The Principal Bench of the National Company Law Appellate Tribunal (NCLAT), New Delhi, has held that once a demand notice under Section 13(2) of the SARFAESI Act, 2002 is issued to a corporate debtor and its guarantors, the corporate debtor is statutorily barred from transferring any secured assets. The Tribunal clarified that, in view of Section 13(13) of the Act, no sale, lease, or other transfer of secured assets listed in the Second Schedule can be effected without the prior written consent of all lenders.
The appeals arose from an order of the Adjudicating Authority cancelling a licence agreement and a deed of usage executed by the Corporate Debtor after initiation of proceedings under Section 7 of the Insolvency and Bankruptcy Code, 2016. The dispute stemmed from the Corporate Debtor, a newspaper publishing company, defaulting on credit facilities availed from the State Bank of India and other lending institutions. Following the default, a demand notice under Section 13(2) of the SARFAESI Act was issued, expressly restraining the Corporate Debtor from transferring its secured assets.
Subsequently, some of the company’s erstwhile promoters resigned and incorporated a new entity. Despite the statutory embargo and after the Section 7 IBC application had been filed, the Corporate Debtor transferred several assets to this newly formed entity through a licence agreement and a deed of usage.
The Resolution Professional thereafter approached the Adjudicating Authority under Section 66 of the IBC, alleging fraudulent and wrongful trading and seeking cancellation of the impugned agreements. The Adjudicating Authority allowed the application and granted the reliefs sought.
Before the NCLAT, the Appellant contended that in the absence of specific pleadings meeting the requirements of Sections 44, 45, 46, and 47 of the IBC, an application filed solely under Section 66 could not be treated as a composite avoidance application. Accepting this submission, Justice Ashok Bhushan observed that the Adjudicating Authority had erred in invoking Section 49 of the IBC to cancel the impugned agreements.
However, the Tribunal clarified that, notwithstanding this error, the transactions were squarely hit by Section 13(13) of the SARFAESI Act. Given the statutory prohibition on the Corporate Debtor’s power to transfer secured assets, the Tribunal held that both agreements were void ab initio and unenforceable. The NCLAT further observed that the execution of the agreements was vexatious in nature and intended to place the assets beyond the reach of creditors.
Accordingly, the appeals were dismissed, and the order of the Adjudicating Authority was upheld.
Appearances:
For Appellant: Mr. Pawan Reley, Mr. Akshay Lodhi, Mr. Tanish Rawat and Mr. Utkarsh, Advocates.
For Respondents: Mr. Krishnan Venugopal, Sr. Advocate with Mr. Rahul Dev, Mr. Arjun Amin, Ms. Avina Karnad and Ms. Nandini Kaushik, Advocates for R1/Liquidator.
Mr. Sandeep Shinde, Sr. Advocate with Mr. Aditya Krishna, Mr. Atul Dhadiwala and Ms. Madhura C., Advocates for R2, R3 and R4.
