Landmark Ruling: Supreme Court Nixes NCLAT Decision, Declares Pre-Moratorium Auction Sales Exempt from Liquidation Assets

In a groundbreaking judgment on December 6, the Supreme Court shook the foundation of insolvency proceedings by asserting that properties auctioned off before the declaration of a moratorium under the Insolvency and Bankruptcy Code 2016 cannot be categorized as liquidation assets. Justices Aniruddha Bose and Vikram Nath, presiding over the case involving Amrit Hatcheries Pvt. Ltd., overturned the National Company Appellate Tribunal, Delhi (NCLAT) decision.

The case centered around the insolvency of Amrit Hatcheries Pvt. Ltd., with the Punjab National Bank holding the role of the creditor. Two sets of mortgaged properties in the Howrah district, West Bengal, were sold via auction to the appellant due to the default in payment. Surprisingly, the appellant completed the payment on August 16, 2019, while the initiation of the Insolvency Process occurred on August 20, 2019, leading to the moratorium declaration by the National Company Tribunal (NCLT).

The NCLT, deeming the sale certificate and property handover illegal, ruled that the properties should remain assets of the Corporate Debtor. Consequently, the Liquidator was directed to take possession of the properties during the resolution process. The appellate tribunal upheld this decision, prompting the case’s escalation to the Supreme Court.

Relying on the precedent set in Esjaypee Impex Private Limited v. Assistant General Manager and Authorised Officer, Canara Bank (2021) 11 SCC 537, the Supreme Court emphasized the importance of adhering to Section 17(2) (xii) and Section 89(4) of the Registration Act, 1908. The court noted that no evidence was presented to prove any default in issuing the sale certificate and stated, “No reason was cited before us to demonstrate as to why the sale certificate would be held illegal.”

During the proceedings, the counsel representing the Director and Liquidator acknowledged that the auction sale concluded before the moratorium declaration, leading the Court to conclude that the properties could not be treated as liquidation assets. The Court allowed the appeal, highlighting the consensus among the Liquidator, the erstwhile Director/Promoter of the Corporate Debtor, and the Bank regarding the conclusion of the sale.

In a related appeal initiated by the Bank, the Court left a crucial question open for future deliberation: whether an immovable asset vests in the lender bank upon issuing a public auction notice under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. Recognizing the significance of interpreting both the 2002 Act and the Insolvency and Bankruptcy Code 2016, the Court impleaded the Union of India, scheduling the matter for January 10, 2024.

Case Reference: HALDIRAM INCORPORATION PVT. LTD. vs. AMRIT HATCHERIES PVT. LTD., Diary No.- 6041 – 2022