IBC- Properties Sold In Auction Sale Before Declaration Of Moratorium Can't Be Treated As Liquidation Asset : Supreme Court

Recently, the Supreme Court (on December 06) observed that the properties of a defaulting borrower sold in an auction sale could not be treated as liquidation assets if the sale was concluded before the declaration of a moratorium under the Insolvency and Bankruptcy Code 2016.

While doing so, the Bench of Justices Aniruddha Bose and Vikram Nath set aside the order passed by the National Company Appellate Tribunal, Delhi (NCLAT).

The facts of the present case revolve around the insolvency of Amrit Hatcheries Pvt. Ltd., the present respondent. The Punjab National Bank had advanced various credit facilities to the respondent. In turn, the respondent had mortgaged two sets of properties to the bank. On default of payment, the properties in the Howrah district, West Bengal, were sold to the appellant via auction sale. While the appellant completed the payment on 16.08.2019, the Insolvency Process of the respondent was initiated on 20.08.2019. This also resulted in the declaration of a moratorium by the National Company Tribunal (NCLT).

The Tribunal found the issue of the sale certificate and handing over of the property illegal and hence held that the subject property should continue to be assets of the Corporate Debtor. The NCLT had proceeded on the basis that sale was not concluded. Thus, while commencing the resolution process, the Liquidator was directed to take possession of the subject properties. When challenged, the appellate tribunal dismissed the appeal. Against this backdrop, the matter approached the Top Court.

The Top Court relied on Esjaypee Impex Private Limited v. Assistant General Manager and Authorised Officer, Canara Bank (2021) 11 SCC 537. Therein, it was held that as per Section 17(2) (xii) read with Section 89(4) of the Registration Act, 1908 only required the authorised officer of the Bank under the SARFAESI Act to hand over the duly validated sale certificate to the auction-purchaser. Further, a copy will be forwarded to the registering authorities to be filed in Book I as per Section 89 of the Registration Act.

Hence, the Court noted that no case has been made to show that there is a default, per the concerned provisions, in giving the sale certificate.

“No reason was cited before us to demonstrate as to why the sale certificate would be held illegal. No case has been made out before us on behalf of the respondents about any defect or default in forwarding the sale certificate in terms of Section 89(4) of the Registration Act, 1908. On the other hand, all the three respondents have concurred at the time of hearing on the point that the sale stood concluded.”

Moreover, during the proceedings, counsel representing the erstwhile Director and Liquidator agreed that the auction sale concluded before the moratorium declaration. In view of the same, the Court held the properties cannot be treated as liquidation assets of the Corporate Debtor and allowed the appeal.

“As we have already indicated, the Liquidator (now representing the Corporate Debtor in liquidation), the erstwhile Director/Promoter of the Corporate Debtor as also the Bank does not dispute the factual position that the sale stood concluded before declaration of moratorium. No reason was cited before us to demonstrate as to why the sale certificate would be held illegal.”

Pertinently, in another tagged appeal, which the Bank preferred, a question of law was kept open. The same was as whether the subject immovable asset vests in the lender bank on the issue of a public auction notice under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. Since this question involved the interpretation of the 2002 Act as well as the Insolvency and Bankruptcy Code 2016, the Court impleaded the Union of India and listed the matter on January 10, 2024.

Case Status: HALDIRAM INCORPORATION PVT. LTD. vs. AMRIT HATCHERIES PVT. LTD., Diary No.- 6041 - 2022

Citation : 2023 LiveLaw (SC) 1029

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