2019 (8) TMI 529 - AT - Insolvency and Bankruptcy

Tribunal Upholds I&B Code in Insolvency Appeal, Clarifies Professional Duties

The Tribunal dismissed the appeal, emphasizing the supremacy of the I&B Code in determining possession rights during insolvency proceedings. The ... Preferential rights of secured creditors - Handing over the possession of the mortgaged property - restraint on ‘Interim Resolution Professional’ from demanding the custody of the property - loan became bad and declared Non-performing asset - HELD THAT:- Section 18 of the ‘I&B Code’ deals with ‘Duties of Interim Resolution Professional’. As per which, it is the duty of the ‘Interim Resolution Professional’ to take over the control and custody of any assets over which the ‘Corporate Debtor’ has ‘ownership rights’ as recorded in the balance sheet of the ‘Corporate Debtor’ which includes the assets that may or may not be in possession of the ‘Corporate Debtor’ as apparent from clause (f) (ii) of Section 18 - from Section 18, it is clear that the term “assets” do not include the assets owned by a third party in possession of the ‘Corporate Debtor’. It is not the case of the Appellant that the title of the assets has already been transferred or they have sold the assets in terms of Section 13(4) of the ‘SARFAESI Act, 2002’. It is also not the case of the Appellant that the assets owned by a third party is in possession of the ‘Corporate Debtor’ in terms of Section 18, as it is the duty of the ‘Interim Resolution Professional’ to take control and custody of any asset over which the ‘Corporate Debtor’ has “ownership rights” as recorded in the balance sheet of the ‘Corporate Debtor’. Even if it is not in possession of the ‘Corporate Debtor’, a person who is in possession of the same, including the ‘Dena Bank’ or ‘Encore Asset Reconstruction Company Pvt. Ltd.’ is bound to hand over the same to the ‘Resolution Professional’, when title still vests with ‘Corporate Debtor’. ‘SARFAESI Act, 2002’ being an existing law, Section 238 of the ‘I&B Code’ will prevail over any of the provisions of the ‘SARFAESI Act, 2002’ if it is inconsistent with any of the provisions of the ‘I&B Code’. Thus, Section 18 of the ‘I&B Code’ will prevail over Section 13(4) of the ‘SARFAESI Act, 2002’ and the ‘Dena Bank’ cannot retain the possession of the property in question of which the ‘Corporate Debtor’ is the owner - appeal dismissed. Issues:1. Appellant appealing against the order of the Adjudicating Authority directing possession handover.2. Interpretation of the duties of the Interim Resolution Professional under the I&B Code.3. Conflict between the I&B Code and SARFAESI Act regarding possession rights.Issue 1:The appeal was filed against an order directing Dena Bank to hand over possession of mortgaged properties in a Corporate Insolvency Resolution Process. The Bank had taken physical possession under the SARFAESI Act before the moratorium commenced, claiming the Resolution Professional was pressuring to return possession.Issue 2:The duties of the Interim Resolution Professional under Section 18 of the I&B Code were central. The Professional must take control of assets over which the Corporate Debtor has ownership rights, even if not in their possession. The Bank argued ownership vested in them due to the bad loan status, while the Professional contended the Debtor remained the owner as per the I&B Code.Issue 3:The Tribunal analyzed the conflict between the I&B Code and the SARFAESI Act. Section 238 of the I&B Code overrides inconsistent provisions of other laws. It held that Section 18 of the I&B Code prevails over Section 13(4) of the SARFAESI Act, determining that the Bank could not retain possession of the property as the Corporate Debtor was the owner.The Tribunal dismissed the appeal, emphasizing the supremacy of the I&B Code in determining possession rights during insolvency proceedings. The judgment clarified the duties of the Interim Resolution Professional and resolved the conflict between the I&B Code and the SARFAESI Act regarding possession rights, establishing the ownership rights of the Corporate Debtor during insolvency proceedings.