The National Company Law Appellate Tribunal in the decision of Mr. Amar Vora vs. City Union Bank Ltd; Company Appeal (AT) (CH) (Ins) No. 130 of 2022 held that:
The Financial creditors do not have an embargo on filing the proceedings under the Insolvency & Bankruptcy Code 2016 even though the proceedings are pending before the Debt Recovery Tribunal and Prohibition of Benami Property Transactions Act 1988.
FACTS
Mr. Amar Vora (hereinafter referred to as “Appellant”) has filed the present appeal against the order passed by the National Company Law Tribunal (hereinafter referred to as “Adjudicating Authority”), wherein the Adjudicating Authority has allowed the application under Section 7 of Insolvency & Bankruptcy Code 2016 (herein referred to as “I&B Code”) of the City Union Bank Ltd (hereinafter referred to as “Respondent/ Financial Creditor”).
The Adjudicating Authority rejected the submissions of the Appellant that a notice under sub-Section (2) of Section 13 of Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (herein referred to as “SARFAESI Act”) was issued by the Respondent to Appellant and there is a symbolic possession of the Appellant Company under Benami Property Transactions Act 1988 (herein referred to as “PBPT Act”). Thus, the proceedings under I&B Code shall not be allowed.
ISSUE BEFORE THE NATIONAL COMPANY LAW APPELLATE TRIBUNAL
Whether pendency of proceedings under SARFAESI ACT and PBPT Act prohibits the Financial Creditor from the initiation of the proceedings under I&B Code?
CONTENTIONS OF THE PETITIONER
The Appellant contended that, in light of three credit facilities provided by the Respondent, the Respondent had initiated the proceedings under Section 7 of the I&B Code before the Adjudicating Authority.
The Appellant also submitted that the Respondent failed to inform the Adjudicating Authority that a Notice under sub-Section (2) of Section 13 of the SARFAESI Act has already been issued by the Respondent to the Appellant for the default of a certain amount wherein the authorized officer also took the symbolic possession of the property mortgaged as per sub-Section (4) of Section of the SARFAESI Act.
The Appellant relied upon the Application filed before the Debt Recovery Tribunal (herein referred to as “DRT”) and stated that an Application before DRT has already been filed for the recovery of the debt and the existing Application under Section 7 of the I&B Code is a parallel Application filed by the Respondent before the Adjudicating Authority.
The Appellant further submitted that in light of the existence of symbolic possession of the Appellant Company in the PBPT Proceedings and SARFAESI Proceedings, the initiation of the proceedings by the Respondent under the I&B Code shall be kept in abeyance until the orders in PBPT Act had attained finality.
DECISION AND FINDINGS
The National Company Law Appellate Tribunal (herein referred to as “Tribunal”) after considering the submissions of the Appellant enlightened upon the intent of the enactment of the I&B Code and stated that, the real objective behind the enactment of the I&B Code is to maximize the value of assets of the corporate debtors and to promote the entrepreneurship.
The Tribunal further relied upon Section 238 of the I&B Code and observed that the financial creditor/operational creditor has the liberty to apply to the Adjudicating Authority under Section 7, 8, and 9 of the I&B Code irrespective of the proceedings pending before any other Adjudicating Authority as the I&B Code has the overriding effect on the other laws.
Thus, the contention of the Appellant about the abeyance of the proceedings under the I&B Code in light of the pendency of the proceedings under the SARFAESI Act and PBPT Act is not maintainable and dismissed the appeal of the Appellant.
AMLEGALS REMARKS
The Tribunal has again by considering the real objective for the enactment of the I&B Code, has rightly held that since the I&B Code has the overriding effect, any pending proceedings on the Corporate Debtor would not result in the non-maintainability of the application under I&B Code and it would not create an embargo on the financial creditor to initiate the Application under Section 7 of the I&B Code.
For any query or feedback, please feel free to get in touch with siddharth.kakka@amlegals.com or rohit.lalwani@amlegals.com.
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