Whether Bank can recover the amount when part payment was made prior to moratorium order?

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Shubham Budhiraja[1]

Bank issued loan to company A which defaulted and bank took action under SARFESI and auction conducted and part payment made. Meanwhile, section 10 petition admitted by the NCLT during moratorium, bank accepted the part payment from auction purchaser. It is the contention of Bank that sale gets complete on first payment which occurred prior to CIRP order. Hon’ble Apex Court held that recovery of balanced part payment by the Bank is hit by section 14 IBC and not permissible.

 

(I)                 After the CIRP is initiated, there is moratorium for any action to foreclose, recover or enforce any security interest created by the Corporate Debtor in respect of its property including any action under the SARFAESI Act. It is clear that once the CIRP is commenced, there is complete prohibition for any action to foreclose, recover or enforce any security interest created by the Corporate Debtor in respect of its property. The words “including any action under the SARFAESI Act” are significant. The legislative intent is clear that after the CIRP is initiated, all actions including any action under the SARFAESI Act to foreclose, recover or enforce any security interest are prohibited.

 

(II)               IBC is a complete Code in itself and in view of the provisions of Section 238 of the IBC, the provisions of the IBC would prevail notwithstanding anything inconsistent therewith contained in any other law for the time being in force.

 

(III)             In view of the provisions of Section 14(1)(c) of the IBC, which have overriding effect over any other law, any action to foreclose, recover or enforce any security interest created by the Corporate Debtor in respect of its property including any action under the SARFAESI Act is prohibited. Hence, the Bank could not have continued the proceedings under the SARFAESI Act once the CIRP was initiated and the moratorium was ordered.

Case Reference: Civil Appeal No. 4750 OF 2021, Supreme Court of India, Judgment dated 18/05/2022

[1] Advocate, Delhi High Court , shubhambudhiraja02@gmail.com

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