Tarun International Ltd. Vs Vikram Bajaj (RP for Anil Special Steel Industries Ltd.) & Ors - Auction under SARFAESI prior to CIRP & dues of EPFO and employees.

NCLAT (03.03.2021) in Tarun International Ltd. Vs  Vikram Bajaj (RP for Anil Special Steel Industries Ltd.) & Ors. [Majority judgement in Company Appeal (AT) (Insolvency) No.1194 of 2019] held that; - 

• we are of the considered opinion that the Appellant auction purchaser had accepted the acquisition of Unit No.1 subject to condition of ‘as is where is basis, as is what is basis, whatever there is basis’ and being fully aware of the nature of liabilities passing on to it in consequence of such sale besides being aware of the issuance of demand notice by Respondent No.2- ‘Rashtriya Anil Steel Majdoor Sangh’, thus the liabilities said to have been acquired by the Appellant in terms of the impugned order cannot be held to be an erroneous conclusion warranting interference.

 

Facts of the case;

"Anil Special Steel Industries Ltd" (CD) is an industrial company. It defaults, prompting OCs  to initiate Sec. 9 application, which is allowed by NCLT.

Prior to initiation of CIRP, "Allahabad Bank" (AB) the Financial Creditor, took over CD’s (Unit -1, Anil Special Steel Industries Ltd) Industrial Undertaking and auctioned it under SARFAESI to recover dues on a "as is where is, as is what is and whatever there is" basis . Tarun International Ltd.(TI) emerged the successful auction purchaser.

RP approaches NCLT to determine who'd pay liabilities of Workmen and Employees. NCLT rules Tarun International Ltd.(TI) would be liable for dues as the purchase was on a AIWI basis.

NCLAT upholds NCLT's decision citing that the Auction notice had clarified this. Further, Tarun International Ltd.(TI) was aware of potential liabilities.

 

Excerpts of the order;

On an application being IA No.32/60/JPR/2018 filed in CP No.(IB)- 35(ND)/2018, TA No.118/2018 filed by the Resolution Professional, the Adjudicating Authority (National Company Law Tribunal), Jaipur Bench, in terms of impugned order dated 1st October, 2019 passed a slew of directions saddling the Appellant with liability to bear all the claims of Respondent No.2- ‘Rastriya Anil Steel Majdoor Sangh’ and Respondent No.5 - Mr. Rajendra Company Appeal (AT) (Insolvency) No. 1194 of 2019 Sharma with allied and ancillary directions after recording a finding that Respondent No.3- Allahabad Bank had made it very clear to the Appellant to acquire the Unit No.1 of the Corporate Debtor on ‘as is where is basis, as is what is basis, whatever there is basis’ which implied that it shall also acquire all the liabilities thereon. Feeling aggrieved, the Appellant has assailed the impugned order through the medium of instant appeal on grounds set out in the memo of appeal to which we shall be adverting to as we proceed further.

# 4. Learned counsel for Appellant laid emphasis on the fact that the Adjudicating Authority had no jurisdiction as it could not pass orders in relation to prior transactions except in so far provided under Sections 44-45 of the ‘I&B Code’. It is contended that the impugned order is without jurisdiction and after issuance of Sale Certificate and delivery of possession to Appellant auction purchaser the property in question no longer remained the property of the Corporate Debtor. It is further submitted that the terms and conditions of the sale of the property clearly stated that the purchaser would receive the property free from all encumbrances. It is further submitted that the Appellant acquired only the property and not the company, therefore, the liability of the Corporate Debtor has been wrongly fastened upon the Appellant.

# 7. The sole issue for consideration in this appeal is whether the liability in respect of the workers and employees and other liabilities pertaining to Unit No.1 of the Corporate Debtor sold under the Act, 2002 prior to commencement of CIRP are the liability of Corporate Debtor or the Appellant- auction purchaser.

# 13. It further emerges from record that the Appellant subsequently tried to resile from the terms and conditions of sale, obviously to wriggle out of the liabilities that it was liable to pay in terms of acceptance of offer purchase letter dated 21st December, 2017. This was sought to be done unilaterally on the pretext that in the event of Appellant having backed out, the EMD would have been forfeited. This explanation was neither realistic nor plausible. By proceeding to accept the offer purchase Appellant unconditionally accepted the terms of sale. Reliance placed by Appellant on the letters dated 30th December, 2017, 23rd January, 2018 and 29th January, 2019 that it was only informed of the liabilities, it being specifically stated that the same were not demanded by the Bank, would be of no consequence as such liabilities passed on to Appellant in terms of the acceptance of offer purchase and sale letter with no demand put up by the Bank for its recovery from Appellant- auction purchaser. In the face of bulk of evidence staring in the face of the Appellant assigning the liabilities to it, the Appellant could not be permitted to unilaterally back out of such liability. With express stipulation in auction notice and all relevant documents connected with auction and sale proceedings under the Act, 2002, it cannot be said that this being a sale in auction proceedings under the Act, 2002, the auction purchaser would not be saddled with the liabilities of Corporate Debtor as only assets had passed on to it and not the liabilities of the Corporate Debtor which was faced with the prospect of triggering of CIRP, regard being had to demand notice served upon it under Section 8 of the ‘I&B Code’ prior to issuance of sale certificate. Therefore, stipulation in the Sale Certificate that the sale was free from encumbrances is irrelevant when the information in regard to encumbrances known to the creditor was shared with the Appellant through the correspondences referred to hereinabove and such encumbrances were yet to be discharged.

# 14. Dealing with the aspect of public auction incorporating a condition in the nature of ‘as is where is’, the Hon’ble Apex Court in “Punjab Urban Planning and Development Authority & Ors. vs. Raghu Nath Gupta and Ors.- Reported in (2012) 8 SCC 197” observed as under:-

• “17. We are of the view that the judgment in Amarjeet Singh (supra) is a complete answer to the various contentions raised by the respondents. We may reiterate that after having accepted the offer of the commercial plots in a public auction with a super imposed condition i.e. on “as is where is” basis and after having accepted the terms and conditions of the allotment letter, including installment facility for payment, respondents cannot say that they are not bound by the terms and conditions of the auction notice, as well as that of the allotment letter. On facts also, we have found that there was no inordinate delay on the part of PUDA in providing those facilities.” 

# 15. This is a complete answer to refute the issue raised by Appellant that it cannot be saddled with liability towards workman and employees as also other liabilities pertaining to Corporate Debtor.

# 16. In “Maharashtra State Co-operative Bank Ltd. v. Babulal Lade- CA No. 232 of 2016 decided on 04.12.2019”, it was observed by the Hon’ble Apex Court that the sale under the Act, 2002 is to be governed by the terms of the sale.

# 17. Mentioning that it was free from encumbrances would be inconsequential as long as the liabilities known to the Allahabad Bank and brought to the notice of the auction purchaser remain undischarged. There is considerable force in the contention raised by Respondent No.4 that dues of EPF are an encumbrance on the establishment and become first charge thereupon within the purview of Section 11(2) of the Employee’s Provident Funds and Miscellaneous Provisions Act, 1952. Though the sale in auction proceedings was limited to Unit No.1 while the Corporate Debtor owned two units, mere fact of common ownership of two units by the Corporate Debtor would not make it one establishment. The two units were separate and independent units treated so by EPFO with separate registration numbers allotted to these units. Therefore, EPFO dues over Unit No.1 which was the subject of auction or sale under the Act, 2002 were the first charge over the unit only and the sale proceeds thereof could not be utilised by the Allahabad Bank without discharging the same. We are told that the Allahabad Bank has not joined the issue in regard to this position and even made a part payment of about Rs.17.51 lakhs as reflected at Page 456 of the appeal paper book.

# 18. Having dealt with the issue raised in this appeal in the context of material on record, respective contentions of parties, arguments advanced and the case law cited at the Bar, we are of the considered opinion that the Appellant auction purchaser had accepted the acquisition of Unit No.1 subject to condition of ‘as is where is basis, as is what is basis, whatever there is basis’ and being fully aware of the nature of liabilities passing on to it in consequence of such sale besides being aware of the issuance of demand notice by Respondent No.2- ‘Rashtriya Anil Steel Majdoor Sangh’, thus the liabilities said to have been acquired by the Appellant in terms of the impugned order cannot be held to be an erroneous conclusion warranting interference.

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Dissenting Judgement Per; V. P. Singh, Member (T) in the above case;

J U D G M E N T

I have gone through the detailed judgement authored by Hon'ble Acting Chairperson Justice B L Bhatt. Still, I cannot persuade myself to agree with the views expressed by Hon'ble Acting Chairperson Justice Bhatt; I would like to give my finding separately. 

The Appellant has preferred this Appeal against the Impugned Order dated 1 October 2019 passed in IA No. 32/60/JPR/2018 in CP No. (IB) 35 (ND)/2018 by the Adjudicating Authority/National Company Law Tribunal Jaipur Bench 2. By Order dated 1 October 2019, the Adjudicating Authority has issued directions on the Application filed by Resolution Professional fastening the liability on the Appellant Tarun International Ltd to bear all the claims of Respondent No. 2 'Rashtriya Anil Steel Mazdoor Sangh' and Respondent No.5, Mr Rajendra Sharma with a further clarification that the Corporate Debtor cannot be fastened with any of the liabilities of Unit-1 of Corporate Debtor which was sold under the SARFAESI Act. The parties in this Appeal are referred by their original status in the company Petition for the sake of convenience.

# 2. The brief facts of the case are as under;

The Appellant 'Tarun International Ltd' is a bona fide Auction Purchaser of immovable property comprising of industrial land along with the plant and machinery (the property) owned by 'Anil Special Steel Industries Limited', Corporate Debtor ("ASSIL"), from the time before the initiation of Corporate Insolvency Resolution Process ("CIRP") against corporate Debtor 'ASSIL'. The property was sold to the Appellant by Allahabad Bank, Respondent, No 3 under the provision of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), vide sale certificate (under Rule 9 (6) of Security Interest Enforcement) Rules 2002) dated 9 February 2018, which was duly registered  in the office of Sub Registrar, Jaipur on the same day. 

# 3. The corporate Debtor owned two units, and the Appellant is the auction purchaser of Unit-1 of ASSIL. After the Sale of Assets of Unit-1 of the Corporate Debtor 'Anil Special Steel Industries Limited' under the SARFAESI Act by secured Creditor Allahabad Bank, the Application filed under Section 9 of the Insolvency and Bankruptcy Code 2016 was admitted by Order dated 5 March 2018 passed by the Adjudicating Authority. During the CIRP of the Corporate Debtor, the IRP, Mr Brij Kishore Sharma, collated the claims and constituted the Committee of Creditors (in short, CoC). Later, on a resolution passed by the CoC, the Resolution Professional, Mr Vikram Bajaj, replaced the IRP Mr Brij Kishore Sharma vide Order dated 14 May 2018 passed by Adjudicating Authority.

# 4. During CIRP, the RP filed IA No. 32/60/J PR/2018 in CP. No. (IB) 35 (ND)/2018 before the Adjudicating Authority seeking the following relief: 

• "Allow the present application and determine as to whether liabilities pertaining to unit-1 which had been sold under SARFAESI prior to the insolvency commencement date are payable by the purchaser of unit -1, i.e. Tarun international Ltd or the same continued to be admissible against the corporate debtor."

# 6. The Appellant has not been connected with and has no right, interest or obligations concerning ASSIL either at present or from the time before purchasing the property. The Adjudicating Authority on an Application filed by the Resolution Professional (in short "RP") u/s 60 (5) (b) and (c) of the I&B Code 2016 vide Order dated 1 October 2019 has held that the Appellant is liable to pay workmen's dues and other charges on the property. The Appellant contends that such findings are without jurisdiction because;

• The Adjudicating Authority under the Code has jurisdiction only about triggering of proceedings under Part II of the Code. 

• Jurisdiction of the Adjudicating Authority in relation to prior transactions is limited to the extent as provided under section 44 and 45 of the Code.

# 14. The Adjudicating Authority by the impugned Order directed that;

• a. The Respondent Number 2 shall bear all the claims of the Respondent No. 1 and Respondent No. 5.

• b. In the event any money which has been deducted towards the statutory dues of EPF and is still lying with the corporate Debtor, the RP shall forthwith credit the same to the appropriate accounts of the concerned authority.

• c. For recovery of the claims of any statutory dues, it is open for the Respondent No 1 and 5 to proceed against the Respondent No. 2 and 3.

• d. So for, the Corporate Debtor is concerned it cannot be fastened with any of the liability of Unit number 1, which was sold under the SARFAESI Act, 2002 by the Respondent No. 3, except with regard to the statutory dues of EPF, in case if it is lying still with the corporate Debtor as stated before. 

• With these directions, IA number 32/60/J PR/2018 is disposed of."

# 15. Following issues arises for the determination of this Appeal;

• 1. Whether the Adjudicating Authority under the I&B Code 2016 has jurisdiction to determine a bona fide auction purchaser's liability under the SARFAESI Act's provision when the property had been sold, and sale certificate was issued before the commencement of CIRP of the Corporate Debtor?

• 2. Whether the Adjudicating Authority can decide the liabilities of a third party auction purchaser, which had no role in the Corporate Debtor's Resolution Process and did not fall under the ambit of avoidance transactions as outlined under Sec 44 &45, under Section 60 (5) of the Code?

• 3. Whether the Sale of only Part of the Assets of the Corporate Debtor under the SARFAESI Act can be considered the Sale of a Company (or Part thereof) as a going concern to make the purchaser liable for workmen's dues?

Issue No. 1 to 3;

# 20. Undisputedly, the Appellant is the auction purchaser of the immovable property comprising industrial land, plant and machinery of Unit-1 owned by Anil Special Steel Industries Limited/ ASSIL, i.e. Corporate Debtor. Before commencement of the Corporate Insolvency Resolution Process against ASSIL, the property was sold by Allahabad Bank under the SARFAESI Act's provisions, 2002. Given the default by ASSIL, notices were issued against ASSIL u/s13 (2) & 13(4) of the SARFAESI Act on 1 November 2017 and 15 November 2017, respectively and the Sale of the property was done on "as is where is the basis, as is the basis, whatever there is basis" with the stipulation that the property was free from encumbrances.

# 21. It is pertinent to mention that in Clause 20 of the sale notice (supra), it is stated that "to the best of knowledge and information of the authorised officer, there is no encumbrance on the properties other than mentioned above (if any). However, the intending bidders – should make their own independent inquiries regarding the encumbrances and claims/the rights/dues/affecting the property, prior to submitting their bid. The e-auction advertisement does not constitute and will not be deemed to constitute any commitment or any representation of the Bank. The authorised officer/secured creditor shall not be responsible in any way for any third-party claims/rights/dues other than mentioned above (if any)."

# 22. It is also important to mention that in the sale notice, in the column about the details of the secured creditor's encumbrances, no details of liabilities were mentioned. But it is only mentioned that "other liabilities (statutory/other dues, if any) of the property put under e-auction as mentioned in this notice will be borne by the prospective purchaser".

# 23. In compliance with the above-mentioned sale notice, the Appellant submitted its bid on 15 December 2017 along with the earnest money deposit of ₹ 2.74 crores for participating in E-auction. On 19 December 2017, Allahabad Bank informed the Appellant about the Income Tax Department's demand letter and about the Employees dues. Allahabad Bank, however, clarified that the claims/dues are yet to be crystallised by the Competent Authorities, and the sale certificate in favour of the highest bidder shall be issued after obtaining necessary orders /directions from the Competent Authority/Court/Tribunal.

# 25. However, the Bank conducted an e-auction on 20 December 2017, wherein the Appellant submitted the highest bid of ₹ 27,61,00,000. After that, on 21 December 2017, Allahabad Bank issued acceptance of the offer of purchase and informed that since claims/dues are yet to be crystallised by the Competent Authority/Court, the sale certificate will be issued after obtaining the necessary order/direction from the Competent Authority/Court/Tribunal. On 26 December 2017, in the Appellant's Reply to Allahabad bank's letter dated 21 December 2017, it is stated that the conditions regarding the auction, imposed after accepting the earnest money, are illegal and are not binding on the Appellant.

# 26. After that, on 30 December 2017, Allahabad Bank, in response to the Appellant's letter dated 26 December 2017, issued a letter to Appellant clarifying the position that its letter dated 21 December 2017 was to draw the attention concerning the various dues of ASSIL and not a demand of any amount by the Bank. This letter is annexed with the Appeal paper book on page number 421 (Relevant para 8 and 9). Further, on 9 February 2018 registered sale certificate about the property sold to the Appellant was issued. The sale Certificate shows that the property sold under the SARFAESI Act was free from all encumbrances. The relevant portion of the sale certificate (page 450 of Appeal paper book)is given below for ready reference;

• "In pursuance to Senior Civil Judge Court and Chief Metropolitan Magistrate, Jaipur Order Number Nearly Dated 8th Further 2018 we have on behalf of consortium of four banks, i.e. Allahabad bank (lender), Bank of Maharashtra, Indian Overseas Bank, State Bank of India handed over the possession to M/S Tarun international Ltd… of the schedule property listed below, free-form all encumbrances known to the secured creditors, on deposit of the money by the undersigned.

# 32. Therefore, in the instant case on 5 March 2018, when CIRP commenced against the Corporate Debtor ASSIL, the IRP was authorised to take over its assets. But the property, which was already sold/auctioned before initiation of the CIRP and Sale Certificate dated 9 February 2018, was finally issued in pursuance of the Order of the Senior Civil Judge Court and Chief Metropolitan Magistrate Court Jaipur, was not the property of the Corporate Debtor. The auction purchaser was a third party which had no concern with the Corporate Insolvency Resolution Process of the Corporate Debtor, ASSIL. Thus, the corporate Debtor's liability can't be fastened on the third party, which happens  to be a stranger to the CIRP of the Corporate Debtor and that too by exercising powers as an Adjudicating Authority u/s 60(5) of the I & B Code 2016.

# 33. It is contended by the Appellant that the property of the Corporate Debtor ASSIL was sold, and the sale process was completed before initiation of CIRP under the Code. Therefore, the Adjudicating Authority exercising powers under the I&B Code had no jurisdiction to pass an order to fasten the Corporate Debtors' liability on the Appellant.

# 35. The first provision to Section 13 of the SARFAESI Act provides that where the secured creditor of a company opts to realise security, he may retain the secured assets' sale proceeds after depositing the workmen's dues to Liquidator. The second proviso to Section 13 imposes a duty on the liquidator to intimate the secured creditor about the workmen's dues. In such cases where workmen's dues cannot be ascertained, the liquidator is obligated to intimate the estimated amount of workers dues to the secured creditor. In such a case, the secured creditor may retain the secured assets' sale proceeds after depositing the amount of such estimated dues with the liquidator. 4th proviso to Section 13 of SARFAESI Act imposes a duty on the secured creditor to give an undertaking to the liquidator to pay the balance of the workmen dues if any. Thus, it is clear that if a company is being wound up and the secured creditor of such a company opts to realise his security, then the secured creditor has authority to retain the secured assets' sale proceeds after depositing the workmen's dues.

# 36. In the instant case, Allahabad Bank is a secured creditor of ASSIL which has auctioned the secured assets of the Corporate Debtor. There is not an iota of doubt that the alleged auction sale was under SARFAESI Act. Therefore, the Adjudicating Authority/National Company Law Tribunal had no authority to fasten the Corporate Debtors liability on the auction purchaser. In the case where the Sale is made under the SARFAESI Act, then after completing the sale process and issuance of the Sale Certificate, the Adjudicating Authority had no authority to pass an order U/S 60(5) of the Code.

# 40. It is further argued that the Bank requested the auction purchaser to analyse the situation before bidding. The Allahabad Bank continued informing the receipt of the notice under Section 9 of the Code. Thus the said 'letter' became Part of the terms of Sale. Despite becoming aware of all the dues and the Sale's terms, the Appellant proceeded to participate in the auction held on 20 December 2017 and succeeded in being the sole bidder. It is further argued that a sale certificate was issued on 9 February 2018 stating that the property was "free from all encumbrances known to the secured creditor listed below". Therefore, Sale's notice and subsequent correspondence became the Sale's terms, and the liabilities formed Part of the Sale and are no longer admissible against the Corporate Debtor. Further, the dues of EPF are an encumbrance on the unit/establishment. Under section 11 (2) of The Employees Provident Fund Act, the dues of EPF are encumbrance on the establishment and becomes the first charge thereupon.

# 41. It is also pertinent to mention that in the instant case, the entire process of auction sale was completed before the commencement of the Corporate Insolvency Process against the Corporate Debtor ASSIL. Given the law laid down by the Hon'ble Supreme Court in Embassy property (supra), it is clear that Resolution Professional cannot short-circuit the process, to bring a claim before the NCLT taking advantage of Section 60 (5) of the Code.

# 42. Therefore in the light of the statutory scheme, as culled out from various provisions of the IBC 2016, it is clear that whenever the Corporate Debtor has to exercise a right that falls outside the purview of IBC 2016, especially in the realm of public law, they cannot, through the Resolution Professional, take a bypass and go before the NCLT for the enforcement of such a right. In the instant case if there was any grievance either against the Order of issuing notice under Section 13 (2) or against the Act of taking possession of the secured assets under Section 13 (4) or further in relation to the auction sale of the property of Unit -1 of the corporate Debtor the Audicating Authority did not have the jurisdiction under the SARFAESI Act to pass any order in this regard. Given the law laid down by the Hon'ble Supreme Court in the Embassy property case, the Resolution Professional was not authorised to move an application under Section 60 (5) of the Code.

# 43. Even otherwise, the property' land, plant and machinery has been sold to the Appellant free from all encumbrances. The Appellant had acquired only Part of the property/Assets of the Corporate Debtor and not the Company itself. Therefore, the liabilities of the Company ASSIL had been wrongly fastened upon the Appellant. 

# 44. Based on the above discussion, I hold that the Adjudicating Authority under the I&B Code 2016 had no jurisdiction to determine a bona fide auction purchaser's liability under the SARFAESI Act's provisions; the same has been purchased before the commencement of CIRP of the Corporate Debtor. 

# 45. I further hold that while exercising its power u/s 60(5) of the Code, the Adjudicating Authority has exceeded its jurisdiction in determining a third party's liabilities, which had no role in the Corporate Debtor's Insolvency Resolution Process.

# 46. I further hold that the Adjudicating Authority erroneously determined the Sale of assets, precisely land, plant and machinery of Unit-1 of the corporate debtor 'ASSIL' as the Sale of a Company as a going concern, thereby making the purchaser liable for workmen's dues.

# 47. Based on the above discussion, the Appeal deserves to be allowed by setting aside the impugned Order. However, the majority view authored by separate judgement brother Hon'ble Acting Chairperson Justice B.L. Bhatt shall prevail.

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Regional Provident Fund Commissioner-I, Ahmedabad Vs. Ramchandra D. Choudhary - Provident Fund and interest thereof in terms of the provisions of the ‘EPF & MP Act, 1952’ in Resolution Plan

NCLAT (19.12.2019) in Regional Provident Fund Commissioner-I, Ahmedabad  Vs. Ramchandra D. Choudhary [Company Appeal (AT) (Insolvency) Nos. 354, 364, 404 & 1001 of 2019] held that; - 

• However, as no provisions of the ‘Employees Provident Funds and Miscellaneous Provision Act, 1952’ is in conflict with any of the provisions of the ‘I&B Code’ and, on the other hand, in terms of Section  36 (4) (iii), the ‘provident fund’ and the ‘gratuity fund’ are not the assets of the ‘Corporate Debtor’, there being specific provisions, the application of Section 238 of the ‘I&B Code’ does not arise.

• Therefore, we direct the ‘Successful Resolution Applicant’- 2nd Respondent (‘Kushal Limited’) to release full provident fund and interest thereof in terms of the provisions of the ‘Employees Provident Funds and Miscellaneous Provision Act, 1952’ immediately, as it does not include as an asset of the ‘Corporate Debtor’. The impugned order dated 27th February, 2019 approving the ‘Resolution Plan’ stands modified to the extent above. The appeal preferred by ‘Regional Provident Fund Commissioner’ is allowed with aforesaid observations and directions. No costs.

 

Excerpts of the order;

In the ‘Corporate Insolvency Resolution Process’ of ‘Rainbow Papers Limited’- (‘Corporate Debtor’), the ‘Resolution Professional’ filed application under Section 30(6) r/w Section 31 of the Insolvency and Bankruptcy Code, 2016 (“I&B Code” for short) seeking approval of the ‘Resolution Plan’ submitted by ‘Kushal Limited’.

# 2. In the said ‘Corporate Insolvency Resolution Process’, ‘Tourism Finance Corporation of India Limited’ (‘Financial Creditor’) moved Interlocutory Application No. 273 of 2018 alleging that the ‘Tourism Finance Corporation of India Limited’ (one of the Appellants herein) has been wrongly categorized as ‘Unsecured Financial Creditor’.

# 3. Another Interlocutory Application No. 337 of 2018 was filed by ‘Virag Enterprise’, an ‘Operational Creditor’ (Appellant herein) alleging wrong distribution and delayed payment shown in the ‘Resolution Plan’.

# 4. ‘Sales Tax Officer (1), Kadi, Dist. Mehsana, Gujarat’ (one of the Appellants) filed petition and prayed for payment of total dues of Rs.47,35,72,314/- towards Value Added Tax/ Central Sales Tax on the ground that the said ‘Sales Tax Department’ is a ‘Secured Creditor’.

# 5. The Adjudicating Authority (National Company Law Tribunal), Ahmedabad Bench, Ahmedabad, rejected the applications by reasoned order dated 27th February, 2019 and approved the ‘Resolution Plan’. 

# 6. The ‘Resolution Plan’ approved by impugned order dated 27th February, 2019 suggests part payment of ‘Provident Fund’. The ‘Regional Provident Fund Commissioner-I, Ahmedabad, challenged the same alleging the plan to the extent of ‘Provident Fund’, is violative of Section 30(2) (e) of the ‘I&B Code’.

Case of the Appellant- ‘Regional Provident Fund Commissioner-I,Ahmedabad’

# 40. According to Appellant- ‘Regional Provident Fund Commissioner’, ‘Successful Resolution Applicant’ is supposed to pay the total provident fund amount, but only a part of the amount has been allowed by the ‘Resolution Professional’.

# 41. It was submitted that the ‘Resolution Plan’ is against the provisions of Section 36(4) (iii) of the ‘I&B Code’ as per which the ‘provident fund’ and ‘gratuity fund’ cannot be included as assets of the ‘Corporate Debtor’.

# 42. An Affidavit has been filed by ‘Kushal Limited’- (‘Successful Resolution Applicant’) stating that the approved ‘Resolution Plan’ has duly taken care of all the statutory dues amounting to total Rs.5.09 crore. It was further submitted that the principal amount of ‘provident fund’ has been taken into consideration whereas the order of levying of interest by the ‘PF Authority’ post ‘Corporate Insolvency Resolution process’ is not permissible under the law for the time being in force.

# 43. Further, according to ‘Successful Resolution Applicant’, Section 7Q and 14B of the ‘Employees Provident Funds and MiscellaneousProvision Act, 1952’ cannot be relied upon as the provision of the ‘I&B Code’ has overriding effect on the same in terms of Section 238 of the

‘I&B Code’.

# 44. However, as no provisions of the ‘Employees Provident Funds and Miscellaneous Provision Act, 1952’ is in conflict with any of the provisions of the ‘I&B Code’ and, on the other hand, in terms of Section  36 (4) (iii), the ‘provident fund’ and the ‘gratuity fund’ are not the assets of the ‘Corporate Debtor’, there being specific provisions, the application of Section 238 of the ‘I&B Code’ does not arise.

# 45. Therefore, we direct the ‘Successful Resolution Applicant’- 2nd Respondent (‘Kushal Limited’) to release full provident fund and interest thereof in terms of the provisions of the ‘Employees Provident Funds and Miscellaneous Provision Act, 1952’ immediately, as it does not include as an asset of the ‘Corporate Debtor’. The impugned order dated 27th February, 2019 approving the ‘Resolution Plan’ stands modified to the extent above. The appeal preferred by ‘Regional Provident Fund Commissioner’ is allowed with aforesaid observations and directions. No costs.

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SUPREME COURT (2020.05.20) In Kushal Limited vs The Regional Provident Fund Commissioner and others (Civil Appeal No.1920 of 2020) ordered as under;

• “We find no ground to interfere with the impugned order passed by the Tribunal. The appeal is, accordingly, dismissed.

• Pending interlocutory application(s), if any, is/are disposed of.”

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Nitin Jain Liquidator PSL Limited Vs. Enforcement Directorate Through Raju Prasad Mahawar, Assistant Director PMLA - Attachment of property by ED during Liquidation process.

HC Delhi (17.03.2021) in Nitin Jain Liquidator PSL Limited Vs. Enforcement Directorate Through Raju Prasad Mahawar, Assistant Director PMLA. [W.P.(C) 3261/2021] held that; - 

• “ It is a well settled salutary principle that if a statute provides for a thing to be done in a particular manner, then it has to be done in that manner and in no other manner”.

• the liquidator shall proceed in accordance with the provisions of the Insolvency and Bankruptcy Code, 2016 (hereinafter, ‘IBC’). However, if any moveable/immovable assets are disposed of by the liquidator, the monetary sums recovered from the same shall be placed in a separate bank account and an affidavit stating the recovered amount shall also be placed before this Court. If any amounts are to be disbursed to any of the creditors, an application shall be moved before this Court seeking permission to disburse.

• The question as to whether the moveable/immovable assets of the Corporate Debtor and the sale thereof during the liquidation process would be permitted under Section 32A of the IBC, would require consideration by this Court.

Excerpts of the order;

# 2. The present petition has been preferred by the Petitioner, who has been appointed as the liquidator of M/s PSL Limited/Corporate Debtor (hereinafter, ‘Corporate Debtor’).

# 3. The Petitioner was initially appointed as the Resolution Professional on 30th August, 2019. After the Committee of Creditors proposed a liquidator, vide order dated 11th September, 2020, the NCLT passed orders directing liquidation of the Corporate Debtor. The process of liquidation was under way when the Petitioner received summons dated 15th January 2021, issued by the Directorate of Enforcement (hereinafter, ‘ED’). The said summons was, thereafter, followed up by an email dated 25th January, 2021, by which the Assistant Director (PMLA), Delhi Zonal Office, called upon the Petitioner not to dispose of the assets of the said company. The said email reads as under:-

• “Kind Attention to :-

Mr. Nitin Jain, Official Liquidator of M/s. PSL Limited.

It is stated that a case has been recorded under PMLA, 2002 against M/s. PSL Limited and Others. It has came to the notice of this office that you have been appointed as Official Liquidator of M/s PSL Limited and auctioning the assets of this company.

You are hereby requested to not disposed off these assets as the matter is pending under PMLA, 2002 which has overriding effect over IPC (sic IBC) and other laws governing such transactions.

Raju Prasad Mahawar

Assistant Director (PMLA)

Delhi Zonal Office.”

# 4. The Petitioner, therefore, prays for setting aside the said directions of the ED.

# 5. Mr. Kirti Uppal, ld. Sr. Counsel submits that there is no proceeding presently pending against the Corporate Debtor or any of its promoters. There is not even a provisional attachment order (hereinafter, ‘PAO’) at this stage. Accordingly, the said notice is completely untenable, especially in light of the recent decision of the ld. Supreme Court in Opto Circuit India Ltd. v. Axis Bank & Ors., 2021 SCC OnLine SC 55. Mr. Zoheb Hossain, ld. Standing Counsel, confirms the fact that there is no PAO at this point.

# 6. Recently, the ld. Supreme Court in Opto Circuit (supra), dealing with the scheme of the Prevention of Money Laundering Act, 2002 (hereinafter, ‘PMLA’) observed as under:-

• “16 This Court has time and again emphasised that if a statute provides for a thing to be done in a particular manner, then it has to be done in that manner alone and in no other manner. Among others, in a matter relating to the presentation of an Election Petition, as per the procedure prescribed under the Patna High Court Rules, this Court had an occasion to consider the Rules to find out as to what would be a valid presentation of an Election Petition in the case of Chandra Kishor Jha v. Mahavir Prasad (1999) 8 SCC 266 and in the course of consideration observed as hereunder:

- “ It is a well settled salutary principle that if a statute provides for a thing to be done in a particular manner, then it has to be done in that manner and in no other manner”.

• 17. Therefore, if the salutary principle is kept in perspective, in the instant case, though the Authorised Officer is vested with sufficient power; such power is circumscribed by a procedure laid down under the statute. As such the power is to be exercised in that manner alone, failing which it would fall foul of the requirement of complying due process under law. We have found fault with the Authorised Officer and declared the action bad only in so far as not following the legal requirement before and after freezing the account. This shall not be construed as an opinion expressed on the merit of the allegation or any other aspect relating to the matter and the action initiated against the appellant and its Directors which is a matter to be taken note in appropriate proceedings if at all any issue is raised by the aggrieved party.”

# 7. A perusal of the email issued by the ED clearly shows that the same is not on the basis of any proceedings initiated under Section 5 or 8 of the PMLA. The admitted position is that though investigation is going on, no PAO has been issued against the corporate debtor. Accordingly, the impugned e-mail and any other direction issued by the Respondent against the liquidator shall remain stayed. In order to maintain a balance and to ensure that there is no prejudice caused, the liquidator shall proceed in accordance with the provisions of the Insolvency and Bankruptcy Code, 2016 (hereinafter, ‘IBC’). However, if any moveable/immovable assets are disposed of by the liquidator, the monetary sums recovered from the same shall be placed in a separate bank account and an affidavit stating the recovered amount shall also be placed before this Court. If any amounts are to be disbursed to any of the creditors, an application shall be moved before this Court seeking permission to disburse.

# 8. The question as to whether the moveable/immovable assets of the Corporate Debtor and the sale thereof during the liquidation process would be permitted under Section 32A of the IBC, would require consideration by this Court.

# 9. Both parties are permitted to approach this Court if any further clarification is required.

# 10. Let the counter affidavit, along with a written note of arguments on the scheme of the IBC in respect of Section 32A and its applicability to the facts, be placed on record within four weeks, by both parties. Rejoinder, if any, be filed within four weeks thereafter.

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Sesh Nath Singh & Anr. Vs. Baidyabati Sheoraphuli Co-operative Bank Ltd. & Anr - Period of Proceedings under SARFAESI shall be excluded for calculating Limitation for Insolvency Application

 Supreme Court (22.03.2021) in Sesh Nath Singh & Anr. Vs. Baidyabati Sheoraphuli Co-operative Bank Ltd. & Anr.[Civil Appeal No. 9198 of 2019] held that; - 

• Section 238A of the IBC makes the provisions of the Limitation Act, as far as may be, applicable to proceedings before the NCLT and the NCLAT. The IBC does not exclude the application of Section 6 or 14 or 18 or any other provision of the Limitation Act to proceedings under the IBC in the NCLT/NCLAT. All the provisions of the Limitation Act are applicable to proceedings in the NCLT/NCLAT, to the extent feasible.

• We see no reason why Section 14 or 18 of the Limitation Act, 1963 should not apply to proceeding under Section 7 or Section 9 of the IBC.

• In our considered opinion, the judgment of the NCLAT in the case of Ishrat Ali is unsustainable in law. The proceedings under the SARFAESI Act, 2002 are undoubtedly civil proceedings.

• In our considered view, keeping in mind the scope and ambit of proceedings under the IBC before the NCLT/NCLAT, the expression ‘Court’ in Section 14(2) would be deemed to be any forum for a civil proceeding including any Tribunal or any forum under the SARFAESI Act.

 

Chronology of the events;

1. The Financial Creditor declared the account of the Corporate Debtor a Non Performing Asset (NPA) on 31st March 2013.

2. On or about 18th January 2014, the Financial Creditor issued notice to the Corporate Debtor under Section 13(2) of the SARFAESI Act, 2002

3. On 13th December 2014, the Financial Creditor issued a notice to the Corporate Debtor under Section 13(4)(a) of the SARFAESI Act, calling upon the Corporate Debtor to handover peaceful possession of the secured immovable assets as detailed in the schedule,

4. The  Authorized Officer of the Financial Creditor issued a notice dated 24th December 2014, notifying the Corporate Debtor, the guarantors and the public in general, that the Authorized Officer of the Financial Creditor had taken possession of the secured assets of the Corporate Debtor, as specified in the Schedule to the said notice, on 24th December 2014, under Section 13(4) of the SARFAESI Act.

5. On 11th May 2017, the District Magistrate Hooghly issued an order under the SARFAESI Act for possession by the Financial Creditor of the assets of the Corporate Debtor hypothecated to the Financial Creditor.

6. On or about 10th July 2018, the Financial Creditor filed an application in the Kolkata Bench of NCLT for initiation of the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor under Section 7 of the IBC.

7. By an order dated 25th April 2019, the Kolkata Bench of NCLT admitted the application filed by the Financial Creditor under Section 7 of IBC,

Excerpts of the order;

# 17. Being aggrieved by the order dated 25th April, 2019 passed by the Kolkata Bench of NCLT, the Corporate Debtor filed an appeal before the NCLAT under Section 61 of the IBC, contending that the application filed by the Financial Creditor should not have been entertained, the same being barred by limitation.

# 18. It was only in appeal before the NCLAT, that the Corporate Debtor, for the first time contended, that the account of the Corporate Debtor had been declared NPA on 31st March, 2013 whereas the application under Section 7 of IBC had been filed on 27th August, 2018, after almost five years and five months from the date of accrual of the cause of action, and was therefore barred by limitation.

# 20. The NCLAT examined the issue of limitation and held that the Respondent had bona fide, within the period of limitation, initiated proceedings against the Corporate Debtor under the SARFAESI Act and was thus entitled to exclusion of time under Section 14(2) of the Limitation Act. The NCLAT, after exclusion of the period of about three years and six months till the date of the interim order of the High Court, during which the Financial Creditor had been proceeding

under SARFAESI Act, found that the application of the Financial Creditor, under Section 7 of the IBC, was within limitation. The appeal was accordingly dismissed.

# 24. Mr. Dave argued that the judgment and order under appeal was contrary to the law as declared by a larger Bench of the NCLAT in Company Appeal (AT) (Insolvency) No. 1121 of 2019 titled Ishrat Ali v. Cosmos Cooperative Bank Limited and Anr. , where the NCLAT held that in an application under Section 7 of the IBC, the applicant is not entitled to the benefit of Section 14 of the Limitation Act, 1963 in respect of proceedings under the SARFAESI Act.

# 25. In the aforesaid case, the NCLAT held:-

• “21. An action taken by the 'Financial Creditor' under Section 13(2)or Section 13(4) of the 'SARFAESI Act, 2002' cannot be termed to be a civil proceeding before a Court of first instance or appeal or revision before an Appellate Court and the other forum. Therefore, action taken under Company Appeal (AT) (Insolvency) No. 1121 of 2019 Section 13(2) of the 'SARFAESI Act, 2002' cannot be counted for the purpose of exclusion of the period of limitation under Section 14(2) of the Limitation Act, 1963. In an application under Section 7 relief is sought for resolution of a 'Corporate Debtor' or liquidation on failure. It is not a money claim or suit. Therefore, no benefit can be given to any person under Section 14(2), till it is shown that the application under Section 7 was prosecuting with due diligence in a court of first instance or of appeal or revision which has no jurisdiction.

• 22. The decision rendered in "Sesh Nath Singh & Ors. v. Baidyabati Sheoraphuli Cooperative Bank Ltd." (Supra) thereby cannot be held to be a correct law laid down by the Bench. 

• 23. In the present case, the account of the 'Corporate Debtor' was classified as NPA on 30th March, 2014. Thereafter, on 6th December, 2014, Demand Notice under Section 13(2) of the 'SARFAESI Act, 2002' was issued by the Respondent- 'Cosmos Co-operative Bank Ltd.' The Bank also initiated Arbitration under Section 84 of the Multi-State Cooperative Societies Act on 4th December, 2015. The Bank had also taken possession of the movable assets under Section 13(4) of the 'SARFAESI Act, 2002' as back as on 16th January, 2017.

• 24. In the circumstances, instead of remitting the case to the Bench, we hold that application under Section 7 filed by the 'Cosmos Co- Company Appeal (AT) (Insolvency) No. 1121 of 2019 Operative Bank Limited' was barred by limitation. We, accordingly, set aside the impugned order dated 23rd September, 2019 passed by the Adjudicating Authority (National Company Law Tribunal), Mumbai Bench, Mumbai.”

# 30. Mr. Dave emphatically argued that the NCLT/NCLAT considering an application under Section 7 of the IBC, not being a forum for recovery of debt, Section 14 of the Limitation Act would not apply, as held by the larger Bench of NCLAT in Ishrat Ali’s case.

# 36. Section 6 of the IBC provides that, when any corporate debtor commits a default, a financial creditor, an operational creditor or the corporate debtor itself may initiate corporate insolvency resolution process in respect of such corporate debtor, in such manner as provided in Chapter II of the IBC. The sine qua non for initiation of the corporate insolvency resolution process is the occurrence of default.

# 52. There can be no dispute with the proposition that the period of limitation for making an application under Section 7 or 9 of the IBC is three years from the date of accrual of the right to sue, that is, the date of default. In Gaurav Hargovindbhai Dave v. Asset Reconstruction Company (India) Ltd. And Anr., this Court held:- 

• “6. …...The present case being “an application” which is filed under Section 7, would fall only within the residuary Article 137.”

# 57. The issues involved in this appeal are:-

• (i) Whether delay beyond three years in filing an application under Section 7 of IBC can be condoned, in the absence of an application for condonation of delay made by the applicant under Section 5 of the Limitation Act, 1963?

• (ii) Whether Section 14 of the Limitation Act, 1963 applies to applications under Section 7 of the IBC? If so, is the exclusion of time under Section 14 is available, only after the proceedings before the wrong forum terminate?

# 65. As observed above, Section 238A makes the provisions of the Limitation Act applicable to proceedings under the IBC before the Adjudicating authority and the Appellate Authority (NCLAT) ‘as far as may be’. Section 14(2) of the Limitation Act which provides for exclusion of time in computing the period of limitation in certain circumstances, provides as follows:

• “14. Exclusion of time of proceeding bona fide in court without jurisdiction. —

• (1) …..

• (2) In computing the period of limitation for any application, the time during which the applicant has been prosecuting with due diligence another civil proceeding, whether in a court of first instance or of appeal or revision, against the same party for the same relief shall be excluded, where such  proceeding is prosecuted in good faith in a court which, from defect of jurisdiction or other cause of a like nature, is unable to entertain it.”

# 67. As observed above, Section 238A of the IBC makes the provisions of the Limitation Act, as far as may be, applicable to proceedings before the NCLT and the NCLAT. The IBC does not exclude the application of Section 6 or 14 or 18 or any other provision of the Limitation Act to proceedings under the IBC in the NCLT/NCLAT. All the provisions of the Limitation Act are applicable to proceedings in the NCLT/NCLAT, to the extent feasible.

# 68. We see no reason why Section 14 or 18 of the Limitation Act, 1963 should not apply to proceeding under Section 7 or Section 9 of the IBC. . . . . .

# 75. There can be little doubt that Section 14 applies to an application under Section 7 of the IBC. At the cost of repetition, it is reiterated that the IBC does not exclude the operation of Section 14 of the IBC. The question is whether prior proceedings under the SARFAESI Act do not qualify for the exclusion of time under Section 14, inasmuch as they are not civil proceedings in a Court, as argued by Mr. Dave.

# 77. Section 14 of the Limitation Act is to be read as a whole. A conjoint and careful reading of Sub-Sections (1), (2) and (3) of Section 14 makes it clear that an applicant who has prosecuted another civil proceeding with due diligence, before a forum which is unable to entertain the same on account of defect of jurisdiction or any other cause of like nature, is entitled to exclusion of the time during which the applicant had been prosecuting such proceeding, in computing of limitation. The substantive provisions of Sub-sections (1), (2) and (3) of Section 14 do not say that Section 14 can only be invoked on termination of the earlier proceedings, prosecuted in good faith.

# 87. In our view, since the proceedings in the High Court were still pending on the date of filing of the application under Section 7 of the IBC in the NCLT, the entire period after the initiation of proceedings under the SARFAESI Act could be excluded. If the period from the date of institution of the proceedings under the SARFAESI Act till the date of filing of the application under Section 7 of the IBC in the NCLT is excluded, the application in the NCLT is well within the limitation of three years. Even if the period between the date of the notice under Section 13(2) and date of the interim order of the High Court staying the proceedings under the SARFAESI Act, on the prima facie ground of want of jurisdiction is excluded, the proceedings under Section 7 of IBC are still within limitation of three years.

# 96. In our considered opinion, the judgment of the NCLAT in the case of Ishrat Ali is unsustainable in law. The proceedings under the SARFAESI Act, 2002 are undoubtedly civil proceedings.

# 101. In our considered view, keeping in mind the scope and ambit of proceedings under the IBC before the NCLT/NCLAT, the expression ‘Court’ in Section 14(2) would be deemed to be any forum for a civil proceeding including any Tribunal or any forum under the SARFAESI Act.

# 102. In any case, Section 5 and Section 14 of the Limitation Act are not mutually exclusive. Even in a case where Section 14 does not strictly apply, the principles of Section 14 can be invoked to grant relief to an applicant under Section 5 of the Limitation Act by purposively construing ‘sufficient cause’. It is well settled that omission to refer to the correct section of a statute does not vitiate an order. At the cost of repetition it is reiterated that delay can be condoned irrespective of whether there is any formal application, if there are sufficient materials on record disclosing sufficient cause for the delay.

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