Indian Overseas Bank vs. RCM Infrastructure Ltd. and Ors. - (Supreme Court) (18 May 2022)

Proceedings under the SARFAESI Act cannot be continued against corporate debtor, once the CIRP is initiated and the moratorium is ordered

MANU/SC/0661/2022

Insolvency

Present appeal challenges the judgment passed by the National Company Law Appellate Tribunal, Principal Bench, New Delhi ( “the NCLAT”), thereby dismissing the appeal filed by the present Appellant-Indian Overseas Bank, which was in turn filed challenging the order passed by the NCLT, vide which the learned NCLT had allowed the application filed by the Respondent No.2, former Managing Director of the Respondent No.1 RCM Infrastructure Ltd. ("Corporate Debtor”) and set aside the sale of the assets of the Corporate Debtor.

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 Securitisation And Reconstruction Of Financial Assets And Enforcement Of Security Interest Act, 2002 (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.

It has been consistently held by this Court that, the Insolvency And Bankruptcy Code, 2016 (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.

Undisputedly, in the present case, the balance amount has 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 3rd January 2019, i.e., on which date CIRP commenced and moratorium was ordered. As such, present Court is unable to accept the argument on behalf of the Appellant Bank that the sale was complete upon receipt of the part payment.

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. The Appellant Bank could not have continued the proceedings under the SARFAESI Act, once the CIRP was initiated and the moratorium was ordered. No case is made out for interfering with the concurrent orders passed by the learned NCLT and learned NCLAT. Appeal dismissed.

Tags : SALE ASSETS CORPORATE DEBTOR