The Mumbai bench of National Company Law Tribunal (NCLT) has held that property of the personal guarantors cannot be sold by the financial creditor under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) during the period of the interim moratorium under section 96 of the Insolvency Bankruptcy Code (IBC), 2016 even if sale auction notice was issued before commencement of the moratorium.
Raghavendra Joshi , the Applicant who is the personal guarantor under Section 60(4) r/w Section 60(5) of the IBC read with Section 179(2) and Rule 11 of the National Company Law Tribunal Rules, 2016. State Bank of India , the Financial Creditor had extended credit facilities of Rs. 1500 Lakhs to M/s Deogiri Infrastructure Private Limited , the Corporate Debtor. The repayment of the said facilities was secured by personal guarantee given by the Applicant and his wife Smt. Meena Raghavendra Joshi by signing Guarantee Agreement dated 13.03.2015. The said guarantee is a continuing one for all the amounts advanced to the corporate debtor.
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Upon the credit facilities becoming irregular, the loan account of the corporate debtor was classified as a Non-Performing Asset on 30.10.2018. Thereafter, State Bank of India issued notice under Section 13(2) of (SARFAESI Act) and initiated proceedings. Thereafter State Bank of India took symbolic possession of the properties at Aurangabad and Latur under Section 13(4) of the SARFAESI Act.
A Company Petition under Section 95 of the Code was filed by the Financial Creditor against the applicant on 26.04.2022. Resolution Professional was appointed. Later sn interlocutory application was filed by the resolution professional recommending initiation of personal insolvency proceedings against the applicant/personal guarantor.
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During the subsistence of the interim moratorium under Section 96 of the Code, Indian Bank , the Respondent No.1 sold the property in question jointly owned by the Applicant and his wife Smt. Meena Raghvendra Joshi, under the SARFAESI Act, to Mr. Besi Kuzimanil Mathu , Respondent No. 2.
The Applicant has challenged the sale of the ‘property in question’ on the ground that there is breach of interim moratorium under section 96 of the Code by Respondent No1 and seeking setting aside of the sale of the property in question.
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The tribunal viewed that as per sub-section (4) of section 60 of IBC, the National Company Law Tribunal shall be vested with all the powers of the Debt Recovery Tribunal under Part III of this Code for the purpose of sub section (2).
Referring to section 96 of the Code, the bench found that section 96(1)(a) states that an interim moratorium shall commence on the date of the application in relation to all the debts and shall cease to have effect on the date of admission of such application. It was evident under clause (b) that during the moratorium period, all legal proceedings pending in respect of any debt shall be stayed and that the creditors of the debtor shall not initiate any legal action or proceedings in respect of any debt.
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The two member bench of Mr. Charanjeet Singh Gulati (Member Technical) and Justice Lakshmi Gurung (Member Judicial) found that on the date of commencement of interim moratorium under section 96 of IBC, i.e. on 26.04.2022 all legal action and all proceedings in respect of any debt of the Personal Guarantor stood stayed and Respondent No. 1 could not have proceeded to conduct sale on 10.05.2022 and issued Sale Certificate on 31.05.2022.
While allowing the application, the tribunal rejected the contention of the respondents that the property in question was not hit by section 96 of the code.It was concluded that the sale of the property in question on 10.05.2022 by Respondent No. 1 Bank to Respondent No. 2 is violative of section 96 of the Code and is therefore not a valid sale.
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