi, which is registered as Case No. IB-276/(ND)/2021. Thus, in terms of Section 96(1) of IBC, 2016, proceedings pending in respect of any debt, shall be deemed to have been stayed. 8.8 No other alternative remedy is available with the petitioner, except for filing the present writ petition. The remedy available under Section 17(1) of the SARFAESI Act, is not an efficacious remedy, in the given facts and circumstances. 8.9 On behalf of the petitioner, the following judgments are relied upon: I. Indian Overseas Bank V. RCM Infrastructure Ltd., (2002) 8 SCC 516 II. Jaypee Infratech Ltd. Interim Resolution Professional V. Axis Bank Ltd., (2020) 8 SCC 401 III. Encore Asset Reconstruction Company Pvt. Ltd. V. Charu Sandeep Desai, 2019 SCC OnLine NCLAT 284 IV. Unigreen Global Private Limited V. Punjab National Bank, 2017 SCC OnLine NCLAT 566 V. IFCI Limited V. Manoj Toshniwa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dings under the IBC, 2016, against the petitioner, commenced only in June, 2021. Therefore, all the actions qua the property in question, have been taken, prior to the initiation of proceedings under the IBC, 2016. Thus, no debt is being enforced against the petitioner, since the rights in the property, already stand transferred to the bank upon issuance of the notice under Section 13(4) of the SARFAESI Act. 9.8 Invocation of personal guarantee against the petitioner has nothing to do with the impugned orders, in which the bank has only proceeded in terms of the mortgage. Enforcement of security interest is not prohibited under Section 96 of IBC, 2016. 9.9 The Kerala High Court in the case of Jeny Thankachan Versus Union of India, 2023 KER 71553, has held that personal insolvency of a guarantor would not come in the way of enforcement of rights under SARFAESI Act. 9.10 Even if there is a moratorium operating against the petitioner, the same can be urged before the National Company Law Tribunal ( NCLT ) or before the Insolvency Resolution Professional ( IRP ). This Court under writ jurisdiction ought not to interfere or adjudicate the breach of any moratorium. 9.11 From perusal of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs have been initiated against the petitioner herein, in his capacity as a personal guarantor, under Section 95(1) of the IBC, 2016, by Union Bank of India, before NCLT, New Delhi. Thus, the interim moratorium in terms of Section 96 of the IBC, 2016, is in force. The order dated 21st December, 2023 passed by the NCLT, New Delhi in this regard, reads as under: This application has been filed under Section 95(1) of IBC, 2016 seeking initiation of Insolvency Process against Mr. Sanjay Dhingra, Personal Guarantor with respect to the default for an amount of Rs. 406.16 Crores. The Applicant suggested the name Mr. Nitin Narang having Registration No. IBBI/IPA-002/IP-N00828/2019-2020/12629 as the Resolution Professional. We, therefore, appoint Mr. Nitin Narang as the Resolution Professional and direct him to submit a report as envisaged under Section 99 of IBC. It is needless to mention that interim moratorium has kicked in, in terms of Section 96 of IBC. xxx xxx xxx ( Emphasis Supplied ) 12. At this stage, it is pertinent to refer to Section 95 and Section 96 of the IBC 2016, which are relevant, for the purposes of adjudication of the issues, raised in the present petition. Section 95 96 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll operate against all the partners of the firm as on the date of the application. (3) The provisions of sub-section (1) shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator. 13. The aforesaid Sections 95 and 96 are contained in Part III of IBC, 2016, which deals with the insolvency resolution and bankruptcy for individuals and partnership firms. Section 95(1) provides for filing of application by creditor for initiating insolvency resolution process. 14. Section 96(1) provides that when an application is filed under Section 95, interim moratorium shall commence on the date of the application in relation to all the debts. Section 96(1)(b) provides that during the interim moratorium period, any legal action or proceedings pending in respect of any debt, shall be deemed to have been stayed. It is pertinent to mention here that the word used in Section 96 of the IBC, 2016, is in relation to all the debts‟, meaning thereby, that the interim moratorium shall apply to all the debts of the petitioner, including the mortgage of the property in question, that had been mortgaged by the petitioner with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion shall stand prohibited by an order of the Adjudicating Authority. Clause (b) of sub-section (1) of section 14 empowers the Adjudicating Authority to declare a moratorium restraining the transfer, encumbrance, alienation or disposal by the corporate debtor of any of its assets or any legal right or beneficial interest therein. Significantly, the moratorium under section 14 operates on the order passed by an Adjudicating Authority. The purpose of the moratorium under section 96 is protective. The object of the moratorium is to insulate the corporate debtor from the institution of legal actions or the continuation of legal actions or proceedings in respect of the debt. xxx xxx xxx (Emphasis Supplied) 16. Thus, in view of the aforesaid, it is manifest that the moratorium imposed under Section 96 of IBC, 2016, would apply to the security interest created by an individual, under the personal guarantee. Therefore, after commencement of the insolvency proceedings under the IBC, 2016, against the petitioner, in his capacity as a personal guarantor with respect to default of a loan account, the interim moratorium shall be applicable to all the debts, including the debt owed by the petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that after the moratorium had come into place, the bank could not have continued with the proceedings under the SARFAESI Act and could not have accepted the balance payment after the commencement of the moratorium. Therefore, even in a case where the bank had already commenced the sale process, prior to the commencement of the proceedings under the IBC, 2016, the Supreme Court categorically held that in the absence of completion of sale prior to the moratorium, the bank could not have continued any further proceedings under the terms of the SARFAESI Act. 20. In the present case, no sale process has commenced with respect to the property that had been mortgaged by the petitioner with the respondent-bank, as a personal guarantor. Therefore, in view of the law laid down by the Supreme Court, it is apparent that the bank cannot proceed any further under the SARFAESI Act, after the commencement of the moratorium in the present case. 21. Thus, in the aforesaid case of Indian Overseas Bank (supra), Supreme Court, has held as follows: xxx xxx xxx 26. It could thus be seen that the provisions of the IBC shall have effect, notwithstanding anything inconsistent therewith contained in any ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ersonal Insolvency Proceedings against the petitioner, who is a guarantor, would not come in the way of enforcement of rights under the SARFAESI Act. The judgment of Kerala High Court in the case of Jeny Thankachan (supra), relied upon by the respondent, was passed by relying upon the judgment in the case of State Bank of India Versus V. Ramakrishnan and Another (2018) 17 SCC 394 , which had stated that the moratorium under Section 14 of the IBC, 2016 cannot apply to a personal guarantor. The aforesaid judgment of the Kerala High Court, does not apply to the facts and circumstances of the present case, as the present case deals with interim moratorium in terms of Section 96 of IBC, 2016, pursuant to insolvency proceedings against the petitioner under Section 95 IBC, 2016. 24. Besides, it is to be noted that Supreme Court in the case of State Bank of India Versus V. Ramakrishnan and Another (supra), itself has stated that the moratorium under Section 96 IBC, 2016, under Part III of the said Act, is a separate moratorium, applicable separately in the case of personal guarantors against whom insolvency resolution processes may be initiated under Part III. Thus, Supreme Court has held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... verted the said submissions raised by the petitioner. 26. Law in this regard is well settled that any person who has a grievance against any notice issued under Section 13(4) of the SARFAESI Act, or action taken under Section 14 of SARFAESI Act, can apply to the DRT under Section 17(1) of the said Act. The learned DRT is empowered to consider whether the measures, as referred in Section 13(4) of the SARFAESI Act, taken by the secured creditor to enforce security, are in accordance with the provisions of the SARFAESI Act, and the Rules made thereunder. Therefore, all the issues as raised by the petitioner, as regards the jurisdiction and power of the respondent-bank to initiate proceedings under the SARFAESI Act, can be decided by the learned DRT. The DRT has the requisite authority and power to decide all issues, including the issue of jurisdiction, as raised by the petitioner herein. 27. Thus, holding that High Courts should not entertain petition under Article 226 of the Constitution of India, if an effective remedy is available to the aggrieved person under the provisions of the SARFAESI Act, Supreme Court in the case of Celir LLP Versus Bafna Motors (Mumbai) Private Limited and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion which is normally expected to be performed by the State authorities. If proceedings are initiated under the SARFAESI Act and/or any proposed action is to be taken and the borrower is aggrieved by any of the actions of the private bank/bank/ARC, borrower has to avail the remedy under the SARFAESI Act and no writ petition would lie and/or is maintainable and/or entertainable. Therefore, decisions of this Court in Praga Tools Corpn. [Praga Tools Corpn. v. C.A. Imanual, (1969) 1 SCC 585] and Ramesh Ahluwalia [Ramesh Ahluwalia v. State of Punjab, (2012) 12 SCC 331 : (2013) 3 SCC (L S) 456 : 4 SCEC 715] relied upon by the learned counsel appearing on behalf of the borrowers are not of any assistance to the borrowers. *** 21. Applying the law laid down by this Court in Mathew K.C. [State Bank of Travancore v. Mathew K.C., (2018) 3 SCC 85 : (2018) 2 SCC (Civ) 41] to the facts on hand, we are of the opinion that filing of the writ petitions by the borrowers before the High Court under Article 226 of the Constitution of India is an abuse of process of the court. The writ petitions have been filed against the proposed action to be taken under Section 13(4). As observed hereinabove, even a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Supreme Court and the High Courts in relation to the matters specified in Section 17. The Tribunals and the Appellate Tribunals have also been freed from the shackles of procedure contained in the Code of Civil Procedure. 6. To put it differently, the DRT Act has not only brought into existence special procedural mechanism for speedy recovery of the dues of banks and financial institutions, but also made provision for ensuring that defaulting borrowers are not able to invoke the jurisdiction of the civil courts for frustrating the proceedings initiated by the banks and other financial institutions. xxx xxx xxx 43. Unfortunately, the High Court overlooked the settled law that the High Court will ordinarily not entertain a petition under Article 226 of the Constitution if an effective remedy is available to the aggrieved person and that this rule applies with greater rigour in matters involving recovery of taxes, cess, fees, other types of public money and the dues of banks and other financial institutions. In our view, while dealing with the petitions involving challenge to the action taken for recovery of the public dues, etc. the High Court must keep in mind that the legislat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht not to entertain writ petitions under Article 226 of the Constitution of India. 30. This Court further notes that similar issues, as raised by the petitioner herein, came to be adjudicated by the Division Bench of Bombay High Court in the case of Sapna Agarwal Versus Canara Bank and Another judgment dated 26th November, 2020 passed in W.P. No. 3280/2019 . In the said case, the petitioner therein had raised the contention that the transaction was governed by the laws of Hong Kong. Since the contract was not governed by the Indian Laws, SARFAESI Act is not applicable. Dismissing the said writ petition as being not maintainable, on the ground that all the said issues will have to be decided by the Tribunal, the Division Bench of the Bombay High Court, held as follows: xxx xxx xxx 12. There is a distinction between the jurisdiction and power of the financial institutions under the SARFAESI Act and the jurisdiction and power of the Debt Recovery Tribunal to entertain and decide claims under the SARFAESI Act. The contention of the Petitioner is primarily against the jurisdiction and power of the Respondent Bank, a financial institution. On the power and jurisdiction of the Tribunal, a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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