Insolvency and Bankruptcy Code, 2016: ss. 238, 10, 14 – Provisions of the Code to override other laws – On facts, corporate debtor filed an insolvency petition u/s. 10 on 22.10.2018 – NCLT admitted the petition on 03.01.2019, moratorium was notified and Interim Resolution Professional was appointed – Meanwhile the appellant bank issued the second E-auction notice on 27.11.2018, to recover the public money availed by the corporate debtor – Thereafter, E-auction was held by the Bank, the properties were sold, sale certificate was issued and the sale was completed on 8.03.2019 – Promoter of the corporate debtor filed an application before NCLT to set aside the security realization during the CIRP period carried out by the Bank or in alternative cancel the impugned transaction – NCLT set aside the sale of the property owned by the corporate debtor – Appeal thereagainst rejected by the NCLAT – On appeal, held: After the commencement of the CIRP, there is complete prohibition for 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 SARFESI Act in the view of s.14(1)(c) rw s.238 which have overriding effect over any other law – On facts, the balance amount was accepted by the appellant Bank on 8.03.2019 – Sale under the statutory scheme as contemplated u/rr. 8 and 9 would stand completed only on 8.03.2019, which falls much after 03.01.2019, i.e., on which date CIRP commenced and moratorium was ordered – As such, it cannot be accepted that the sale was complete upon receipt of the part payment – Appellant Bank could not have continued the proceedings under SARFESI Act once the CIRP was initiated and the moratorium was ordered – Thus, the orders of NCLT and NCLAT does not call for interference –Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 – s. 13 – Security Interest Enforcement Rules – rr. 8, 9.
Dismissing the appeal, the Court
HELD: 1.1 It is clear that after the CIRP is initiated, there is moratorium for 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 SARFAESI Act. It is clear that once the CIRP is commenced, there is complete prohibition for any action to foreclose, recover or enforce any security interest created by the Corporate Debtor in respect of its property. The words “including any action under the SARFAESI Act” are significant. The legislative intent is clear that after the CIRP is initiated, all actions including any action under the SARFAESI Act to foreclose, recover or enforce any security interest are prohibited. [Para 24][1100-E-G]
1.2 In view of the provisions of s. 238 IBC, the provisions of the IBC shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law. [Para 26][1101-A]
1.3 The instant case arises out of a statutory sale. The sale would be governed by Rules 8 and 9 of the said Rules. The sale would be complete only when the auction purchaser makes the entire payment and the authorised officer, exercising the power of sale, shall issue a certificate of sale of the property in favour of the purchaser in the Form given in Appendix V to the said Rules. [Para 32][1102-F-G]
1.4 In the instant case, the balance amount has been accepted by the appellant Bank on 8th March 2019. The sale under the statutory scheme as contemplated under Rules 8 and 9 of the said Rules would stand completed only on 8th March 2019. Admittedly, this date falls much after 3rd January 2019, i.e., on which date CIRP commenced and moratorium was ordered. As such, it cannot be accepted that the sale was complete upon receipt of the part payment. [Para 34][1103-B-C]
1.5 In view of the provisions of Section 14(1)(c) of the IBC, which have overriding effect over any other law, 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 SARFAESI Act is prohibited. The appellant Bank could not have continued the proceedings under the SARFAESI Act once the CIRP was initiated and the moratorium was ordered. [Para 35][1103-C-D]
1.6 The submission of the appellant Bank that the petition filed by the Corporate Debtor was mala fide cannot be accepted. All the details with regard to action taken by the appellant Bank have been specifically mentioned in the petition filed by the Corporate Debtor. Insofar as the submission with regard to liquidation order being passed is concerned, the same is already under challenge before the NCLAT. Thus, no case is made out for interfering with the concurrent orders passed by the NCLT and NCLAT. [Paras 36 and 37][1103-E-F]
Vidhyadhar v. Manikrao and Another (1999) 3 SCC
573 : [1999] 1 SCR 1168; B. Arvind Kumar v. Govt. of India and Others (2007) 5 SCC 745; Kaliaperumal v. Rajagopal and Another (2009) 4 SCC 193 : [2009] 2 SCR 814; Hindon Forge Private Limited and Another v. State of Uttar Pradesh through District Magistrate, Ghaziabad and Another (2019) 2 SCC 198 : [2018] 11 SCR 1019; S. Karthik and Others v. N. Subhash Chand Jain and Others 2020 SCC OnLine SC 787; Anand Rao Korada, Resolution Professional v. Varsha Fabrics Private Limited and Others (2020) 14 SCC 198 : [2019]
14 SCR 695; Innoventive Industries Limited v. ICICI Bank and Another (2018) 1 SCC 407 : [2017] 8 SCR 33; Principal Commissioner of Income Tax v. Monnet Ispat and Energy Limited (2018) 18 SCC 786;
Ghanashyam Mishra and Sons Private Limited through the Authorised Signatory v. Edelweiss Asset
Reconstruction Company Limited through the Director and Others (2021) 9 SCC 657; Shakeena and Another v. Bank of India and Others 2019 SCC OnLine SC 1059 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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