BATCH 2019-24

SYNOPSIS
Topic

“Landmark Case Laws under SARFEASI

Act, 2002 ”
Financial Market Regulation

Submitted to: Submitted by:

Mr. Rahul Nikam, Gaury Singh
ASSOCIATE PROFESSOR (FMR) B. A. LLB Hons.,
FACULTY OF LAW, ROLL NO- 91901040009
MARWADI UNIVERSITY

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DECLARATION BY THE STUDENT

I, GAURY SINGH, certify that the work embodied in this project work,
entitled “Landmark Case Laws under SARFEASI Act, 2002 ”, is my
own bon-a-fide work carried out by me under the supervision of Dr, Rahul
Nikam of Faculty of Law, Marwadi University. The matter embodied in this
Project has not been submitted for the award of any other degree/diploma.
I declare that I have faithfully acknowledged, given credit to and referred to the
authors/ research workers wherever their works have been cited in the text and
the body of the project. I further certify that I have not wilfully lifted up some
other's work, Para, text, data, results, figures etc. reported in the journals, books,
magazines, reports, dissertations, theses, etc., or available at web-sites and
included them in this project work and cited as my own work.

Place: Marwadi University

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SUPERVISOR’S CERTIFICATE

This is to certify that the work embodied in the accompanying project entitled
“Landmark Case Laws under SARFEASI Act, 2002” has been
carried out entirely by the candidate GAURY under my direct supervision and
guidance and that the candidate has fulfilled the requirements of the regulations
laid down for the partial fulfilment of B. A. LLB Hons. degree examination in
the course Financial Market Regulation (Semester IX), Faculty of Law,
Marwadi University.

Dr. Rahul Nikam

Assistant Professor (FMR),
Faculty of Law,
Marwadi University

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 ACKNOWLEDGEMENT

The success and final outcome of this project required a lot of guidance and
assistance from the supervisor and I am extremely privileged to have got this all
along the completion of my project. All that I have done is only due to such
supervision and assistance of Dr. Rahul Nikam. I am thankful to and fortunate
enough to get constant encouragement, support and guidance from him.

Place: Marwadi University

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 TABLE OF CONTENTS

Serial no. Particulars Page no.

1 Introduction 06

2 Case Analysis

2.1.

2.2.

2.3.

2.4.

2.5.

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 Introduction

The Securitization and Reconstruction of Financial Assets and Enforcement of Security

Interest (SARFAESI) Act, enacted in 2002, brought about a significant shift in the recovery
of non-performing assets (NPAs) in India. The act empowers banks and financial institutions
to take legal action to seize and sell mortgaged properties of defaulting borrowers to recover
their dues. Over the years, several landmark judgments have shaped the implementation of
the SARFAESI Act, providing clarity on its provisions and safeguarding the interests of both
lenders and borrowers. This article aims to analyze some of these influential judgments and
their impact.

Some of the landmark cases analysed, assessed and evaluated are as follows:

1. Mardia Chemicals Ltd. vs. Union of India (2004)

2. Transcore vs. Union of India (2008)
3. Indian Overseas Bank Vs. M/s RCM Infrastructure Ltd. and another (2022)
4. United Bank of India vs. Satyawati Tondon (2010)
5. India

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 Chapter 2

Case Analysis

1. Mardia Chemicals Ltd. vs. Union of India1

Brief Facts and Procedural History

Here, the constitutionality of SARFAESI was challenged, particularly Sections 13, 15, 17,
and 34, on the grounds that they are arbitrary and unjustified.

The Industrial Development Bank of India (for short, ‘the IDBI’) issued a notice to Mardia
Chemicals Ltd. on July 24, 2002, under Section 13 of the then-current Ordinance, requiring it
to pay the amount of arrears indicated in the notice within 60 days, failing which the IDBI, as
a secured creditor, would be entitled to enforce the security interest without the intervention
of a court or Tribunal, using all or any of the measures contained in sub-section (4) of S The
petitioner was also prohibited from selling, leasing, or otherwise transferring any of the
secured assets.

Other financial institutions and banks issued similar notices to other parties who filed
petitions in various High Courts under the terms of Section 13 of the Ordinance/Act. This
was united with a number of other writ petitions filed in several High Courts contesting the
constitutionality of the Securitization and Reconstruction of Financial Assets and
Enforcement of Security Interest Act of 2002.

The petitioners argued that the Recovery of Debts Due to Banks and Financial Institutions
Act 1993 was sufficient to address the difficulty created by NPAs and that the current statute
was unnecessary. It is debatable whether the Court should delve into the necessity of a statute
while considering its constitutional legitimacy. “The Parliament and Legislatures composed
as they are of the Representatives of the people are supposed to be cognizant of the
requirements of the people and what is good or harmful for them,” the Supreme Court has
previously decided.
The Court is unable to sit in judgment of their wisdom… A law passed by Parliament or a
state legislature can be overturned for two reasons:

 inadequacy of legislative authority

 infringement of any constitutional rights

1
2004 (2) Mh.L.J. 1090

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In BALCO Employees Union v Union of India2, the Supreme Court has ruled that the right
place for discussing policy issues is the legislature, not the courts.

In light of the Court’s previous pronouncements, it is evident that the question to be answered
is whether the legislation is constitutional. Any discussion of whether a statute is required,
particularly in light of another Act whose scope is not in question in this case, was
superfluous. As a result, the Court declined to hear the case.

Many petitioners argued that the existing rights of private parties under a contract cannot be
interfered with, particularly by putting one party in a more advantageous position than the
other. In the present case, for example, in a matter of private contract between the borrower
and the financing bank or institution, the borrowers’ rights have been curtailed and
enforcement of secured assets has been provided without the intervention of the court,
denying them the remedy available under the law by approaching the civil court.

The Appellants are vague on where they find the legal validity of their claim. The
Honourable Supreme Court has pointed out that, unlike the US Constitution, there is no bar to
prospective contract invalidation in India, and hence such a statute is completely
constitutional.3

Indeed, the 44th amendment removed the right to property as a basic right from the
Constitution, leaving it only as a constitutional right. Indeed, even while the right existed in
part III, the courts ruled that absolute contract freedom, as defined by the idea of leissez faire,
was no longer valid.4

The Appellants have also been unable to locate the rights under Art 19(1)(g) and Art 298.
The Supreme Court has ruled that these articles are subject to reasonable constraints and that
what is acceptable is to be interpreted in the public interest, regardless of how onerous the
restrictions are on the individual’s interests.5

In light of these precedents, it’s difficult to identify where the appellants’ reasoning
originates. The respondents’ counsels, on the other hand, have not taken a position on the
Constitution’s freedom of contract or right to trade, but have pointed out that a similar
argument has been raised in a different context, namely statutes providing relief to
agricultural borrowers, and has been repeatedly rejected.
2
AIR 2002 SC 350
3
Raghubir Dayal v. Union of India AIR 1962 SC 263
4
YA Marmade v. Authority under Minimum Wages Act (1972) 2 SCC 108
5
Krishnan Kakkanath v. Government of Kerala (1997) 9 SCC 495

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It has been contended that certain facts must be determined before the power u/s.13 can be
used, such as whether the person to whom notice is given is liable to pay, the magnitude of
the liability, and so on. Furthermore, issues such as the law of limitation and bar under
consortium agreements, set-off/counterclaim claims, creditors defaults as bailees or failure to
disburse credit on time, the changeability of penal interest or compound interest, non-
appropriation of funds already paid, and so on and so forth must be resolved.

So, using case law that will be covered in the main project, it was claimed that a lis exists in
such a case and that the ability to resolve a lis is a judicial or quasi-judicial power, not solely
an administrative function. As a result, a suitable forum must be established to resolve all
such disagreements at an early stage.

The statutory provision becomes arbitrary, procedurally, and substantively unfair if such a
forum is not established. This is a false argument based on facts. S.13 does not preclude the
use of any judicial venue; it just states that a judicial remedy can be sought only after the
secured creditor has used his powers under s.13 (4). This is entirely correct. Many
legislations provide for the use of a forum after the aggrieved party has exhausted self-help
options.

It was also pointed out that the provisions of s.13 generate some practical challenges that
could lead to serious legal errors. Section 2(f) of the Act, for example, specifies that the
meaning of the term “borrower” includes the guarantor. A guarantor is relieved of his
commitment under Section 135 of the Contract Act in certain circumstances. Now, if a
discharged guarantee receives a notification under Section 13(2) of the Act, he cannot
approach the Court to show and establish that he is a discharged guarantor because Section
34 prohibits him from filing an action in the Civil Court. As a result, notice under Section
13(2) is unfavourable.

These concerns have been addressed by Section 35 of the Securitization Act, which states
that the Act’s provisions have precedence over all other laws. Finally, it was pointed out that
under s.13 read with s.34, the borrower has no right to go to court before the lender employs
the rights granted under s.13 (4), exposing him to arbitrary and potentially fraudulent lending
practises. It was argued in defence of this section that because the asset cannot be sold for 60
days under Section 9 of the Rules, the borrower has the option of approaching the Tribunal
within that time frame.

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The Court accepted the plaintiffs’ argument in part and added two riders to s.13. To begin
with, it was held that the lender had an obligation to reveal the reasons for not accepting the
objections or points expressed in response to the notice issued to them before taking action
under Section 13 (4). Second, the Court made a comparison to an English mortgage, pointing
out that enforcement proceedings under an English mortgage can be contested on the basis of
fraud. This section is also subject to such provisions.

Another point that the Court has overlooked is that a statute must be read in context and in
pari materia as a standard rule of legislative construction. The present Act’s s.13 is pari
materia with the State Financial Corporation Act of 1951’s s.29. Art 300A, 21, and 14 have
all been challenged on the basis of this section’s constitutional vires, specifically that it
provides no right of appeal. Though the matter was never heard by the Supreme Court, it was
considered by a number of High Courts. The courts have consistently ruled that the Act itself
reveals a clear aim and objective and that the power granted under s.29 is intended to carry
out that policy, namely, the prompt collection of dues.

Issues before the Court

 Is it possible to challenge the statute on the grounds that it was unnecessary to create
it given the circumstances, especially when another statute was already in effect?
 Whether the terms or existing rights under a contract entered into by two private
persons could be altered by provisions of law conferring one-sided powers in favour
of one of the contracting parties?
 Whether or not Section 13 of the Act is unconstitutional?
 Whether the requirement that 75% of the amount owing to be paid before filing an
appeal with the DRT is onerous and thus Section 17 of the Act unconstitutional?

Decision of the Court

In this case, the Supreme Court held that:

a) The Parliament’s superiority in deciding the need for legislation was emphasised.

b) The connection between the RDB Act and SARFAESI was rejected since the latter deals
with the highly particular issue of nonperforming assets (NPAs) (among other differences
such as the latter dealing only with secured creditors).

c) As a result, it is up to Parliament to decide whether or not legislation is required.

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d) Section 13 was found to be constitutionally legitimate by the Court.

e) The secured creditor is only exercising his entitlement because the default that led to the
sec 13 measure might be considered a “second default”—NPA + 60 days extra time to repay
following notice.

f) Prior to the 2016 Amendment, Section 13 acknowledged the Right of Redemption in a

sense. Rule 8 and 9 of the SI Rules stated that the bank must serve a notice confirming the
sale of secured property and that the borrower may pay off the obligation and reclaim
possession at any point prior to the actual sale

g) While the Supreme Court confirmed the constitutionality of the section, it pushed hard for
borrowers to have the right to representation.

h) The Supreme Court determined Section 17(2) to be arbitrary, and ordered that the heading
be altered from “appeal” to “application.”

Impact of the Judgement

 Section 13 now states that the bank must evaluate all of a borrower’s representations
and respond within seven days (which was later changed to 15 days).
 Within section 17, the word “appeal” was replaced by “application,” despite the fact
that the marginal header remained the same (wow). In 2016, the appeal was
superseded by an application in the marginal heading.
 DRTs now have jurisdiction over the rights of tenants in a security property. In such
instances, the property is given to the person who files the application (if he meets the
requirements).
 Section 18 was also considerably amended. When filing an appeal with the DRAT,
you must deposit 50% of the total cost, which can be lowered to 25%. DRT was
likewise granted a similar waiver right under Section 17.

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 2. Transcore vs. Union of India6

Introduction Regarding Suit

The facts in the present civil appeal No. 3228/06, in which M/s Transco is the appellant and
Union of India & Anr is the respondent. This case is of general importance as a question of
public importance has arisen namely, whether withdrawal of Original Application under first
proviso to Section 19(1) of the DRT Act, 1993 (added by the Amending Act No.30 of 2004)
is a condition to be fulfilled before taking recourse to the Securitization and Reconstruction
of Financial Assets and Enforcement of Security Interest Act, 2002 ("NPA Act")

Admitted Facts

The Facts in Civil Appeal No. 3228 of 2006, were, the respondent (Indian Overseas bank)
filed an application before the DRT, Chennai for recovery of dues from M/s Transcore (the
appellant herein). In 2005, The Respondent issued Possession notice to the appellant under
section 13(4) of the NPA ACT to repay his dues of Rs. 4.15 crores (approximately) to be paid
with interest within sixty days and that the appellant had failed to repay the amount and the
bank had taken possession of the immovable properties as per section 13(4) of NPA ACT,
mentioned in the schedule to the Notice and that the immovable properties were put to
auction. However civil appeal is and confirmation of auction sale had been stayed.

Issues of the Case

i) Whether the banks or financial institutions in order to seek their remedy in terms of DRT
Act, 1993 can still invoke the NPA Act, 2002 without withdraw the Original Application
filed before the DRT under the DRT Act

(ii) Whether the bank or Financial Institution can actually take possession of the secured
assets of the borrower in order to exercise their rights Section 13(4) of the NPA Act

(iii) Whether ad valorem court fee prescribed under Rule 7 of the DRT (Procedure) Rules,
1993 is payable on an application under Section 17(1) of the NPA Act in the absence of any
rule framed under the said Act

Appellant’s Argument
6
(2008) 1 SCC 125

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1) The argument presented by , the appellant herein, is that proviso to section 19(1) which
states that the, bank or financial institution may, with the permission of the Debts Recovery
Tribunal, on an application made by it, withdraw the application, whether made before or
after the Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Act,
2004 (30 of 2004) for the purpose of taking action under the (SARFAESI Act), 2002 if no
such action had been taken earlier under that Act, so therefore the respondent (Indian
Overseas Bank) could not have invoked the NPA Act without the prior permission of the
Tribunal before whom the application was pending, the proviso to Section 19 only says
about concluded cases where the enforcement power stands exhausted. This power is not
exhausted by mere giving of Section 13(2) notice.

2) The argument presented by the learned council of, the appellant here, for the Second
issue is that as per section 13(2) of NPA Act, a notice has to be served to the borrower in
writing to discharge his liabilities within 60 days from the notice provided , failing will entitle
the bank or financial institution to exercise right under sub-section (4) of the said Act and
therefore secured creditor can take possession of the secured immovable assets of the
borrower only after expiry of sixty days.

3) The argument presented by the learned council of, the appellant herein, for the Third
issue is that borrowers aggrieved by the action of the banks initiated under Section 13(4) of
the NPA Act have a right to adjudication by way of an application to the DRT under Section
17(1) of the NPA and after amendment Section 17(1) of NPA Act, provides for prescribing
fees for an application under Section 17(1) and after 11.11.2004 no rule has been framed
under the NPA Act, therefore fees cannot be levied under the Order 2004 which, according
to the borrower, after enactment of the amending Act 30 of 2004 ,has come to an end.

Respondent’s Argument

1) The banks and financial institutions have an independent right to recover debts as proviso
to section 19(1) under DRT act is an enabling provision and Section 13(2) of NPA ACT
is a condition precedent for invoking Section 13(4) of the said Act and, it is clear that the
notice under Section 13(2) is not a mere show cause notice and it constitutes an action.
2) The bank or Financial Institution proceeds on the fact that the borrower has already failed
to pay his dues, is under a liability and his account is classified as sub- standard, doubtful
or loss. Section 13(2) is a condition to be fulfilled before invoking Section 13(4) of NPA
Act by the bank/FI. As soon as the two conditions under Section 13(2) are fulfilled, the

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 bank or financial institution would be entitled to take either possession or management of
the assets. The dichotomy between physical and symbolic possession have no role in this
Act.
3) The Central Government under Section 40 of the NPA Act issued order 2004 which
provides the fee for filing for an appeal Section 17(1) of NPA Act to DRT shall be
mutatis mutandis to the DRT under Rule 7 of the 1993 Rules. The word mutatis mutandis
indicates that a measure is adopted for assessing the fees required to be paid by the
borrower when he applies by way of application to the DRT under Section 17(1) of NPA
Act challenging the action taken under Section 13(4) of NPA Act by the secured creditor.

In Madeva Upendra Sinai and Ors. v. Union of India and Ors 7.

This case raised two questions:

(1) Is this a 'difficulty' in reference to clause (7) of the Regulation?

(2) Is the Central Government in the exercise of its power under that clause competent supply
a deficiency or casus omissus of this nature, in the present case, it was issued with the object
of supplying a deficiency, namely, levy of fees. By levy of fees, the scope of the NPA Act is
not altered. There is no dispute on the fact that the 2004 Order has been issued after the
enactment of NPA Act. After the amending of 2004, amendments have been made in Section
17(1) of NPA Act. However, the 2004 Order does not, alter the scheme of the amended Act.
It merely fills in the deficiency and, therefore, the 2004 Order will continue to operate even
after the amending Act 30 of 2004 and till rules are prescribed in terms of Section 2(s) of the
NPA Act.

Judgement at Glance

The appellant’s appeal/I.A. in this Court stands dismissed whereas the appeal/I.A. filed by the
banks/ FIs. stands allowed with no order as to costs. Further, the judgment in Transcore case
empowered the Bank’s/FI’s to initiate simultaneously proceedings both under the SAREASI
Act & DRT Act.

Supreme Court in this case held that withdrawal of suit pending before DRT is not a pre-
condition for taking recourse to the SARFEASI Act. This judgment has cleared the legal

7
Madeva Upendra Sinai and Ors. v. Union of India and Ors (1975) 3 SCC 765

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Problem regarding the initiation of simultaneous proceedings under DRT Act and
SARFAESI Act.

Case References
1) Madeva Upendra Sinai and Ors. v. Union of India and Ors.8
2) Mardia Chemicals Ltd. and Ors. v. Union of India and Ors.9
3) A.P. State Financial Corporation v. M/s Gar Re-Rolling Mills and Anr.10
4) National Insurance Co. Ltd. v. Mastan and Anr.11

Overview of The Judgement

Supreme Court in this case held that: -

1) Section 13(2) of NPA Act is a notice of demand claiming action to be taken within the
time specified and not a mere show cause notice
2) When a notice is given to the debtor it is clear enough, that debtor has failed to pay his
dues and his account is declared as NPA
3) The identification of debt and the classification of the account as NPA is done in
accordance with the guidelines issued by RBI.
4) The conditions of section 13(2) of NPA Act are to be fulfilled before invoking Section
13(4) of NPA Act by the bank/FI. Once the conditions mentioned in Section 13(2) are
completed, the next step would entitle the bank or FI to take possession of the secured
assets of the borrower or to take other measures.”
5) The doctrine of election is not applicable in this case as in present case, the NPA Act is an
additional remedy to the DRT Act. They together constitute one remedy and, therefore,
the doctrine of election does not apply.
6) The remedy under SARFEASI Act is additional remedy, which is not inconsistent with
DRT.
7) Court also held The SARFEASI Act is enacted to enforce the interest in the financial
assets which belongs to the bank/FI by virtue of the contract between the parties or by
operation of common law principles. The object of section 13 of the SARFEASI Act is
recovery by non-adjudicatory process.

8
(1975) 3 SCC765
9
2004 (4) SCC 311
10
1994 (2) SCC 647
11
2006 (2) SCC 641

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 3. Indian Overseas Bank Vs. M/s RCM Infrastructure Ltd. and

another12

BRIEF FACTS:

Indian Overseas Bank (“Appellant Bank”) extended certain credit facilities to RCM
Infrastructure Ltd. (“Corporate Debtor”). However, the Corporate Debtor failed to repay the
dues and the loan account of the Corporate Debtor became irregular. As such, on 13 th June
2016, the loan account of the Corporate Debtor came to be classified as “Non – Performing
Asset (“NPA”).

The Appellant Bank issued a Demand Notice Under Section 13(2) of the Securitization and
Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002
(“SARFAESI Act”), calling upon the Corporate Debtor and its guarantors to repay the
outstanding amount due. Since the Corporate Debtor had failed to comply with the Demand
Notice to repay the outstanding dues, the Appellant Bank invoked the power granted to it
under the Section 13(4) of the SARFAESI Act, read with Rule 8 of the Security Interest
(Enforcement) Rules, 2002 (“Rules”) and took symbolic possession of two secured assets
mortgaged exclusively with it. Out of the two properties, one stood in the name of Corporate
Debtor and the other in the name of Corporate Guarantor. An E-auction notice came to be
issued on 27th September 2018 by the Appellant Bank to recover the public money availed
by the Corporate Debtor.

Meanwhile, on 22nd October 2018, the Corporate Debtor filed a petition being under Section
10 of the Insolvency and Bankruptcy Code, 2016 (“IBC”) before the NCLT. In the first
auction held on 6th November 2018, bids were received. As such, the second auction notice
came to be issued on the 27 th of November 2018, which was scheduled to be held on
12th December 2018. In the second E-auction, three persons became successful bidders by
offering jointly a price of Rs. 32.92 crore for both the secured assets. On 13th December
2018, the sale was confirmed in favor of the successful bidders/auction purchasers in the
public auction. The successful bidders deposited 25% of the bid amount, i.e., Rs. 8.23 crore
including the Earnest Money Deposit and thus the Appellant Bank issued a sale certificate to
them. The auction purchasers were directed to pay the balance 75% of the bid amount within
15 days, i.e., prior to 28th December 2018.

12

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Thereafter on the 28th of December 2018, the Auction Purchasers addressed a letter to the
Appellant Bank seeking the handing over of the peaceful and vacant possession of the
secured assets and prayed for an extension in time to pay the balance 75% of the bid amount
till 8th March 2019, such request was agreed upon by the Appellant Bank on 29 th December
2018, in exercise of its powers Under Rule 9(4)(a) of the said Rules.

The learned NCLT, vide order dated 3rd January 2019, admitted the petition filed by the ex-
promoter of the Corporate Debtor. As a result of the said order passed Under Section 10 of
the IBC, the Corporate Insolvency Resolution Process (“CIRP”) of the Corporate Debtor
commenced. A moratorium as provided Under Section 14 of the IBC was notified and an
Interim Resolution Professional (“IRP”) was also appointed.

The Appellant Bank thereafter on the 21st of January 2019, filed its claim with the IRP, upon
it coming to know about the admission of the insolvency petition filed by the Corporate
Debtor. According to the Appellant Bank, the balance 75% of the bid amount was not yet
received on the said date and hence would not be excluded from the claim filed before the
IRP. During the pendency of the CIRP, the Appellant Bank accepted the balance 75% of the
bid amount, i.e., Rs. 24.69 crore on 8th March 2019.

Upon receipt of the payment, the Appellant Bank submitted its revised claim to the IRP on
11th March 2019. The Appellant Bank also intimated the IRP about the successful sale of the
said secured assets. The promoter of the Corporate Debtor, i.e., Respondent No. 2 thereafter,
filed an application in the pending company petition, thereby praying the learned NCLT to
set aside the security realization during the CIRP period carried out by the Appellant Bank or
in the alternative to cancel the impugned transaction. Vide order dated 15 th July 2020, the
learned NCLT passed an order thereby allowing the said application filed by the Respondent
No. 2 and setting aside the sale of the property owned by the Corporate Debtor.

Being aggrieved thereby, the Appellant Bank filed an appeal before the learned NCLAT and
the same was rejected by the impugned judgment dated 26th March 2021. Being aggrieved
thereby, the Appellant Bank filed an appeal to the Supreme Court of India.

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ISSUES RAISED:

 Whether the act to foreclose under SARFAESI is prohibited on the initiation of the
moratorium under IBC?
 Do the provisions under the Insolvency and Bankruptcy Code prevail over other
similar laws in the country?
 Whether a sale vide Auction is said to be completed on payment of partial
consideration?

SUBMISSIONS OF THE PETITIONER:

The Petitioner i.e.: The Appellant Bank argued that the very initiation of the voluntary
insolvency proceedings under section 10 of the IBC, was with mala fide and should be
stopped as under section 65 of the IBC.

Demand Notice to the Corporate Debtor by the Appellant Banker, was challenged by the
Corporate Debtor by an application filed with the Debt Recovery Tribunal-II, Hyderabad
(“DRT”) wherein no stay was granted, the Corporate Debtor was ordered to deposit Rs. 12
Crore for the stay on the confirmation of the sale, which the Corporate Debtor failed to pay,
after which with mala fide intent, the petition under section 10 under IBC was filed to stall
the sale.

They further submitted that the NCLT order was passed on 3 rd January 2019, i.e.: prior to the
confirmation of the sale, hence the mala fide intention of the corporate debtor to stall the
SARFAESI proceedings. Such intention is made even more clearer as the Liquidation order
given by the NCLT on 7 th February 2022 due to the lack of a credible plan by the ex-
promoter. They further submit that upon the perusal of the order of the NCLT on 7 th February
2022 would reveal the delay caused at the instance of the IRP, who has seen to be helping ex-
promoters.

Since the moratorium under section 14 of the IBC has ceased to operate directing liquidation
passed under section 52 of the IBC, and the secured creditors were allowed to realize their
security interest. Hence there is no bar on the Appellant Bank to realize its money.

The Appellant Bank further submitted that as per the section 54 of the IBC, the sale was
completed after the receiving and confirmation by the Appellant Bank of the 25% of the bid
amount, hence the fact that the part of the bid money was received subsequently to the
initiation of the CIRP would not affect the sale. Reference was made by the Appellant Bank

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to certain judgements Vidhyadhar vs. Manikrao.13, B. Arvind v. Govt. of India14 and
Kaliaperumal v. Rajagopal and Anr.15

The Appellant Banker lastly submits that the Section 14(1)(c) of the IBC interdicts any action
to foreclose, recover or enforce any security interest including any action under the
SARFAESI, but cannot undo the actions that already lie complete.

Submission on behalf of Impleading Applicants (Auction Purchasers) – The Impleading

Applicants supported the submissions made by the Appellant Banker and further submitted
that the applicants were bona fide purchasers and were put into possession and hence should
not be disturbed. They also contested that the right of redemption under section 60 of the
Transfer of Property Act, 1882 (“TP Act”) and said right to redemption has been lost on the
issuance of public notice of auction or tender as under Section 60 of the TP Act.

The Applicants further submitted that the fact that the applicants were not added as party
Respondents in the proceedings before the NCLT after the successful auction purchasers,
show the mala fide intention of the Corporate Debtor and the IRP, and that as per the
paragraph (21) of the Insolvency Law Committee Report, 2018, the rights and priorities of
creditors established prior to insolvency under commercial laws should be upheld to preserve
the legitimate expectations of creditors and encourage greater predictability in commercial
relationship.

SUBMISSIONS OF THE REPONDENT:

Respondent 1 supported the impugned judgements passed by the learned NCLAT as well as
the order filed by the NCLT and submitted that the title would be passed over only after the
receipt of full sale consideration and issuance of sale certificate, and that the said title cannot
be conveyed to the auction purchasers merely upon the confirmation of the sale. He further
submitted that such contentions are totally contrary to the provisions of SARFAESI and the
provisions of IBC16, and relied on the case of, “Hindon v. State.”17.

They further submitted that Section 13(8) of the SARFAESI Act itself provides a right of
redemption of secured assets to the owner/debtor and relied on the case of, “S. Karthik v. N.
Subhash.”

13
(1999) 3 SCC 573.
14
(2007) 5 SCC 745.
15
(2009) 4 SCC 193.
16
Sections 14(1)(c), 31(1) and 238 of the IBC.
17
(2019) 2 SCC 198.

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They also submitted that upon the approval of Resolution Plan (“RP”), in view of section
31(1) of IBC, all the debts stand legally resolved and the same is binding on all the parties
including the Corporate Debtor, its employees, members, creditors, all Govt. dues and the
successful resolution applicant would be entitled to start on a clean slate, and that under
section 238 of the IBC, the provisions contained therein will override all other laws for the
time being in force and the provisions contained of the IBC would prevail over any other
instrument having effect by virtue of another laws, with the respondent relying on the case
of “Anand v. Varsha.”18

Respondent 1 further submitted that the continuation of any proceeding including the
proceeding under the SARFAESI Act by the Appellant Bank and the receipt of the balance
sale consideration was violative of section 14(1)(c) of the IBC, and that the amount payable
by the Corporate Debtor to the other Financial Creditors is much more than the amount
received by the Appellant Bank during the pendency of the CIRP and that under the
provisions of the IBC, all the Financial Creditors would be entitled to a share in the amount
received upon realization of the assets of the Corporate Debtor and the Appellant bank cannot
keep it in entirety.

They also submitted that the allegations made regarding mala fide are made only to prejudice
the court, and that the application under the Section 10 of IBC, Corporate Debtor has clearly
mentioned about declaration of NPA by the appellant and the Andhra bank and that the
initiation of auction process by both banks, and the initiation of proceedings under IBC for
overall resolution of debts of the corporate debtor cannot be taken to be a mala fide attempt.
He also submitted that section 65 of the IBC expressly provides for the mechanisms and the
remedy for addressing frivolous or malicious proceedings initiated under SARFAESI Act.
However, the Appellant Bank has chosen not to take recourse to such proceedings.

Respondent 2 supported the impugned judgement passed by the NCLAT as well as the order
passed by the NCLT and submitted that the Appellant Bank never challenged the order of
NCLT to commence CIRP on the 3 rd of January 2019, and that the order of liquidation passed
by the learned NCLT on 7th February 2022 was stayed by the NCLAT on 8th March 2022.

They also submitted that upon the initiation of the CIRP, the Appellant bank itself has
submitted its claim on 21st January 2019 for amount of Rs.79.94 crore, which included full
value of that assets. It is, therefore, submitted that the Appellant is estopped from the

18
(2020) 14 SCC 198

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contending that the amount of Rs. 8.2 crore cannot be included in the amount available for
CIRP.

DECISION OF THE SUPREME COURT:

From the Section 14(1) of IBC is clear that after initiation of CIRP, the moratorium for any
action to foreclosure, recover or enforce any security interest created by the Corporate Debtor
in respect of its property including any action under SARFAESI Act, i.e.: there is a complete
prohibition for any action to foreclose, recover or enforce any security interest created by the
Corporate Debtor in respect of its property. The legislative intent is clear from the words,
“including any action under the SARFAESI ACT”, which also call for the prohibition of
action to foreclosure, recover or enforce any security interest under the SARFAESI Act.

Also as per Section 238 of the IBC it can be seen that the provisions of the IBC shall have
effect, notwithstanding anything inconsistent therewith contained in any other law for the
time being in force or any instrument having effect by virtue of any such law. It is further
stated that the court hold IBC as a complete code in itself and such section 238 would prevail
notwithstanding anything inconsistent therewith contained in any other law in force for the
time being and relied on the judgements in Innoventive v. ICICI, Principal v. Monnet and
Ghanashyam v. Edelweiss.

The court recognizes the judgment of this court in the case of Vidhyadhar, wherein it was
held that even if full price of property has not been paid, the transaction of the sale will take
effect and the title would pass on that transaction. However, the court held that the real test is
the intention of the parties.

In the case of B. Arvind Kumar, the suit property was sold in public auction the sale of which
was confirmed by the District Judge, Civil and Military Station, Bangalore. The court is of
the opinion that when a property is sold by public auction in pursuance of the order of the
court and the bid is accepted and the sale confirmed by the court in favour of the purchaser,
the sale becomes absolute and the title vests in the purchaser, it is held that the sale certificate
is issued to the purchaser only when the sale becomes absolute, however in the case the court
found that the title was intended to be passed only on the payment of the balance
consideration.

Also in the case of Kalaiperumal the sale deed was registered on partial payment of
consideration, however the court held that the intention of parties was of paramount

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importance, it was held that in this case ownership of the property was intended to be passed
only on the payment of the balance consideration. Furthermore, as the sale in the present case
arises out of a statutory sale, the sale would be governed by rules 8 and 9 of the said Rules,
thus the sale would be complete only when the auction purchaser makes the entire payment
and the authorised officer, exercising the power of sale, shall issue a certificate of sale of
property in favour of the purchaser.

The court has followed the followed the rationale derived in the case of, “Shakeena v. Bank
of India” whereby I was held that the sale certificate did not require registration and that the
sale process was completed on issuance of the sale certificate of sale of property in favour of
the purchaser in the Form given in the said Rules, this was followed by the court in the case
of S. Karthik (supra). In the present case the balance amount has been accepted by the
Appellant Bank on 8th March 2019, the sale as under the said Rules would be completed only
on 8th March 2019, which falls much after 3rd January 2019 i.e.: on which date CIRP
commenced and moratorium was ordered and hence the sale was complete upon receipt of
the part payment.

The Court hence found that no case was to be made out for interfering with the concurrent
orders passed by the learned NCLT dated 15th July 2020 and learned NCLAT dated
26th March 2021. Hence the Court held the following in the present case in Section 238 of
IBC, it was held that, “After the CIRP is initiated, all actions including any action under the
SARFAESI Act to foreclose, recover or enforce any security interest are prohibited.” IBC is
a complete Code in itself, “The provisions of the IBC would prevail notwithstanding
anything inconsistent therewith contained in any other law for the time being in force.”

As per Rules 8, 9 of the Security Interest (Enforcement) Rules, 2002, “The sale would be
complete only when the auction purchaser makes the entire payment and the authorised
officer, exercising the power of sale, shall issue a certificate of sale of the property in favour
of the purchaser in the Form given in Appendix V to the said Rules – The sale certificate does
not require registration and the sale process is complete on issuance of the sale certificate.”

Author’s Opinion:

Hon’ble Supreme Court in its judgement clarified that sale under statutory scheme as
contemplated under Rule 8 and 9 of the Security Interest (Enforcement) Rules, 2002 shall
deem to be completed only when entire payment for the sale is made and on the issuance of
the certificate of sale by authorised officer in favour of the purchaser. It was also rightly

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observed by the Hon’ble Supreme Court that provision of section 14(1)(c) of the IBC, will
have overriding effect over any other law, any action to foreclose, recover or enforce any
security interest created by Corporate Debtor in respect of the property including any action
under SARFAESI Act is prohibited.

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