The Hon’ble Supreme Court while setting aside the order of the NCLAT ruled that the properties purchased by the appellant in the auction could be excluded from the scope of the liquidation proceedings and should not be treated as liquidation assets under the IBC framework.
In the present case, where an operational creditor preferred a petition under Section 9 of the IBC with the NCLT, leading to the declaration of a moratorium and the initiation of the Corporate Insolvency Resolution Process (CIRP), a former director of the corporate debtor filed a notice of motion opposing a sale of the properties conducted in an auction under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). The NCLT issued an order declaring the issuance of the sale certificate and the transfer of the property as illegal, ruling that the property in question shall remain assets of the corporate debtor; determining that the sale was not finalized and instructed the liquidator to take possession of the properties in question.
An appeal was filed against this order of the adjudicating authority, but it was dismissed by a 2:1 majority decision.
Subsequently, an appeal was filed against the order of the NCLAT before the Supreme Court. Despite the former director and the liquidator initially contesting the auction-sale under the SARFAESI Act, their counsel conceded during the hearing before the Supreme Court that the auction was legitimate and concluded before the declaration of the moratorium; providing no ground for the Supreme Court to invalidate the auction purchase.
The Supreme Court further referred the decision in Esjaypee Impex (P) Ltd. v. Canara Bank, and held that under the mandate of the Registration Act, 1908, the authorised officer of the bank under the SARFAESI Act is only required to hand over the duly validated sale certificate to the auction purchaser and forward a copy to the registering authorities, for the conclusion of sale.
This decision underscores the legitimacy of transactions completed prior to the declaration of a moratorium and reinforces the validity of auction sales conducted under the SARFAESI Act. The Court's reliance on precedents and clear interpretation of the relevant legal provisions provided clarity and reaffirmed the rights of auction purchasers in similar circumstances.
Haldiram Incorporation (P) Ltd. v. Amrit Hatcheries (P) Ltd
Civil Appeal No. 1733 of 2022
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