Summary
Indian Overseas Bank sold RCM Infrastructure's mortgaged properties under the SARFAESI Act by e-auction on 12.12.2018 for Rs. 32.92 crore, confirmed the sale on 13.12.2018 on receipt of 25% of the price and extended time for the balance. Meanwhile the corporate debtor's petition under Section 10 of the Insolvency and Bankruptcy Code was admitted on 03.01.2019 with a moratorium; the Bank nevertheless accepted the balance 75% on 08.03.2019. The NCLT set aside the sale and the NCLAT affirmed. The Supreme Court dismissed the Bank's appeal: a sale under Rules 8 and 9 of the Security Interest (Enforcement) Rules is complete only when the full price is paid and the sale certificate issued, so this sale was completed on 08.03.2019, after the moratorium; Section 14(1)(c) of the Code bars any action to enforce a security interest once CIRP commences; and the mala fide plea failed.
Issues
- Whether a SARFAESI auction sale confirmed on receipt of 25% of the bid amount before the commencement of the corporate insolvency resolution process, but with the balance paid after the moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 came into force, stood completed before the moratorium so as to be unaffected by it.
- Whether the secured creditor could continue proceedings under the SARFAESI Act and receive the balance sale consideration during the moratorium, and whether the corporate debtor's petition under Section 10 of the Code was mala fide.
Provisions considered
- Sections 10, 14(1)(c), 65 and 238, Insolvency and Bankruptcy Code, 2016Once CIRP commences, Section 14(1)(c) completely prohibits any action to foreclose, recover or enforce a security interest, the words 'including any action under the SARFAESI Act' being significant; by Section 238 the Code overrides inconsistent laws (Innoventive Industries; Monnet Ispat; Ghanashyam Mishra). The Bank could not continue the SARFAESI sale and receive the balance price after the moratorium of 03.01.2019. The Section 10 petition disclosed the Bank's actions and was not shown to be mala fide under Section 65. (¶¶ 23, 24, 25, 26, 27, 35, 36)
- Section 13(4) and 13(8); Rules 8, 9(4) and 9 (sale certificate in Appendix V), Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and Security Interest (Enforcement) Rules, 2002A statutory sale under Rules 8 and 9 is complete only when the auction purchaser pays the entire amount and the authorised officer issues the certificate of sale (Shakeena v. Bank of India; S. Karthik); the balance having been accepted on 08.03.2019, the sale was completed after the CIRP commenced. (¶¶ 32, 33, 34)
- Section 54, Transfer of Property Act, 1882Vidhyadhar, B. Arvind Kumar and Kaliaperumal, holding that title may pass on execution or confirmation despite part payment, concerned registered private sale deeds or court sales confirmed by the court, and turn on the parties' intention; they do not govern a statutory SARFAESI sale whose completion is prescribed by the Rules. (¶¶ 28, 29, 30, 31, 32)
Held
- After initiation of CIRP there is a complete prohibition under Section 14(1)(c) on any action to foreclose, recover or enforce a security interest created by the corporate debtor, expressly including action under the SARFAESI Act, and the Code prevails over inconsistent laws by virtue of Section 238; the Bank could not have continued the SARFAESI proceedings once the moratorium was ordered. (¶¶ 24, 25, 26, 27, 35)
- The decisions relied on by the Bank concerned registered sale deeds or court-confirmed auction sales and turn on the parties' intention; the present sale is a statutory sale governed by Rules 8 and 9, which is complete only when the purchaser pays the entire price and the sale certificate is issued. The balance 75% having been accepted on 08.03.2019, the sale stood completed only on that date, well after the moratorium of 03.01.2019, and the argument that the sale was complete on receipt of part payment cannot be accepted. (¶¶ 29, 30, 31, 32, 33, 34)
- The contention that the corporate debtor's Section 10 petition was mala fide is without merit, the petition having disclosed all the Bank's actions; the subsequent liquidation order is under challenge before the NCLAT and calls for no observation. (¶ 36)
Result
Appeal dismissed; the NCLAT's judgment of 26.03.2021 in Company Appeal (AT) (Insolvency) No. 736 of 2020 affirming the NCLT's order of 15.07.2020 setting aside the SARFAESI sale of the corporate debtor's assets completed during the CIRP moratorium upheld. No order as to costs.