NCLAT held that the bank could not proceed with the enforcement of the SARFAESI Act against personal guarantors during the interim moratorium under the Insolvency and Bankruptcy Code.
The National Company Law Appellate Tribunal (NCLAT), New Delhi Bench comprising Justice Yogesh Khanna (Judicial Member) and Ajai Das Mehrotra (Technical Member) was hearing an appeal and observed that once an interim moratorium under Section 96 of the Insolvency and Bankruptcy Code is in effect, it halts any further proceedings under the SARFAESI Act regarding the property, regardless of prior actions taken under SARFAESI, thus upholding the NCLT’s order to restore possession to the IRP.
In the appeal against the National Company Law Tribunal's (NCLT) order dated February 25, 2021, the Appellant challenged the directive to restore possession of a property to the Interim Resolution Professional (IRP) after having previously taken possession under the SARFAESI Act, 2002. Prior to the insolvency proceedings under Section 95 of the Insolvency and Bankruptcy Code (IBC), the Appellant had taken symbolic possession of the property on June 20, 2019, and actual possession was taken by the Tehsildar on January 27, 2021. The insolvency proceedings against the Personal Guarantor commenced on January 7, 2021, with the moratorium beginning on February 3, 2021.
The Appellant argued that it had acquired vested rights in the property through symbolic possession and that the moratorium under Section 96 of the IBC should not affect its rights. However, the learned counsel contended that the principles in Section 14 of the IBC apply to proceedings under Section 95, and as the symbolic possession was already taken, the property should not be subject to the moratorium.
The NCLAT referred to recent jurisprudence, including the Delhi High Court decision in Sanjay Dhingra v. IDBI Bank Limited and Others, REEDLAW 2024 Del 07606 and the Supreme Court judgments Indian Overseas Bank v. RCM Infrastructure Limited and Another, REEDLAW 2022 SC 05504 and State Bank of India v. V. Ramakrishnan and Another, REEDLAW 2018 SC 08560, which established that the interim moratorium under Section 96 of the IBC applies to all debts, including those secured under personal guarantees. The Court highlighted that the IBC provides a comprehensive framework that prevails over other laws, and the interim moratorium restricts any further proceedings under the SARFAESI Act once initiated. The NCLAT concluded that since no sale process was completed before the moratorium commenced, the respondent bank cannot continue with SARFAESI proceedings post moratorium.
Consequently, the NCLAT upheld the NCLT's order, directing that the Appellant must cease SARFAESI actions regarding the mortgaged property until the moratorium is lifted, and dismissed the appeal, leaving all parties' rights and contentions open for future adjudication.
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