2024 (11) TMI 1053 - AT - IBC

Appeals dismissed after property sold post-judgment reservation during insolvency proceedings deemed not bonafide

Mr. Bhagawant Narayan Naik Versus Ritesh R. Mahajan, RP of Sovereign Industries Ltd., M/s. Sovereign Industries Limited

The NCLAT dismissed appeals challenging rejection of applications during CIRP proceedings. The appellant sold disputed property immediately after judgment ... Maintainability of Civil suit - bar under Order 7 Rule 11 of CPC - Ownership and possession rights of the Appellant over the disputed land during CIRP proceedings - bar u/s 238 of I & B Code - specific case has been made that the property in question is being used for the industrial purposes of the Corporate Debtor, which is a fact not denied by the appellants and it was falling within the premises of the Corporator Debtor which is already in custody of the Resolution Professional - HELD THAT:- The orders under Section 7 were reserved on 06.02.2023 and the Corporate Debtor itself vide its Diary No. 5214 dated 02.12.2022, had stated that it signifies its willingness to admit the application and the directions for initiation of the CIRP proceedings in view of financial stress. In these circumstances, sale of the said property immediately after reserving of the judgment on 06.02.2023, itself is an avert act, and actions of the Appellant with regard to the aforesaid transaction which is subject matter of the Civil Suit, which has been instituted at his behest together with chronological sequence of transactions in the scheduled land during the pendency of CIRP proceedings shows that the sale was not bonafide and apart from this, since the appellant himself has already questioned the rights of the respondent in a regular Civil Suit, and his rights over the property are yet to be determined by the competent Civil Court, which he himself has invoked at this stage the pendency of the Civil Suit cannot be taken as a reason for interference in the CIRP proceedings. Further, the resolution plan as filed through IA No. 02/2024 in its Clause 5, describes the assets of the Corporate Debtor, which also refers to the ensuing litigation being Suit O.S. No. 16/2024. The apprehension expressed on the basis of the written submissions is without basis, as the Resolution Plan since it does not in any manner transfer or affect the title of the subject property and there is no immediate change of ownership or the Applicant’s right. In view of the discussions as above, it does not call for any interference at this stage and that too, while exercising the inherent powers under Rule 11 of the NCLT Rules, 2016. Having scrutinised the reasons which has been assigned by the Learned Adjudicating Authority in relation to the status of the property and the effect of the pendency of the Civil Suit filed by the Appellant, the rejection of the two applications of the Appellant by the Learned Adjudicating Authority by the Impugned order does not call for any interference in the exercise of the Appellate Jurisdiction under Section 61 of I & B Code. Thus, these appeals lack merit and they are accordingly dismissed. Issues Involved:1. Ownership and possession rights of the Appellant over the disputed land during CIRP proceedings.2. Applicability of Section 14 and Section 238 of the Insolvency and Bankruptcy Code (I&B Code) to the Appellant's claims.3. Validity of the sale transactions concerning the disputed land amidst CIRP proceedings.4. The role and obligations of the Resolution Professional in dealing with the disputed property.5. The impact of the pending civil suit on the CIRP proceedings and the rights of the Appellant.Issue-wise Detailed Analysis:1. Ownership and Possession Rights of the Appellant:The Appellant claimed ownership and continuous possession of the disputed land, asserting that the property was not part of the Corporate Debtor's assets. The Appellant argued that the land was purchased through a registered Sale Deed on 24.02.2023, prior to the Corporate Debtor's admission into CIRP on 28.03.2023. However, the tribunal noted that the land had conveyors installed for the Corporate Debtor's factory, indicating its use for industrial purposes by the Corporate Debtor. The Appellant's claim of independent ownership was challenged by the Resolution Professional, emphasizing that the land was part of the Corporate Debtor's premises.2. Applicability of Section 14 and Section 238 of the I&B Code:The Resolution Professional argued that the civil suit filed by the Appellant was barred by Section 14 of the I&B Code, which imposes a moratorium on proceedings against the Corporate Debtor once CIRP is initiated. Additionally, the suit was claimed to be barred by Section 238 of the I&B Code, which gives precedence to the Code over other laws. The tribunal agreed with the Resolution Professional's contention, highlighting that any transaction related to the property during CIRP was barred, and the Appellant's rights were yet to be determined by the civil court.3. Validity of Sale Transactions:The tribunal scrutinized the sequence of transactions, noting that the land was sold to the Appellant on 24.02.2023 by Mr. Chidanand Sangappa Patil, who had acquired it from the suspended director of the Corporate Debtor on 23.01.2023. The tribunal observed that these transactions occurred when the Section 7 application against the Corporate Debtor was under active consideration, suggesting a lack of bona fide intent. The tribunal concluded that the sale was an attempt to dilute CIRP proceedings, as the property was part of the Corporate Debtor's assets.4. Role and Obligations of the Resolution Professional:The Appellant sought directions for the Resolution Professional to exclude the disputed property from resolution plans and provide relevant documents. The tribunal found no merit in these requests, emphasizing that the Resolution Professional acted within the scope of CIRP proceedings. The tribunal noted that the resolution plan did not transfer or affect the title of the disputed property and that the Appellant's rights were still subject to determination by the civil court.5. Impact of the Pending Civil Suit:The tribunal considered the pending civil suit filed by the Appellant, which sought a decree of permanent injunction. The tribunal noted that the Appellant obtained a temporary injunction without disclosing the implications of Section 14 of the I&B Code. The tribunal concluded that the pendency of the civil suit could not interfere with CIRP proceedings, as the Appellant's rights over the property were yet to be adjudicated by the competent civil court.In conclusion, the tribunal dismissed the appeals, affirming the rejection of the Appellant's applications by the Adjudicating Authority. The tribunal found no grounds for interference under Section 61 of the I&B Code, as the Appellant's claims lacked merit and the disputed property was deemed part of the Corporate Debtor's assets.