Encore Asset Reconstruction Company ... vs Charu Sandeep Desai & Ors

(Arising out of Order dated 11th October, 2018 passed by the Adjudicating Authority (National Company Law Tribunal), Mumbai Bench, Mumbai in IA 33 in C.P. (IB)-1554(MB)/2017)

IN THE MATTER OF:

Encore Asset Reconstruction Company Pvt. Ltd. ...Appellant

Vs.

Ms. Charu Sandeep Desai & Ors. ...Respondents

Present: For Appellant: - Mr. Sudhir K. Makkar, Senior Advocate with Mr. Amit Mahaliyan, Mr. Abhishek Chaudhary and Ms. Saumya Gupta, Advocates.

For Respondents:- Mr. Arun Kathpalia, Senior Advocate with Ms. Mahima Singh, Mr. Somasekar Sundaresan and Ms. Mohana Nyhawan, Advocates.

J U D G M E N T

SUDHANSU JYOTI MUKHOPADHAYA, J.

This appeal has been preferred by the Appellant against the order

dated 11th October, 2018 passed by the Adjudicating Authority (National

Company Law Tribunal), Mumbai Bench, Mumbai, in the matter of "State

Bank of India Vs. Calyx Chemicals & Pharmaceuticals Ltd.", whereby the

Adjudicating Authority directed the 'Dena Bank' to handover the

possession of the mortgaged property in question. 2

2. In the 'Corporate Insolvency Resolution Process' against 'Calyx

Chemicals & Pharmaceuticals Ltd.', 'Dena Bank' filed an application for

interim order to restrain the 'Interim Resolution Professional' from

demanding the custody of the property, as referred below:

"DESCRIPTION OF THE PROPERTIES MORTGAGED

Address of the Property/ 1. Gala No.2 on the Ground Flor of the Marwah's security Complex, Marwah Industrial Estate, Sake Vihar Road, Andheri- East, Mumbai- 400072

2. Gala No 110 on the First Floor of the building known as "Marwah Industrial Premises" situated at 4, Marwah Industrial Estate, Saki Vihar Road, Andheri- East, Mumbai- 400072 Property in the name of Calyx Chemicals and Pharmaceuticals Limited Nature of the Property Commercial Premises

3. The case of the 'Dena Bank' was that in the year 2011, the

'Corporate Debtor' availed a loan against a property under the Scheme

"Dena Mortgage Loan Scheme". As per the Scheme, a borrower has to

create a charge by way of exclusive mortgage of an unencumbered

property held in the name of borrower to be treated as a Security against

the loan.

4. The loan had become "Bad" hence declared as "Non-Performing

Asset" on 1st December, 2013. As a consequence, 'Dena Bank' initiated

proceedings under the "Securitisation and Reconstruction of Financial

Assets and Enforcement of Securities Interest Act, 2002" ("SARFAESI

Act, 2002" for short) to take physical possession under Section 13(4) of

the 'SARFAESI Act, 2002'. It is informed that the procedure for obtaining

physical possession was duly completed by issuing a Notice under

Section 13(2) of 'SARFAESI Act, 2002' and on lapse of 60 days, a notice

Company Appeal (AT) (Insolvency) No. 719 of 2018 3

under Section 13(4) of the said Act for taking over the possession.

Physical possession was taken over on 13th September, 2017, is an

undisputed fact.

5. It was pleaded that the 'Resolution Professional' was putting

pressure to hand over the physical possession back to him, although the

'Corporate Debtor' on whose behalf the 'Resolution Professional' is

commencing Insolvency Proceedings had already ceased to be the owner

of the said property having no physical control on the said property.

6. The 'Moratorium' had commenced on admission of the case w.e.f.

6th February, 2018 pursuant to an application moved by the 'State Bank

of India' under Section 7 of the 'I&B Code'. It was in this background, it

was pleaded by 'Dena Bank' that physical possession was taken over

before the date of commencement of 'Moratorium'. Therefore, the

'Resolution Professional' should not have demanded for taking over the

possession of the said property.

7. 'Encore Asset Reconstruction Company Pvt. Ltd.' is an assignee of

the 'Dena Bank' which has been substituted during the pendency of the

appeal.

8. Learned counsel for the Appellant submitted that in the light of the

decision of the Hon'ble Supreme Court in "M/s. Transcore v. Union of

India & Anr.─ (2008) 1 SCC 125", the Appellant has taken decision of

the said secured assets title etc. which stood vested in the Bank.

Company Appeal (AT) (Insolvency) No. 719 of 2018 4

9. The stand of the 'Resolution Professional' is that the Bank cannot

be an owner and the 'Corporate Debtor' continued to be the owner of the

property. Reliance has been placed on Section 14 of the 'I&B Code'.

10. We have heard learned counsel for the parties and perused the

record.

11. Section 18 of the 'I&B Code' deals with 'Duties of Interim Resolution

Professional'. As per which, it is the duty of the 'Interim Resolution

Professional' to take over the control and custody of any assets over which

the 'Corporate Debtor' has 'ownership rights' as recorded in the balance

sheet of the 'Corporate Debtor' which includes the assets that may or may

not be in possession of the 'Corporate Debtor' as apparent from clause (f)

(ii) of Section 18, relevant portion of which reads as follows:

"18. Duties of interim resolution professional.--

The interim resolution professional shall perform

the following duties, namely:--

(a) collect all information relating to the assets,

finances and operations of the corporate debtor for

determining the financial position of the corporate

debtor, including information relating to--

(i) business operations for the previous two

years;

Company Appeal (AT) (Insolvency) No. 719 of 2018 5

(ii) financial and operational payments for

the previous two years;

(iii) list of assets and liabilities as on the

initiation date; and

(iv) such other matters as may be specified;

(b) receive and collate all the claims submitted by

creditors to him, pursuant to the public

announcement made under sections 13 and 15;

(c) constitute a committee of creditors;

(d) monitor the assets of the corporate debtor and

manage its operations until a resolution

professional is appointed by the committee of

creditors;

(e) file information collected with the information

utility, if necessary; and

(f) take control and custody of any asset over which

the corporate debtor has ownership rights as

recorded in the balance sheet of the corporate

debtor, or with information utility or the depository

of securities or any other registry that records the

ownership of assets including--

(i) assets over which the corporate debtor has

ownership rights which may be located in a

foreign country;

Company Appeal (AT) (Insolvency) No. 719 of 2018 6

(ii) assets that may or may not be in possession

of the corporate debtor;

(iii) tangible assets, whether movable or

immovable;

(iv) intangible assets including intellectual

property;

(v) securities including shares held in any

subsidiary of the corporate debtor, financial

instruments, insurance policies;

(vi) assets subject to the determination of

ownership by a court or authority;

(g) to perform such other duties as may be specified

by the Board.

Explanation.--For the purposes of this sub-section,

the term "assets" shall not include the following,

namely:--

(a) assets owned by a third party in possession

of the corporate debtor held under trust or under

contractual arrangements including bailment;

(b) assets of any Indian or foreign subsidiary of

the corporate debtor; and

(c) such other assets as may be notified by the

Central Government in consultation with any

financial sector regulator."

Company Appeal (AT) (Insolvency) No. 719 of 2018 7

12. From the explanation below Section 18, it is clear that the term

"assets" do not include the assets owned by a third party in possession

of the 'Corporate Debtor'.

13. It is not the case of the Appellant that the title of the assets has

already been transferred or they have sold the assets in terms of Section

13(4) of the 'SARFAESI Act, 2002'. It is also not the case of the Appellant

that the assets owned by a third party is in possession of the 'Corporate

Debtor' in terms of Section 18, as it is the duty of the 'Interim Resolution

Professional' to take control and custody of any asset over which the

'Corporate Debtor' has "ownership rights" as recorded in the balance

sheet of the 'Corporate Debtor'. Even if it is not in possession of the

'Corporate Debtor', a person who is in possession of the same, including

the 'Dena Bank' or 'Encore Asset Reconstruction Company Pvt. Ltd.' is

bound to hand over the same to the 'Resolution Professional', when title

still vests with 'Corporate Debtor'.

14. Decision in "M/s. Transcore v. Union of India & Anr." 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

reads as follows:

"238. Provisions of this Code to override other

laws.--The provisions of this Code shall have

effect, notwithstanding anything inconsistent

Company Appeal (AT) (Insolvency) No. 719 of 2018 8

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'.

16. In the aforesaid background, we hold that Section 18 of the 'I&B

Code' will prevail over Section 13(4) of the 'SARFAESI Act, 2002' and the

'Dena Bank' cannot retain the possession of the property in question of

which the 'Corporate Debtor' is the owner.

17. We find no merit in this appeal. It is accordingly dismissed. No

costs.

(Justice S.J. Mukhopadhaya) Chairperson

(Justice A.I.S. Cheema) Member(Judicial)

NEW DELHI 14th May, 2019

AR

Company Appeal (AT) (Insolvency) No. 719 of 2018