25 May 2022

M/s. Pegasus Assets Reconstruction Pvt. Ltd. Vs. M/s. V. Hotels Ltd. - DRAT dismissed the application for restoration of appeals which were dismissed in default, observing; "The law does not come to the assistance of those who sleep over their rights."

DRAT Mumbai (27.04.2022) in M/s. Pegasus Assets Reconstruction Pvt. Ltd. Vs. M/s. V. Hotels Ltd. [M.A. No. 1/2021 in (Appeal No. 130/2016 – Disposed of) and M.A. No. 2/2021 in (Appeal No. 54/2016 – Disposed of)] dismissed the application for restoration of appeals which were dismissed in default, observing;

  • The law does not come to the assistance of those who sleep over their rights.


Excerpts of the order;

# 1. In these Appeals Appellants have challenged orders in two applications viz. I.A. No. 176/2015, dated 01.09.2015 and I.A. No. 752/2015, dated 18.01.2016, both passed in Original Application (O.A.) No. 228 of 2005 on the file of D.R.T.-II, Mumbai. These M.As. are filed for restoration of the Appeals dismissed for default.

 

# 2. These Appeals have been pending since 2016. In 2018 as is evident from Annexure B, that the counsel who was appearing for Appellant submitted ‘no instructions’ and in view of that also returned the files to the Appellant, and vide letter dated 28.05.2018 addressed to one Mr. Manzar / Devang, Officials working with Appellant, informing them about status of these matters.

 

# 3. Learned counsel for the Appellant submits that it was someone else who was dealing with these files and that person had resigned from the company. An affidavit has been filed now by Manzar Abbas, the Authorized Officer of Appellant, which is filed as an annexure to the Application for Restoration.

 

# 4. It is also pertinent to note that ARCIL was prosecuting the matter before the N.C.L.T., Mumbai and the matter pending before the N.C.L.T. was heard on 29.05.2019 and disposed on 31.05.2019 by granting moratorium, which is seen from the Annexure ‘C’. In the said proceedings, Appellant had filed its claim on 17.06.2019 and the same was admitted. The Appellant was thus prosecuting the matter before the N.C.L.T. diligently.

 

# 5. Appellant would contend that because of several intervening facts like the resignation of the officer who was dealing with and in-charge of the files, there was some default on the part of the officers in pursuing the matter before this Tribunal. From the order which is now sought to be set aside, it specifically states that there was no representation for the Appellant on several postings and despite the counsel for the Appellant has submitted no instructions on 28.05.2018, both these Appeals were disposed of only on 02.01.2020.

 

# 6. Under these circumstances I find that there were gross latches on the part of the Appellant in prosecuting these Appeals. The law does not come to the assistance of those who sleep over their rights. The Appellant is a company and it cannot be said that there is only one officer looking after the affairs of the company and that there will always be a team of officers attending to the duty. Such latches on the part of the officials or company cannot

be condoned.

 

# 7. These applications for restorations have been vehemently opposed by the learned counsel for Respondents on the very same grounds, which I have mentioned earlier.

 

# 8. I find no substance in these applications and hence both these Misc. Applications for restoration of Appeals are dismissed as without merit and not sustainable.

 

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24 May 2022

E.K. Rajan Vs. The Authorized Officer, Canara Bank - A reading of the proviso to Rule 9(1) of the Rules makes it explicit that the authorised officer must serve, affix and publish the notice of sale of not less than 15 days to the borrower, for any subsequent sale. The conjunction ‘and’ employed in the proviso also indicate the mandatory nature of all three methods of notice.

 High Court of Kerala (18.05.2022) in E.K. Rajan Vs. The Authorized Officer, Canara Bank  [WP(C) No. 27485 of 2021] held that;

  • A reading of the proviso to Rule 9(1) of the Rules makes it explicit that the authorised officer must serve, affix and publish the notice of sale of not less than 15 days to the borrower, for any subsequent sale. 

  • The word ‘serve’ relates to personal service of notice, affixture relates to the notice being affixed on the property and the publication relates to the publication of notice in the newspaper dailies. 

  • The conjunction ‘and’ employed in the proviso also indicate the mandatory nature of all three methods of notice. 

  • Further, in spite of the amendment to section 13(8) of the Act, the proviso to Rule 9(1) mandates the three methods of serve, affix and publish the notice to be carried out, with 15 days clear notice.


Excerpts of the order;

Petitioner challenges a sale notice issued under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short ‘the Act’).

# 2. Petitioner is conducting a business establishment by name M/s Scientific Alfa. He had availed a cash credit facility of Rs.3,00,00,000/- in the year 2015 from the respondent and a security intrest was created over his property of 6.57 Ares and a residential building. Due to default in repayment, the loan account was declared as NPA and a notice under section 13(2) of the Act was issued on 23.01.2018. Subsequently, possession of the property was taken over under section 13(4) of the Act on 01.09.2018. According to the petitioner, without considering the genuine attempts of the petitioner to clear the loan, the respondent proceeded to initiate steps under the Act and published a notice of sale dated 19.11.2021 in the Mathrubhumi daily proposing to auction the property on 08.12.2021. Petitioner further contended that the sale notice was not issued to the petitioner till the date of filing of this writ petition and instead, petitioner requested the respondent for permission to sell the property to a third party under a private treaty as per his letter dated 27.11.2021, which was acknowledged by the respondent on 29.11.2021. Since the bank did not respond to the request of the petitioner, and in the meantime, they were attempting to proceed with the sale of the property, this writ petition was preferred.

 

# 3. A counter affidavit has been filed by the respondent stating that a credit facility was granted to the petitioner in the year 2015 to the extent of Rs.3 Crores and two properties were mortgaged with the bank consisting of 6.67 Ares of land in Kolazhi Village along with two buildings and another 2.92 Ares in Thrissur Village consisting of one building. It was further pleaded by the respondent that the demand notice, and other notices issued to the petitioner, were in compliance with the law and that there was never any attempt on the part of the petitioner to settle the dues. Respondent further contended that petitioner has been attempting to take advantage of the pandemic, disregarding the fact that the loan account of the petitioner was declared as an NPA as early as on 01.12.2017. It was also pointed out that the respondent had filed O.A. No.8 of 2021 before the Debts Recovery Tribunal-II, Ernakulam and that neither the writ petitioner nor the guarantors had appeared even after service of notice. Respondent further pleaded that till date petitioner had never raised any objection against the measures taken by the bank and as on 30.11.2020 an amount of Rs.5,55,14,934/- was liable to be recovered from the petitioner, as claimed in the original application and that it was in such circumstances that the proceedings under section 14 of the Act were initiated. Respondent also averred that when the Advocate Commissioner issued notice for taking possession of the property, the son of the petitioner filed W.P.(C) No.20187 of 2021, which was dismissed by this Court on 26.10.2021. Respondent also pleaded that the allegation of the petitioner that he had not received the sale notice was incorrect, since service was completed on 23.11.2021 and this being the second attempt to sell the property, all procedures were carried out in accordance with law.

 

# 4. It was further averred that the alleged private treaty is only an imagination of the petitioner and that no genuine proposal was produced to show the bonafides of such a statement. Respondent also pleaded that petitioner failed to comply with the direction of this Court to deposit 25% of the reserve price before the date of sale and that the sale scheduled on 08.12.2021 took place and the property of 6.57 Ares along with two residential buildings situated at Kolazhy Village in Thrissur District was auctioned for an amount of Rs.1,06,25,000/-. However, the sale has not been confirmed due to the direction of this Court. According to the respondent bank, an amount of more than Rs.6 Crores is due from the petitioner and that the sale is required to be confirmed to recover the liability due from the petitioner.

 

# 5. The respondent further pleaded that the notice of sale dated 17-11-2021 was published in two dailies and the same was affixed on the property also. The respondent also denied the contention of the petitioner that the sale notice was not received by him till the date of filing of the writ petition since as per Ext.R(d), the notice was served on the petitioner on 23-11-2021. The respondent thus sought for dismissal of the writ petition.

 

# 6. I have heard the arguments of Sri.N.Sasi, the learned counsel for the petitioner and Sri. N.A.Saju, the learned counsel for the respondent.

 

# 7. Sri N.Sasi, the learned counsel for the petitioner vehemently contended that though the petitioner could not comply with the direction of this Court dated 02-12-2021, the sale held on 08-12-2021 was contrary to law, as, even going by the records produced by the respondent, the notice of sale was served on the petitioner only on 23-11-2021. The statutory requirement of 15 days is therefore not complied with and hence, according to the learned counsel, the sale is liable to be set aside.

 

8. Sri. Saju N.A., the learned counsel for the respondent on the other hand contended that the sale of the secured asset was carried out in accordance with law on 08-12-2021 and the 15 day notice period was also satisfied in the instant case. He further submitted that the petitioner had misled this Court by pleading that notice was not served on him while Ext.R(d) clearly showed that notice was served on the petitioner on 23-11-2021. It was further argued that the notice was published in two newspaper dailies on 19-11-2021 and was also affixed on the property, thereby deeming valid service of notice. The learned counsel for respondent further submitted that the petitioner had not come with clean hands and in fact had been hoodwinking the respondent for the last several years under the guise of settling the entire liability and that the discretionary remedy under Article 226 ought not to be exercised in favour of the petitioner. The learned counsel also contended that the sanctity of the auction held on 08-12-2021 will be defeated if this Court interfered with the sale and that it was after several attempts that a sale could finally fructify. The learned counsel also relied upon the decision in S. Karthik & Others v. N. Subhash Chand Jain and Others (AIR 2021 SC 4559).

 

# 9. At the time this writ petition was filed, the Debts Recovery Tribunal, Ernakulam, was not functioning and hence the challenge against the notice of sale was entertained by this Court. Persons aggrieved by the proceedings initiated for enforcement of security interest had no forum to approach, and it was in such circumstances that this Court entertained this writ petition. (See the decision in Annam Steels (P) Ltd. (M/s) and Others v. M/s Canara Bank Ltd. and Another [2022 (1) KHC 536]).

 

# 10. It is relevant to mention at this juncture that on the date of admission, this Court proceeded to direct the petitioner to deposit an amount of Rs.1,08,00,000/- on or before 5 PM on 6-12-2021 as a measure of testing the bonafides of the claim of the petitioner that he is ready to bring a purchaser under a private treaty, if offered. It was further directed that, notwithstanding the above direction to deposit, the bank was permitted to accept bids, if any, for the auction. On 07-12-2021, this Court directed that the respondent shall be free to proceed with the sale, however, confirmation of the sale was directed to be made only after obtaining further orders from this Court.

 

# 11. As submitted by the learned counsel for the respondent, pursuant to the orders of this Court, the auction sale took place on 08-12-2021 but the same has not been confirmed, in deference to the directions of this Court.

 

# 12. The sole point to be considered is whether the notice of sale is legally valid or not. If the notice is valid, necessarily the sale is liable to be confirmed, especially since petitioner failed to satisfy the test of bonafides offered to him.

 

# 13. In order to appreciate the alleged invalidity of the notice of sale, it is necessary to refer to Rule 9 of Security Interest (Enforcement) Rules 2002, (for short the Rules) which deals with the time of sale, issue of sale certificate and delivery of possession etc. Rule 9(1) reads as follows:

  • R.9(1). Time of sale, issue of sale certificate and delivery of possession etc.

  • No sale of immovable property under these rules, in first instance shall take place before the expiry of 30 days from the date on which the public notice of sale is published in newspapers as referred to in the proviso to sub-rule (6) of rule 8 or notice of sale has been served to the borrower:

  • Provided further that if sale of immovable property by any one of the methods specified by sub-rule (5) of rule 8 fails and sale is required to be conducted again, the authorised officer shall serve, affix and publish notice of sale of not less than 15 days to the borrower, for any subsequent sale.

 

# 14. The above extracted statutory provision was brought in by means of substitution with effect from 4-11-2016. The statutory provision as it existed prior to the aforementioned substituion was interpreted by the Supreme Court in Mathew Varghese v. M.Amritha Kumar and Others [(2014) 5 SCC 610] and held that; 

  • “In other words, once the sale does not take place pursuant to a notice issued under Rules 8 and 9, read along with S.13(8) for which the entire blame cannot be thrown on the borrower, it is imperative that for effecting the sale, the procedure prescribed above will have to be followed afresh, as the notice issued earlier would lapse. In that respect, the only other provision to be noted is sub-rule (8) of R.8 as per which sale by any method other than public auction or public tender can be on such terms as may be settled between the parties in writing. As far as sub-rule (8) is concerned, the parties referred to can only relate to the secured creditor and the borrower. It is, therefore, imperative that for the sale to be effected under S.13(8), the procedure prescribed under R.8 read along with 9(1) has to be necessarily followed.”

 

# 15. While rendering the judgement in Mathew Varghese case, the provisions of section 13(8) of the Act gave power to the borrower to redeem the property till the last minute before the sale takes place. It is after noticing the aforesaid statutory right that the Supreme Court held that there must be 30 days’ clear notice before the sale takes place. However, in 2016 an amendment was brought to section 13(8) of the Act and the right to redeem the property was made available only till the date of publication of notice for public auction (see the decision of this Court in Sree Gokulam Chit and Finance Co. Pvt. Ltd. v. Emil and Eric Hospitality Services and Others (2021 (6) KLT 673). The said amendment was brought into force by Act 44 of 2016 with effect from 01-09-2016. In spite of the aforesaid amendment having been brought into effect from the date as aforementioned, Rule 9 of the Rules, when amended with effect from 04-11-2016, still stipulated that there must be a 30 days clear notice for the sale at the first instance and also a notice of not less than 15 days for subsequent sales. The intention is clear that the notice of 30 days in the first instance and the notice of 15 days for subsequent sales cannot be tampered with.

 

# 16. In the instant case on a perusal of Ext.R(d) acknowledgement card, it can be assimilated that the notice of sale was served on the petitioner only on 23-11-2021. The sale that took place on 08-12-2021 was thus on the 15th day of service of notice. The statutory requirement of 15 days clear notice or “notice of not less than 15 days” is not seen to be satisfied. The situation would be different if the delay in service of notice was on account of the petitioner’s default or that petitioner evaded the service of notice till 23-11-2021. There is no pleading in the counter affidavit of the respondent that the petitioner had evaded service of notice till 23-11-2021. It is also not pleaded by the respondent that notice was issued to the petitioner sufficiently early to satisfy the statutory requirement of 15 days’ clear notice.

 

# 17. A reading of the proviso to Rule 9(1) of the Rules makes it explicit that the authorised officer must serve, affix and publish the notice of sale of not less than 15 days to the borrower, for any subsequent sale. The word ‘serve’ relates to personal service of notice, affixture relates to the notice being affixed on the property and the publication relates to the publication of notice in the newspaper dailies. The conjunction ‘and’ employed in the proviso also indicate the mandatory nature of all three methods of notice. Further, in spite of the amendment to section 13(8) of the Act, the proviso to Rule 9(1) mandates the three methods of serve, affix and publish the notice to be carried out, with 15 days clear notice. In the instant case, there is a failure on the part of the respondent to serve notice of not less than 15 days upon the petitioner. Therefore the notice of sale is bad in law. Ext.P3 and the consequent sale are therefore liable to be set aside.

 

# 18. The decision in S. Karthik & Others v. N. Subhash Chand Jain and Others (AIR 2021 SC 4559) is clearly distinguishable in law as well as on facts. In the said decision, the Supreme Court was considering a case of sale that took place in 2012 in which the proviso to Rule 9(1) was not in existence. As the law then stood, the notice of sale required only 30 days notice and there was no reference to such a notice period for any subsequent sales. Further, factually, the borrower, in that case, had managed to delay the conduct of sale by methods solely attributable to the borrower. It was in such circumstances, that the Court held that there was no necessity to provide 30 days’ notice for the second sale. In the instant case, the proviso to Rule 9(1) of the Rules incorporated in 2016 mandates notice of not less than 15 days to be served on the borrower for subsequent sales. Thus the said decision is inapplicable to the facts of the present case.

# 19. Though the learned counsel for the respondent had contended that the petitioner had failed to deposit the amount equivalent to 25% of the reserve price on or before 5 PM on 06-12-2021, as directed in the order dated 02-12-2021, I am of the view that the failure to deposit the said amount cannot be held against the petitioner in the peculiar nature of the circumstances that has arisen in the instant case. The aforementioned direction was only to test the bonafides of the petitioner. Even though petitioner failed to prove his bonafides regarding the offer of a private treaty, since the very edifice on which the sale was held is faulty, as found in the preceding discussion, petitioner’s failure to prove his bonafides of the offer of a private treaty cannot be held against him.

 

# 20. In view of the above, this Court is of the considered view that the notice of sale having not been served in accordance with law, the same is liable to be quashed. Accordingly, I set aside Ext.P3 notice of sale and allow this writ petition.

 

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Indian Overseas Bank Vs. M/s RCM Infrastructure Ltd. and another - The appellant Bank could not have continued the proceedings under the SARFAESI Act once the CIRP was initiated and the moratorium was ordered.

SCI (18.05.2022) in Indian Overseas Bank Vs. M/s RCM Infrastructure Ltd. and another  [Civil Appeal No. 4750 of 2021] held that;

  • 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.

  • It has been consistently held by this Court that the IBC is a complete Code in itself and in view of the provisions of Section 238 of the IBC, the provisions of the IBC would prevail notwithstanding anything inconsistent therewith contained in any other law for the time being in force

  • This Court has further held that the real test is the intention of the parties. It has been held that the parties must intend to transfer ownership of the property and that they must also intend that the price would be paid either in praesenti or in future.

  • It was held that normally the ownership and the title of the property will pass to the purchaser on registration of the sale deed with effect from the date of execution of the sale deed.

  • In the case of Shakeena and Another v. Bank of India and Others10, which was a case arising out of SARFAESI Act, this Court has held that the sale certificate issued in favour of the respondent No.3 did not require registration and that the sale process was complete on issuance of the sale certificate.

  • The appellant Bank could not have continued the proceedings under the SARFAESI Act once the CIRP was initiated and the moratorium was ordered.


Excerpts of the order;

# 1. This appeal challenges the judgment dated 26th March 2021 passed by the National Company Law Appellate Tribunal, Principal Bench, New Delhi (hereinafter referred to as “the NCLAT”) in Company Appeal (AT) (Insolvency) No. 736 of 2020, thereby dismissing the appeal filed by the present appellant­-Indian Overseas Bank, which was in turn filed challenging the order dated 15th July 2020 passed by the National Company Law Tribunal, Hyderabad Bench­-1, Hyderabad (hereinafter referred to as “the NCLT”) in I.A. No.832 of 2019 in C.P. (IB) No. 601/10/HDB/2018, vide which the learned NCLT had allowed the application filed by the respondent No.2 herein, former Managing Director of the respondent No.1 herein­-M/s RCM Infrastructure Ltd. (hereinafter referred to as the “Corporate Debtor”) and set aside the sale of the assets of the Corporate Debtor.

# 2. The facts in brief, giving rise to filing of the present appeal, are as under:

The appellant Bank had extended certain credit facilities to the Corporate Debtor. However, the Corporate Debtor failed to repay the dues and the loan account of the Corporate Debtor became irregular. As such, on 13th June 2016, the loan account of the Corporate Debtor came to be classified as “Non-­Performing Asset” (NPA).

 

# 3. The appellant Bank issued a Demand Notice under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as the “SARFAESI Act”), calling upon the Corporate Debtor and its guarantors to repay the outstanding amount due to the appellant Bank. Since the Corporate Debtor failed to comply with the Demand Notice and repay the outstanding dues, the appellant Bank took symbolic possession of two secured assets mortgaged exclusively with it. The same was done by the appellant Bank in exercise of powers conferred on it under Section 13(4) of the SARFAESI Act read with Rule 8 of the Security Interest (Enforcement) Rules, 2002 (hereinafter referred to as the “said Rules”). One of the said properties stood in the name of Corporate Debtor and the other in the name of Corporate Guarantor. An E-­auction notice came to be issued on 27th September 2018 by the appellant Bank to recover the public money availed by the Corporate Debtor.

 

# 4. In the meantime, on 22nd October 2018, the Corporate Debtor filed a petition being CP(IB) No. 601/10/HDB/2018 under Section 10 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “the IBC”) before the learned NCLT. In the first E-­auction held on 6th November 2018, no bids were received. As such, the second E-­auction notice came to be issued on 27th November 2018, which was scheduled to be held on 12th December 2018. In the second E-­auction, three persons became successful bidders by offering jointly a price of Rs.32.92 crore for both the secured assets. On 13th December 2018, the sale was confirmed in favour of the successful bidders/auction purchasers in the public auction. The successful bidders deposited 25% of the bid amount, i.e., Rs.8.23 crore including the Earnest Money Deposit of the said amount and the appellant Bank issued a sale certificate to them. The auction purchasers were directed to pay the balance 75% of the bid amount within 15 days, i.e., prior to 28th December 2018.

 

# 5. It appears that the auction purchasers, on 28th December 2018, addressed a letter to the appellant Bank seeking handing over of peaceful and vacant possession of the secured assets and also prayed for extension of time to pay the balance 75% of the bid amount till 8th March 2019. The request made by the auction purchasers was accepted by the appellant Bank on 29th December 2018. It is the case of the appellant Bank that in exercise of its powers under Rule 9(4)(a) of the said Rules, it extended the period till 8th March 2019 for payment of the balance 75% of the bid amount.

 

# 6. The learned NCLT, vide order dated 3rd January 2019, admitted the petition filed by the ex-­promoter of the Corporate Debtor. As a result of the said order passed under Section 10 of the IBC, the Corporate Insolvency Resolution Process (hereinafter referred to as “the CIRP”) of the Corporate Debtor commenced. A moratorium as provided under Section 14 of the IBC was notified and an Interim Resolution Professional (hereinafter referred to as “the IRP”) was also appointed.

 

# 7. The appellant Bank on 21st January 2019, filed its claim in Claim Form-­C with the IRP, upon it coming to know about the admission of the insolvency petition filed by the Corporate Debtor. According to the appellant Bank, since the balance 75% of the bid amount was not yet received on the said date, it was not excluded from the claim filed before the IRP. During the pendency of the CIRP, the appellant Bank accepted the balance 75% of the bid amount, i.e., Rs.24.69 crore on 8th March 2019. Upon receipt of the payment, the appellant Bank submitted its revised claim in Claim Form-­C to the IRP on 11th March 2019. The appellant Bank also intimated the IRP about the successful sale of the said secured assets. The promoter of the Corporate Debtor, i.e., respondent No.2 herein, thereafter filed an application being I.A. No.832/2020 in the pending company petition being CP(IB) No. 601/10/HDB/2018, thereby praying the learned NCLT to set aside the security realization during the CIRP period carried out by the appellant Bank or in the alternative to cancel the impugned transaction. Vide order dated 15th July 2020, the learned NCLT passed an order thereby allowing the said application filed by the respondent No.2 and setting aside the sale of the property owned by the Corporate Debtor. Being aggrieved thereby, the appellant Bank filed an appeal being Company Appeal (AT) (Insolvency) No. 736 of 2020 before the learned NCLAT and the same was rejected by the impugned judgment dated 26th March 2021. Being aggrieved thereby, the present appeal.

 

# 10. Shri Mehta submitted that the order of the learned NCLT, admitting the petition under Section 10 of the IBC, came to be passed only on 3rd January 2019, i.e., prior to confirmation of sale. He submitted that it is thus clear that the CIRP was initiated only to stall the SARFAESI proceedings. It is submitted that though the issue with regard to Section 65 of the IBC was subsequently raised by the appellant Bank, neither the learned NCLT nor the learned NCLAT had considered the same. It is submitted that the mala fide intention of the IRP is clear inasmuch as since the ex-­promoters could not submit a credible plan, the learned NCLT, vide order dated 7th February 2022, has ordered for liquidation. It is submitted that a perusal of the said order dated 7th February 2022 would reveal that the delay was caused at the instance of the IRP, who has been seen to be helping the ex-­promoters.

 

# 11. Shri Mehta further submitted that since the moratorium under Section 14 of the IBC has ceased to subsist after the order directing liquidation was passed under Section 52 of the IBC, the secured creditors were allowed to realise their security interest. It is therefore submitted that now, there is no bar on the appellant Bank to realise its money.

 

# 12. Shri Mehta submitted that in view of the provision of Section 54 of the IBC, the sale was complete after the appellant Bank had received 25% of the bid amount and the said was confirmed. He submitted that merely because a part of the sale consideration was received subsequently, it could not affect the sale. A reference in this respect is placed on the judgments of this Court in the cases of Vidhyadhar v. Manikrao and Another1, B. Arvind Kumar v. Govt. of India and Others2 and Kaliaperumal v. Rajagopal and Another3.

 

# 13. It is lastly submitted by Shri Mehta that Section 14(1)(c) of the IBC interdicts any action to foreclose, recover or enforce any security interest including any action under SARFAESI. However, it does not undo actions which have already stood completed.

 

# 14. Shri Vaidyanathan, learned Senior Counsel also supported the submissions of the learned Solicitor General made on behalf of the appellant Bank. It is submitted that the promoters of the Corporate Debtor have indulged into forum shopping with the malicious intent and as such, the learned NCLT ought not to have granted relief in their favour. It is submitted that the applicants were bona fide purchasers and put into possession and therefore should not be disturbed. It is submitted that the Corporate Debtor’s right in respect of the mortgaged property is the right of redemption under Section 60 of the Transfer of Property Act, 1882 (hereinafter referred to as “the TP Act”). It is submitted that under Section 13(8) of the SARFAESI Act, as amended in 2016, the right of redemption is lost on issuance of public notice of auction or tender.

 

# 15. Shri Vaidyanathan further submitted that the mala fide intention of the Corporate Debtor and the IRP are glaring inasmuch as the applicants were successful auction purchasers and they were not added as party respondents in the proceedings before the learned NCLT. Relying on paragraph (21) of the Insolvency Law Committee Report, 2018, Shri Vaidyanathan submitted that the rights and priorities of creditors established prior to insolvency under commercial laws should be upheld to preserve the legitimate expectations of creditors and encourage greater predictability in commercial relationship.

 

# 16. Shri Viswanathan, learned Senior Counsel has supported the impugned judgment passed by the learned NCLAT as well as the order passed by the learned NCLT. He submitted that the title of the secured assets cannot be conveyed to the auction purchasers merely upon confirmation of sale even before receiving full sale consideration. He submitted that the title would be passed over only after receipt of the full consideration and issuance of sale certificate. The learned Senior Counsel submitted that such contentions are totally contrary in view of various provisions of the SARFAESI Act, the said Rules as well as Sections 14(1)(c), 31(1) and 238 of the IBC. He submitted that only after the transfer takes place under Rules 8 and 9 of the said Rules, the title would be passed over to the auction purchasers. He relies on the judgment of this Court in the case of Hindon Forge Private Limited and Another v. State of Uttar Pradesh through District Magistrate, Ghaziabad and Another4.

 

# 17. Shri Viswanathan further submitted that Section 13(8) of the SARFAESI Act itself provides a right of redemption of secured assets to the owner/debtor. He relies on the judgment of this Court in the case of S. Karthik and Others v. N. Subhash Chand Jain and Others5 in support of this proposition.

 

# 18. Shri Viswanathan submitted that upon approval of the Resolution Plan (hereinafter referred to as “the RP”), in view of Section 31(1) of the IBC, all the debts stand legally resolved and the same is binding on all parties including the Corporate Debtor, its employees, members, creditors, all Govt. dues and the successful resolution applicant would be entitled to start on a clean slate. The learned Senior Counsel submitted that the Jural relationship of Creditor-­Debtor would get altered/severed under a new contract upon approval of a new RP. It is submitted that as a consequence, the security created under the old contract would stand released by operation of law and the relationship would be governed by the terms of the approved plan and the mortgage created under the old contract would get extinguished/novated. It is submitted that in any case, in view of Section 238 of the IBC, the provisions contained therein will override all other laws for the time being in force and the provisions of the IBC would also prevail over any other instrument having effect by virtue of any other law. A reliance in this respect is placed on the judgment of this Court in the case of Anand Rao Korada, Resolution Professional v. Varsha Fabrics Private Limited and Others6.

 

# 19. Shri Viswanathan further submitted that the continuation of any proceeding including the proceeding under the SARFAESI Act is totally illegal in view of Section 14(1)(c) of the IBC. It is, therefore, submitted that the continuation of any action under the SARFAESI Act by the appellant Bank and the receipt of the balance sale consideration was violative of Section 14(1)(c) of the IBC. He submitted that the amount payable by the Corporate Debtor to the other Financial Creditors is much more than the amount received by the appellant Bank during the pendency of the CIRP. He submitted that under the provisions of the IBC, all the Financial Creditors would be entitled to a share in the amount received upon realization of the assets of the Corporate Debtor and the appellant Bank cannot keep it in entirety.

 

# 20. Shri Viswanathan submitted that the allegations with regard to mala fide are made only in order to prejudice the Court. It is submitted that in the petition filed under Section 10 of the IBC, the Corporate Debtor has clearly mentioned about declaration of NPA by both the appellant Bank and Andhra Bank and also initiation of auction process by both the Banks. He submitted that in any case, initiation of the proceedings under the IBC for overall resolution of debts of the Corporate Debtor cannot be labelled as a mala fide attempt. He submitted that Section 65 of the IBC expressly provides for the mechanism and the remedy for addressing frivolous or malicious proceedings initiated under the SARFAESI Act. However, the appellant Bank has chosen not to take recourse to such proceedings. As such, the allegations of mala fide cannot be heard.

 

# 21. Shri Verma, learned counsel also supported the impugned judgment passed by the learned NCLAT as well as the order passed by the learned NCLT and the submissions made by Shri Viswanathan. It is submitted that the appellant Bank has never challenged the order dated 3rd January 2019, vide which the learned NCLT commenced the CIRP. He submitted that though the order of liquidation was passed by the learned NCLT on 7th February 2022, the same has been stayed by the learned NCLAT on 8th March 2022.

 

# 22. It is further submitted by Shri Verma that as a matter of fact, after the CIRP was initiated, the appellant Bank itself has submitted its claim in Claim Form-­C on 21st January 2019 for an amount of Rs.79.94 crore, which included the full value of the assets. It is, therefore, submitted that the appellant is estopped from contending that the amount of Rs.8.23 crore cannot be included in the amount available for CIRP.

 

# 23. For appreciating the rival submissions, it will be apposite to refer to Section 14(1)(c) of the IBC:

  • “14. Moratorium.—(1) ……

  • (a) ……;

  • (b) …….;

  • (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);  ……….”

 

# 24. It is thus 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.

 

# 25. It will also be relevant to refer to Section 238 of the IBC:

  • “238. Provisions of this Code to override other laws.—The provisions of this Code 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.”

 

# 26. It could thus be seen that 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.

 

# 27. It has been consistently held by this Court that the IBC is a complete Code in itself and in view of the provisions of Section 238 of the IBC, the provisions of the IBC would prevail notwithstanding anything inconsistent therewith contained in any other law for the time being in force. A reference in this respect could be placed on the judgments of this Court in the cases of Innoventive Industries Limited v. ICICI Bank and Another7, Principal Commissioner of Income Tax v. Monnet Ispat and Energy Limited8 and Ghanashyam Mishra and Sons Private Limited through the Authorised Signatory v. Edelweiss Asset Reconstruction Company Limited through the Director and Others9 .

 

# 28. It is the contention of the appellant Bank that the sale in question was complete on its confirmation on 13th December 2018 and as such, the admission of the petition on 3rd January 2019 by the learned NCLT would not affect the said sale. Relying on the provisions of Section 54 of the TP Act, the learned Solicitor General submitted that merely because a part of the payment was received subsequently after initiation of CIRP, it will not deprive the appellant Bank from receiving the said money in pursuance to the sale which has already been completed. A reliance in this respect is placed on various judgments of this Court.

 

# 29. Insofar as the judgment of this Court in the case of Vidhyadhar (supra) is concerned, no doubt that it has been held that even if the full price of the property has not been paid, the transaction of the sale will take effect and the title would pass on that transaction. This Court has further held that the real test is the intention of the parties. It has been held that the parties must intend to transfer ownership of the property and that they must also intend that the price would be paid either in praesenti or in future. However, it is to be noted that in the said case, the defendant No.2 had not only executed the sale deed in favour of the plaintiff but had presented it for registration, admitted its execution before the Sub-­Registrar before whom the remaining part of the sale consideration was paid and thereafter, the document was registered.

 

# 30. In the case of B. Arvind Kumar (supra), the property in question was a suit property and was sold in a public auction. The sale was confirmed by the District Judge, Civil and Military Station, Bangalore. What has been held by this Court is that when a property is sold by public auction in pursuance of the order of the court and the bid is accepted and the sale is confirmed by the court in favour of the purchaser, the sale becomes absolute and the title vests in the purchaser. It has been held that a sale certificate is issued to the purchaser only when the sale becomes absolute. It was held that when the auction purchaser derives title on confirmation of sale in his favour and a sale certificate is issued evidencing such sale and title, no further deed of transfer from the court is contemplated or required. Additionally, in the said case, the Court found that the sale certificate itself was registered.

 

# 31. In the case of Kaliaperumal (supra) also, the sale deed was registered on partial payment of consideration. However, in spite of registration of the sale deed, in the facts of the said case, the Court held that what was important is the intention of the parties. It was held that normally the ownership and the title of the property will pass to the purchaser on registration of the sale deed with effect from the date of execution of the sale deed. However, that was not an invariable rule. What was paramount, was the intention of the parties. In the facts of the said case, the Court held that the parties intended that the ownership of the property would be transferred to the appellant only after the receipt of the entire sale consideration by the vendors as a condition precedent. Upon interpretation of the sale deed, the Court found that the title was intended to be passed only on the payment of the balance consideration.

 

# 32. It is further to be noted that the present 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.

 

# 33. In the case of Shakeena and Another v. Bank of India and Others10, which was a case arising out of SARFAESI Act, this Court has held that the sale certificate issued in favour of the respondent No.3 did not require registration and that the sale process was complete on issuance of the sale certificate. The same has been followed by this Court in the case of S. Karthik (supra).

 

# 34. Undisputedly, in the present 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, we are unable to accept the argument on behalf of the appellant Bank that the sale was complete upon receipt of the part payment.

 

# 35. 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. We are of the view that the appellant Bank could not have continued the proceedings under the SARFAESI Act once the CIRP was initiated and the moratorium was ordered.

 

# 36. Insofar as the contention of the appellant Bank that the petition filed by the Corporate Debtor was mala fide is concerned, we do not find any merit in the said contention. 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 contention with regard to liquidation order being passed is concerned, the same is already under challenge before the learned NCLAT. As such, we need not make any observation with regard to the same.

 

# 37. We, therefore, find that no case is made out for interfering with the concurrent orders passed by the learned NCLT dated 15th July 2020 and learned NCLAT dated 26th March 2021.

 

# 38. In the result, the present appeal is dismissed. Pending application(s), if any, shall stand disposed of in the above terms. No order as to costs.

 

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