The Honourable Supreme Court made it clear that the sale under a statutory scheme as described in Rules 8 and 9 of the Security Interest (Enforcement) Rules, 2002, shall only be deemed to be finished when full payment has been made and the certificate of sale has been issued in the buyer's favour by an authorised officer. The Hon. Supreme Court correctly noted that any action to foreclose, reclaim, or enforce any security interest created by Corporate Debtor in respect of the property, including any action under SARFAESI Act, is forbidden by section 14(1)(c) of the IBC, which will take precedence over any other law.
In the instant case titled Indian overseas bank vs. M/S RCM infrastructure Ltd. and Anr. the issues that were raised before the Supreme Court were:-
Whether the act to foreclose under SARFAESI prohibited the initiation of the moratorium under IBC?
Do the provisions under the Insolvency and Bankruptcy Code prevail over other similar laws in the country?
Whether a sale vide Auction is said to be completed on payment of partial consideration?
With regard to the first issue, the Supreme court held that According to Section 14(1) of the IBC, there is a complete prohibition on any action to foreclose, recover, or enforce any security interest created by the corporate debtor in relation to its property after the commencement of the CIRP. This prohibition includes any action under the SARFAESI Act. The terms "including any action under the SARFAESI ACT," which also forbid actions to foreclose, reclaim, or enforce any security interest under the SARFAESI Act, make the legislative intent plain.
With regard to the second issue it was stated that in Section 238 of the IBC, the provisions of the IBC shall apply despite any provisions that are conflicting with them found in any other laws currently in effect or any instruments that take effect as a result of any such laws. It is further noted that the court views the IBC as a complete code in and of itself, and that section 238 would take precedence despite any inconsistencies with it found in any other laws currently in effect.
With regard to the third issue, it was held that even if the full price of property has not been paid, the transaction of the sale will take effect and the title would pass on that transaction. However, the court held that the real test is the intention of the parties.
The court categorically held that
“After the CIRP is initiated, all actions including any action under the SARFAESI Act to foreclose, recover or enforce any security interest are prohibited.” IBC is a complete Code in itself, “The provisions of the IBC would prevail notwithstanding anything inconsistent therewith contained in any other law for the time being in force”.
Hence, the bar under section 14 IBC extends to any action of enforcement of any security interest created by the corporate debtor, including any action under the SARFAESI Act.