Financial Creditor Can Initiate Parallel SARFAESI and I&B Code Proceedings

The National Company Law Appellate Tribunal held that a Financial Creditor can initiate parallel proceedings under the SARFAESI Act, 2002, and the Insolvency & Bankruptcy Code, 2016, without attracting penalties under the I&B Code. The Tribunal emphasized the independence of proceedings under the I&B Code and allowed the appeal, setting aside the Adjudicating Authority's order. The mere initiation of parallel proceedings does not imply fraudulent intent, and the Financial Creditor can pursue actions under both legislations concurrently.

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Issues involved:
1. Whether a Financial Creditor can initiate parallel proceedings under the SARFAESI Act, 2002 and the Insolvency & Bankruptcy Code, 2016.
2. Whether the filing of parallel proceedings attracts penalties under section 65 of the Insolvency & Bankruptcy Code.

Analysis:

Issue 1:
The Appellant, Punjab National Bank, filed an appeal against an order passed by the Adjudicating Authority under the Insolvency & Bankruptcy Code, 2016 (I&B Code). The case involved the Financial Creditor (Appellant) filing an application against the Corporate Debtor (Respondent) under section 7 of the I&B Code. The Adjudicating Authority found that the Financial Creditor had initiated parallel proceedings under the SARFAESI Act, 2002, while also proceeding under the I&B Code, leading to allegations of forum shopping. The question arose whether a Financial Creditor can simultaneously pursue actions under both legislations. The Tribunal cited relevant judgments, including one by the Hon'ble Madras High Court, emphasizing the independence of proceedings under the I&B Code and the permissibility of filing applications under section 7 despite other ongoing proceedings. The Tribunal held that the Financial Creditor can proceed under both the SARFAESI Act, 2002, and the I&B Code concurrently, as the I&B Code's provisions prevail over inconsistent laws.

Issue 2:
The Adjudicating Authority's order raised the issue of whether the Financial Creditor's actions amounted to fraudulent or malicious initiation of proceedings under the I&B Code. The Tribunal observed that the Financial Creditor had disclosed the notice served under the SARFAESI Act, 2002, in the application under section 7 of the I&B Code, indicating no suppression of material facts. The Tribunal emphasized that the mere initiation of parallel proceedings does not automatically imply fraudulent intent. The Tribunal set aside the Adjudicating Authority's order, highlighting the need for an expeditious decision on the pending application under section 7 of the I&B Code.

In conclusion, the Tribunal allowed the appeal, setting aside the impugned order without imposing any costs, based on the findings that the Financial Creditor can pursue parallel proceedings under the SARFAESI Act, 2002, and the I&B Code, and that the mere initiation of such parallel actions does not necessarily indicate fraudulent or malicious intent.

This detailed analysis of the judgment by the National Company Law Appellate Tribunal, New Delhi, provides a comprehensive understanding of the issues involved and the Tribunal's reasoning behind the decision.

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