Indian Overseas Bank v. M/S Rcm Infrastructure Ltd. and Another
B. R. GAVAI, J.
1. This appeal challenges the judgment dated 26 th March 2021
passed by the National Company Law Appellate Tribunal, Pri ncipal
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 appellant-Indian Overseas Bank, which was in turn
filed challenging the order dated 15th July 2020 passed by the National
Company Law Tribunal, Hyderabad Bench-1, Hyderabad (herei nafter
referred to as “the NCLT”) in I.A. 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 herein-M/s RCM Infrastructure Ltd. ( hereinafter
referred to as the “Corporate Debtor”) and set aside the s ale of the
assets of the Corporate Debtor.
INDIAN OVERSEAS BANK v. M/S RCM INFRASTRUCTURE
LTD. AND ANOTHER
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 irre gular.
As such, on 13 th June 2016, the loan account of the Corporate Debtor
came to be classified as “Non-Performing 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 re ferred to as
the “SARFAESI Act”), calling upon the Corporate Debt or and its
guarantors to repay the outstanding amount due to the appellant Bank.
Since the Corporate Debtor failed to comply with the Demand Notice
and repay the outstanding dues, the appellant Bank too k symbolic
possession of two secured assets mortgaged exclusively w ith it. The
same was done by the appellant Bank in exercise of powers confe rred
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 t he name of
Corporate Debtor and the other in the name of Corporate Guarantor. An
E-auction notice came to be issued on 27 th September 2018 by the
appellant Bank to recover the public money availed by th e 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 t o as
“the IBC”) before the learned NCLT. In the first E-au ction held on 6 th
November 2018, no bids were received. As such, the second E-auction
notice came to be issued on 27th November 2018, which was scheduled
to be held on 12th December 2018. In the second E-auction, 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. T he auction
purchasers were directed to pay the balance 75% of the bid amount
within 15 days, i.e., prior to 28th December 2018.
1095
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 accep ted 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 March 2019 for payment of the balance
75% of the bid amount.
6. The learned NCLT, vide order dated 3rd January 2019, admitted
the petition filed by the ex-promoter of the Corporate Debtor. As a result
of the said order passed under Section 10 of the IBC, the Corp orate
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 appoi nted.
7. The appellant Bank on 21st January 2019, filed its claim in Claim
Form-C 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 payment, the appellant Bank submitte d its
revised claim in Claim Form-C to the IRP on 11 th March 2019. The
appellant Bank also intimated the IRP about the successfu l 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 t he 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 App eal (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.
INDIAN OVERSEAS BANK v. M/S RCM INFRASTRUCTURE
LTD. AND ANOTHER [B. R. GAVAI, J.]
8. We have heard Shri Tushar Mehta, learned Solicitor Gener al
appearing on behalf of the appellant Bank, Shri C.S. 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 t he
voluntary insolvency proceedings under Section 10 of the IBC, by the
ex-promoter 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 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 E-auction notice was issued on 26th 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 Tribunal-II, 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 Debto r. 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 stalli ng the sale.
He further submitted that the second E-auction notice was is sued on
27th November 2018, which resulted in sale of the two properties.
10. Shri Mehta submitted that the order of the learned NC LT,
admitting the petition under Section 10 of the IBC, came to be p assed
only on 3rd 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 NCLAT had considered the same. It
is submitted that the mala fide intention of the IRP is clear inasmuch as
since the ex-promoters could not submit a credible plan, the lea rned
NCLT, vide order dated 7th February 2022, has ordered for liquidation. It
is submitted that a perusal of the said order dated 7 th February 2022
1097
would reveal that the delay was caused at the instance of the IRP, who
has been seen to be helping the ex-promoters.
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 appella nt 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 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
Others2 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 do es 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 disturbed. It is submitted that the
Corporate Debtor’s right in respect of the mortgaged pro perty 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 inasm uch as the
applicants were successful auction purchasers and they were not added
as party respondents in the proceedings before the learned NCLT. Relying
1 (1999) 3 SCC 573
2 (2007) 5 SCC 745
3 (2009) 4 SCC 193
INDIAN OVERSEAS BANK v. M/S RCM INFRASTRUCTURE
LTD. AND ANOTHER [B. R. GAVAI, J.]
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 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 conside ration. 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 vari ous
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 Magistrat e, 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 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 o f 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 Couns el
submitted that the Jural relationship of Creditor-Debtor 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
4 (2019) 2 SCC 198
5 2020 SCC OnLine SC 787
1099
old contract would get extinguished/novated. It is submitted that in any
case, in view of Section 238 of the IBC, the provisions contained 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 havi ng effect
by virtue of any other law. A reliance in this respect is p laced 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 Ac t 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 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 regar d
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 t he
appellant Bank and Andhra Bank and also initiation of auction process
by both the Banks. He submitted that in any case, init iation 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 mechani sm 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 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
6 (2020) 14 SCC 198
INDIAN OVERSEAS BANK v. M/S RCM INFRASTRUCTURE
LTD. AND ANOTHER [B. R. GAVAI, J.]
3rd 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 Form-C on 21st 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 t o
refer to Section 14(1)(c) of the IBC:
“14. Moratorium .—(1) ……
(a) ……;
(b) …….;
(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 secur ity interest
created by the Corporate Debtor in respect of its property including any
action under the SARFAESI Act. It is clear that onc e the CIRP is
commenced, there is complete prohibition for any action to for eclose,
recover or enforce any security interest created by the Corporate Debtor
in respect of its property. The words “including any action unde r 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:
“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 a ny
such law.”
1101
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 Ghanashyam Mishra and Sons Private
Limited through the Authorised Signatory v. Edelwei ss 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 sa le will
take effect and the title would pass on that transaction. This Court has
further held that the real test is the intention of the partie s. 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 th e
plaintiff but had presented it for registration, admitted its execution before
the Sub-Registrar before whom the remaining part of the sale
consideration was paid and thereafter, the document was registered.
7 (2018) 1 SCC 407
8 (2018) 18 SCC 786
9 (2021) 9 SCC 657
INDIAN OVERSEAS BANK v. M/S RCM INFRASTRUCTURE
LTD. AND ANOTHER [B. R. GAVAI, J.]
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 bi d 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 pur chaser. It has
been held that a sale certificate is issued to the purchaser only when the
sale becomes absolute. It was held that when the auction purc haser
derives title on confirmation of sale in his favour and a sale certificate is
issued evidencing such sale and title, no further deed of transfe r 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, i n 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 wa s held that
normally the ownership and the title of the property will pass to the
purchaser on registration of the sale deed with effect fr om 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 th e 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 precedent.
Upon interpretation of the sale deed, the Court found that the tit le 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 ou t 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 prope rty 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
10 2019 SCC OnLine SC 1059
1103
did not require registration and that the sale process wa s complete on
issuance of the sale certificate. The same has been fol lowed by this
Court in the case of S. Karthik (supra).
34. Undisputedly, in the present case, the balance amount ha s
been accepted by the appellant Bank on 8th 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 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 CI RP
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, w e do not
find any merit in the said contention. All the details with regard to action
taken by the appellant Bank have been specifically mentio ned in the
petition filed by the Corporate Debtor. Insofar as the c ontention 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 interferi ng
with the concurrent orders passed by the learned NCLT dated 15th July
2020 and learned NCLAT dated 26th March 2021.
38. In the result, the present appeal is dismissed. Pending
application(s), if any, shall stand disposed of in the abov e terms. No
order as to costs.
Nidhi Jain Appeal dismissed
(Assisted by : Shashwat Jain, LCRA)
INDIAN OVERSEAS BANK v. M/S RCM INFRASTRUCTURE
LTD. AND ANOTHER [B. R. GAVAI, J.]