Case: INDIAN OVERSEAS BANK Vs. 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 irregular. As such, on 13th 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 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 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 E-auction notice came to be issued on 27th September 2018 by the appellant Bank to recover the public money availed by the 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 to as the IBC) before the learned NCLT. In the first E-auction held on 6th 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 13th 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 28th December 2018.5. 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 8th March 2019. The request made by the auction purchasers was accepted by the appellant Bank on 29th 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 8th 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 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 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 8th March 2019. Upon receipt of the payment, the appellant Bank submitted its revised claim in Claim Form-C to the IRP on 11th 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 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 Appeal (AT) (Insolvency) No. 736 of 2020 before the learned NCLAT and the same was rejected by the impugned judgment dated 26th March 2021. Being aggrieved thereby, the present appeal.

Reasoning: 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.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 (2018) 1 SCC 407,  Principal Commissioner of Income Tax v. Monnet Ispat and Energy Limited (2018) 18 SCC 786  and Ghanashyam Mishra and Sons Private Limited through the Authorised Signatory v. Edelweiss Asset Reconstruction Company Limited through the Director and Others (2021) 9 SCC 657 .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 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 Sub-Registrar before whom the remaining part of the sale consideration was paid and thereafter, the document 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 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 2019 SCC OnLine SC 1059, 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 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, 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 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.