In a groundbreaking ruling , the Supreme Court delivered a crucial judgment, declaring that properties auctioned before the formal declaration of a moratorium under the Insolvency and Bankruptcy Code 2016 cannot be categorized as liquidation assets. The decision came as the Bench of Justices Aniruddha Bose and Vikram Nath set aside an order passed by the National Company Appellate Tribunal, Delhi (NCLAT).

The case revolved around the insolvency proceedings of Amrit Hatcheries Pvt. Ltd., the respondent in this legal matter. The Punjab National Bank had extended various credit facilities to the respondent entity, which had pledged two sets of properties as collateral to the bank. Subsequently, due to default on payments, the bank proceeded to auction off the properties situated in West Bengal’s Howrah district. The successful bidder completed the purchase before the initiation of the insolvency process on August 20, 2019, leading to the imposition of a moratorium by the National Company Tribunal (NCLT).

Disputes arose regarding the legality of the property sale, with the NCLT deeming the sale certificate issuance and transfer of possession as illegal. Consequently, the tribunal directed that the subject properties should continue to be considered as assets of the Corporate Debtor and ordered the Liquidator to take possession of the properties. This decision was subsequently upheld by the appellate tribunal, resulting in the matter being escalated to the apex court.

In its deliberation, the Supreme Court referred to the precedent set in Esjaypee Impex Private Limited v. Assistant General Manager and Authorised Officer, Canara Bank (2021) 11 SCC 537. This judicial precedent emphasized the legalities under Section 17(2)(xii) read with Section 89(4) of the Registration Act, 1908, pertaining to the obligations of the authorized bank officer under the SARFAESI Act. The court highlighted that there was no default in furnishing the sale certificate as mandated by the Registration Act.

The Court emphasized that there was no evidence or demonstration presented to establish the illegality of the sale certificate issuance. Furthermore, crucially, all involved parties, including the Liquidator, the erstwhile Director/Promoter of the Corporate Debtor, and the Bank, did not contest the factual position that the sale concluded before the declaration of the moratorium.

As a result, the Supreme Court unequivocally concluded that the subject properties could not be considered as liquidation assets of the Corporate Debtor, as the sale had concluded before the formal imposition of the moratorium. Therefore, the Court allowed the appeal, setting a precedent and clarifying the legal status of properties sold before the moratorium period.

Furthermore, in a related appeal filed by the Bank, a significant legal query remained unresolved: whether an immovable asset vests in the lender bank upon the issuance of a public auction notice under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. Given the complexity of interpreting both the 2002 Act and the Insolvency and Bankruptcy Code 2016, the Court impleaded the Union of India and scheduled the matter for further deliberation on January 10, 2024.

This landmark ruling serves as a crucial precedent, reiterating the significance of legal compliance and procedural timelines in insolvency proceedings, thereby shedding light on the treatment of properties sold before the formal declaration of a moratorium under the Insolvency and Bankruptcy Code 2016.

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