Properties Auctioned Under SARFAESI Before IBC Moratorium aren’t Liquidation Assets for Insolvent Debtors | SC

Case Details: Haldiram Incorporation (P.) Ltd. v. Amrit Hatcheries (P.) Ltd. - [2024] 158 taxmann.com 110(SC) (06.12.2023)

Judiciary and Counsel Details

• • Aniruddha Bose & Vikram Nath, JJ.

Facts of the Case

In the instant case, the appellant was the purchaser in an auction sale of certain properties of a defaulting borrower. A sale certificate was issued under the provisions of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) in relation to the immovable properties in respect of which the auction sale was held i.e. two blocks of land situated in Howrah district in the State of West Bengal.

The auction sale took place in respect of properties mortgaged by the borrower for availing credit facilities. The latter had defaulted in repayment of the same. It is the case of the appellant that payment was completed by it on 16.08.2019.

An operational creditor filed a petition u/s 9 of the IBC before the Adjudicating Authority (NCLT) and consequently on 20.08.2019, a moratorium was declared, initiating the Corporate Insolvency Resolution Process (CIRP).

An erstwhile Director of the Corporate Debtor had taken out a notice of motion resisting the sale of the said properties. The NCLT, by an order passed on 25.02.2020 found the issue of sale certificate and handing over of the property to be illegal and hence held that the subject-property shall continue to be assets of the Corporate Debtor.

The NCLT had proceeded on the basis that sale was not concluded and while commencing the resolution process, directed the Liquidator to take possession of the subject-properties.The Punjab National Bank had appealed against the aforesaid order of the Adjudicating Authority, which was dismissed on 14.02.2022, by a 2:1 majority decision, with a technical member of the Appellate Tribunal taking a dissenting view.

Supreme Court Held

The Supreme Court observed that the Liquidator, 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 to demonstrate as to why the sale certificate should be declared illegal. All the three respondents have concurred at the time of hearing on the point that the sale stood concluded.The Supreme Court held that the properties in question cannot be treated as liquidation assets of the Corporate Debtor for the purpose of further steps to be taken in the liquidation proceeding. The impugned order was to be set aside and that would also render the order of the Adjudicating Authority invalid to the extent the two properties of the Corporate Debtor located in the district of Howrah are concerned.