State Bank of India Vs Bank of Baroda

Prabhat Kumar, Member (Technical)

This is an IA 154/2023, in CP IB 425/2022, filed on 10.01.2023 by State Bank of India seeking order and direction restraining Bank of Baroda (Respondent No 1) from proceeding further in terms of E-Auction notice dated 20.11.2022 issued under rule 6(2), 8(6), and 9(1) of the Security Interest (Enforcement) Rules, 2002 with respect to personal guarantors’ property; and also, creation of any third party rights over such property. The applicant has also sought declaration of said notice as void and illegal.

It is submitted by the applicant that the sale notice for the sale of properties of the Personal Guarantors i.e. Mr. Vinod Kumar Mohota in relation to the Credit facilities availed by M/s. Navrang Enterprises from Bank of Baroda was published in the newspaper on 20.11.2022 and the applicant came to know of this notice on 31.12.2022. the applicant wrote an email on 31.12.2022 to ROSARB Amravati region, Bank of Baroda informing the respondent Bank that an application under section 95 of the Insolvency and Bankruptcy Code,2016 has been filed on 04.03.2022 against Mr. Vinod Kumar Ranchhodas Mohota for personal insolvency and also informing that there is a moratorium on all legal action and/or proceedings including but not limited to action under SARFAESI Act. This email was acknowledged ROSARB by written mail asking for supply of company petition copy along with section 14 of the Code.

2.1. It is stated that the legal counsel of the applicant vide its mail dated 02.01.2023 apprised ROSARB that;

“In terms of section 96 (Interim- Moratorium) of the Insolvency and Bankruptcy Code,2016, an interim- moratorium commences on the date of the application in relation to all debts. During the interim-moratorium period, (a) any legal action or proceedings pending in respect to any debt shall deemed to have been stayed; (b) the creditors of the debtor shall not initiate any legal action or proceedings in respect of any debt.

Consequently, please not that interim-moratorium in terms of section 96 of the Insolvency and Bankruptcy Code,2016 kicks in of filing of application under section 95of Insolvency and Bankruptcy Code,2016 and no separate order is required in terms of section 96 of the Insolvency and Bankruptcy Code,2016. Thus, personal insolvency process differs from the Corporate Insolvency process where moratorium under section 14 of the Insolvency and Bankruptcy Code,2016 applies after admission of the application and order passed by the NCLT”.

2.2. Despite, the specific communication the respondent proceeded to conclude the auction proceedings in relation to property of Personal Guarantor. It is also stated that the property appears to have been sold by the respondents in the auction.

2.3. The applicant further submitted vide affidavit dated 02.03.2023 that respondent has not replied to their emails seeking result of e-auction notice dated 20.11.2022.

The respondent had filed reply dated 17.04.2023 stating that it had taken symbolic possession of the said property on 10.05.2022 and an application u/s 14(2) of SARFAESI Act was filed before District Magistrate on 05.12.2022 for taking physical possession thereof. The property in question was mortgaged to the respondent bank as collateral security to the credit facilities availed by M/s. Navrang Enterprises. During the pendency of this application the property was sold for Rs.497 lakhs and auction was confirmed on 29.12.2022. The Auction purchaser has paid 25 % of the reserve price.

3.1. It is also stated that, no objection against e-auction was received from State Bank of India, who acted upon only after confirmation of the sale and not before the property was put on auction. It is also stated that personal insolvency application is not yet admitted therefore, seeking the shelter under the umbrella of the Insolvency and Bankruptcy Code,2016 by the SBI is totally illegal.

This bench heard both the counsels and perused the material available on record.

4.1. Section 96(1)(a) of the Code provides that, “an interim- moratorium shall commence on the date of the application in relation to all the debts and shall cease to have effect on the date of admission of such application”. The code does not contemplate issuance of any public notice at this stage and code also does not contemplate issuance of any notice to other creditors.

4.2. In the present case, the applicant had filed an application u/s 95 of the Code on 04.03.2022 numbered as CP(IB) 425/MB/2022, accordingly interim-moratorium commenced from 04.03.2022. Section 96(1)(b) of the Code stays any legal action or proceeding pending in respect of any debt during the interim-moratorium period, and bars Creditors from initiating any legal action or proceedings in respect of any debt. In view of these provisions, no action or proceeding could have been continued against the personal guarantor from 04.03.2022. It is not in dispute that symbolic possession u/s 13(4) of SARFAESI Act was taken on 10.05.2022 by the respondent bank. As the interim-moratorium had commenced prior to 10.05.2022, the said action of taking symbolic possession as well as subsequent action for E-Auction of the said property is prohibited by section 96 (1) (b) of the Code, and accordingly is illegal.

4.3. This bench notices from the reply of the Respondent Bank and only a sale intimation letter has been issued on 28.12.2022 where under the auction buyer has deposited 25% so far. In view of this, this bench further directs the respondent not to proceed any further till interim-moratorium u/s 96 of the Code ceases. It is clarified that; the respondent bank shall have its right to enforce security in terms of provisions under the Code.

In view of the above this IA 154/2023, in CP IB 425/2022 is allowed and E-auction notice dated 20.11.2022 is declared illegal and void and this order will have consequential effect.