Proceedings under the SARFAESI Act cannot continue once the CIRP is initiated and the moratorium is ordered- SC

Bench: Justices L Nageswara Rao and BR Gavai

Case: Indian Overseas Bank v. M/s RCM Infrastructure Limited and Another

Corporate Insolvency Resolution Process: CIRP

Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002: SARFAESI Act

The Apex Court, while referring to section 14(1)(c) of the Insolvency and Bankruptcy Code, 2016 (IBC) ruled that proceedings under the SARFAESI Act cannot continue once the CIRP is initiated. Given the same, the bench dismissed an appeal by Indian Overseas Bank (IOB) challenging the National Company Law Appellate Tribunal's decision.

FACTS:

IOB provides credit facilities to the respondent, the corporate debtor. The respondent failed to repay the dues, and hence, on June 13, 2016, it was eventually classified as a Non-Performing Asset (NPA). Consequently, IOB took symbolic possession of the two mortgaged assets of the respondent company and put them up for auction according to the SARFAESI Act. During the second e-auction, three persons became successful bidders by offering a price of ₹32.92 crores for both assets. In 2018, the sale was confirmed however, the auction process was still ongoing.

The respondent filed a petition before the NCLT at Hyderabad to initiate the CIRP. Section 14 of the IBC was notified, and an Interim Resolution Professional (IRP) was appointed. However, IOB claimed that it is excluded from the claim before the IRP as it has not received 75% of the amount from the successful bidders.

Subsequently, the respondent company urged the NCLT to set aside the security realization carried out by IOB during the CIRP. The NCLT allowed the same, aggrieved by the decision, the bank to approach the NCLAT in appeal. However, the same was rejected and therefore, moved to the Supreme Court.

HELD

The SC noted that the sale would be complete only when the purchaser makes the entire payment. In this case, the balance amount was accepted by IOB on March 8, 2019. But since this date falls after January 3, 2019 (the date of initiation of CIRP) the argument of the bank that the sale was complete upon receipt of the part payment, was rejected. 

IOB could not have continued the proceedings under the SARFAESI Act once the CIRP was initiated.