2020 (9) TMI 358 - Tri - Insolvency and Bankruptcy

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 ... Maintainability of application - Liquidation of Corporate Debtor - initiation of proceedings under SARFAESI Act, 2002 - sale of assets of the Applicant companies which are subsidiaries (while three are 100% subsidiaries and one being 66%) of the Corporate Debtor as a going concern - diminishing of value of the Corporate Debtor or not? - section 60(5)(c) of the IB Code, 2016. HELD THAT:- In the present case, during the CIRP, as there was no viable resolution plan, this Adjudicating Authority passed an order for liquidation. Against the said order of liquidation, an appeal came to be preferred before Hon'ble NCLAT. The fact on record is that one M/s. Gabs Megacorp, is the successful auction bidder, who is acquiring the Corporate Debtor as a going concern for a bid of ₹ 1654.77 Crores. It is also a fact that the assets of the Corporate Debtor includes investments in the subsidiary companies. The value of the said investments would depend, inter-alia, on the value of the assets owned by the subsidiary companies, apparently, the successful bidder has bid the acquisition amount based on the value of the assets of the Corporate Debtor which include the investment in the shares of the Applicant companies i.e., the subsidiary companies herein - In case, the Respondent No. 1 bank is allowed to proceed with the sale of the Applicants, there is every chance that it would diminish the value of the Applicants, which would result in diminishing the value of the Corporate Debtor, since the value of the Corporate Debtor includes the value of its shareholding in the Applicant companies. Though it is a settled position of Law that the liabilities of a surety is coextensive with that of principal debtor and further in view of the Law settled by the Hon'ble NCLAT and Hon'ble Supreme Court that a Financial Creditor can proceed to enforce the guarantees against the guarantors. Thus the settled position of Law, that there should not be any restraints on a Financial Creditor to proceed against the Guarantor even after the initiation of CIRP, approval of Resolution Plan or liquidation proceedings being commenced or closed. However, in the instant case, it is not the question of the right of the Financial Creditor to enforce the guarantee against the guarantor, but the point for consideration is whether the Respondent No. 1 Bank can proceed with the enforcement of security interest and sell the properties owned by guarantor companies within Applicant No. 1 to 4, which also would certainly result in diminishing the value of the Corporate Debtor, which would impact the sale of the Corporate Debtor as a going concern. This Adjudicating Authority feels it proper to direct Respondent No. 1 bank not to take any coercive steps such as sale of the properties mortgaged by the Applicant companies in favor of Respondent No. 1 bank till the completion of Liquidation proceedings of the Corporate Debtor - Application disposed off. 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.