NCLT Hyderabad: Moratorium U/s 14 Of IBC Imposes Legal 'Embargo' Not Only On Financial Creditors But On Any Other Person For Sale Of Assets In CIRP

The National Company Law Tribunal ('NCLT') Hyderabad, comprising Dr. Venkata Ramakrishna Badarinath Nandula (Judicial Member) and Shri. Charan Singh (Technical Member) held that the moratorium u/s 14 of the Insolvency and Bankruptcy Code, 2016 ('IBC') operates as a legal 'embargo' on the sale or alienation of the assets of the Corporate Debtor during the CIRP of the Corporate Debtor not only on the Financial Creditor but also on any person. Background Facts: NCS Sugars Ltd. (Corporate Debtor) involved in the sugarcane business defaulted in payment of the price for the sugarcane supplied by farmers. Proceedings under the Andhra Pradesh Revenue Recovery Act, 1864 ('APRR Act') to sell the immovable property were initiated by Tahsildar, Bobbili (Respondent 2), and Tahsildar, Seethanagaram (Respondent 3) to pay the amounts due to farmers. Two Sale notices were also issued on 04.01.2022. A public auction was conducted with Dhatri Real Estate & Developers (Respondent 4) being declared as the highest bidder and an Earnest Money Deposit ('EMD') of Rs.3.75 Lakhs was deposited by it. The Corporate Debtor was admitted into the Corporate Insolvency Resolution Process ('CIRP') initiated by Punjab National as per Order dated 24.06.2022. As of 19.11.2022, Respondent 4 deposited the total consideration of Rs. 20.05 crores minus EMD with the balance amount of Rs. 17.04 crores. A Sale Certificate was issued on 03.12.2022 in favor of Respondent 4, Punjab National Bank (Respondent 5), and Dharti Promoters (Respondent 6). NCLT via its Order dated 05.12.2022 restrained Respondent 1 to 3 from further disbursement of amount as deposited by Respondent 4 as per the Two Sale notices. The instant application has been filed by K. Sivalingam ('Applicant') Resolution Professional of the Corporate Debtor to annul the sale of the immovable property, declare the Sale certificate as invalid, declare the sale deed of the Immovable Property as invalid, declare the proclamation of sale dated 04.12.2022 as invalid and order and grant a permanent injunction restraining Respondent 4 and 6 from giving effect to the Sale certificate. NCLT Verdict: The NCLT Hyderabad allowed the application and held that the moratorium u/s 14 of IBC operates as a legal 'embargo' on the sale or alienation of the assets of the corporate debtor during the CIRP of the Corporate Debtor not only on the Financial Creditor but also on any person. The Tribunal referred to Section 36 of the APRR Act which reads as follows: 36. Procedure in sale of immovable property: - In the sale of immovable property under this Act the following rules shall be observed. First-Publication: - The sale shall be by public auction to the highest bidder. The time and place of sale shall be fixed by the Collector of the district in which the property is situated, or other officer empowered by the Collector in that behalf. The time may be either previous to or after the expiration of the fasli year. Second-Notification one month before sale: - Previous to the sale the Collector, or other officer empowered by the Collector in that behalf, shall issue a notice thereof in English and in the language of the district, specifying the name of the defaulter; the position and extent of land of his buildings thereon ; the amount of revenue assessed on the land, or upon its different sections. The proportion of the public revenue due during the remainder of the current fasli ; and the time, place, and conditions of sale. This notice shall be fixed up one month at least before the sale in the Collector's office and in the Taluk cutcherry, in the nearest police station house, and on some conspicuous part of the land. Third-Deposit by purchaser: - A sum of money equal to fifteen per cent of the price of the land shall be deposited by the purchaser in the hands of the Collector, or other officer empowered by the Collector in that behalf at the time of the purchase, and where the remainder of the purchase-money may not be paid within thirty days, the money so deposited shall be liable to forfeiture. Fourth-Re-sale in default of payment: - When the purchaser may refuse or omit to deposit the said sum of money or to complete the payment of the remaining purchase money, the property shall be re-sold at the expense and hazard of such purchaser, and the amount of all loss or expenses which attend such refusal or omission shall be recoverable from such purchaser in the same manner as arrears of public revenue. Where the lands may, on the second sale, sell for a higher price than at the first sale, the difference shall be the property of him on whose account the said first sale was made. Fifth-Agents to name principals: - All persons bidding at a sale may be required to state whether they are bidding on their own behalf or as agents, and, in the latter case, to deposit a written authority signed by their...

NCLT Hyderabad: Moratorium U/s 14 Of IBC Imposes Legal 'Embargo' Not Only On Financial Creditors But On Any Other Person For Sale Of Assets In CIRP

Sachika Vij

Tags