Supreme Court of India was dealing with the petition challenging the judgment dated 26th March 2021 passed by the NCLAT in Company Appeal (AT) (Insolvency), 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 NCLT.
Brief Facts:
The appellant Bank had extended certain credit facilities to the Corporate Debtor. As such, the loan account of the Corporate Debtor came to be classified as “Non-Performing Asset” (NPA). 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. An Eauction notice came to be issued by the Bank to recover the public money availed by the Corporate Debtor. At this point, the Corporate Debtor petitioned NCLT under Section 10 of the Insolvency and Bankruptcy Code, 2016. On January 3, 2019, the NCLT granted the petition and issued a moratorium. Nonetheless, the Bank continued the auction proceedings and accepted the remaining 75% of the bid sum, completing the transaction. The NCLT granted Corporate Debtor's application and issued an order postponing the sale. The NCLAT dismissed the Bank's appeal, prompting it to pursue an appeal with the Supreme Court.
Appellant’s Contention:
Learned counsel for the appellant submitted that the very initiation of the voluntary insolvency proceedings under Section 10 of the IBC, by the expromoter of the Corporate Debtor, was with mala fide intent and as such, hit by Section 65 of the IBC. It was submitted that the order of the learned NCLT, admitting the petition under Section 10 of the IBC, came to be passed only prior to confirmation of sale. He submitted that it is thus clear that the CIRP was initiated only to stall the SARFAESI proceedings. It was 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.
Respondent’s Contention:
Learned Counsel for the respondent 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.
SC’s Observations:
After hearing both the sides SC stated that 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.
SC further stated 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.
SC observed that 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.
SC Held:
After evaluating submissions made by both the parties the SC held that “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. 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.”
Case Title: Indian Overseas Bank v. M/S RCM Infrastructure Ltd. and Another
Bench: J. L. Nageswara Rao and J. B.R. Gavai
Citation: CIVIL APPEAL NO. 4750 OF 2021
Decided on: 18th May, 2022
Read Judgment @Latestlaws.com
Picture Source :
