Pranav B Prem

The National Company Law Appellate Tribunal (NCLAT), Principal Bench at New Delhi, has ruled that neither the NCLT nor the NCLAT can set aside an auction sale that took place prior to the commencement of the Corporate Insolvency Resolution Process (CIRP). The Tribunal held that such sales, conducted under lawful orders of a criminal court, fall outside the purview of Section 14 of the Insolvency and Bankruptcy Code, 2016 (IBC), and cannot be interfered with under the Code.

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The ruling came in appeals filed by Unity Small Finance Bank Ltd. and Marine Solutions Distributions and Services Pvt. Ltd. challenging an order passed by the NCLT, Mumbai Bench. The NCLT had allowed an application filed by Suraksha Asset Reconstruction Ltd., the financial creditor, setting aside the auction of a yacht that was owned by the Corporate Debtor, Sapphire Land Development Pvt. Ltd., and directing the handover of the asset to the Resolution Professional post-admission of the CIRP.

The auction in question had been conducted on 22.03.2021 in pursuance of an order dated 25.11.2019 passed by the Additional Chief Metropolitan Magistrate (ACMM) in a criminal proceeding. The ACMM had permitted the sale of certain moveable properties, including the yacht, which had been attached in connection with economic offences involving HDIL and its group companies. The proceeds from the auction were directed to be credited towards the loan account of the said entities.

The Appellants argued that the NCLT lacked jurisdiction under the IBC to interfere with an auction that was legally conducted before the initiation of CIRP, which commenced on 30.04.2021. It was submitted that the auction amount had already been paid by the successful bidder in March 2021, in accordance with the terms of the sale, and the sale had thus been completed.

The Respondent countered by asserting that the auction process was incomplete even after the commencement of the CIRP. They claimed that mandatory steps like preparation of a panchanama were not followed and therefore the auction could not be considered concluded. It was also argued that the moratorium under Section 14 of the IBC applied and that the NCLT had rightly intervened. The NCLAT rejected this contention, holding that Section 14 of the IBC was inapplicable in the present case since the auction took place prior to the CIRP. The Tribunal stated: “We fail to see the applicability of Section 14 of the IBC... In present case the auction cannot be held to be conducted in violation [of] Section 14 of the IBC.”

The Appellate Tribunal further emphasized that the auction was held in compliance with the order of a criminal court and any interference by the NCLT was beyond the scope of its jurisdiction under the IBC. Referring to the Supreme Court’s decision in Kalyani Transco, the NCLAT underlined that the jurisdiction of the NCLT and NCLAT is confined to issues arising out of insolvency resolution and cannot extend to reviewing lawful orders passed by statutory authorities under public law.

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The Bench also relied on the principle laid down in Embassy Property Developments to reinforce that matters in the realm of public law fall outside the jurisdiction conferred by Section 60(5)(c) of the IBC. It clarified that the distribution of proceeds from the sale of the yacht was not under consideration in the present proceedings and could be addressed separately by the concerned parties in accordance with law. Concluding the matter, the NCLAT held that the NCLT had no authority to set aside the auction held prior to the initiation of CIRP and allowed the appeals accordingly.

Appearance

For Appellant(s): Mr. Alok Dhir, Ms. Udita Singh & Ms. Varsha Benerjee, Advocates for Appellant. 

For Respondent(s): Mr. Sunil Fernandez, Sr. Adv. With Ms. Srishty Kaul, Mr. Sagar Bansal, Ms. Aakansha & Ms. Muskan, Advocate for R1. 

Cause Title: Unity Small Finance Bank Ltd. V. Suraksha Asset Reconstruction Ltd. & Ors.

Case No: Comp. App. (AT) (Ins) No. 1480 of 2023

Coram: Justice Ashok Bhushan [Chairperson], Barun Mitra [Technical Member], Arun Baroka [Technical Member]