The NCLAT held that the CIRP can be initiated against an Auction Purchaser involved in proceedings under the SARFAESI Act.
The National Company Law appellate Tribunal (NCLAT), New Delhi Bench comprisin Justice Ashok Bhushan (Chairperson) and Barun Mitra (Technical Member) was hearing an appeal and held that under the Insolvency and Bankruptcy Code, 2016 (IBC), the Corporate Insolvency Resolution Process (CIRP) can be initiated against an Auction Purchaser involved in proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) if the purchaser inherits obligations towards creditors, thereby meeting the definition of a Financial Creditor under IBC.
The National Company Law Appellate Tribunal (NCLAT) ruled that under the Insolvency and Bankruptcy Code, 2016 (IBC), the Corporate Insolvency Resolution Process (CIRP) can indeed be initiated against an Auction Purchaser involved in proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act).
The case involved YES Bank initiating SARFAESI proceedings against Akme Projects Ltd. due to loan default. During an auction, Grandstar Realty Pvt. Ltd. (the Corporate Debtor) successfully bid and acquired assets. Subsequently, the Home Allottees initiated CIRP against the Corporate Debtor for a different default.
An appeal was filed challenging the admission of the CIRP application. However, the NCLAT dismissed the appeal, emphasizing that the Corporate Debtor, by acquiring assets through auction, inherited obligations towards allottees. These obligations were transferred to the Corporate Debtor, making it a Financial Creditor under IBC.
NCLAT highlighted that financial debt could be incurred through various means, including assignment or transfers, as defined in IBC. Therefore, the Corporate Debtor couldn't evade IBC provisions by claiming disbursements weren't directly made to it. The Corporate Debtor's acquisition of assets under SARFAESI Act didn't exempt it from IBC obligations.
In essence, NCLAT concluded that since the Corporate Debtor defaulted on the debt owed to the Respondent, the CIRP application could be admitted under Section 7 of IBC.