2025 (11) TMI 1348 - AT - IBC

Authority must verify ED provisional attachment before denying flat release under resolution plan; conditional liberty order set aside

Mohan Reddy Bhumi Reddy Gari Versus STCI Finance Limited, Mumbai

NCLAT held that the adjudicating authority erred in refusing to direct release of a specific residential unit covered by an approved resolution plan on ... Seizure and attachment of properties of the CD which also included 14 residential units situated at Mantri Pinnacle at Bannerghatta Road, Bengaluru - refusal to direct release of a specific asset covered by an approved resolution plan on grounds of an interim order of the Supreme Court continuing a provisional attachment order - HELD THAT:- The adjudicating authority was of the view that release of the said flat may not be in line with the interim order passed by the Hon’ble Supreme Court, however on the other hand liberty was given to the appellant (SRA) to approach the Respondent to furnish suitable undertaking for the purpose of release of the said flat, provided the same is not subject to any attachment by the ED. The adjudicating authority has committed manifest illegality in not ascertaining as to whether the aforesaid flat no. 2402 situated at floor no. 24 admeasuring 3595 sq. feet (4 BHK) in Mantri Pinnacle, Bannerghatta Road, Bengaluru was in fact provisionally attached by the ED by passing the provisional attachment order date d 19.02.2024 and without ascertaining the same the liberty has been given to the appellant to approach the Respondent and the ball has been placed in the court of the Respondent while it was the utmost duty of the adjudicating authority to adjudicate on the issue as to whether the aforesaid property was actually provisionally attached by the ED vide and if the property is found to be under attachment vide order dated 14.02.2019 the attachment of it was obviously protected by the order of the Hon’ble Supreme Court in [2024 (8) TMI 1648 - SC ORDER]. The impugned order may not be allowed to stand and for the reasons given herein before the same is set aside - matter remanded back to adjudicating authority for disposal application, afresh in the light of the observations made herein before, strictly in accordance with law, after providing an opportunity of being heard to the parties. ISSUES PRESENTED AND CONSIDERED 1. Whether the adjudicating authority erred in refusing to direct release of a specific asset covered by an approved resolution plan on grounds of an interim order of the Supreme Court continuing a provisional attachment order, without first determining whether that specific asset was in fact included in the provisional attachment order. 2. Whether the adjudicating authority lawfully delegated or shifted the burden of establishing non-attachment to the financial creditor by permitting the applicant to approach the creditor with an undertaking/indemnity rather than adjudicating the factual and legal question itself. 3. Whether, in the absence of a complete copy of the provisional attachment order on record, the Appellate Tribunal should remand the matter for fresh consideration and what directions are appropriate for expeditious disposal. ISSUE-WISE DETAILED ANALYSIS Issue 1: Whether the adjudicating authority erred in refusing to direct release of the asset without first determining if it was provisionally attached Legal framework: The adjudicating authority exercises jurisdiction over implementation of an approved resolution plan under the Insolvency and Bankruptcy Code, 2016; Section 32A (as referenced) affects the status of attachments upon approval/implementation of a resolution plan; separate statutory/regulatory attachment proceedings (provisional attachment by enforcement authority) may continue subject to orders of higher courts. Precedent Treatment: The Supreme Court had passed an interim order continuing the provisional attachment order generally; the High Court had earlier held that ED attachment had ceased by operation of Section 32A, but that conclusion was the subject of the Supreme Court's leave and interim direction. Interpretation and reasoning: The Court observed that the Supreme Court's interim direction maintained the operation of the provisional attachment order generally, but that the specific flat for which release was sought (flat no. 2402) did not appear in the schedule/list of properties attached by the provisional attachment order on the record before the Tribunal. Given that the Supreme Court's order only continued the existing attachment order, it could not, on its face, affect a property that was not part of that order. Consequently, before refusing relief on the basis of the Supreme Court's continuation of the attachment order, the adjudicating authority was obliged to ascertain whether the property was in fact covered by the attachment order. The adjudicating authority failed to make that factual/legal determination and instead treated the general interim direction as an automatic bar to release. Ratio vs. Obiter: Ratio - The adjudicating authority must determine, on available record, whether a specific asset falls within a continued provisional attachment before denying directions for release under an approved resolution plan. Obiter - Observations on the interplay of Section 32A and provisional attachment proceedings as a general proposition, to the extent not necessary for the remand. Conclusions: The adjudicating authority committed legal error by refusing to decide whether the flat was attached and by denying release without that finding. If the property is not shown to be attached, the adjudicating authority had jurisdiction to direct release; if it is attached, it is protected by the Supreme Court interim order. Issue 2: Whether it was lawful for the adjudicating authority to leave it to the creditor to insist on an indemnity/undertaking rather than adjudicating the question Legal framework: The adjudicating authority has a duty to adjudicate applications made under the Code (including applications seeking directions connected with implementation of a resolution plan) and to resolve factual disputes necessary for disposal. Parties may furnish undertakings/indemnities as evidence or to facilitate directions, but an undertaking cannot substitute for required adjudication of prima facie jurisdictional/factual issues. Precedent Treatment: No prior decision was invoked to justify shifting the adjudicatory duty; the Tribunal relied on general principles of judicial/tribunal function and the record before it. Interpretation and reasoning: The Tribunal held that by placing the ball in the respondent's court and permitting release only upon a commercial arrangement (undertaking) between the applicant and the financial creditor, the adjudicating authority improperly avoided its duty to determine whether the asset was subject to provisional attachment. The adjudicating authority's suggestion that the applicant approach the respondent for an undertaking amounted to an abdication of judicial function in the face of a determinative factual question that was within its jurisdiction to resolve. Ratio vs. Obiter: Ratio - An adjudicating authority must resolve whether an asset is attached and whether release is permissible under the law; it should not decline adjudication and instead require the applicant to obtain an undertaking from an opposing party as a precondition to relief. Obiter - Practical viability of undertakings in commercial settlements (commentary only). Conclusions: The adjudicating authority's refusal to adjudicate the attachment question and its direction to seek an undertaking from the creditor was legally impermissible. The matter must be reconsidered after proper factual determination. Issue 3: Remand in view of incomplete record (missing/incomplete provisional attachment order) and directions for fresh consideration Legal framework: Appellate bodies correct jurisdictional errors and may remit matters for fresh consideration where record is incomplete or material facts are not established below; parties are entitled to opportunity to place additional documents before the adjudicating authority on remand. Precedent Treatment: The Tribunal relied on its supervisory power to set aside an order that failed to address a determinative issue and to remand for fresh adjudication where the record before it was incomplete. Interpretation and reasoning: The Tribunal noted that an incomplete provisional attachment order had been placed on record by the appellant, preventing the Tribunal from finally deciding whether the property had been attached. Given the incomplete record and the adjudicating authority's failure to determine attachment status, remand was the appropriate remedy to enable adjudication on a complete record. The Tribunal declined to decide the attachment substantively because the appellant had not produced a complete copy of the provisional attachment order and because the adjudicating authority had not made the requisite factual determination. Ratio vs. Obiter: Ratio - Where the record is incomplete and a determinative factual issue was not adjudicated below, setting aside the impugned order and remanding for fresh consideration after permitting parties to produce additional documents is appropriate. Obiter - Timeframe suggested for disposal (one month) and encouragement for parties to file additional documents are procedural directions ancillary to the remand. Conclusions: The impugned order is set aside and the application is remitted for fresh consideration strictly in accordance with law after giving parties an opportunity to be heard and to place additional documents. The adjudicating authority is directed to decide the matter expeditiously (the Tribunal requested disposal within one month of first appearance on remand). Overall Court Conclusion The adjudicating authority committed manifest illegality by failing to ascertain whether the specific flat was included in the provisional attachment order and by deferring determination to commercial arrangements between parties; the impugned order is set aside and the matter remanded for fresh adjudication on a complete record with liberty for parties to file additional material and an express direction for expeditious disposal.