Showing posts with label statutory-first-charge. Show all posts
Showing posts with label statutory-first-charge. Show all posts

Friday, 26 June 2026

Statutory First Charge & Enforcement of Security Interest by Financial Creditor (Bank) in SARFAESI.

 Recently, in two judgments, High Court Mumbai & NCLAT had passed on the burden of satisfaction of “Statutory First Charge holders - MVAT & EPF/Workmen’s dues respectively '' on the auction purchaser under SARFAESI.

i). HC Bombay (18.02.2021) in Medineutrina Pvt. Ltd. Vs District Industries Centre (D.I.C.) and Other  [Writ Petition No. 7971/2019] held that;

  • It goes without saying that when a statutory charge is created on the property, the same would go with the property and would follow the property, in whosoever hands the property goes.

  • Thus the notice of such a statutory charge on the property, is always presumed in law, to one and all and none can claim ignorance of the same. 

  • Thus the purchase of the property on 'as is where is and what is there is ' basis, would mean that the property was being had by the auction purchaser, with all its rights, obligations and liabilities, whatsoever they may be, which would include, all dues, impositions, restrictions as may have been imposed upon the same and consequent to acquiring title to the property, cannot be permitted to quibble out of it, on the alleged plea of not being noticed about any such liability/imposition.

  • That apart, it is equally a duty of the auction purchaser, before bidding for the same, to make inquiries about the impositions upon the property, so that he can have it free of any encumbrances. After acquiring title to the property, the auction purchaser cannot be heard to say that he will have the rights associated with the property and not the liabilities. He takes it lock, stock and barrel, with everything.

  • Thus even in the present case, the dues as claimed by the respondent no.2, being a charge on the property, under Section 37(1) of MVAT Act, 2002, and the property having stood attached by the respondent no.2, before the auction, the petitioner, would be liable to pay the same to the respondent no.2, in order to obtain a clear and marketable title to the property, having purchased the same on 'As is where is and whatever there is basis'. In case the petitioner discharges the aforesaid dues of the respondent no.2, it would then be entitled to a no dues certificate from the respondent no. 2.

 

ii). NCLAT (03.03.2021) in Tarun International Ltd. Vs  Vikram Bajaj (RP for Anil Special Steel Industries Ltd.) & Ors. [Majority judgement in Company Appeal (AT) (Insolvency) No.1194 of 2019] held that; - 

  • There is considerable force in the contention raised by Respondent No.4 that dues of EPF are an encumbrance on the establishment and become first charge thereupon within the purview of Section 11(2) of the Employee’s Provident Funds and Miscellaneous Provisions Act, 1952. 

  • we are of the considered opinion that the Appellant auction purchaser had accepted the acquisition of Unit No.1 subject to condition of ‘as is where is basis, as is what is basis, whatever there is basis’ and being fully aware of the nature of liabilities passing on to it in consequence of such sale besides being aware of the issuance of demand notice by Respondent No.2- ‘Rashtriya Anil Steel Majdoor Sangh’, thus the liabilities said to have been acquired by the Appellant in terms of the impugned order cannot be held to be an erroneous conclusion warranting interference.


Contra view; 

A. Excerpts of Dissenting Judgement Per; V. P. Singh, Member (T) in Tarun International Ltd. Vs  Vikram Bajaj (RP for Anil Special Steel Industries Ltd.) & Ors.

  • # 35.The first provision to Section 13 of the SARFAESI Act provides that where the secured creditor of a company opts to realise security, he may retain the secured assets' sale proceeds after depositing the workmen's dues to Liquidator. The second proviso to Section 13 imposes a duty on the liquidator to intimate the secured creditor about the workmen's dues. In such cases where workmen's dues cannot be ascertained, the liquidator is obligated to intimate the estimated amount of workers dues to the secured creditor. In such a case, the secured creditor may retain the secured assets' sale proceeds after depositing the amount of such estimated dues with the liquidator. 4th proviso to Section 13 of SARFAESI Act imposes a duty on the secured creditor to give an undertaking to the liquidator to pay the balance of the workmen dues if any. Thus, it is clear that if a company is being wound up and the secured creditor of such a company opts to realise his security, then the secured creditor has authority to retain the secured assets' sale proceeds after depositing the workmen's dues.


B. Blogger’s comments;

The question is, when MVAT dues are deemed to have statutory first charge on the assets of the CD, how come subsequent charge holders, " Bank" took possession of the unit of CD and auctioned the same under SARFAESI. Any realization of assets by a secured creditor is subject to satisfaction of the first/prior charge holder. ( Section 101 of “Transfer of Property Act.”)

 

Secondly, whether " Bank" carried the consent of other prior / pari-passu charge holders & secured creditors, (MVAT), prior to enforcement of security interest, in terms of section 13(9) of the SARFAESI Act. 

 

Thus, in my opinion, the following rulings of the Hon’ble High Court are relevant, when the property is sold by the owner of the property (“Doctrine of Merger of Charge” - Section 101 of “Transfer of Property Act.1882”. Subsequent/subordinate charge gets merged with the property on transfer or enforcement of security interest by creditor.). Satisfaction of first/prior charge holders is the duty of a secured creditor who exercises / enforces his security interest.

  • “It goes without saying that when a statutory charge is created on the property, the same would go with the property and would follow the property, in whosoever hands the property goes. . . . . 

  • Thus the notice of such a statutory charge on the property, is always presumed in law, to one and all and none can claim ignorance of the same.” 

 

In both the judgements (supra), the position in respect of registration of statutory charge &/or attachment orders with CERSAI, in terms of Section 26B & 26C of The  SARFAESI  Act, 2002 was not examined.

 

Let’s look into the provisions of SARFAESI & other Statutes

 

i). Transfer of Property Act,1882

# 101. No merger in case of subsequent encumbrance. - No merger in case of subsequent encumbrance Any mortgagee of, or person having a charge upon, immovable property, or any transferee from such mortgagee or charge-holder, may purchase or otherwise acquire the rights in the property of the mortgagor or owner, as the case may be, without thereby causing the mortgage or charge to be merged as between himself and any subsequent mortgagee of, or person having a subsequent charge upon, the same property; and no such subsequent mortgagee or charge-holder shall be entitled to foreclose or sell such property without redeeming the prior mortgage or charge, or otherwise than subject thereto.

 

The  SARFAESI  Act, 2002

# Section 13. Enforcement of security interest.-

(9) Subject to the provisions of the Insolvency and Bankruptcy Code, 2016, in the case of financing of a financial asset by more than one secured creditors or joint financing of a financial asset by secured creditors, no secured creditor shall be entitled to exercise any or all of the rights conferred on him under or pursuant to sub-section (4) unless exercise of such right is agreed upon by the secured creditors representing not less than sixty per cent. in value of the amount outstanding as on a record date and such action shall be binding on all the secured creditors:

 

# Section 26B. Registration by secured creditors and other creditors. -

(4) Every authority or officer of the Central Government or any State Government or local authority, entrusted with the function of recovery of tax or other Government dues and for issuing any order for attachment of any property of any person liable to pay the tax or Government dues, shall file with the Central Registry such attachment order with particulars of the assessee and details of tax or other Government dues from such date as may be notified by the Central Government, in such form and manner as may be prescribed.

 

# Section 26C. Effect of the registration of transactions, etc. -

(1) Without prejudice to the provisions contained in any other law, for the time being in force, any registration of transactions of creation, modification or satisfaction of security interest by a secured creditor or other creditor or filing of attachment orders under this Chapter shall be deemed to constitute a public notice from the date and time of filing of particulars of such transaction with the Central Registry for creation, modification or satisfaction of such security interest or attachment order, as the case may be.

 

(2) Where security interest or attachment order upon any property in favour of the secured creditor or any other creditor are filed for the purpose of registration under the provisions of Chapter IV and this Chapter, the claim of such secured creditor or other creditor holding attachment order shall have priority over any subsequent security interest created upon such property and any transfer by way of sale, lease or assignment or licence of such property or attachment order subsequent to such registration, shall be subject to such claim:

Provided that nothing contained in this sub-section shall apply to transactions carried on by the borrower in the ordinary course of business.

 

# Section 26E. Priority to secured creditors.—Notwithstanding anything contained in any other law for the time being in force, after the registration of security interest, the debts due to any secured creditor shall be paid in priority over all other debts and all revenues, taxes, cesses and other rates payable to the Central Government or State Government or local authority. Explanation.—For the purposes of this section, it is hereby clarified that on or after the commencement of the Insolvency and Bankruptcy Code, 2016 (31 of 2016), in cases where insolvency or bankruptcy proceedings are pending in respect of secured assets of the borrower, priority to secured creditors in payment of debt shall be subject to the provisions of that Code.

 

Insolvency and Bankruptcy Code, 2016.

# Section 52. Secured creditor in liquidation proceedings. -

(4) A secured creditor may enforce, realise, settle, compromise or deal with the secured assets in accordance with such law as applicable to the security interest being realised and to the secured creditor and apply the proceeds to recover the debts due to it.

 

Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016.

# Regulation 37. Realization of security interest by secured creditor

(7) The provisions of this Regulation shall not apply if the secured creditor enforces his security interest under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002) or the Recovery of Debts and Bankruptcy Act, 1993 (51 of 1993).

 

Disclaimer: The sole purpose of this blog is to create awareness on the subject and must not be used as a guide for taking or recommending any action or decision. A reader must do his own research and seek professional advice if he intends to take any action or decision in the matters covered in this blog.


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Wednesday, 15 May 2024

Mr. Nagalingam Muthiah Vs. Office of the Recovery Officer - Priority in payment & Statutory first charge of EPFO dues in Liquidation process.

 NCLT Chennai ( 08.04.2021) Mr. Nagalingam Muthiah Vs. Office of the Recovery Officer [IA/370/2020, IA/31/2021 and MA/868/2019 in CP/567(IB)/CB/2018] 

  • the PF Authorities are entitled to the satisfaction of the full claim in relation to the PF dues including interest in a sum of Rs.36,11,902/- as well as any additional amounts as may be found due under the EPF & MP Act, 1952 as reflected in the Proclamation of Sale Notice issued dated 23.07.2019 following the decision of the Hon’ble NCLAT in Regional Provident Fund Commissioner Ahmedabad vs Ramachandra D. Choudhry [Company Appeal (AT)(Insolvency) No.1001 of 2019] referred supra.

  • As the Order of Attachment issued by the PF Authorities-Respondent dated 25.04.2018 is held to be not hit by the provisions of the moratorium declared thereafter and for the reasons stated in paragraph supra, the action of the Liquidator in conducting an auction on 12.02.2020 while the matter was pending before this Tribunal dealing inter-alia with the said property as well under attachment, is required to be set aside as the same cannot be sustained in view of the statutory first charge prevalent on the assets of the Corporate Debtor in relation to PF dues and not being discharged as provided under Section 11 of the EPF & MP Act, 1952 read with Section 36(4)(iii)(a)(iii) of IBC, 2016.


Excerpts of the Order;

The facts in brief, which are required to be considered with a view to enable to dispose of this Application by this Tribunal are as follows:-


# 3. While so, it is seen that the Respondent, namely, Employees’ Provident Fund Organisation (EPFO) through the Office of the Recovery Officer had issued a sale notice dated 23.07.2019 for the sale of movable properties of the Corporate Debtor claiming that an outstanding amount in a sum of Rs.38,89,229/- is due and the date of sale was also fixed as 22.08.2019 pursuant to the sale notice. The said notice provoked the Applicant herein, in the capacity as a Liquidator, to move the Application in MA/868/2019 before this Tribunal, wherein, it was stated that the Respondent without filing a claim during the process of CIRP or thereafter when this Tribunal ordered for the Liquidation of the Corporate Debtor, however, had issued the sale notice dated 23.07.2019 proclaiming the sale of the movable assets of the Corporate Debtor.


# 5. While so, the Applicant herein, had sought to auction of both the land and building, plant and machinery by way of e auction sale notice dated 05.02.2020 in relation to which the liquidation value had been arrived at Rs.2,06,41,500/- against which value a sum which was fetched in the eauction, is stated to be Rs.2,16,00,000/-. In view of the status quo Order passed in MA/868/2019 as above by this Tribunal on 19.02.2020, even though a sum of Rs.22,50,000/- had been lodged by the successful bidder in the e-auction, the sale by auction of plant and machinery could not be finalized as the successful bidder did not make further payment.


# 6. In the circumstances, IA /370/2020 has been filed by the Applicant seeking for the following reliefs:

  • “(a) To pass an order for re-locating the machinery of the Corporate Debtor, namely, M/s. SAS Autocom Engineers India Private Limited, which is undergoing Liquidation Process;

  • (b) To pass an order for co-operation of the Respondent for relocating the machinery of the Corporate Debtor, namely, M/s. SAS Autocom Engineers India Private Limited while it is undergoing Liquidation Process; and

  • (c) To pass such other orders or further orders which may deem to be fit and proper in the interest of justice”.


On its part, the Respondent herein, in relation to the Order dated 19.02.2020 passed by this Tribunal in MA/868/2019, had chosen to file a Writ Petition in WP/9036/2020 before the Hon’ble High Court of Madras seeking for the issue of Writ of Certiorari to call for the records of this Tribunal in MA/868/2019 and quash the same.


# 8. It is further seen that, on 31.08.2020, the Hon’ble High Court of Madras (DB) had chosen to dispose of the said Writ Petition No.9036 of 2020 filed by the Respondent herein, and as the Petitioner before the Hon’ble High Court of Madras, the operative portion of which reads as follows:

  • “7.  . . . Accordingly, the Tribunal is directed to consider the Original Application No.MA/868/2019 in No.CP/567/1B in the light of the discussion made above, by way of speaking order and by giving a finding on its jurisdiction, within a period of eight weeks from the date of receipt of a copy of this order. We make it clear that all the issues both on fact and law are left open.

  • 8. In view of the above, the writ petition stands allowed. No costs. Consequently, the connected miscellaneous petitions are closed”.


# 9. In view of the above directions given in WP /9036/2020, the matter was heard in detail and both the parties were also allowed to file their Written Submissions before this Tribunal, of which it is seen from the records of this Tribunal that the parties also seem to have availed.


# 10. It is also seen that in the meanwhile IA/31/2021 has been filed by the Applicant based on the averments contained in the said Application for the reliefs as sought as follows:

  • “(a) That this Hon’ble Adjudicating Authority pass an order allowing the Applicant to register the property in favour of the successful bidder to complete the liquidation process within the mandated timeline; and

  • (b) To pass such other orders or further orders, which may deem to be fit and proper in the interest of justice”.


# 16. Keeping in consideration the decision of the Hon’ble Supreme Court in relation to the jurisdictional aspect of this Tribunal under IBC, 2016 we now venture into the pleadings of the parties. From the rival pleadings, it is evident that since the admission of the Petition on 05.10.18 and initiation of CIRP of the Corporate Debtor, the concerned Corporate Debtor has become, due to its insolvency, amenable to the jurisdiction of this Tribunal. Upon initiation of the CIRP of the Corporate Debtor it is to be noted that a sequence of steps is required to be initiated by this Tribunal and the IRP appointed by this Tribunal, including action under Section 13 of IBC, 2016, the declaration of moratorium for the purposes of Section 14 of IBC, 2016 and causing a public announcement calling for the submission of claims under Section 15 of IBC, 2016. In this regard, definition of a ‘claim’ has been given, it is pertinent note, under sub Section (6) of Section 3 of IBC, 2016 as follows:-

  • “(6) ‘Claim” means

  • (a) a right to payment, whether or not such right is reduced to judgment, fixed, disputed, undisputed, legal, equitable, secured or unsecured;

  • (b) right to remedy for breach of contract under any law for the time being in force, if such breach gives rise to a right to payment, whether or not such right is reduced to judgment, fixed, matured, un-matured, disputed, undisputed, secured, secured or unsecured;


# 18. While so, during the course of submissions made by the Respondent, a vehement contention was taken by the Ld. Counsel for the Respondent that it is not necessary for the Respondent even to lodge a claim with IRP/RP as the case may be during the CIRP or with the Liquidator during the liquidation process in view of Section 11 of EPF & MP Act, 1952. Section 11 of the EPF & MP Act, 1952 reads as follows:- . . . . 


# 19. In view of the above provision, namely, Section 11 of the EPF & MP Act, 1952, it is submitted by Ld. Counsel for the Respondent, that the debts arising under the EPF & MP Act, 1952 up to the date of insolvency or winding up, is deemed to be included in the list of debts also having a statutory first charge on the assets of the establishment in relation to dues as envisaged under Section 11(1)(a) of the EPF & PF Act, 1952 which stands created and is required to be paid in priority to all other debts and hence, whether a claim is lodged or not the same is required to be factored during the CIRP or Liquidation process.


# 20. Further, it is also pointed out that the provisions of IBC, 2016, more particularly, by virtue of Section 36(4)(a)(iii) of the Code provides that all sums due to any workman or employee from the Provident Fund, the Pension Fund and the Gratuity Fund are not to be included in the liquidation estate assets and shall not be used for recovery in liquidation.


# 21. Thus, we pose ourselves with a question as an Adjudicating Authority having jurisdiction exclusively over the insolvency of Corporates, like that of the company under liquidation can such a view be entertained or countenanced.


# 22. A careful perusal of both i.e., Section 11 of the EPF & MP Act, 1952 or for that matter Section 36(4)(a)(iii) of IBC, 2016 primarily deals with the assets concerned of the establishment, and the Corporate Debtor respectively and nowhere specifies that the EPF Authorities are not required to even lodge a claim before the IRP /RP/Liquidator in relation to a Corporate Debtor undergoing a Insolvency or Liquidation Proceedings even though liability accrued only prior to insolvency is deemed to be included amongst the debts. The Respondent, if at all, taking into consideration the decisions of the Hon’ble Supreme Court rendered in the cases of M/s. Embassy Property Developments Ltd., and M/s. Gujarat Urja Vikas Nigam Limited, can only advance an argument that IRP/RP/Liquidator or even for that matter this Tribunal will not have any scope for adjudication of the claim or the correctness of it as put forth by the Respondent authorities already ascertained and quantified, prior to initiation of the insolvency proceedings, before the concerned IRP/RP/Liquidator and that if at all the RP/Liquidator has any grievance in relation to the quantum of claim made or otherwise, the remedies by way of an appeal is required to be preferred as provided under the EPF & MP Act, 1952, itself and cannot call upon this Tribunal to decide on the same under the provisions of IBC, 2016.


# 28. Perusal of the above paragraph clearly establishes that the onus of this Tribunal as an Adjudicating Authority named in IBC, 2016 are of much wider amplitude as compared to the statutory authority named in EPF & MP Act, 1952 as during the course of insolvency and liquidation and more so during liquidation as contemplated IBC, 2016 to balance the interests of all the stakeholders concerned including employees.


# 29. In the circumstances, this Tribunal is required to take a broader view without in any way compromising the interests of the employees, taking into consideration the provisions of EPF & MP Act, 1952 and Section 36 of IBC, 2016 while considering and exercising in relation to the jurisdictional issue in relation to the question on hand, of course within the textual hook of IBC, 2016 in doing so, as laid down by the Hon’ble Apex Court in Gujarat Urja Vikas Nigam Limited’s case and noted above in paragraphs supra. In this connection, it is seen that it in the course of implementation of the Code in retrospect, both binding as well as persuasive precedents that have evolved which if it has a bearing, this Tribunal is bound to take note of in arriving at its decision in the instant case.


"(i) In the matter of Regional Provident Fund Commissioner Ahmedabad vs Ramachandra D. Choudhry [Company Appeal (AT)(Insovency) No.1001 of 2019] In answering the question as to whether PF authorities are entitled to a claim of interest charged by the said authority during the course of CIRP of the corporate debtor post CIRP, in addition to the principal amount of provident fund due of which has been fully taken care of in the approved Resolution Plan, negating the contention of the successful resolution applicant that Sections 7Q and 14B of the EPF & MP Act, 1952 cannot be relied upon, as the provisions of IBC, 2016 has an overriding effect on the same in terms Section 238 of the Code, it was held that no provisions of EPF & MP Act, 1952 and IBC, 2016 are in conflict and on the other hand in terms of Section 36(4)(iii), the provident fund and gratuity funds are not the assets of the corporate debtor, there being specific provisions, the application of Section 238 of the Code will not arise. In the circumstances the successful resolution applicant was directed to release full provident fund and interest thereof in terms of EPF& MP Act, 1952 and the appeal of PF authorities was thereby allowed.


(ii) In the matter of State Bank of India vs. Moser Baer Karamchari Union & Anr [Company Appeal (AT)(Insolvency) No.396 of 2019] The question which arose for decision before the Appellate Tribunal in this matter was as to whether for the purpose of distribution of assets of the Corporate Debtor during the course of its liquidation under Section 53 of IBC, 2016, whether dues of employees as mentioned in sub clause (c) of sub-section (1) therein includes the contribution of Provident Fund, in view of Explanation to Section 53 stating that ‘workmen’s dues’ shall have the same meaning as assigned to it in Section 326 of the Companies Act, 2013. Relying on the definition of Liquidation Estate under Section 36(1) read with Section 36(3) of IBC, 2016 and since it does not include all sums due to any workman and employees from the provident fund, for the purpose of distribution of assets under Section 53, the provident fund, the pension fund and the gratuity fund cannot be included and in the circumstances the adjudicating authority having held that the same will not form part of the Liquidation Estate of the corporate debtor for the purpose of distribution of assets under Section 53 of IBC, 2016, the said decision was upheld


(iii) In the matter of Regional Provident Fund Commissioner EPFO Regional Office Chennai vs T.V.Balasubramanian Resolution Professional Sholingur Textiles Limited in [Company Appeal (AT)(Insolvency) No.1521 of 2019] The issue which came up before the Appellate Tribunal concerned about the attachment of immovable properties of the Corporate Debtor by the PF authorities in relation to PF dues and consequent attachment and thereafter issue of a Recovery Certificate to the concerned Recovery Officer in exercise of the powers conferred under Section 8(B) to 8(G) of EPF & MP Act, 1952 and the validity of such attachment in view of the initiation of the CIRP and moratorium imposed under Section 14 of IBC, 2016 by this Tribunal it was held by the Appellate Tribunal that the attachment effected by the PF authorities was prior in time to the initiation of the CIRP of the corporate debtor, even though the entries in the concerned Sub Registrar’s record of the said attachment was recorded in the register during the CIRP, would still be a valid attachment.


(iv) In the matter of Precision Fasteners Ltd through the Liquidator Vs Employees Provident Fund Organisation, Thane & Ord in [MA 576 & 752/2018 in C.P.(IB) 1339(MB)/2017] (NCLTMumbai Bench) reported in 2018 SCC Online NCLT 27284 Upon a detailed consideration of the interplay of EPF& MP Act,1952, Companies Act of 1956 and 2013 as well as IBC, 2016 and the decisions of the Apex Court it has been held that:-

  • a) In relation to attachments effected by the PF authorities, it makes no difference whether attachments have been made prior to or subsequent to admission of Company Petition under IB Code, the statutory first charge having remained in force against the assets of the corporate debtor company, there is no merit to differentiate in respect of attachments made prior to filing of the Company Petition and during CIRP period;

  • b) The charge in relation to PF dues will be the first charge in priority to all other debts, including Liquidator costs because the PF dues has been excluded from the Liquidation Estate;

  • c) PF dues being treated as an asset of the workmen u/s.36(4)(a)(iii) of the Code, for realisation of such debt, EPF Act 1952 is applicable, not IBC, 2016;

  • d) Since Liquidation Process should not get obliterated by the attachment taken against the assets of the Corporate Debtor, the only viable answer to this situation is, the Liquidator shall pay the dues that are payable under the head of Provident Fund/Pension Fund/Gratuity Fund earmarking it as asset of the workmen and pay off the same to the respondents in priority to the waterfall mechanism made under Section 53 of the Code. In view of the law in force, we hereby hold that by virtue of EPF Act and Section 36(4)(a)(iii) of the Code, the charge will remain in force against the assets of the corporate debtor until it has been paid off before making any payment to any entity falling under waterfall mechanism devised under Section 53 of the Code;

  • e) Liquidator directed to pay the PF dues from the Liquidation Estate before distributing the Liquidation Estate of the Corporate Debtor to the claimants, to which since the Liquidator has to sell the assets of the Corporate Debtor, the respondents i.e., PF authorities are directed to allow the Liquidator to sell the assets of the Corporate Debtor and pay off the Provident Fund dues including interest in priority to all other claims payable by the Corporate Debtor in Liquidation.


The above decisions clearly bring out the complexity of the issue on hand before this Tribunal as well as gives guidance as to the way forward in resolving the claim and priority as staked by the Liquidator-Applicant on the one hand and the EPFO authorities-Respondent on the other. However, it is also required to be noted that because of the dispute between the parties, the Liquidation Process of the Corporate Debtor is stuck in a legal quagmire which is also required to be put on track.


CONCLUSION

(i) In relation to the Claim of the PF Authorities in the instant case, the PF Authorities are entitled to the satisfaction of the full claim in relation to the PF dues including interest in a sum of Rs.36,11,902/- as well as any additional amounts as may be found due under the EPF & MP Act, 1952 as reflected in the Proclamation of Sale Notice issued dated 23.07.2019 following the decision of the Hon’ble NCLAT in Regional Provident Fund Commissioner Ahmedabad vs Ramachandra D. Choudhry [Company Appeal (AT)(Insolvency) No.1001 of 2019] referred supra.


(ii) Since the attachment of movables effected by the PF Authorities by way of Order of Attachment of Property issued dated 25.04.2018 for the recovery of the PF dues is even prior to the initiation of CIRP by this Tribunal on 05.10.2018, the said order of attachment will not be hit by the declaration of moratorium under Section 14 of IBC, 2016 following the ratio of the Hon’ble NCLAT as held in Regional Provident Fund Commissioner EPFO Regional Office Chennai vs T.V.Balasubramanian [Company Appeal (AT)(Insolvency) No.1521 of 2019] also referred supra and hence this Tribunal is not required to delve any further on the aspect of attachment.


(iii) As the Order of Attachment issued by the PF Authorities-Respondent dated 25.04.2018 is held to be not hit by the provisions of the moratorium declared thereafter and for the reasons stated in paragraph supra, the action of the Liquidator in conducting an auction on 12.02.2020 while the matter was pending before this Tribunal dealing inter-alia with the said property as well under attachment, is required to be set aside as the same cannot be sustained in view of the statutory first charge prevalent on the assets of the Corporate Debtor in relation to PF dues and not being discharged as provided under Section 11 of the EPF & MP Act, 1952 read with Section 36(4)(iii)(a)(iii) of IBC, 2016.


(iv) In case if the Liquidator is in a position to provide and pay off the amount due and claimed under the provisions of the EPF & MP Act , 1952 by the Respondent, including any amount found to be due since August 2019, to the satisfaction of the Respondent and in priority to all other debts, the Liquidator in this regard shall avail the provisions of EPF & MP Act, 1952 read with the Second Schedule to the Income Tax Act, 1961 and to enable the Liquidator to adopt such a course of action and for which purpose a period of two weeks shall be granted by the Respondent to the Liquidator, prior to auctioning of the properties under attachment for which a Proclamation of Sale Notice has been issued on 23.07.2019 failing which as a consequence, the PF Authorities are free to proceed as per the provisions of EPF & MP Act, 1952 for the recovery of PF dues as per the provisions of EPF & MP Act, 1952 in priority to all other claims. However, such an action thereafter shall be completed with in a period of 8 weeks failing which the Respondent shall re-locate the movables under attachment detailed in the Warrant of Attachment for the Liquidator to proceed with the Liquidation Process. Any surplus left after appropriation of PF dues by the PF Authorities/Respondent shall be duly lodged with the Liquidator, who will accept the same as part of Liquidation Estate Assets of the Company under liquidation.


31. Thus, with the above directions IA/370/2020, IA/31/2021 and MA/868/2019 are disposed off, accordingly.


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Tarun International Ltd. Vs Vikram Bajaj (RP for Anil Special Steel Industries Ltd.) & Ors - Auction under SARFAESI prior to CIRP & dues of EPFO and employees

 NCLAT (03.03.2021) in Tarun International Ltd. Vs  Vikram Bajaj (RP for Anil Special Steel Industries Ltd.) & Ors. [Majority judgement in Company Appeal (AT) (Insolvency) No.1194 of 2019] held that; - 

  • we are of the considered opinion that the Appellant auction purchaser had accepted the acquisition of Unit No.1 subject to condition of ‘as is where is basis, as is what is basis, whatever there is basis’ and being fully aware of the nature of liabilities passing on to it in consequence of such sale besides being aware of the issuance of demand notice by Respondent No.2- ‘Rashtriya Anil Steel Majdoor Sangh’, thus the liabilities said to have been acquired by the Appellant in terms of the impugned order cannot be held to be an erroneous conclusion warranting interference.

 

Facts of the case;

"Anil Special Steel Industries Ltd" (CD) is an industrial company. It defaults, prompting OCs  to initiate Sec. 9 application, which is allowed by NCLT.


Prior to initiation of CIRP, "Allahabad Bank" (AB) the Financial Creditor, took over CD’s (Unit -1, Anil Special Steel Industries Ltd) Industrial Undertaking and auctioned it under SARFAESI to recover dues on a "as is where is, as is what is and whatever there is" basis . Tarun International Ltd.(TI) emerged the successful auction purchaser.


RP approaches NCLT to determine who'd pay liabilities of Workmen and Employees. NCLT rules Tarun International Ltd.(TI) would be liable for dues as the purchase was on a AIWI basis.


NCLAT upholds NCLT's decision citing that the Auction notice had clarified this. Further, Tarun International Ltd.(TI) was aware of potential liabilities.

 

Excerpts of the order;

On an application being IA No.32/60/JPR/2018 filed in CP No.(IB)- 35(ND)/2018, TA No.118/2018 filed by the Resolution Professional, the Adjudicating Authority (National Company Law Tribunal), Jaipur Bench, in terms of impugned order dated 1st October, 2019 passed a slew of directions saddling the Appellant with liability to bear all the claims of Respondent No.2- ‘Rastriya Anil Steel Majdoor Sangh’ and Respondent No.5 - Mr. Rajendra Company Appeal (AT) (Insolvency) No. 1194 of 2019 Sharma with allied and ancillary directions after recording a finding that Respondent No.3- Allahabad Bank had made it very clear to the Appellant to acquire the Unit No.1 of the Corporate Debtor on ‘as is where is basis, as is what is basis, whatever there is basis’ which implied that it shall also acquire all the liabilities thereon. Feeling aggrieved, the Appellant has assailed the impugned order through the medium of instant appeal on grounds set out in the memo of appeal to which we shall be adverting to as we proceed further.


# 4. Learned counsel for Appellant laid emphasis on the fact that the Adjudicating Authority had no jurisdiction as it could not pass orders in relation to prior transactions except in so far provided under Sections 44-45 of the ‘I&B Code’. It is contended that the impugned order is without jurisdiction and after issuance of Sale Certificate and delivery of possession to Appellant auction purchaser the property in question no longer remained the property of the Corporate Debtor. It is further submitted that the terms and conditions of the sale of the property clearly stated that the purchaser would receive the property free from all encumbrances. It is further submitted that the Appellant acquired only the property and not the company, therefore, the liability of the Corporate Debtor has been wrongly fastened upon the Appellant.


# 7. The sole issue for consideration in this appeal is whether the liability in respect of the workers and employees and other liabilities pertaining to Unit No.1 of the Corporate Debtor sold under the Act, 2002 prior to commencement of CIRP are the liability of Corporate Debtor or the Appellant- auction purchaser.


# 13. It further emerges from record that the Appellant subsequently tried to resile from the terms and conditions of sale, obviously to wriggle out of the liabilities that it was liable to pay in terms of acceptance of offer purchase letter dated 21st December, 2017. This was sought to be done unilaterally on the pretext that in the event of Appellant having backed out, the EMD would have been forfeited. This explanation was neither realistic nor plausible. By proceeding to accept the offer purchase Appellant unconditionally accepted the terms of sale. Reliance placed by Appellant on the letters dated 30th December, 2017, 23rd January, 2018 and 29th January, 2019 that it was only informed of the liabilities, it being specifically stated that the same were not demanded by the Bank, would be of no consequence as such liabilities passed on to Appellant in terms of the acceptance of offer purchase and sale letter with no demand put up by the Bank for its recovery from Appellant- auction purchaser. In the face of bulk of evidence staring in the face of the Appellant assigning the liabilities to it, the Appellant could not be permitted to unilaterally back out of such liability. With express stipulation in auction notice and all relevant documents connected with auction and sale proceedings under the Act, 2002, it cannot be said that this being a sale in auction proceedings under the Act, 2002, the auction purchaser would not be saddled with the liabilities of Corporate Debtor as only assets had passed on to it and not the liabilities of the Corporate Debtor which was faced with the prospect of triggering of CIRP, regard being had to demand notice served upon it under Section 8 of the ‘I&B Code’ prior to issuance of sale certificate. Therefore, stipulation in the Sale Certificate that the sale was free from encumbrances is irrelevant when the information in regard to encumbrances known to the creditor was shared with the Appellant through the correspondences referred to hereinabove and such encumbrances were yet to be discharged.


# 14. Dealing with the aspect of public auction incorporating a condition in the nature of ‘as is where is’, the Hon’ble Apex Court in “Punjab Urban Planning and Development Authority & Ors. vs. Raghu Nath Gupta and Ors.- Reported in (2012) 8 SCC 197” observed as under:-

  • “17. We are of the view that the judgment in Amarjeet Singh (supra) is a complete answer to the various contentions raised by the respondents. We may reiterate that after having accepted the offer of the commercial plots in a public auction with a super imposed condition i.e. on “as is where is” basis and after having accepted the terms and conditions of the allotment letter, including installment facility for payment, respondents cannot say that they are not bound by the terms and conditions of the auction notice, as well as that of the allotment letter. On facts also, we have found that there was no inordinate delay on the part of PUDA in providing those facilities.” 


# 15. This is a complete answer to refute the issue raised by Appellant that it cannot be saddled with liability towards workman and employees as also other liabilities pertaining to Corporate Debtor.


# 16. In “Maharashtra State Co-operative Bank Ltd. v. Babulal Lade- CA No. 232 of 2016 decided on 04.12.2019”, it was observed by the Hon’ble Apex Court that the sale under the Act, 2002 is to be governed by the terms of the sale.


# 17. Mentioning that it was free from encumbrances would be inconsequential as long as the liabilities known to the Allahabad Bank and brought to the notice of the auction purchaser remain undischarged. There is considerable force in the contention raised by Respondent No.4 that dues of EPF are an encumbrance on the establishment and become first charge thereupon within the purview of Section 11(2) of the Employee’s Provident Funds and Miscellaneous Provisions Act, 1952. Though the sale in auction proceedings was limited to Unit No.1 while the Corporate Debtor owned two units, mere fact of common ownership of two units by the Corporate Debtor would not make it one establishment. The two units were separate and independent units treated so by EPFO with separate registration numbers allotted to these units. Therefore, EPFO dues over Unit No.1 which was the subject of auction or sale under the Act, 2002 were the first charge over the unit only and the sale proceeds thereof could not be utilised by the Allahabad Bank without discharging the same. We are told that the Allahabad Bank has not joined the issue in regard to this position and even made a part payment of about Rs.17.51 lakhs as reflected at Page 456 of the appeal paper book.


# 18. Having dealt with the issue raised in this appeal in the context of material on record, respective contentions of parties, arguments advanced and the case law cited at the Bar, we are of the considered opinion that the Appellant auction purchaser had accepted the acquisition of Unit No.1 subject to condition of ‘as is where is basis, as is what is basis, whatever there is basis’ and being fully aware of the nature of liabilities passing on to it in consequence of such sale besides being aware of the issuance of demand notice by Respondent No.2- ‘Rashtriya Anil Steel Majdoor Sangh’, thus the liabilities said to have been acquired by the Appellant in terms of the impugned order cannot be held to be an erroneous conclusion warranting interference.


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Dissenting Judgement Per; V. P. Singh, Member (T) in the above case;

J U D G M E N T


I have gone through the detailed judgement authored by Hon'ble Acting Chairperson Justice B L Bhatt. Still, I cannot persuade myself to agree with the views expressed by Hon'ble Acting Chairperson Justice Bhatt; I would like to give my finding separately. 


The Appellant has preferred this Appeal against the Impugned Order dated 1 October 2019 passed in IA No. 32/60/JPR/2018 in CP No. (IB) 35 (ND)/2018 by the Adjudicating Authority/National Company Law Tribunal Jaipur Bench 2. By Order dated 1 October 2019, the Adjudicating Authority has issued directions on the Application filed by Resolution Professional fastening the liability on the Appellant Tarun International Ltd to bear all the claims of Respondent No. 2 'Rashtriya Anil Steel Mazdoor Sangh' and Respondent No.5, Mr Rajendra Sharma with a further clarification that the Corporate Debtor cannot be fastened with any of the liabilities of Unit-1 of Corporate Debtor which was sold under the SARFAESI Act. The parties in this Appeal are referred by their original status in the company Petition for the sake of convenience.


# 2. The brief facts of the case are as under;

The Appellant 'Tarun International Ltd' is a bona fide Auction Purchaser of immovable property comprising of industrial land along with the plant and machinery (the property) owned by 'Anil Special Steel Industries Limited', Corporate Debtor ("ASSIL"), from the time before the initiation of Corporate Insolvency Resolution Process ("CIRP") against corporate Debtor 'ASSIL'. The property was sold to the Appellant by Allahabad Bank, Respondent, No 3 under the provision of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), vide sale certificate (under Rule 9 (6) of Security Interest Enforcement) Rules 2002) dated 9 February 2018, which was duly registered  in the office of Sub Registrar, Jaipur on the same day. 


# 3. The corporate Debtor owned two units, and the Appellant is the auction purchaser of Unit-1 of ASSIL. After the Sale of Assets of Unit-1 of the Corporate Debtor 'Anil Special Steel Industries Limited' under the SARFAESI Act by secured Creditor Allahabad Bank, the Application filed under Section 9 of the Insolvency and Bankruptcy Code 2016 was admitted by Order dated 5 March 2018 passed by the Adjudicating Authority. During the CIRP of the Corporate Debtor, the IRP, Mr Brij Kishore Sharma, collated the claims and constituted the Committee of Creditors (in short, CoC). Later, on a resolution passed by the CoC, the Resolution Professional, Mr Vikram Bajaj, replaced the IRP Mr Brij Kishore Sharma vide Order dated 14 May 2018 passed by Adjudicating Authority.


# 4. During CIRP, the RP filed IA No. 32/60/J PR/2018 in CP. No. (IB) 35 (ND)/2018 before the Adjudicating Authority seeking the following relief: 

  • "Allow the present application and determine as to whether liabilities pertaining to unit-1 which had been sold under SARFAESI prior to the insolvency commencement date are payable by the purchaser of unit -1, i.e. Tarun international Ltd or the same continued to be admissible against the corporate debtor."


# 6. The Appellant has not been connected with and has no right, interest or obligations concerning ASSIL either at present or from the time before purchasing the property. The Adjudicating Authority on an Application filed by the Resolution Professional (in short "RP") u/s 60 (5) (b) and (c) of the I&B Code 2016 vide Order dated 1 October 2019 has held that the Appellant is liable to pay workmen's dues and other charges on the property. The Appellant contends that such findings are without jurisdiction because;

  • The Adjudicating Authority under the Code has jurisdiction only about triggering of proceedings under Part II of the Code. 

  • Jurisdiction of the Adjudicating Authority in relation to prior transactions is limited to the extent as provided under section 44 and 45 of the Code.


# 14. The Adjudicating Authority by the impugned Order directed that;

  • a. The Respondent Number 2 shall bear all the claims of the Respondent No. 1 and Respondent No. 5.

  • b. In the event any money which has been deducted towards the statutory dues of EPF and is still lying with the corporate Debtor, the RP shall forthwith credit the same to the appropriate accounts of the concerned authority.

  • c. For recovery of the claims of any statutory dues, it is open for the Respondent No 1 and 5 to proceed against the Respondent No. 2 and 3.

  • d. So for, the Corporate Debtor is concerned it cannot be fastened with any of the liability of Unit number 1, which was sold under the SARFAESI Act, 2002 by the Respondent No. 3, except with regard to the statutory dues of EPF, in case if it is lying still with the corporate Debtor as stated before. 

  • With these directions, IA number 32/60/J PR/2018 is disposed of."


# 15. Following issues arises for the determination of this Appeal;

  • 1. Whether the Adjudicating Authority under the I&B Code 2016 has jurisdiction to determine a bona fide auction purchaser's liability under the SARFAESI Act's provision when the property had been sold, and sale certificate was issued before the commencement of CIRP of the Corporate Debtor?

  • 2. Whether the Adjudicating Authority can decide the liabilities of a third party auction purchaser, which had no role in the Corporate Debtor's Resolution Process and did not fall under the ambit of avoidance transactions as outlined under Sec 44 &45, under Section 60 (5) of the Code?

  • 3. Whether the Sale of only Part of the Assets of the Corporate Debtor under the SARFAESI Act can be considered the Sale of a Company (or Part thereof) as a going concern to make the purchaser liable for workmen's dues?


Issue No. 1 to 3;

# 20. Undisputedly, the Appellant is the auction purchaser of the immovable property comprising industrial land, plant and machinery of Unit-1 owned by Anil Special Steel Industries Limited/ ASSIL, i.e. Corporate Debtor. Before commencement of the Corporate Insolvency Resolution Process against ASSIL, the property was sold by Allahabad Bank under the SARFAESI Act's provisions, 2002. Given the default by ASSIL, notices were issued against ASSIL u/s13 (2) & 13(4) of the SARFAESI Act on 1 November 2017 and 15 November 2017, respectively and the Sale of the property was done on "as is where is the basis, as is the basis, whatever there is basis" with the stipulation that the property was free from encumbrances.


# 21. It is pertinent to mention that in Clause 20 of the sale notice (supra), it is stated that "to the best of knowledge and information of the authorised officer, there is no encumbrance on the properties other than mentioned above (if any). However, the intending bidders – should make their own independent inquiries regarding the encumbrances and claims/the rights/dues/affecting the property, prior to submitting their bid. The e-auction advertisement does not constitute and will not be deemed to constitute any commitment or any representation of the Bank. The authorised officer/secured creditor shall not be responsible in any way for any third-party claims/rights/dues other than mentioned above (if any)."


# 22. It is also important to mention that in the sale notice, in the column about the details of the secured creditor's encumbrances, no details of liabilities were mentioned. But it is only mentioned that "other liabilities (statutory/other dues, if any) of the property put under e-auction as mentioned in this notice will be borne by the prospective purchaser".


# 23. In compliance with the above-mentioned sale notice, the Appellant submitted its bid on 15 December 2017 along with the earnest money deposit of ₹ 2.74 crores for participating in E-auction. On 19 December 2017, Allahabad Bank informed the Appellant about the Income Tax Department's demand letter and about the Employees dues. Allahabad Bank, however, clarified that the claims/dues are yet to be crystallised by the Competent Authorities, and the sale certificate in favour of the highest bidder shall be issued after obtaining necessary orders /directions from the Competent Authority/Court/Tribunal.


# 25. However, the Bank conducted an e-auction on 20 December 2017, wherein the Appellant submitted the highest bid of ₹ 27,61,00,000. After that, on 21 December 2017, Allahabad Bank issued acceptance of the offer of purchase and informed that since claims/dues are yet to be crystallised by the Competent Authority/Court, the sale certificate will be issued after obtaining the necessary order/direction from the Competent Authority/Court/Tribunal. On 26 December 2017, in the Appellant's Reply to Allahabad bank's letter dated 21 December 2017, it is stated that the conditions regarding the auction, imposed after accepting the earnest money, are illegal and are not binding on the Appellant.


# 26. After that, on 30 December 2017, Allahabad Bank, in response to the Appellant's letter dated 26 December 2017, issued a letter to Appellant clarifying the position that its letter dated 21 December 2017 was to draw the attention concerning the various dues of ASSIL and not a demand of any amount by the Bank. This letter is annexed with the Appeal paper book on page number 421 (Relevant para 8 and 9). Further, on 9 February 2018 registered sale certificate about the property sold to the Appellant was issued. The sale Certificate shows that the property sold under the SARFAESI Act was free from all encumbrances. The relevant portion of the sale certificate (page 450 of Appeal paper book)is given below for ready reference;

  • "In pursuance to Senior Civil Judge Court and Chief Metropolitan Magistrate, Jaipur Order Number Nearly Dated 8th Further 2018 we have on behalf of consortium of four banks, i.e. Allahabad bank (lender), Bank of Maharashtra, Indian Overseas Bank, State Bank of India handed over the possession to M/S Tarun international Ltd… of the schedule property listed below, free-form all encumbrances known to the secured creditors, on deposit of the money by the undersigned.


# 32. Therefore, in the instant case on 5 March 2018, when CIRP commenced against the Corporate Debtor ASSIL, the IRP was authorised to take over its assets. But the property, which was already sold/auctioned before initiation of the CIRP and Sale Certificate dated 9 February 2018, was finally issued in pursuance of the Order of the Senior Civil Judge Court and Chief Metropolitan Magistrate Court Jaipur, was not the property of the Corporate Debtor. The auction purchaser was a third party which had no concern with the Corporate Insolvency Resolution Process of the Corporate Debtor, ASSIL. Thus, the corporate Debtor's liability can't be fastened on the third party, which happens  to be a stranger to the CIRP of the Corporate Debtor and that too by exercising powers as an Adjudicating Authority u/s 60(5) of the I & B Code 2016.


# 33. It is contended by the Appellant that the property of the Corporate Debtor ASSIL was sold, and the sale process was completed before initiation of CIRP under the Code. Therefore, the Adjudicating Authority exercising powers under the I&B Code had no jurisdiction to pass an order to fasten the Corporate Debtors' liability on the Appellant.


# 35. The first provision to Section 13 of the SARFAESI Act provides that where the secured creditor of a company opts to realise security, he may retain the secured assets' sale proceeds after depositing the workmen's dues to Liquidator. The second proviso to Section 13 imposes a duty on the liquidator to intimate the secured creditor about the workmen's dues. In such cases where workmen's dues cannot be ascertained, the liquidator is obligated to intimate the estimated amount of workers dues to the secured creditor. In such a case, the secured creditor may retain the secured assets' sale proceeds after depositing the amount of such estimated dues with the liquidator. 4th proviso to Section 13 of SARFAESI Act imposes a duty on the secured creditor to give an undertaking to the liquidator to pay the balance of the workmen dues if any. Thus, it is clear that if a company is being wound up and the secured creditor of such a company opts to realise his security, then the secured creditor has authority to retain the secured assets' sale proceeds after depositing the workmen's dues.


# 36. In the instant case, Allahabad Bank is a secured creditor of ASSIL which has auctioned the secured assets of the Corporate Debtor. There is not an iota of doubt that the alleged auction sale was under SARFAESI Act. Therefore, the Adjudicating Authority/National Company Law Tribunal had no authority to fasten the Corporate Debtors liability on the auction purchaser. In the case where the Sale is made under the SARFAESI Act, then after completing the sale process and issuance of the Sale Certificate, the Adjudicating Authority had no authority to pass an order U/S 60(5) of the Code.


# 40. It is further argued that the Bank requested the auction purchaser to analyse the situation before bidding. The Allahabad Bank continued informing the receipt of the notice under Section 9 of the Code. Thus the said 'letter' became Part of the terms of Sale. Despite becoming aware of all the dues and the Sale's terms, the Appellant proceeded to participate in the auction held on 20 December 2017 and succeeded in being the sole bidder. It is further argued that a sale certificate was issued on 9 February 2018 stating that the property was "free from all encumbrances known to the secured creditor listed below". Therefore, Sale's notice and subsequent correspondence became the Sale's terms, and the liabilities formed Part of the Sale and are no longer admissible against the Corporate Debtor. Further, the dues of EPF are an encumbrance on the unit/establishment. Under section 11 (2) of The Employees Provident Fund Act, the dues of EPF are encumbrance on the establishment and becomes the first charge thereupon.


# 41. It is also pertinent to mention that in the instant case, the entire process of auction sale was completed before the commencement of the Corporate Insolvency Process against the Corporate Debtor ASSIL. Given the law laid down by the Hon'ble Supreme Court in Embassy property (supra), it is clear that Resolution Professional cannot short-circuit the process, to bring a claim before the NCLT taking advantage of Section 60 (5) of the Code.


# 42. Therefore in the light of the statutory scheme, as culled out from various provisions of the IBC 2016, it is clear that whenever the Corporate Debtor has to exercise a right that falls outside the purview of IBC 2016, especially in the realm of public law, they cannot, through the Resolution Professional, take a bypass and go before the NCLT for the enforcement of such a right. In the instant case if there was any grievance either against the Order of issuing notice under Section 13 (2) or against the Act of taking possession of the secured assets under Section 13 (4) or further in relation to the auction sale of the property of Unit -1 of the corporate Debtor the Audicating Authority did not have the jurisdiction under the SARFAESI Act to pass any order in this regard. Given the law laid down by the Hon'ble Supreme Court in the Embassy property case, the Resolution Professional was not authorised to move an application under Section 60 (5) of the Code.


# 43. Even otherwise, the property' land, plant and machinery has been sold to the Appellant free from all encumbrances. The Appellant had acquired only Part of the property/Assets of the Corporate Debtor and not the Company itself. Therefore, the liabilities of the Company ASSIL had been wrongly fastened upon the Appellant. 


# 44. Based on the above discussion, I hold that the Adjudicating Authority under the I&B Code 2016 had no jurisdiction to determine a bona fide auction purchaser's liability under the SARFAESI Act's provisions; the same has been purchased before the commencement of CIRP of the Corporate Debtor. 


# 45. I further hold that while exercising its power u/s 60(5) of the Code, the Adjudicating Authority has exceeded its jurisdiction in determining a third party's liabilities, which had no role in the Corporate Debtor's Insolvency Resolution Process.


# 46. I further hold that the Adjudicating Authority erroneously determined the Sale of assets, precisely land, plant and machinery of Unit-1 of the corporate debtor 'ASSIL' as the Sale of a Company as a going concern, thereby making the purchaser liable for workmen's dues.


# 47. Based on the above discussion, the Appeal deserves to be allowed by setting aside the impugned Order. However, the majority view authored by separate judgement brother Hon'ble Acting Chairperson Justice B.L. Bhatt shall prevail.


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