2019 (1) TMI 83 - Tri - Insolvency and Bankruptcy

Tribunal Denies Bank's Interim Order in Property Dispute

State Bank of India Versus Calyx Chemicals & Pharmaceuticals Ltd.

The Tribunal dismissed Dena Bank's application seeking an interim order to prevent the Resolution Professional (IRP) from demanding custody of mortgaged ... Interim Order to restrain IRP from demanding the custody of the Property - whether the provisions of “Moratorium” defined u/s.14 be applicable under the circumstances? - Held that:- The Ownership is a deemed Ownership and not the actual Ownership and in that capacity the Bank/ Financial Institution can exercise their right as if the Owner of the asset but not the actual Owner. The connotation used, ‘as if’, is highly significant giving an indication that the Ownership is a deemed Ownership. The outcome of this discussion is that the IRP is duty bound to invoke the jurisdiction prescribed u/s.18 to perform duty of taking over the control and custody of any asset over which the Corporate Debtor has Ownership right as recorded in the Balance Sheet of the Corporate Debtor. The action of the IRP demanding possession over the property is justifiable considering the said specific provision of the Insolvency Code. The Ownership is a deemed Ownership and not the actual Ownership and in that capacity the Bank/ Financial Institution can exercise their right as if the Owner of the asset but not the actual Owner. The connotation used, ‘as if’, is highly significant giving an indication that the Ownership is a deemed Ownership. The outcome of this discussion is that the IRP is duty bound to invoke the jurisdiction prescribed u/s.18 to perform duty of taking over the control and custody of any asset over which the Corporate Debtor has Ownership right as recorded in the Balance Sheet of the Corporate Debtor. The action of the IRP demanding possession over the property is justifiable considering the said specific provision of the Insolvency Code. On co-joined reading of Sec. 3(31) with Sec.14(1)(c) gives a clear indication that the transaction of enforcement of security interest has been created under SARFAESI Act in the past which is to be prohibited for further action of foreclosure or recovery. As a consequence, under the present circumstances, the taking over of the possession by Dena Bank is very much covered under the clauses of “Moratorium” prohibiting not to deal with the impugned asset. Facts of the case have also revealed that the Applicant (Dena Bank) has already been inducted in the Committee of Creditors. As a consequence, all the properties belonging to the Corporate Debtor should come within one basket for further consideration, either by a Resolution Applicant or for the purpose of “Liquidation”. All the members of the Committee of Creditors including Dena Bank shall have their respective share in the assets pooled together. Issues:1. Interim Order sought by Dena Bank to restrain IRP from demanding custody of mortgaged properties.2. Interpretation of ownership rights and possession of property in insolvency proceedings.3. Applicability of moratorium under Section 14 of the Insolvency & Bankruptcy Code.Analysis:1. The Tribunal addressed Dena Bank's application seeking an interim order to prevent the Resolution Professional (IRP) from demanding custody of mortgaged properties. Dena Bank had taken physical possession of the properties under SARFAESI Act before the moratorium commenced. The Bank argued that the IRP had no right to demand possession post-moratorium. However, the IRP contended that the property belonged to the Corporate Debtor and should be under his control as per Section 18 of the Code. The Tribunal found the IRP's demand justified as the property was reflected as an asset in the Corporate Debtor's books, even though the Bank had possession rights, not ownership. The Tribunal cited a precedent to support the IRP's duty to take control of assets owned by the Corporate Debtor.2. The Tribunal delved into the applicability of the moratorium under Section 14 of the Code. The Bank argued that since possession was taken before the moratorium, it should be exempt. However, the Tribunal opined that if a security interest had been created, including actions under SARFAESI Act, the Adjudicating Authority must prohibit further action. By analyzing the definition of 'security interest' under the Code, the Tribunal concluded that the Bank's possession fell within the moratorium's scope, prohibiting any further dealings with the asset. The Tribunal emphasized that all properties of the Corporate Debtor should be considered collectively by the Committee of Creditors, including Dena Bank.3. In conclusion, the Tribunal dismissed Dena Bank's application, finding no merit in their arguments. The judgment highlighted the importance of adhering to the provisions of the Insolvency & Bankruptcy Code, especially regarding ownership rights, possession, and the applicability of the moratorium. The decision underscored the need for all creditors, including Dena Bank, to cooperate within the framework of insolvency proceedings for a fair resolution or potential liquidation of assets.