Indian Overseas Bank vs Rcm Infrastructure Ltd & Anr

[Arising out of Impugned Order dated 15th July, 2020 passed by the Adjudicating Authority/National Company Law Tribunal, Hyderabad Bench-I, Hyderabad in I.A. No. 832 of 2019 in C.P. (IB) No. 601/10/HDB/2018]

IN THE MATTER OF: Indian Overseas Bank, No. 8-2-120/117/F-1, First Floor, Punnaiah Plaza, Near Jubilee Hill, Check Post Road No. 2, Banjara Hills, ...Appellant/ Hyderabad- 500 034 Financial Creditor

Versus

1. M/S RCM Infrastructure Ltd., Through Mr. J. Manivannan, Resolution Professional, 8-2-622/5/A/2, Indira Chambers, 2nd Floor, Hyderabad- 500 034 ..Respondent No. 1

2. Koneru Subbiah Chowdry, H. No. 7-1-638/9, Plot No. 9, Model Colony, Sanjeev Reddy Nagar, Near ESI Hospital Hyderabad- 500 038 ..Respondent No. 2 Present: For Appellant : Ms. Mayuri Raghuvanshi and Ms. Akshat Singh, Mr. Vyom Raghuvanshi, Advocates For Respondents : Mr. J. Mani Vannan (RP), Advocate for Respondent No.1 Mr. Shrey Patnaik, Mr. Aditya Verma, Advocates for Respondent No. 2.

( 26th March, 2021)

Company Appeal (AT) (Insolvency) No. 736 of 2020 Page 1 of 26 KANTHI NARAHARI, MEMBER (TECHNICAL)

The present Appeal is filed against the Order dated 15th July, 2020

passed by the National Company Law Tribunal, Hyderabad Bench-1,

Hyderabad (Adjudicating Authority) in I.A. No. 832 of 2019 in C.P. (IB)

No. 601/10/HDB/2018, whereby the Hon'ble Adjudicating Authoritysets

aside the sale of the assets of the Corporate Debtor.

2. Aggrieved by the order passed by the learned Adjudicating

Authority, the Appellant - Financial Creditor filed the present appeal

praying this Bench to set aside the impugned order for the reasons as

stated hereunder:

BRIEF FACTS:

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

Company Appeal (AT)(Insolvency) No. 736 of 2020 Page 2 of 26 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

Company Appeal (AT)(Insolvency) No. 736 of 2020 Page 3 of 26 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.

9. The Respondents have filed a detailed Counter Affidavit to the

said I.A. and the Hon'ble Adjudicating Authority passed the Impugned

Order.

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

Company Appeal (AT)(Insolvency) No. 736 of 2020 Page 4 of 26 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.

Company Appeal (AT)(Insolvency) No. 736 of 2020 Page 5 of 26

13. Learned Counsel for the Appellant relied upon the judgment in

the matter of "B. Arvind Kumar Vs. Govt. of India and others"

reported in 2007(5) SCC 745. The Hon'ble Supreme Court held in

paragraph-12 and the relevant portion from paragraph -12 of the

judgment is reproduced:

...

"12. .... A sale certificate is issued to the purchaser

only when the sale become absolute. The sale

certificate is merely the evidence of such title. It is

well settled that when an 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. In this case, the sale

certificate itself was registered, though such a sale

certificate issued by a court or an officer authorised

by the court, does not require registration. Section

17(2)(xii) of the Registration Act, 1908 specifically

provides that a certificate of sale granted to any

purchaser of any property sold by a public auction

by a Civil or Revenue Officer does not fall under the

category of non-testamentary documents which

require registration under sub-section (b) and (c) of

Section 17(1) of the said Act. We therefor hold that

Company Appeal (AT)(Insolvency) No. 736 of 2020 Page 6 of 26 the High Court committed a serious error in holding

that the sale certificate did not convey any right, title

or interest to plaintiff's father for want of a registered

deed of transfer.

14. The Hon'ble Supreme Court in the above judgment had held

that the Sale Certificate is merely the evidence of such title and the

Auction Purchaser derives title on confirmation of sale in his favour

and a Sale Certificate is issued evidencing such sale and title and no

further deed of transfer from the Court is contemplated or required.

15. Further, the learned Counsel for the Appellant relied upon a

judgment of the Hon'ble Supreme Court in the matter of "Shakeena

and Another Vrs. Bank of India and Others" reported in 2019 SCC

OnLine SC 1059. At paragraph -32 of the judgment, the Hon'ble

Supreme Court held that the Appellants cannot be permitted to assail

the auction process on any other count. In view of the above facts, as

stated above, the learned Counsel prayed this Bench to allow the

Appeal.

16. Respondent No. 1, the IRP filed reply to this appeal and

submitted that the Hon'ble Adjudicating Authority admitted the

Application filed by the Corporate Debtor under Section 10 of IBC and

initiated CIRP by an order dated 03.01.2019 and appointed IRP. After

appointment of IRP, the Committee of Creditor (in short CoC) ratified

IRP as Resolution Professional (in sort RP). The Appellant Bank

Company Appeal (AT)(Insolvency) No. 736 of 2020 Page 7 of 26 submitted claim to the tune of Rs. 79,94,50,634/- on 21.01.2019 and

the said claim was duly admitted by the IRP and based on which CoC

has been constituted and the Appellant Bank's claim amount is

representing 39.83% of voting share in the CoC of the Corporate

Debtor. The claim Form of the Appellant was no reference with regard

to sale of assets of the Corporate Debtor or the Corporate Guarantor

prior to CIRP. Subsequently, the Appellant filed revised claim in Form-

C for an amount of Rs. 46,35,42,634/- on 11.03.2019 by disclosing

the fact that the collateral security provided by the Corporate Debtor

and Corporate Guarantor namely Ravi Crane and Movers were sold

and realised an amount of Rs. 24.69 Crores through e-Auction process

and thereby reducing total dues owed by the Corporate Debtor to the

Appellant. Learned Counsel for the RP submitted that the RP raised

objection with regard to the revised claim stating that during CIRP

period no security interest shall be realised by any of the Creditors and

if it is done so, then the impugned transaction shall be illegal and

nonest in the eye of law. He further submitted that the issue with

regard to realisation of security was discussed in the 2nd CoC meeting

held on 03.05.2019 wherein the representative of the Appellant Bank

stated that the sale process commenced prior to the date of CIRP and

the sale was completed and proceeds were received during CIRP. It is

further stated that since sale process was commenced prior to CIRP,

moratorium may not be applicable to this transaction. It is also stated

that in the records, still the name of the Corporate Debtor reflects in

Company Appeal (AT)(Insolvency) No. 736 of 2020 Page 8 of 26 all revenue records and informed the Appellant Bank that the property

belongs to the Corporate Debtor for all the purposes including

valuation under IBC. He requested the Bench to dismiss the Appeal.

17. The Respondent No. 2 - Corporate Applicant filed Reply to this

Appeal and submitted that the Respondent No. 2 was the former

Managing Director of the Corporate Debtor - M/s RCM Infrastructure

Limited. Learned Counsel for the Respondent submitted that Hon'ble

Adjudicating Authority has rightly set aside the purported sale by the

Appellant. He further submitted that the Corporate Applicant filed

Application under Section 10 of IBC before the Hon'ble Adjudicating

Authority and the Hon'ble Adjudicating Authority passed an order on

03.01.2019 admitting the Application commencing CIRP for the

Corporate Applicant and imposed moratorium as per Section 14 of

IBC. It is submitted that upon auction of the property of the Corporate

Debtor, the Appellant Bank received only 25% of the bid amount on

13.12.2018. Remaining 75% of the bid amount i.e., Rs. 24.69 Crores

was only received by the Appellant on 03.03.2019 i.e., after

commencement of moratorium in terms of Section 14 of IBC. It is

submitted that on the date of commencement of CIRP, the assets of

the Corporate Applicant stand in the name of Corporate Applicant and

the sale was not completed on the commencement of CIRP as such,

the property of the Corporate Applicant stands in the name of

Corporate Applicant as on the date of commencement of CIRP.

Therefore, the sale of assets of the Corporate Applicant was rightly set

Company Appeal (AT)(Insolvency) No. 736 of 2020 Page 9 of 26 aside by the Hon'ble Adjudicating Authority. Learned Counsel further

submitted that once moratorium was imposed under Section 14(1)(d)

of IBC, no transaction shall take place including any action under

SARFAESI Act, 2002. He further submitted that moratorium prohibits

actions for realising security interest under SARFAESI Act, 2002.

Learned Counsel further submitted that it can be said that the sale of

an asset is only complete after complete payment is made and the

certificate of sale is issued. However, in the present case the Appellant

Bank receives only 25% of the bid amount prior to CIRP and no sale

certificate was issued since the Appellant Bank did not receive the full

amount. Therefore, in view of moratorium, Appellant is prohibited

further transaction with regard to issue of sale certificate since the

asset belongs to Corporate Applicant. The Hon'ble Adjudicating

Authority rightly set aside the sale by order dated 15.07.2020 and he

prayed the Tribunal to dismiss the Appeal.

18. Learned Counsel for the Respondent No. 2 further submitted

that in terms of Section 52 of the Indian Contract Act, 1872 demands

that full payment is made and certificate of sale is issued for the sale

to be completed. As stated supra, in the present case, full payment

was not received before the commencement of CIRP/imposition of

moratorium.

19. Learned Counsel relied upon the judgement of the Hon'ble

Supreme Court in the matter of "Anand Rao Korada, Resolution

Company Appeal (AT)(Insolvency) No. 736 of 2020 Page 10 of 26 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

Company Appeal (AT)(Insolvency) No. 736 of 2020 Page 11 of 26 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

Company Appeal (AT)(Insolvency) No. 736 of 2020 Page 12 of 26 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?

23. An Application made by the Corporate Applicant praying the

Adjudicating Authority to set aside the security realized during CIRP

or in the alternative to cancel the impugned transaction. The Learned

Adjudicating Authority, after detailed discussion and after hearing all

the parties held that continuing the sale process against the Corporate

Applicant after commencement of CIRP is against the order of

Company Appeal (AT)(Insolvency) No. 736 of 2020 Page 13 of 26 moratorium. Accordingly, Hon'ble Adjudicating Authoritysets aside the

sale of the assets of the Corporate Applicant.

24. It is an admitted fact that the Respondent No. 2, erstwhile

Managing Director of the Corporate Debtor filed application under

Section 60(5) of IBC read with Rule 11 of the NCLT Rules 2016 before

the learned Adjudicating Authority. The grievance of the Appellant is

that the Respondent No. 2 cannot file an Application seeking direction

to set aside the sale of the assets for the reason that Respondent No.

2 was aware of the auction and if he is aggrieved by the auction, he

could have filed an Appeal by invoking the statutory provision under

the SARFAESI Act, 2002 instead of filing application before the learned

Adjudicating Authority. Further, it was also one of the contentions of

the Appellant that after commence of CIRP, imposition of moratorium

and appointment of IRP, IRP will be at the helm of the affairs of the

Corporate Debtor. There is no doubt and we affirm that the RP is duty

bound to preserve and protect the assets of the Corporate Debtor

under IBC and is also authorised to represent and act on behalf of the

Corporate Debtor under Section 25 of IBC and exercise right for the

benefit of the Corporate Debtor. However, the stand of the RP is that

they received a claim in Form-C on 21.01.2019 for an amount of Rs.

78,94,50,634/- and further received revised claim for an amount of

Rs. 46,35,42,634/. According to Respondent No. 2 herein, they have

not admitted the revised claim and they restricted the claim made by

the Appellant on 21.01.2019 and assigned the vote rights in the CoC

Company Appeal (AT)(Insolvency) No. 736 of 2020 Page 14 of 26 on the basis of said claim. It is also on record that they have not altered

the percentage of voting rights nor admitted the revised claim.

Therefore, it cannot be said that RP only to have filed the Application

before the Adjudicating Authority and not Corporate Applicant. We are

of the view that Respondent No. 2 herein being the aggrieved person

rightly filed Application before the Adjudicating Authority by invoking

Section 60(5) of IBC.

25. Other contention of the Appellant is that the sale of the assets

of the Corporate Applicant sold through e-auction on 12.12.2019 and

the sale was confirmed on 13.12.2018 and 25% of the sale proceeds

was paid by the Auction Purchaser. Therefore, the sale was initiated

and was in continuation prior to commencement of CIRP i.e., on

03.01.2019. We are of the view that mere receiving of 25% of the sale

proceeds does not conclude the sale unless the full amount is paid

prior to imposition of moratorium. It is on record that balance 75% of

the amount was paid on 08.03.2019 i.e., after imposition of

moratorium. Further, it is on record that assets are still in the name

of the Corporate Debtor in the revenue records. Therefore, it is evident

that as on the date of moratorium, the assets belong to the Corporate

Debtor. We are not inclined to accept the submission of the learned

Counsel for the Appellant that 25% of the sale proceeds were received

thereby the sale was confirmed prior to imposition of moratorium.

Admittedly, as on the date of commencement of CIRP, the sale was not

complete and the total sale price was not paid to the Auction

Company Appeal (AT)(Insolvency) No. 736 of 2020 Page 15 of 26 Purchaser. Further, it is also on record that the Appellant filed its total

claim before the IRP on 21.01.2019 after commencement of CIRP.

Thus, it explicitly shows that the sale was not concluded.

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

Company Appeal (AT)(Insolvency) No. 736 of 2020 Page 16 of 26 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

Company Appeal (AT)(Insolvency) No. 736 of 2020 Page 17 of 26 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. For beneficial reference, Section 14

of IBC is extracted hereunder:

14. Moratorium. -(1) Subject to provisions of sub-

sections (2) and (3), on the insolvency

commencement date, the Adjudicating Authority

shall by order declare moratorium for prohibiting all

of the following, namely: --

(a) 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;

(b) transferring, encumbering, alienating or

disposing of by the corporate debtor any of its assets

or any legal right or beneficial interest therein;

Company Appeal (AT)(Insolvency) No. 736 of 2020 Page 18 of 26

(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);

(d) the recovery of any property by an owner or

lessor where such property is occupied by or in the

possession of the corporate debtor."

...

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. The paragraph-11 of the Judgment of the

Hon'ble Apex Court in the matter of "Anand Rao Korada, Resolution

Professional Vs. Varsha Fabrics (P) Ltd. and Others" reported in

2019 SCC OnLine SC 1508 is reproduced hereunder:

...

"11. Section 238 gives an overriding effect to the

IBC over all other laws. The provisions of the IBC

vest exclusive jurisdiction on the NCLT and the

Company Appeal (AT)(Insolvency) No. 736 of 2020 Page 19 of 26 NCLAT to deal with all issues pertaining to the

insolvency process of a corporate debtor, and the

mode and manner of disposal of its assets. 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 therewith

contained in any other law for the time being in force

or any instrument having effect by virtue of any such

law.""

...

30. The Hon'ble Supreme Court in paragraph-10 of the

aforesaid judgment in - "Anand Rao Korada, Resolution

Professional Vs. Varsha Fabrics (P) Ltd. and Others" held

as under:

...

"10. Section 14 provides that on the insolvency

commencement date, the Adjudicating Authority

shall by order, declare a moratorium prohibiting the

institution of suits, or continuation of pending suits

or "proceedings" against the corporate debtor,

including execution of any judgment, decree, or

Company Appeal (AT)(Insolvency) No. 736 of 2020 Page 20 of 26 order in any court of law, tribunal, arbitration panel,

or any other authority."

..

31. The Hon'ble Supreme Court held that Section 14 IBC on the

insolvency commencement date, the Adjudicating Authority shall by

order, declare a moratorium prohibiting 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 any other authority.

Further, the Hon'ble Supreme held that Section 238 IBC give an

overriding effect to the IBC over all other laws.

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

Company Appeal (AT)(Insolvency) No. 736 of 2020 Page 21 of 26 "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 SURFAESI 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

Company Appeal (AT)(Insolvency) No. 736 of 2020 Page 22 of 26 inconsistent with any of the provisions of the 'I&B

Code.'"

...

34. From the above judgment of the Hon'ble Supreme Court it is

clear that when the Adjudicating Authority commences the CIRP

proceeding and imposes moratorium, no proceeding shall be continued

or commenced and not to carry out any auction of the assets of the

Corporate Debtor. Therefore, in the facts of the present case and upon

deliberating the issues as framed in paragraph 22 above, we hold that:

1) When the moratorium was imposed by the learned

Adjudicating Authority, receipt of the balance sale

consideration is illegal and the learned Adjudicating

Authority rightly set aside the sale transaction.

2) Further Section 238 of IBC, have overriding effect over

other laws as held by the Hon'ble Apex Court, and this

Tribunal in Encore Asset Reconstruction Company

Ltd.

35. Therefore, the stand of the Appellant that the Respondent No. 2

should have availed remedy under SARFAESI Act, 2002 is uncalled

for.

36. Further, the Hon'ble Supreme Court in the matter of "Duncans

Industries Limited Vs. A.J. Agrochem" reported in 2019(9) SCC 725

by referring to the judgment in the matter of "ArcelorMittal (India) Company Appeal (AT)(Insolvency) No. 736 of 2020 Page 23 of 26 Ltd. Vs. Satish Kumar Gupta" reported in (2019) 2 SCC 1 has held

as under:

...

28. It can thus be seen that the primary focus of

the legislation is to ensure revival and continuation

of the corporate debtor by protecting the corporate

debtor from its own management and from a

corporate death by liquidation. The Code is thus a

beneficial legislation which puts the corporate

debtor back on its facts, not being a mere recovery

legislation for creditors. The interests of the

corporate debtor have, therefore, been bifurcated

and separated from that of its promotors/those who

are in management. Thus, the resolution process is

not adversarial to the corporate debtor but, in fact,

protective of its interests. The moratorium imposed

by Section 14 is in the interest of the corporate

debtor, itself thereby preserving the assets of the

corporate debtor during the resolution process. The

timelines within which the resolution process is to

take place again protects the corporate debtor's

assets from further dilution, and also protects all its

creditors and workers by seeing that the resolution

process goes through as fast as possible so that

Company Appeal (AT)(Insolvency) No. 736 of 2020 Page 24 of 26 another management can, through its

entrepreneurial skills, resuscitate the corporate

debtor to achieve all these ends."

...

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.

38. In the present case, the sale was not completed and it is evident

that balance sale amount was received after imposition of moratorium.

Therefore, in the facts of the case, this judgment is not helpful to the

Appellant. Further the Appellant relied upon in the matter of

"Shakeena and Another Vrs. Bank of India and Others" reported

in 2019 SCC OnLine SC 1059, the Hon'ble Supreme Court held that

the Appellants cannot be permitted to assail the auction process on

any other count. Even this judgment is not helpful to the facts of the

present case.

Company Appeal (AT)(Insolvency) No. 736 of 2020 Page 25 of 26

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.

[Justice Jarat Kumar Jain] Member (Judicial)

[Mr. Kanthi Narahari] Member (Technical) NEW DELHI

Akc

Company Appeal (AT)(Insolvency) No. 736 of 2020 Page 26 of 26