As per the case facts, the Indian Overseas Bank challenged a judgment by the National Company Law Appellate Tribunal (NCLAT) that dismissed its appeal against an order by the National ...
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REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 4750 OF 2021
INDIAN OVERSEAS BANK ...APPELLANT(S)
VERSUS
M/S RCM INFRASTRUCTURE LTD.
AND ANOTHER ...RESPONDENT(S)
J U D G M E N T
B.R. GAVAI, J.
1. This appeal challenges the judgment dated 26
th
March 2021 passed by the National Company Law Appellate
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 27
th
September 2018 by the appellant Bank to recover the
public money availed by the Corporate Debtor.
4. In the meantime, on 22
nd
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 27
th
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 13
th
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 28
th
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 29
th
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 8
th
March 2019. Upon receipt of the
5
payment, the appellant Bank submitted its revised claim in
Claim FormC to the IRP on 11
th
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 15
th
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 13
th
June 2016. Thereafter
on 18
th
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 29
th
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 7
th
February 2022, has ordered for
liquidation. It is submitted that a perusal of the said order
dated 7
th
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 Another
1
, B. Arvind Kumar v. Govt. of
India and Others
2
and Kaliaperumal v. Rajagopal and
Another
3
.
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 Another
4
.
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
Others
6
.
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 7
th
February 2022, the same has been
stayed by the learned NCLAT on 8
th
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 Another
7
, 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 Others
9
.
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
3
rd
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 Others
10
, 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 8
th
March 2019. Admittedly, this
date falls much after 3
rd
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 15
th
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
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