2026 (3) TMI 664 - AT - IBC

Confirmation of sale under Tax Recovery rules vested title despite moratorium; pre CIRP sale upheld and order set aside.

Whether a sale under the Tax Recovery statutory scheme vested title before CIRP, the tribunal applied Rule 63 and Rule 65 of the Second Schedule to the ... Validity of confirmation of sale and sale certificate under the moratorium imposed by Section 14 of the Insolvency and Bankruptcy Code - application of the Second Schedule to the Income-tax Act, 1961 - Commencement of the corporate insolvency resolution process (CIRP) -overriding effect of moratorium - ministerial nature of sale certificate issuance. Confirmation of sale under Second Schedule of the Income-tax Act vests title - sale certificate is ministerial evidence of title - Effect of confirmation of sale under the Second Schedule of the Income-tax Act on transfer of title to the auction purchaser. - HELD THAT:- The Tribunal held that under the statutory scheme (Second Schedule, Rules 60-65), once the Tax Recovery Officer confirmed the sale and the full purchase money was deposited, the sale became absolute and title vested in the auction purchaser. The issuance of the sale certificate is a ministerial act and evidence of the date on which the sale became absolute; an interim withholding of the certificate does not postpone vesting of title. The Court applied authorities recognising that confirmation of sale, not the mere issuance of a certificate, is the determinative event by which title passes. [Paras 13, 23] The confirmation of sale on 20.11.2023 vested title in the Auction Purchaser; issuance of the sale certificate was a ministerial formality and did not affect vesting. Moratorium under Section 14 of the IBC does not affect a sale already become absolute - Whether the moratorium under Section 14 of the IBC invalidated the confirmed sale in this case. - HELD THAT: - The Tribunal concluded that because the sale had become absolute on confirmation prior to commencement of the CIRP, the moratorium could not nullify the sale. The Adjudicating Authority erred in treating confirmation and issuance of the sale certificate as contemporaneous and in relying on the SARFAESI precedent which concerned a different statutory scheme; the correct application is that a moratorium cannot retrospectively invalidate a sale that had already become absolute. [Paras 24, 25] The moratorium under Section 14 of the IBC did not affect the sale which had become absolute prior to commencement of CIRP; the Adjudicating Authority's order allowing the RP's application was erroneous. Final Conclusion: Both appeals are allowed; the Adjudicating Authority's order is set aside and the RP's application is dismissed. Parties shall bear their own costs. Issues: Whether the confirmation of sale dated 20.11.2023 by the Recovery Officer and related proceedings vested title in the successful auction purchaser prior to commencement of the corporate insolvency resolution process (CIRP) on 01.01.2024, and whether the Adjudicating Authority was correct in declaring the confirmation of sale and sale certificate null and void under the moratorium imposed by Section 14 of the Insolvency and Bankruptcy Code.Analysis: The sale in the present case was conducted under the Recovery of Debts and Bankruptcy Act, 1993 with application of the Second Schedule to the Income-tax Act, 1961. Under that statutory scheme Rule 63 contemplates that where no application to set aside the sale is pending or such application is disallowed and the full purchase money has been paid, the Tax Recovery Officer shall make an order confirming the sale and thereupon the sale shall become absolute. Rule 65 provides that the sale certificate records the date on which the sale became absolute, and issuance of the sale certificate is a formal acknowledgment of the date the sale became absolute. The Recovery Officer confirmed the sale in favour of the auction purchaser on 20.11.2023 and recorded that the auction purchaser had deposited the sale proceeds. Although issuance of the sale certificate was temporarily kept in abeyance due to an interim order of the Calcutta High Court and later issued on 14.03.2024, the statutory scheme and the authorities cited establish that confirmation of the sale is the operative event by which the sale becomes absolute and title vests in the purchaser. The Adjudicating Authority relied on Indian Overseas Bank v. RCM Infrastructure (construing the SARFAESI and Security Interest Rules) where completion of sale depended on acceptance of full payment under those rules; that ratio was applied incorrectly to the present statutory scheme under the Income-tax Act Second Schedule. The material facts show confirmation occurred on 20.11.2023, prior to commencement of CIRP on 01.01.2024; therefore the moratorium could not invalidate a sale that had already become absolute under the pertinent statutory scheme.Conclusion: The confirmation of sale dated 20.11.2023 vested title in the auction purchaser prior to commencement of CIRP on 01.01.2024; the Adjudicating Authority erred in declaring the sale and sale certificate null and void under Section 14 of the Insolvency and Bankruptcy Code. The appeals are allowed and the impugned order dated 24.04.2024 is set aside.