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Judgment Summaries (NCLAT) State Bank of India v. Anuj Bajpai

  March 3, 2022

CASE SUMMARY

State Bank of India v. Anuj Bajpai 

{NCLAT,  New Delhi, Principal Bench; November 18, 2019}

ABBREVIATIONS & ACRONYMS USED

FACTS: NCLT passed a liquidation order against the CD Sanaa Syntex Pvt. Ltd. It allowed exclusion of SBI’s mortgaged assets from the total assets of the CD under liquidation as SBI was a secured FC of the CD. SBI chose to opt out of liquidation in accordance with Section 52. The Liquidator made an application to the NCLT regarding the same seeking the following directions:

1. The provision under Section 35(1)(f) must not not be violated.
2. Disallowing SBI to sell the mortgaged assets to any person ineligible to move a resolution plan under Section 29A.
3. SBI must ensure that operational debts of employees are paid out first from the amount realised from the sale of the assets. 

The NCLT allowed the application partly, holding that SBI cannot sell the mortgaged assets to an ineligible person under Section 29A. SBI filed an appeal against this order.

ISSUE: Whether a secured FC opting out of the liquidation process u/s 52 barred to sell the mortgaged assets to a person ineligible to move a resolution plan in CIRP u/s 29?

SBI’s CONTENTIONS: The appellant relied on the following cases in support of its argument that a secure FC in the event it chooses to opt out of liquidation in accordance is not barred to sell its assets to persons barred by Section 29A :

1. Pegasus Assets Reconstruction Private Ltd. v. Haryana Concast Limited: A secured FC is empowered to enforce its security interest without interference from the courts or tribunals in accordance with the SARFAESI Act.
2. S. C. Sekaran v. Amit Gupta & Ors. and Y. Shivram Prasad v. S. Dhanapal & Ors.: It is open to the promoters to enter into a scheme of compromise and arrangements.

LIQUIDATOR’s CONTENTIONS: The purpose of Section 29A would be defeated if the sale of secured assets to disqualified persons is allowed. The proviso to Section 35(1)(f) bars the liquidator from selling the property of CD to a person disqualified under Section 29A. The case of Jindal Steel & Power Limited vs. Arun Kumar Jagatramka & Anr. was cited which further discussed the cases of S. C. Sekaran v. Amit Gupta & Ors. and Y. Shivram Prasad v. S. Dhanapal & Ors. cited by the appellant and held that a person ineligible under Section 29A cannot enter into a scheme of arrangement and compromise u/s 230-232 of the Companies Act, 2013. 

HELD: The NCLAT noted the case of Arcelor Mittal India Private Limited vs. Satish Kumar Gupta & Ors. wherein it was held that a person disqualified under Section 29A cannot be allowed to submit a resolution plan while the default was still existing and that in public interest the corporate veil must be disregarded. Acceding with the contention of the respondent it was held that even though Section 52(4) is silent, the proviso of Section 35(1)(f) would apply to not only liquidator but also to secured creditors since the objective of the Code is to disallow selling assets of the CD to persons ineligible under Section 29A.