Delve into the court’s detailed legal analysis regarding the completion of sale processes, moratorium implications, and the overriding effect of insolvency laws in the context of asset realization during Corporate Insolvency Resolution Process. The nuances of sale confirmation, ownership transfer, and adherence to IBC provisions take center stage in determining the validity of transactions during insolvency proceedings.
Facts
- The appellant Bank issued a Demand Notice under Section 13(2) of the SARFAESI Act in June 2016.
- Symbolic possession of two secured assets mortgaged exclusively with the appellant Bank was taken.
- An E-auction notice was issued in September 2018 to recover the outstanding dues.
- The Corporate Debtor filed a petition under the IBC in October 2018.
- Auction purchasers requested an extension to pay the bid amount till March 2019, which was granted by the appellant Bank.
- The petition filed under the IBC was admitted, and the CIRP of the Corporate Debtor commenced.
- Sale of assets was confirmed in December 2018 in favor of successful bidders who paid 25% of the bid amount.
- The promoter of the Corporate Debtor filed an application to set aside the security realization during the CIRP period.
- The NCLT allowed the application and set aside the sale of the assets of the Corporate Debtor.
- A moratorium was notified, and an Interim Resolution Professional was appointed.
- Revised claim was submitted to the IRP in March 2019 after the successful sale of secured assets.
- The balance bid amount was finally received in March 2019, and the sale was completed.
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Arguments
- The Corporate Debtor failed to redeem the mortgaged property, leading to the sale of two properties through E-auction notices.
- The right of redemption under Section 60 of the Transfer of Property Act, 1882 is forfeited upon the issuance of a public notice of auction or tender under Section 13(8) of the SARFAESI Act.
- The Resolution Plan approval under Section 31(1) of the IBC legally resolves debts and is binding on all parties, allowing a fresh start.
- The ex-promoters’ initiation of voluntary insolvency proceedings under Section 10 of the IBC is claimed to be with malicious intent, invoking Section 65 of the IBC.
- The sale confirmation under Section 54 of the IBC is complete upon receiving 25% of the bid amount, which cannot be affected by subsequent payments.
- The ex-promoters’ delay in presenting a credible plan led to the liquidation order by the NCLT.
- Secured creditors were allowed to realize security interest post the liquidation order under Section 52 of the IBC, enabling debt recovery.
- The allegations of malice are argued to be an attempt to prejudice the court, with the CIRP accusation cited as a tactic to stall SARFAESI proceedings.
- The mala fide behavior of the Corporate Debtor and IRP is alleged regarding the successful auction purchasers’ exclusion from relevant proceedings.
- Adherence to rights and priorities of creditors established pre-insolvency is urged to maintain commercial law integrity.
- Title transfer of secured assets post-sale confirmation requires full consideration receipt and issuance of a sale certificate.
- Continuation of SARFAESI Act proceedings after the stay order by the DRT is contested as a violation of Section 14(1)(c) of the IBC.
- The potential release of old contract security under a new resolution plan is highlighted, emphasizing the supremacy of IBC provisions under Section 238.
- Legal provisions like Section 65 of the IBC address frivolous or malicious actions initiated under the SARFAESI Act.
- Appellant is estopped from contending the amount of Rs.8.23 crore cannot be included in the amount available for CIRP
- Appellant Bank did not challenge the order commencing CIRP on January 3, 2019
- Order of liquidation on February 7, 2022, was stayed by the NCLAT on March 8, 2022
- Appellant Bank submitted claim in Claim Form-C for Rs.79.94 crore, including full value of assets after CIRP initiation
- Appellant Bank chose not to take recourse to proceedings, hence allegations of mala fide cannot be heard
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Analysis
- A sale certificate is issued to the purchaser only when the sale becomes absolute.
- Section 14(1)(c) of the IBC prohibits actions to foreclose, recover, or enforce any security interest after CIRP initiation.
- Intent of parties in the sale transaction is crucial in determining the completion of the sale.
- The IBC provisions have overriding effect over any other law, as per Section 238 of the IBC.
- Ownership transfer in a sale is subject to the intention of the parties, especially regarding the payment of sale consideration.
- Proceedings under the SARFAESI Act cannot continue once CIRP is initiated and the moratorium is ordered.
- Once the Corporate Insolvency Resolution Process (CIRP) is initiated, there is a moratorium on any action to foreclose, recover, or enforce any security interest created by the Corporate Debtor.
- This moratorium includes any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act).
- The prohibition on taking action to foreclose, recover, or enforce security interest is complete and applies to all properties of the Corporate Debtor.
- The sale of a property by public auction in court becomes absolute upon confirmation by the court in favor of the purchaser.
- The title of the property vests in the purchaser upon confirmation of the sale.
- The entire payment must be made by the auction purchaser for the sale to be complete.
- The authorized officer issues a certificate of sale in favor of the purchaser in a specific form.
- In the case Shakeena and Another v. Bank of India and Others, it was held that the sale certificate does not require registration and signifies the completion of the sale process.
- The case S. Karthik (supra) also reiterated the completion of the sale process upon issuance of the sale certificate.
- In the present case, the balance amount was accepted by the appellant Bank, indicating the completion of the sale process.
- No further deed of transfer from the court is required once the sale certificate is issued to the purchaser.
- The appellant Bank’s contention that the petition filed by the Corporate Debtor was mala fide was dismissed for lack of merit.
- All details of the action taken by the appellant Bank are clearly mentioned in the Corporate Debtor’s petition.
- The Court found no grounds to interfere with the NCLT and NCLAT orders dated 15 July 2020 and 26 March 2021.
- The challenge against the liquidation order is pending before the NCLAT, and thus no observations were made on the same.
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Decision
- The present appeal is dismissed.
- No order as to costs.
- Pending application(s) shall stand disposed of in the above terms.
Case Title: INDIAN OVERSEAS BANK Vs. M/S RCM INFRASTRUCTURE LTD. (2022 INSC 584)
Case Number: C.A. No.-004750 / 2021
