Indian Overseas Bank vs M/S Rcm Infrastructure Ltd.

Tribunal, Principal Bench, New Delhi (hereinafter referred to

as “the NCLAT”) in Company Appeal (AT) (Insolvency) No. 736

of 2020, thereby dismissing the appeal filed by the present

appellant­Indian Overseas Bank, which was in turn filed

challenging the order dated 15 th July 2020 passed by the

National Company Law Tribunal, Hyderabad Bench­1,

Hyderabad (hereinafter referred to as “the NCLT”) in I.A.

1 No.832 of 2019 in C.P. (IB) No. 601/10/HDB/2018, vide

which the learned NCLT had allowed the application filed by

the respondent No.2 herein, former Managing Director of the

respondent No.1 herein­M/s RCM Infrastructure Ltd.

(hereinafter referred to as the "Corporate Debtor”) and set

aside the sale of the assets of the Corporate Debtor.

2. The facts in brief, giving rise to filing of the present

appeal, are as under:

The appellant Bank had extended certain credit

facilities to the Corporate Debtor. However, the Corporate

Debtor failed to repay the dues and the loan account of the

Corporate Debtor became irregular. As such, on 13 th June

2016, the loan account of the Corporate Debtor came to be

classified as “Non­Performing Asset” (NPA).

3. The appellant Bank issued a Demand Notice under

Section 13(2) of the Securitisation and Reconstruction of

Financial Assets and Enforcement of Security Interest Act,

2002 (hereinafter referred to as the “SARFAESI Act”), calling

upon the Corporate Debtor and its guarantors to repay the

outstanding amount due to the appellant Bank. Since the

2 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 (hereinafter referred to as

the “said Rules”). One of the said properties stood in the

name of Corporate Debtor and the other in the name of

Corporate Guarantor. An E­auction notice came to be issued

on 27th September 2018 by the appellant Bank to recover the

public money availed by the Corporate Debtor.

4. In the meantime, on 22nd October 2018, the

Corporate Debtor filed a petition being CP(IB) No.

601/10/HDB/2018 under Section 10 of the Insolvency and

Bankruptcy Code, 2016 (hereinafter referred to as “the IBC”)

before the learned NCLT. In the first E­auction held on 6 th

November 2018, no bids were received. As such, the second

E­auction notice came to be issued on 27th November 2018,

which was scheduled to be held on 12 th December 2018. In

3 the second E­auction, three persons became successful

bidders by offering jointly a price of Rs.32.92 crore for both

the secured assets. On 13th December 2018, the sale was

confirmed in favour of the successful bidders/auction

purchasers in the public auction. The successful bidders

deposited 25% of the bid amount, i.e., Rs.8.23 crore

including the Earnest Money Deposit of the said amount and

the appellant Bank issued a sale certificate to them. The

auction purchasers were directed to pay the balance 75% of

the bid amount within 15 days, i.e., prior to 28 th December

2018.

5. It appears that the auction purchasers, on 28th

December 2018, addressed a letter to the appellant Bank

seeking handing over of peaceful and vacant possession of

the secured assets and also prayed for extension of time to

pay the balance 75% of the bid amount till 8 th March 2019.

The request made by the auction purchasers was accepted

by the appellant Bank on 29th December 2018. It is the case

of the appellant Bank that in exercise of its powers under

Rule 9(4)(a) of the said Rules, it extended the period till 8 th

4 March 2019 for payment of the balance 75% of the bid

amount.

6. The learned NCLT, vide order dated 3 rd January

2019, admitted the petition filed by the ex­promoter of the

Corporate Debtor. As a result of the said order passed under

Section 10 of the IBC, the Corporate Insolvency Resolution

Process (hereinafter referred to as “the CIRP”) of the

Corporate Debtor commenced. A moratorium as provided

under Section 14 of the IBC was notified and an Interim

Resolution Professional (hereinafter referred to as “the IRP”)

was also appointed.

7. The appellant Bank on 21 st January 2019, filed its

claim in Claim Form­C with the IRP, upon it coming to know

about the admission of the insolvency petition filed by the

Corporate Debtor. According to the appellant Bank, since

the balance 75% of the bid amount was not yet received on

the said date, it was not excluded from the claim filed before

the IRP. During the pendency of the CIRP, the appellant

Bank accepted the balance 75% of the bid amount, i.e.,

Rs.24.69 crore on 8th March 2019. Upon receipt of the

5 payment, the appellant Bank submitted its revised claim in

Claim Form­C to the IRP on 11th March 2019. The appellant

Bank also intimated the IRP about the successful sale of the

said secured assets. The promoter of the Corporate Debtor,

i.e., respondent No.2 herein, thereafter filed an application

being I.A. No.832/2020 in the pending company petition

being CP(IB) No. 601/10/HDB/2018, thereby praying the

learned NCLT to set aside the security realization during the

CIRP period carried out by the appellant Bank or in the

alternative to cancel the impugned transaction. Vide order

dated 15th July 2020, the learned NCLT passed an order

thereby allowing the said application filed by the respondent

No.2 and setting aside the sale of the property owned by the

Corporate Debtor. Being aggrieved thereby, the appellant

Bank filed an appeal being Company Appeal (AT) (Insolvency)

No. 736 of 2020 before the learned NCLAT and the same was

rejected by the impugned judgment dated 26 th March 2021.

Being aggrieved thereby, the present appeal.

8. We have heard Shri Tushar Mehta, learned Solicitor

General appearing on behalf of the appellant Bank, Shri C.S.

6 Vidyanathan, learned Senior Counsel appearing on behalf of

the impleading applicants, i.e., the auction purchasers, Shri

K.V. Viswanathan, learned Senior Counsel appearing on

behalf of the respondent No.1 and Shri Aditya Verma,

learned counsel appearing on behalf of the respondent No.2.

9. Shri Tushar Mehta 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 is submitted that the loan account of the Corporate

Debtor was classified as “NPA” on 13th June 2016. Thereafter

on 18th April 2018, the appellant Bank issued a Demand

Notice under Section 13(2) of the SARFAESI Act. He

submitted that since the Corporate Debtor failed to make the

payment, a symbolic possession came to be undertaken by

the appellant Bank under Section 10 of the SARFAESI Act

and an E­auction notice was issued on 26 th September 2018.

He submitted that the said notice was challenged by the

Corporate Debtor by filing an application being SA No.

340/2018 before the learned Debt Recovery Tribunal­II,

7 Hyderabad (hereinafter referred to as “the DRT”). However,

no stay was granted by the DRT in the said application. It is

submitted that on the contrary, an order came to be passed

on 29th October 2018 by the learned DRT, whereby

confirmation of sale was stayed, subject to deposit of Rs.12

crore by the Corporate Debtor. The Corporate Debtor failed

to do so. After that, with mala fide intent, instead of making

payment, a petition came to be filed under Section 10 of the

IBC by the Corporate Debtor for the sole purpose of stalling

the sale. He further submitted that the second E­auction

notice was issued on 27 th November 2018, which resulted in

sale of the two properties.

10. Shri Mehta submitted that the order of the learned

NCLT, admitting the petition under Section 10 of the IBC,

came to be passed only on 3 rd January 2019, i.e., prior to

confirmation of sale. He submitted that it is thus clear that

the CIRP was initiated only to stall the SARFAESI

proceedings. It is submitted that though the issue with

regard to Section 65 of the IBC was subsequently raised by

the appellant Bank, neither the learned NCLT nor the learned

8 NCLAT had considered the same. It is submitted that the

mala fide intention of the IRP is clear inasmuch as since the

ex­promoters could not submit a credible plan, the learned

NCLT, vide order dated 7th February 2022, has ordered for

liquidation. It is submitted that a perusal of the said order

dated 7th February 2022 would reveal that the delay was

caused at the instance of the IRP, who has been seen to be

helping the ex­promoters.

11. Shri Mehta further 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. It is therefore

submitted that now, there is no bar on the appellant Bank to

realise its money.

12. Shri Mehta submitted that in view of the provision of

Section 54 of the IBC, the sale was complete after the

appellant Bank had received 25% of the bid amount and the

said was confirmed. He submitted that merely because a part

of the sale consideration was received subsequently, it could

9 not affect the sale. A reference in this respect is placed on

the judgments of this Court in the cases of Vidhyadhar v.

Manikrao and Another1, B. Arvind Kumar v. Govt. of

India and Others2 and Kaliaperumal v. Rajagopal and

Another3.

13. It is lastly submitted by Shri Mehta that Section

14(1)(c) of the IBC interdicts any action to foreclose, recover

or enforce any security interest including any action under

SARFAESI. However, it does not undo actions which have

already stood completed.

14. Shri Vaidyanathan, learned Senior Counsel also

supported the submissions of the learned Solicitor General

made on behalf of the appellant Bank. It is submitted that

the promoters of the Corporate Debtor have indulged into

forum shopping with the malicious intent and as such, the

learned NCLT ought not to have granted relief in their favour.

It is submitted that the applicants were bona fide purchasers

and put into possession and therefore should not be

1 (1999) 3 SCC 573 2 (2007) 5 SCC 745 3 (2009) 4 SCC 193

10 disturbed. It is submitted that the Corporate Debtor’s right

in respect of the mortgaged property is the right of

redemption under Section 60 of the Transfer of Property Act,

1882 (hereinafter referred to as “the TP Act”). It is submitted

that under Section 13(8) of the SARFAESI Act, as amended in

2016, the right of redemption is lost on issuance of public

notice of auction or tender.

15. Shri Vaidyanathan further submitted that the mala

fide intention of the Corporate Debtor and the IRP are glaring

inasmuch as the applicants were successful auction

purchasers and they were not added as party respondents in

the proceedings before the learned NCLT. Relying on

paragraph (21) of the Insolvency Law Committee Report,

2018, Shri Vaidyanathan submitted that the rights and

priorities of creditors established prior to insolvency under

commercial laws should be upheld to preserve the legitimate

expectations of creditors and encourage greater predictability

in commercial relationship.

16. Shri Viswanathan, learned Senior Counsel has

supported the impugned judgment passed by the learned

11 NCLAT as well as the order passed by the learned NCLT. He

submitted that the title of the secured assets cannot be

conveyed to the auction purchasers merely upon

confirmation of sale even before receiving full sale

consideration. He submitted that the title would be passed

over only after receipt of the full consideration and issuance

of sale certificate. The learned Senior Counsel submitted

that such contentions are totally contrary in view of various

provisions of the SARFAESI Act, the said Rules as well as

Sections 14(1)(c), 31(1) and 238 of the IBC. He submitted

that only after the transfer takes place under Rules 8 and 9

of the said Rules, the title would be passed over to the

auction purchasers. He relies on the judgment of this Court

in the case of Hindon Forge Private Limited and Another

v. State of Uttar Pradesh through District Magistrate,

Ghaziabad and Another4.

17. Shri Viswanathan further submitted that Section

13(8) of the SARFAESI Act itself provides a right of

redemption of secured assets to the owner/debtor. He relies

4 (2019) 2 SCC 198

12 on the judgment of this Court in the case of S. Karthik and

Others v. N. Subhash Chand Jain and Others 5 in support

of this proposition.

18. Shri Viswanathan submitted that upon approval of

the Resolution Plan (hereinafter referred to as “the RP”), in

view of Section 31(1) of the IBC, all the debts stand legally

resolved and the same is binding on all parties including the

Corporate Debtor, its employees, members, creditors, all

Govt. dues and the successful resolution applicant would be

entitled to start on a clean slate. The learned Senior Counsel

submitted that the Jural relationship of Creditor­Debtor

would get altered/severed under a new contract upon

approval of a new RP. It is submitted that as a consequence,

the security created under the old contract would stand

released by operation of law and the relationship would be

governed by the terms of the approved plan and the mortgage

created under the old contract would get

extinguished/novated. It is submitted that in any case, in

view of Section 238 of the IBC, the provisions contained

5 2020 SCC OnLine SC 787

13 therein will override all other laws for the time being in force

and the provisions of the IBC would also prevail over any

other instrument having effect by virtue of any other law. A

reliance in this respect is placed on the judgment of this

Court in the case of Anand Rao Korada, Resolution

Professional v. Varsha Fabrics Private Limited and

Others6.

19. Shri Viswanathan further submitted that the

continuation of any proceeding including the proceeding

under the SARFAESI Act is totally illegal in view of Section

14(1)(c) of the IBC. It is, therefore, submitted that the

continuation of any action under the SARFAESI Act by the

appellant Bank and the receipt of the balance sale

consideration was violative of Section 14(1)(c) of the IBC. He

submitted that the amount payable by the Corporate Debtor

to the other Financial Creditors is much more than the

amount received by the appellant Bank during the pendency

of the CIRP. He submitted that under the provisions of the

IBC, all the Financial Creditors would be entitled to a share

6 (2020) 14 SCC 198

14 in the amount received upon realization of the assets of the

Corporate Debtor and the appellant Bank cannot keep it in

entirety.

20. Shri Viswanathan submitted that the allegations

with regard to mala fide are made only in order to prejudice

the Court. It is submitted that in the petition filed under

Section 10 of the IBC, the Corporate Debtor has clearly

mentioned about declaration of NPA by both the appellant

Bank and Andhra Bank and also initiation of auction process

by both the Banks. He submitted that in any case, initiation

of the proceedings under the IBC for overall resolution of

debts of the Corporate Debtor cannot be labelled as a mala

fide attempt. He submitted that Section 65 of the IBC

expressly provides for the mechanism and the remedy for

addressing frivolous or malicious proceedings initiated under

the SARFAESI Act. However, the appellant Bank has chosen

not to take recourse to such proceedings. As such, the

allegations of mala fide cannot be heard.

21. Shri Verma, learned counsel also supported the

impugned judgment passed by the learned NCLAT as well as

15 the order passed by the learned NCLT and the submissions

made by Shri Viswanathan. It is submitted that the appellant

Bank has never challenged the order dated 3 rd 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.

22. It is further submitted by Shri Verma that as a

matter of fact, after the CIRP was initiated, the appellant

Bank itself has submitted its claim in Claim Form­C on 21 st

January 2019 for an amount of Rs.79.94 crore, which

included the full value of the assets. It is, therefore,

submitted that the appellant is estopped from contending

that the amount of Rs.8.23 crore cannot be included in the

amount available for CIRP.

23. For appreciating the rival submissions, it will be

apposite to refer to Section 14(1)(c) of the IBC:

“14. Moratorium.—(1) ……

(a) ……;

(b) …….;

16 (c) 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 Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002);

……….”

24. 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. It is clear that once the CIRP is commenced,

there is complete prohibition for any action to foreclose,

recover or enforce any security interest created by the

Corporate Debtor in respect of its property. 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.

25. It will also be relevant to refer to Section 238 of the

IBC:

17

“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.”

26. It could thus be seen that the provisions of the IBC

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.

27. 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. A

reference in this respect could be placed on the judgments of

this Court in the cases of Innoventive Industries Limited v.

ICICI Bank and Another7, Principal Commissioner of

Income Tax v. Monnet Ispat and Energy Limited 8 and

7 (2018) 1 SCC 407 8 (2018) 18 SCC 786

18 Ghanashyam Mishra and Sons Private Limited through

the Authorised Signatory v. Edelweiss Asset

Reconstruction Company Limited through the Director

and Others9.

28. It is the contention of the appellant Bank that the

sale in question was complete on its confirmation on 13 th

December 2018 and as such, the admission of the petition on

3rd January 2019 by the learned NCLT would not affect the

said sale. Relying on the provisions of Section 54 of the TP

Act, the learned Solicitor General submitted that merely

because a part of the payment was received subsequently

after initiation of CIRP, it will not deprive the appellant Bank

from receiving the said money in pursuance to the sale which

has already been completed. A reliance in this respect is

placed on various judgments of this Court.

29. Insofar as the judgment of this Court in the case of

Vidhyadhar (supra) is concerned, no doubt that it has been

held that even if the full price of the property has not been

paid, the transaction of the sale will take effect and the title 9 (2021) 9 SCC 657

19 would pass on that transaction. This Court has further held

that the real test is the intention of the parties. It has been

held that the parties must intend to transfer ownership of the

property and that they must also intend that the price would

be paid either in praesenti or in future. However, it is to be

noted that in the said case, the defendant No.2 had not only

executed the sale deed in favour of the plaintiff but had

presented it for registration, admitted its execution before the

Sub­Registrar before whom the remaining part of the sale

consideration was paid and thereafter, the document was

registered.

30. In the case of B. Arvind Kumar (supra), the

property in question was a suit property and was sold in a

public auction. The sale was confirmed by the District

Judge, Civil and Military Station, Bangalore. What has been

held by this Court is that when a property is sold by public

auction in pursuance of the order of the court and the bid is

accepted and the sale is confirmed by the court in favour of

the purchaser, the sale becomes absolute and the title vests

in the purchaser. It has been held that a sale certificate is

20 issued to the purchaser only when the sale becomes

absolute. It was held that when the auction purchaser

derives title on confirmation of sale in his favour and a sale

certificate is issued evidencing such sale and title, no further

deed of transfer from the court is contemplated or required.

Additionally, in the said case, the Court found that the sale

certificate itself was registered.

31. In the case of Kaliaperumal (supra) also, the sale

deed was registered on partial payment of consideration.

However, in spite of registration of the sale deed, in the facts

of the said case, the Court held that what was important is

the intention of the parties. It was held that normally the

ownership and the title of the property will pass to the

purchaser on registration of the sale deed with effect from the

date of execution of the sale deed. However, that was not an

invariable rule. What was paramount, was the intention of

the parties. In the facts of the said case, the Court held that

the parties intended that the ownership of the property would

be transferred to the appellant only after the receipt of the

entire sale consideration by the vendors as a condition

21 precedent. Upon interpretation of the sale deed, the Court

found that the title was intended to be passed only on the

payment of the balance consideration.

32. It is further to be noted that the present case arises

out of a statutory sale. The sale would be governed by Rules

8 and 9 of the said Rules. The sale would be complete only

when the auction purchaser makes the entire payment and

the authorised officer, exercising the power of sale, shall

issue a certificate of sale of the property in favour of the

purchaser in the Form given in Appendix V to the said Rules.

33. In the case of Shakeena and Another v. Bank of

India and Others10, which was a case arising out of

SARFAESI Act, this Court has held that the sale certificate

issued in favour of the respondent No.3 did not require

registration and that the sale process was complete on

issuance of the sale certificate. The same has been followed

by this Court in the case of S. Karthik (supra).

34. Undisputedly, in the present case, the balance

amount has been accepted by the appellant Bank on 8 th 10 2019 SCC OnLine SC 1059

22 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. As such, we

are unable to accept the argument on behalf of the appellant

Bank that the sale was complete upon receipt of the part

payment.

35. 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.

We are of the view that the appellant Bank could not have

continued the proceedings under the SARFAESI Act once the

CIRP was initiated and the moratorium was ordered.

36. Insofar as the contention of the appellant Bank that

the petition filed by the Corporate Debtor was mala fide is

concerned, we do not find any merit in the said contention.

All the details with regard to action taken by the appellant

23 Bank have been specifically mentioned in the petition filed by

the Corporate Debtor. Insofar as the contention with regard

to liquidation order being passed is concerned, the same is

already under challenge before the learned NCLAT. As such,

we need not make any observation with regard to the same.

37. 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 26 th

March 2021.

38. In the result, the present appeal is dismissed.

Pending application(s), if any, shall stand disposed of in the

above terms. No order as to costs.

……..….......................J. [L. NAGESWARA RAO]

…….........................J. [B.R. GAVAI]

NEW DELHI;

MAY 18, 2022.

24