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TMI Blog2025 (4) TMI 519X X X X Extracts X X X X X X X X Extracts X X X X ..... Code, 2016 (in short 'Code'), for reversing the sale transactions of the properties situated at E-10 and B-85 Defence Colony, New Delhi, has been dismissed. 2. Pratibha Industries Limited (Corporate Debtor) availed credit facility from Yes Bank/Respondent No. 1, by way of term loan of Rs. 50 Cr. and created an exclusive mortgage on the following properties, namely, the front portion of the 3rd Floor alongwith servant quarter with attached toilet and two car parking spaces in the driveway of the property situated at E-10 Defence Colony, New Delhi (hereinafter referred to as the first property) and entire 1st Floor of the property situated at B-85, Defence Colony, New Delhi (herein after referred to as the second property). 3. The Corporate Debtor was admitted to CorporateInsolvency Resolution Process (CIRP) vide order dated 01.02.2019. Mr. Sunil Kumar Choudhary was appointed as the Interim Resolution Professional (IRP) and moratorium under Section 14 of the Code was imposed. 4. Mr. Sunil Kr. Choudhary (IRP) was replaced by Mr. Anil Mehta on 14.03.2019 and since no resolution plan was approved during the CIRP period, therefore, the Tribunal passed the order of liquidation on 08.02 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the properties is 01.02.2019. Letter of confirmation of sale for both the properties is 28.01.2019. Issuance of sale certificate for the first property is 12.02.2019 and second property is 30.01.2019. Date of payment of balance sale consideration qua both the properties is 12.02.2019 and Registration of sale certificate qua the first property is 18.02.2019 and for the second property is 05.02.2019. 13. The Appellant being the liquidator, objected to the sale of the properties through email dated 15.02.2019 sent to R1 on the ground that the properties have been sold in breach of Section 14 of the Code and requested that the properties be handed over to him. 14. Respondent No. 1 responded to the email of the Appellant vide email dated 26.02.2019 alleging that there is no breach of law much less Section 14 of the Code. 15. Thus, the Appellant filed the application bearing M.A No. 1662 of 2019 in CP (IB) No. 3558/NCLT/MB/C-1/2018 for reversing the sale transactions of the properties which has been dismissed by the Tribunal and hence, the present appeal has been filed. 16. Counsel for the Appellant has submitted that e-auction of the first property was held on 28.01.2019. Responden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the confirmation of sale was issued on 28.01.2019 and the CIRP commenced on 01.02.2019 but according to him, the material date isnot 28.01.2019 but 30.11.2018 when the first e-auction sale notice was issued in terms of Section 13(8) of the Act. 21. Counsel for Respondent No. 2 has submitted that right of the borrower/CD stood extinguished on 30.11.2018 qua the first property when the date of e-auction sale notice was issued on 30.11.2018 in respect of the said asset. In this regard, it is submitted that there has been an amendment in Section 13(8) of the Act w.e.f. 01.09.2016 as per which the right of the borrower to redeem the mortgage stands extinguished on the date when the e-auction sale notice is issued and once the jural link is snapped on 30.11.2018, the IRP/RP who steps into the shoes of the CD/Borrower only on 01.02.2019 does not have the right over the asset which can be claimed by the liquidator later on. 22. He has further submitted that the decision in the case of Indian Overseas Bank (Supra) relied upon by the Appellant, is not at all applicable because in the said case there was no discussion/interpretation of Section 13(8) of the Act except Section 14(1)(c) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have heard Counsel for the parties and perused the record. 28. Since, the Appellant has relied upon Section 14(1)(c) of the Code for avoiding the sale of both the properties on the ground that the sale has been affected after the imposition of the moratorium, therefore, it would be relevant to refer to Section 14(1)(c) of the Code which is reproduced as under;- "Section 14. Moratorium (1) Subject to provisions of sub-sections (2) and (3), on the insolvency commencement date, the Adjudicating Authority shall by order declare moratorium for prohibiting all of the following, namely:-- (c) any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002);" 29. Similarly, the Respondents have relied upon Section 13 of the Act, therefore, the same is also reproduced as under:- "13. Enforcement of security interest.-(1) Notwithstanding anything contained in section 69 or section 69A of the Transfer of Property Act, 1882 (4 of 1882), any security interest created in favour of an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y take recourse to one or more of the following measures to recover his secured debt, namely:- (a) take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset; (b) take over the management of the business of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset: Provided that the right to transfer by way of lease, assignment or sale shall be exercised only where the substantial part of the business of the borrower is held as security for the debt: Provided further that where the management of whole of the business or part of the business is severable, the secured creditor shall take over the management of such business of the borrower which is relatable to the security for the debt;] (c) appoint any person (hereafter referred to as the manager), to manage the secured assets the possession of which has been taken over by the secured creditor; (d) require at any time by notice in writing, any person who has acquired any of the secured assets from the borrower and from whom any money is due or may become due to the borrowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... curred by him is tendered to the secured creditor at any time before the date of publication of notice for public auction or inviting quotations or tender from public or private treaty for transfer by way of lease, assignment or sale of the secured assets,- (i) the secured assets shall not be transferred by way of lease assignment or sale by the secured creditor; and (ii) in case, any step has been taken by the secured creditor for transfer by way of lease or assignment or sale of the assets before tendering of such amount under this sub-section, no further step shall be taken by such secured creditor for transfer by way of lease or assignment or sale of such secured assets.] (9) In the case of financing of a financial asset by more than one secured creditors or joint financing of a financial asset by secured creditors, no secured creditor shall be entitled to exercise any or all of the rights conferred on him under or pursuant to sub- section (4) unless exercise of such right is agreed upon by the secured creditors representing not less than 1[sixty per cent.] in value of the amount outstanding as on a record date and such action shall be binding on all the secured creditors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the case may be, for recovery of the balance amount from the borrower. (11) Without prejudice to the rights conferred on the secured creditor under or by this section, secured creditor shall be entitled to proceed against the guarantors or sell the pledged assets without first taking any of the measured specifies in clauses (a) to (d) of sub-section (4) in relation to the secured assets under this Act. (12) The rights of a secured creditor under this Act may be exercised by one or more of his officers authorised in this behalf in such manner as may be prescribed. (13) No borrower shall, after receipt of notice referred to in sub- section (2), transfer by way of sale, lease or otherwise (other than in the ordinary course of his business) any of his secured assets referred to in the notice, without prior written consent of the secured creditor." 30. It is also pertinent to mention that Section 13(8) has been amended on 01.09.2016, therefore, both unamended and amended Section 13(8) are being reproduced by way of a table for a quick reference :- Section 13(8) before amendment Section 13(8) after amendment on 01.09.2016 If the dues of the secured creditor together with al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (8) of the Act, once the borrower fails to tender the entire amount of dues with all costs and charges to the secured creditor before the publication of auction notice, his right of redemption of mortgage shall stand extinguished / waived on the date of publication of the auction notice in the newspaper in accordance with Rule 8 of the 2002 Rules." 34. In the presence of direct decision of the Hon'ble Supreme Court interpreting Section 13(8) of the Act, the decision relied upon by the Appellant in the case of Indian Overseas Bank (Supra) which has only interpreted Section 14(1) of the Code does not apply because Section 13(8) was not brought to the notice of the Hon'ble Court. 35. The Hon'ble Supreme Court has also discussed sanctity of public auction from paras 88 to 93 in its decision in the case of Celir LLP (Supra). The relevant portion of the said order are reproduced as under:- "91. Thus what is discernible from above is that it is the duty of the courts to zealously protect the sanctity of any auction conducted. The courts ought to be loath in interfering with auctions, otherwise it would frustrate the very object and purpose behind auctions and deter public confidence a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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