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Indian Overseas Bank vs. M/s RCM Infrastructure Ltd.

Civil Appeal · 2022 INSC 584Decided 18 May 2022
Civil Appeal No. 4750 of 2021
L. Nageswara Rao · B.R. Gavai

Background

Indian Overseas Bank, after the Corporate Debtor's loan became a non-performing asset, initiated SARFAESI proceedings, took symbolic possession of two mortgaged properties, and conducted an e-auction where bidders paid 25% upfront and were later granted extra time for the balance 75%. Before the balance was paid, the Corporate Debtor's own promoter filed a Section 10 insolvency petition, which the NCLT admitted on 3 January 2019, triggering a moratorium. The Bank still accepted the remaining 75% payment on 8 March 2019 (after the moratorium began) and issued the sale certificate. The Corporate Debtor's promoter got the NCLT to set aside the sale as violating the moratorium, and the NCLAT upheld this, leading the Bank to appeal to the Supreme Court.

Decision Breakdown

The Supreme Court held that under the statutory scheme of the SARFAESI Rules, a sale is complete only when the full payment is made and the sale certificate is issued: here that happened on 8 March 2019, after the moratorium under Section 14(1)(c) of the IBC had already come into force on 3 January 2019. Since Section 14(1)(c) bars any action to foreclose, recover, or enforce a security interest (including under SARFAESI) once CIRP begins, and Section 238 gives the IBC overriding effect over inconsistent laws, the Bank could not lawfully complete the sale after the moratorium started. The Court also rejected the Bank's argument that the insolvency petition was filed with mala fide intent to stall the SARFAESI sale, finding no such case made out. The concurrent findings of the NCLT and NCLAT were upheld and the appeal was dismissed.

Lesson Learnt

Once insolvency proceedings are admitted and a moratorium is declared under the IBC, all recovery actions against the corporate debtor's assets, including a SARFAESI sale that has not yet been completed by full payment and issuance of a sale certificate, are frozen, and the IBC's overriding provisions will prevail over banking recovery laws.

Official source (sci.gov.in)View Judgment (PDF)

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