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Chandigarh Quashes SARFAESI Sale of Mohan Rail Assets Under IBC
The ) Chandigarh Bench has delivered a significant ruling, setting aside the issued by for the core assets of . The order underscores the primacy of the and the automatic force of the under .
A Bench of Judicial Member Khetrabasi Biswal and Technical Member Kaushalendra Kumar Singh allowed two applications—one by the Jaspal Singh and Amandeep Singh, and another by Narinder Kaur—seeking to nullify the auction conducted by under the .
A Race Against the Clock: Bank's Auction While Orders Reserved
The dispute traces back to when Mohan Rail Components' credit facilities from were declared . The bank initiated recovery under the in and pursued various remedies, including a of ₹16.15 crore in , of which only ₹3.40 crore was paid due to COVID-19 disruptions.
In 2023, filed a petition under before the seeking initiation of (). The matter was argued extensively and reserved for orders on . However, instead of awaiting the verdict, the bank issued a sale notice on , putting the factory land, building, and plant and machinery up for . The auction was held on , with a single bid of ₹8.61 crore—marginally above the .
On , Narinder Kaur, a , filed a petition under , triggering an under Section 96. Despite this, proceeded to issue the on and received the . The was later admitted on .
Conflicting Contentions: Sale Finality Versus Protection
The applicants argued that the was issued after the had commenced, rendering the entire transaction void. They contended that the bank acted hastily, knowing that the Section 7 petition was at an advanced stage, and that the sale of the core assets would make infructuous.
countered that the auction was conducted before any was in place, and that the mere filing of a Section 94 petition does not invalidate a completed sale. It relied on judgments including and to argue that the bank could simultaneously pursue remedies under SARFAESI and IBC.
The 's Reasoning: Operates Automatically
The Tribunal held that the under Section 96 operates by force of statute from the date of filing the Section 94 application. It noted that while the auction was conducted on , the and receipt of consideration occurred only on —after the had come into effect. Thus, the post- could not sustain.
The Bench further criticised for rushing ahead with the auction while the Section 7 proceedings were reserved for orders. It observed that such conduct directly undermined the very objective of the IBC—preserving the corporate debtor as a and maximising asset value.
Key Observations
The Tribunal made a pointed observation about the interplay between recovery and resolution:
"The parties ought to have acted in such a manner that does not interdict judicial process of adjudication, especially in the present case where the company petition u/s 7 of the Code was preferred by the same Financial Creditor, seeking initiation of , which is not only restricted for the benefit of the Financial Creditor, but is in the beneficial interest of all, including other Operational Creditors and stakeholders."
It also noted that the bank's conduct warranted exercise of under Rule 11 of the Rules:
"Such a course of action, though initiated under the , directly impacts the very objective sought to be achieved under the Code, namely preservation of the Corporate Debtor as a and through the ."
Decision and Implications
The allowed both applications, setting aside the dated and all consequential actions. The core assets of Mohan Rail Components are to be placed under the control of the Interim Resolution Professional.
The ruling reaffirms that cannot use to pre-empt or derail the , especially after having invoked the jurisdiction of the . It also clarifies the automatic nature of the under Section 96 and its effect on transactions that are not fully concluded before the kicks in.
The decision is expected to impact ongoing cases where banks attempt to sell assets while Section 7 petitions are pending, reinforcing the principle that the IBC's resolution objective takes precedence over individual recovery actions.
