Indian Overseas Bank Vs RCM Infrastructure Ltd. & Anr. - SARFAESI Act 2002 being an existing law, Section 238 of IBC will prevail over any of the provisions of the SARFAESI Act 2002 if it is inconsistent with any of the provision of IBC.

NCLAT (26.05.2021) in Indian Overseas Bank  Vs RCM Infrastructure Ltd. & Anr. [Company Appeal (AT) (Insolvency) No. 736 of 2020] held that;

• SARFAESI Act 2002 being an existing law, Section 238 of IBC will prevail over any of the provisions of the SARFAESI Act 2002 if it is inconsistent with any of the provision of IBC.

• We are of the view that the sale of assets of the Corporate Applicant during moratorium is against the spirit of Section 14 of IBC. Accordingly, we do not find any infirmity in the order passed by the learned Adjudicating Authority.

Excerpts of the order;

# 3. Learned Counsel for the Appellant submitted that the Appellant- Bank extended certain credit facilities to the Corporate Debtor- Respondent No. 1 herein. However, the Corporate Debtor failed to repay the dues and the loan account of the Corporate Debtor became irregular and was classified as NPA on 13.06.2016 as per the RBI guidelines.

# 4. The Appellant issued a Demand Notice under Section 13(2) of the SARFAESI Act, 2002 on 12.01.2018 calling upon the Corporate Debtor and its guarantors to repay the outstanding amount due to the Appellant-Bank. Failing to repay the outstanding debt, the Appellant Bank was constrained to take possession of two Secured assets which were mortgaged exclusively with the Appellant Bank in exercise of powers under Section 13(4) of The Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (in short SARFAESI Act, 2002). Thereafter, e-auction Notice was issued on 27.09.2018 to auction the said property. However, auction failed as no bids were received. However, on 27.11.2018, second e auction notice was issued with reserve price of Rs. 16.34 crores each. Upon auction notice, three persons became successful bidders jointly by offering a price of Rs. 32.92 crores for both the secured assets. 

# 5. Learned Counsel for the Appellant further submitted that the sale was confirmed on 13.12.2018 in favour of the successful bidders in the public auction and the successful bidders deposited 25% of the bid amount i.e., Rs. 8.23 Crores with the Appellant Bank and the balance of 75% of the bid amount were asked to pay within 15 days thereafter.

# 6. While so, the Corporate Debtor herein filed an Application under Section 10 of the Insolvency and Bankruptcy Code, 2016 (in short IBC) before the Hon’ble Adjudicating Authority and the Hon’ble Adjudicating Authority admitted the Application on 03.01.2019 and Corporate Insolvency Resolution Process (in short CIRP) commenced declaring a moratorium under Section 14(1) of IBC and appointed Interim Resolution Professional (in short IRP). The Appellant Bank on 21.01.2019 filed its claim in Form-C with the IRP.

# 7. The Appellant Bank accepted balance payment of 75% of the bid amount on 08.03.2019 from the successful bidders. After receipt of balance 75% of the bid amount from the successful bidders, the Appellant Bank filed a revised claim in Form-C on 11.03.2019 to the IRP.

# 8. Learned Counsel for the Appellant submitted that the Respondent No. 1/Corporate Debtor filed an Application being I.A. No. 832 of 2019 in C.P. No. 601 of 2018 praying the Hon’ble Adjudicating Authority to set aside the security realised during the CIRP and sought an order to cancel the impugned transaction. 

# 10. Learned Counsel for the Appellant submitted that the Application filed by the Respondent/Corporate Debtor under Section 60(5) of IBC was indeed an attempt to redeem the property as the right of redemption stood extinguished as per Section 13(8) of the SARFAESI Act, 2002.

# 11. Learned Counsel for the Appellant submitted that the Hon’ble Adjudicating Authority failed to appreciate that the auction was conducted on 12.12.2018 and the sale was confirmed in favour of the Auction Purchaser on 13.12.2018 much prior to the commence of CIRP i.e. on 03.01.2019. He further submitted that once the property is sold in public auction and confirmed the sale in favour of the Purchaser, the sale becomes absolute and the title vests in the Purchaser. It is well settled that when an Auction Purchaser derives title on confirmation of sale in his favour and a sale certificate issued evidencing such sale and titled, no further deed of transfer is contemplated or required. Therefore, the sale has to stand completely on the date the sale certificate is issued in favour of Auction Purchaser. 

# 12. Learned Counsel for the Appellant further submitted that the Appellant Bank received 25% of the sale consideration on 13.12.2018 and the balance sale consideration and issuance of sale certificate was only in continuation of sale confirmed, vide their letter dated 13.12.2018 and the same cannot be hit by the moratorium period as sale stood confirmed before the Insolvency Petition. Having confirmed the sale, the Corporate Debtor had a remedy under Section 17 of the SARFAESI Act, 2002 to challenge the sale auction conducted on 12.12.2018. The Corporate Debtor/Respondent No. 1 without availing the remedy available under the SARFAESI Act, 2002, filed the Application before the Hon’ble Adjudicating Authority which is illegal. The Hon’ble Adjudicating Authority ought not to have considered the Application filed by the Corporate Debtor and the same ought not to have set aside.

# 19. Learned Counsel relied upon the judgement of the Hon’ble Supreme Court in the matter of “Anand Rao Korada, Resolution Professional Vs. Varsha Fabrics (P) Ltd. and Others” reported in 2019 SCC OnLine SC 1508. Hon’ble Supreme Court held that once moratorium has been declared by the NCLT on 04.06.2019, the High Court was not justified in passing the orders dated 14.08.2019 and 05.09.2019 for carrying out auction of the assets of the Respondent No. 4 Company i.e., Corporate Debtor before the NCLT. The relevant paragraphs are 13,14 & 15. Further, the Hon’ble Supreme Court held at paragraph-15 that if the assets of the Respondent No. 4 Company are alienated during the pendency of the proceeding under IBC, it will seriously jeopardise the interest of the stakeholders. The relevant paragraphs are extracted hereunder…

• “13. In view of the provisions of the IBC, the High Court ought not have proceeded with the auction of the property of the Corporate Debtor –Respondent No. 4 herein, once the proceedings under the IBC had commenced, and in Order declaring moratorium was passed by the NCLT. The High Court passed the impugned Interim Orders dated 14.08.2019 and 05.09.2019 after the CIRP had commenced in this case.

• 14. The moratorium having been declared by the NCLT on 04.06.2019, the High Court was not justified in passed the Orders dated 14.08.2019 and 05.09.2019 for carrying out auction of the assets of the Respondent No. 4-Company i.e. the Corporate Debtor before the NCLT. The subject matter of the auction proceedings before the High Court is a vast chunk of land admeasuring about 330 acres, including Railway lines and buildings.

• 15. If the assets of the Respondent No. 4- Company are alienated during the pendency of the proceedings under the IBC, it will seriously jeopardise the interest of all stakeholders.”

..

# 20. Further, learned Counsel for the Respondent No. 2 relied upon the same judgment whereby the Hon’ble Supreme Court held that Section 238 of IBC has overriding effect over all other laws. Further, learned Counsel relied upon judgment of the Hon’ble Supreme Court in the matter of “Duncans Industries Limited Vs. A.J. Agrochem” reported in 2019(9) SCC 725. At paragraph-7.2, the Hon’ble Supreme Court held that IBC is a complete Code in itself. Further, the Hon’ble Supreme Court also referred to judgment of the Hon’ble Supreme Court in “Swiss Ribbons Pvt. Ltd & Anr. Vs. Union of India & Ors” reported in 2019(4) SCC 17 and also referred to the judgment in the matter of “Innoventive Industries Ltd. Vs. ICICI Bank & Anr.” reported in 2018(1) SCC 407. Hon’ble Supreme Court also referred to the judgement in the matter of “ArcelorMittal (India) Ltd. Vs. Satish Kumar Gupta” reported in (2019) 2 SCC 1.

# 21. Further, learned Counsel for the Respondent No. 2 relied upon judgment of this Tribunal in the matter of “Encore Asset Reconstruction Company Pvt. Ltd. Vs. Charu Sandeep Desai and Others” reported in 2019 SCC OnLine NCLAT 284. This Tribunal in paragraph -15 & 16 is of the view that SARFAESI Act 2002 being an existing law, Section 238 of IBC will prevail over any of the provisions of the SARFAESI Act 2002 if it is inconsistent with any of the provision of IBC.

# 22. Heard learned Counsel appearing for the respective parties. Perused the pleadings, documents and citations filed/relied upon by them. The issues felt for consideration is 

• (a) whether after imposition of moratorium any transaction done with respect to the assets of the Corporate Debtor/Corporate Applicant deemed to be valid or not,

• (b) whether provisions of IBC prevail over other laws?

# 26. Going back to the factual matrix of the case, the Corporate Applicant i.e., M/s RCM Infrastructure Ltd filed an Application invoking Section 10 of IBC before the Adjudicating Authority. The Appellant is arrayed as a party to the said proceeding. From the records it is evident that the Appellant filed Counter Affidavit to the Application and it is also on record that the Corporate Debtor availed financial facility and also stated that they have initiated proceeding under SARFAESI Act, 2002 and issued Demand Notice dated 17.01.2017 and also issued possession notice dated 18.04.2018 for Rs. 74,72,73,108/- and took symbolic possession of all the secured assets. From the order of the Adjudicating Authority dated 03.01.2019 it is evident that Appellant had opposed admission of Application.

# 27. After hearing respective parties, the Adjudicating Authority admitted the Application and imposed moratorium under Section 14 of IBC. In the order at paragraph-10, sub-paragraph-(1) it is clearly stated as under:

• “10. Hence, the Adjudicating Authority admits this Petition under Section 10 of IBC, 2016, declaring moratorium of the purposes referred to in Section 14 of the Code, with following directions:

• (1) The Bench hereby prohibits the institution of suits or continuation of pending suits or proceedings against the Corporate Debtor including execution of any judgment, decree or order in any court of law, Tribunal, arbitration panel or other authority; Transferring, encumbering, alienating or disposing of by the Corporate Debtor any of its assets or any legal right or beneficial interest there; any action to foreclose,  recover or enforce any security interest created by the Corporate Debtor in respect of its property including any action under Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002); the recovery of any property by any owner or lessor where such property is occupied by or in possession of the Corporate Debtor;

# 28. From the order it is clear that there is a prohibition with respect to the assets of Corporate Applicant including transfer, encumbered, alienating or disposing of by the Corporate Debtor any of its assets or any legal right or beneficial interest therein. Further, the order prohibits in respect of the Corporate Applicant’s property including any action under SARFAESI Act, 2002. Therefore, the Appellant is aware of the order and filed its claim in Form-C dated 21.01.2019 claiming an amount of Rs. 78,92,50,634/-. When the Appellant is having the knowledge of imposition of moratorium, the sale of assets of the Corporate Debtor cannot be proceeded and concluded and they strictly abide by Section 14 of IBC. . . . 

# 29. It is also on record that by filing revised claim in Form-C on 11.02.2019 before the RP by the Appellant, the Appellant clearly violates the order of moratorium. We are of the view that the Appellant Bank lost sight of the fact that IBC is a complete Code itself and Section 238 of IBC has overriding effect over all other laws including SARFAESI Act, 2002. . . . .

#  32. The Hon’ble Supreme Court at paragraph – 14 of the aforesaid judgement in - “Anand Rao Korada, Resolution Professional Vs. Varsha Fabrics (P) Ltd. and Others” clearly held that once the proceeding under IBC had commenced and an order declaring moratorium was passed by NCLT, on 04.06.2019, the High Court was not justified in passing the order dated 14.08.2019 and 05.09.2019 for carrying out auction of the assets of the Respondent i.e., Corporate Debtor before the NCLT.

# 33. We are of the view that imposition of moratorium as per Section 14 of IBC is to protect the interest of the Corporate Debtor by protecting the assets of the Corporate Debtor for the sole objective to maximisation the value of assets. This Tribunal in the matter of “Encore Asset Reconstruction Company Pvt. Ltd. Vs. Charu Sandeep Desai and Others” reported in 2019 SCC OnLine NCLAT 284 also held that Section 238 of IBC will prevail over any of the provisions of the SARFAESI Act, 2002 if it is inconsistent with any of the provisions of IBC. Paragraphs 12,14 & 15 of the said judgment is reproduced here at: 

• “12. From the explanation below Section 18, it is clear that the terms “assets” do not include the assets owned by a third party in possession of the ‘Corporate Debtor’.

• 14. Decision in “Transcore v. Union of India” was rendered in the year 2008 when the ‘I&B Code’ was not in existence. The ‘I&B Code came into force w.e.f. 1st December, 2016 and Section 238 read as follows:

• “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. 

• 15. ‘SARFAESI Act, 2002’ being an existing law, Section 238 of the ‘I&B Code’ will prevail over any of the provisions of the ‘SARFAESI Act, 2002’ if it is inconsistent with any of the provisions of the ‘I&B Code.’”

# 37. Learned Counsel for the Appellant relied upon the judgment of the Hon’ble Supreme Court in the matter of “B. Anand Kumar Vrs. Govt. of India and Others” reported in (2007)5 SCC 745 whereby the Hon’ble Supreme Court held that the sale certificate is merely the evidence of such title. Further, the Hon’ble Supreme Court held that it is a well settled that an Auction Purchaser derives title on confirmation in his favour and the sale certificate is issued evidencing such sale and title, no further deed of transfer from the Court is contemplated or required.

# 39. We are of the view that the Assets of the Corporate Debtor/Applicant forms part of valuation. Learned Adjudicating Authority has rightly set aside the sale of assets of the Corporate Applicant. We are of the view that the sale of assets of the Corporate Applicant during moratorium is against the spirit of Section 14 of IBC. Accordingly, we do not find any infirmity in the order passed by the learned Adjudicating Authority. The appeal is devoid of merit and liable to be dismissed. Accordingly, the appeal is dismissed. No orders as to cost.

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