Bank restricted from coercive action on company properties during liquidation proceedings

The application was deemed maintainable under the Insolvency and Bankruptcy Code, 2016. The Tribunal directed the Respondent No. 1 Bank not to take any coercive steps against the Applicant companies' properties until the completion of the liquidation proceedings of the Corporate Debtor, to ensure the maximization of the Corporate Debtor's asset value and successful sale as a going concern.

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Issues Involved:
1. Maintainability of the application under the Insolvency and Bankruptcy Code (IBC), 2016.
2. Legality of the Respondent No. 1 Bank initiating proceedings under the SARFAESI Act, 2002, against the Applicant companies, which are subsidiaries of the Corporate Debtor.

Issue-wise Detailed Analysis:

1. Maintainability of the Application:
The application was filed under Section 60(5) of the Insolvency and Bankruptcy Code, 2016, which grants the National Company Law Tribunal (NCLT) jurisdiction to entertain or dispose of any application or proceeding by or against the corporate debtor or its subsidiaries. The Tribunal held that since the Applicants raised a question impacting the sale of the Corporate Debtor as a going concern, the application falls within the ambit of Section 60(5)(c) of the IBC, 2016. Therefore, the application is maintainable.

2. Legality of Respondent No. 1 Bank's Actions under SARFAESI Act:
- The Respondent No. 1 Bank issued a Demand Notice and a Possession Notice against the properties mortgaged by the Applicant companies, which are subsidiaries of the Corporate Debtor. The Applicants contended that such actions would diminish the value of the Corporate Debtor, affecting its sale as a going concern.
- The Tribunal noted that the Corporate Debtor is being maintained as a going concern and has a successful bid from Gabs Megacorp Ltd. for Rs. 1654.77 crores. The assets of the Corporate Debtor include investments in the Applicant companies, and any action by the Respondent No. 1 Bank could diminish their value, thereby affecting the Corporate Debtor's value.
- The Tribunal referenced the Hon'ble Supreme Court's judgment in Swiss Ribbons Pvt. Ltd. vs. Union Of India, which emphasized the primary focus of the IBC is to ensure the revival and continuation of the corporate debtor by maximizing the value of its assets.
- The Tribunal also cited the Hon'ble NCLAT's decision in Binani Industries Limited vs. Bank of Baroda, which highlighted the objective of the IBC to promote resolution over liquidation and maximize the value of the Corporate Debtor's assets.
- Although it is a settled law that the liability of a surety is coextensive with that of the principal debtor, the Tribunal emphasized that the enforcement of security interest by the Respondent No. 1 Bank should not adversely affect the value of the Corporate Debtor's assets.
- The Tribunal concluded that allowing the Respondent No. 1 Bank to proceed with the sale of the Applicants' properties would diminish the value of the Corporate Debtor and impact its sale as a going concern. Therefore, the Respondent No. 1 Bank was directed not to take any coercive steps, such as the sale of the properties mortgaged by the Applicant companies, until the completion of the liquidation proceedings of the Corporate Debtor.

Conclusion:
The application was deemed maintainable under the IBC, 2016. The Tribunal directed the Respondent No. 1 Bank not to take any coercive steps against the Applicant companies' properties until the completion of the liquidation proceedings of the Corporate Debtor, to ensure the maximization of the Corporate Debtor's asset value and successful sale as a going concern.

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