Property Of Personal Guarantors Cannot Be Sold Under SARFAESI Act During Moratorium Period U/S 96 Of IBC: NCLT Mumbai

The NCLT Mumbai bench of Mr. Charanjeet Singh Gulati (Member Technical) and Justice Lakshmi Gurung (Member Judicial) has held that once a petition under section 95 of the IBC is filed, the interim moratorium under section 96 is triggered. During subsistence of the moratorium, property of the personal guarantors cannot be sold by the financial creditor under the SARFAESI Act even if sale auction notice was issued before commencement of the moratorium. Brief Facts This application has been filed by, Raghavendra Joshi ('the Applicant'/ 'Personal Guarantor) under Section 60(4) r/w Section 60(5) of the Insolvency and Bankruptcy Code, 2016 ('the Code'/ 'IBC') read with Section 179(2) and Rule 11 of the National Company Law Tribunal Rules, 2016. State Bank of India ('the Financial Creditor') had extended credit facilities ('the said facility') of Rs. 1500 Lakhs on 17.05.2014 to M/s Deogiri Infrastructure Private Limited ('the Corporate Debtor'). The repayment of the said facilities was secured by personal guarantee given by the Applicant and his wife Smt. Meena Raghavendra Joshi by signing Guarantee Agreement dated 13.03.2015. The said guarantee is a continuing one for all the amounts advanced to the corporate debtor. Upon the credit facilities becoming irregular, the loan account of the corporate debtor was classified as a Non-Performing Asset on 30.10.2018. Thereafter, State Bank of India issued notice under Section 13(2) of ('SARFAESI Act') on 10.04.2019 and initiated proceedings before Hon'ble Debts Recovery Tribunal ('DRT') at Aurangabad. Thereafter, on 30.01.2020 State Bank of India took symbolic possession of the properties at Aurangabad and Latur under Section 13(4) of the SARFAESI Act. Thereafter, a Company Petition bearing No. 576/MB/2022 under Section 95 of the Code was filed by the Financial Creditor against the applicant on 26.04.2022. A Resolution Professional was appointed vide order dated 27.06.2022. An interlocutory application was filed by the resolution professional on 19.07.2022, recommending initiation of personal insolvency proceedings against the applicant/personal guarantor. During the subsistence of interim moratorium under Section 96 of the Code, Indian Bank ('Respondent No.1'), on 10.05.2022 sold the property in question jointly owned by the Applicant and his wife Smt. Meena Raghvendra Joshi, under the SARFAESI Act, to Mr. Besi Kuzimanil Mathu ('Respondent No. 2'. The Applicant has filed the present application assailing the sale of the 'property in question' by Respondent No.1 to Respondent No.2 on the ground that there is breach of interim moratorium under section 96 of the Code by Respondent No1 and seeking setting aside of the sale of the property in question. Contentions The Respondent No. 1 submitted that the issue involved in the present application falls within the jurisdiction of Debts Recovery Tribunal (DRT) and this Tribunal under the Insolvency and Bankruptcy Code does not have jurisdiction to entertain the present application. If the Applicant is aggrieved by the action of the Respondent No. 1 then the only remedy available to him is to approach DRT under section 17 of SARFAESI Act. That once action under 13(4) is taken, there is vesting of interest and title in favour of the Bank which right and interest cannot be taken away even under IBC. That applicant should have notified the filing of the petition under section 95 of IBC to Respondent No. 1 and could have prevented conclusion of sale and saved the transaction and other costs. The Respondent No. 2 submitted that the proceedings under SARFAESI Act is not affected by the imposition of interim-moratorium as per Section 96 of the Code which provides a stay on any legal action or proceeding pending in respect of any debt whereas, Section 14 of the Code does not specifically stay the proceedings to enforce security interest over the said property. That on attaining the symbolic possession of property as per Section 13(4) of SARFAESI, the Respondent No. 1 possesses the right to transfer by way of lease, assignment or sale for realisation of secured asset. Per contra, the applicant submitted that the Respondent No. 1 cannot continue proceedings under SARFAESI once CIRP is initiated and interim-moratorium has commenced. Reliance was placed on the Hon'ble Supreme Court judgment in Indian Overseas Bank versus RCM Infrastructure Limited and Another (2022) in which it was held that the IBC is a complete code in itself and as per Section 238 of IBC, the provisions of IBC shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force. That the proceedings initiated by Respondent No. 1 under SARFAESI stood stayed on account of interim-moratorium which came into operation on the date of filing of said petition on 26.04.2022 and that no right is accrued to the third party...

Property Of Personal Guarantors Cannot Be Sold Under SARFAESI Act During Moratorium Period U/S 96 Of IBC: NCLT Mumbai

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Property Of Personal Guarantors Cannot Be Sold Under SARFAESI Act During Moratorium Period U/S 96 Of IBC: NCLT Mumbai

Mohd Malik Chauhan

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