Intention of the parties are paramount in a property sale

Citation : Indian Overseas Bank Versus M/s Rcm Infrastructure Ltd. And Another, Civil Appeal No. 4750 Of 2021

Date of Judgment/Order : May 18, 2022

Court/Tribunal : The Supreme Court Of India

Corum : L. Nageswara Rao; B.R. Gavai, JJ.

Background

The appellant Bank had extended certain credit facilities to the Corporate Debtor. However, the Corporate Debtor failed to repay the dues and the loan account of the Corporate Debtor became irregular. As such, on 13th June 2016 , the loan account of the Corporate Debtor came to be classified as NPA.

The appellant Bank took symbolic possession of two secured assets mortgaged exclusively with it. An E-auction notice was issued on 27th September 2018 by the appellant Bank.

In the meantime, on 22nd October 2018, the Corporate Debtor filed a petition under Section 10 of the Insolvency Code, 2016. In the first E-auction held on 6th November 2018, no bids were received. As such, the second E-auction notice came to be issued on 27th November 2018, which was scheduled to be held on 12th December 2018. In the second E-auction, three persons became successful bidders by offering jointly a price of Rs.32.92 crore for both the secured assets. On 13th December 2018, the sale was confirmed in favour of the successful bidders/auction purchasers in the public auction. The successful bidders deposited 25% of the bid amount, i.e., Rs.8.23 crore including the Earnest Money Deposit of the said amount and the appellant Bank issued a sale certificate to them. The auction purchasers were directed to pay the balance 75% of the bid amount within 15 days, i.e., prior to 28th December 2018. It appears that the auction purchasers, on 28th December 2018, addressed a letter to the appellant Bank seeking handing over of pbeaceful and vacant possession of the secured assets and also prayed for extension of time to pay the balance 75% of the bid amount till 8th March 2019. The request made by the auction purchasers was accepted by the appellant Bank on 29th December 2018 and the extension was allowed by the bank.

The learned NCLT, vide order dated 3rd January 2019 , admitted the petition filed by the ex-promoter of the Corporate Debtor. As a result of the said order passed under Section 10 of the IBC, the CIRP of the Corporate Debtor commenced. A moratorium was notified and an Interim Resolution Professional was also appointed.

The appellant Bank on 21st January 2019, filed its claim in Claim Form-C with the IRP, upon it coming to know about the admission of the insolvency petition filed by the Corporate Debtor. According to the appellant Bank, since the balance 75% of the bid amount was not yet received on the said date, it was not excluded from the claim filed before the IRP. During the pendency of the CIRP, the appellant Bank accepted the balance 75% of the bid amount, i.e., Rs.24.69 crore on 8th March 2019. Upon receipt of the payment, the appellant Bank submitted its revised claim in Claim Form-C to the IRP on 11th March 2019. The appellant Bank also intimated the IRP about the successful sale of the said secured assets.

On objection filed by the promoter of the Corporate Debtor, the NCLT set aside the sale of the property owned by the Corporate Debtor. Appeal filed by the appellant Bank before the learned NCLAT was rejected. Finally, the bank approached the Supreme Court.

It was the contention of the appellant Bank that the sale in question was complete on its confirmation on 13th December 2018 and as such, the admission of the petition on 3rd January 2019 by the learned NCLT would not affect the said sale. Relying on the provisions of Section 54 of the Transfer of Property Act, the bank argued that merely because a part of the payment was received subsequently after initiation of CIRP, it will not deprive the appellant Bank from receiving the said money in pursuance to the sale which has already been completed. In support, the Appellants cited judgments in Vidhyadhar v. Manikrao and Another and Kaliaperumal v. Rajagopal and Another.

Judgment

The SC while dismissing the appeal and referring to the judgements cited by the Appellants highlighted an interesting observation of the Supreme Court. The SC noted that in the case of Vidhyadhar (supra) it correct that it has been held that even if the full price of the property has not been paid, the transaction of the sale will take effect and the title would pass on that transaction. However, the Court has further held that the real test is the intention of the parties. It has been held that the parties must intend to transfer ownership of the property and that they must also intend that the price would be paid either in praesenti or in future. However, it is to be noted that in the said case, the defendant No.2 had not only executed the sale deed in favour of the plaintiff but had presented it for registration, admitted its execution before the Sub-Registrar before whom the remaining part of the sale consideration was paid and thereafter, the document was registered.

In the case of Kaliaperumal (supra) also, the sale deed was registered on partial payment of consideration. However, in spite of registration of the sale deed, in the facts of the said case, the Court held that what was important is the intention of the parties. It was held that normally the ownership and the title of the property will pass to the purchaser on registration of the sale deed with effect from the date of execution of the sale deed. However, that was not an invariable rule. What was paramount, was the intention of the parties. In the facts of the said case, the Court held that the parties intended that the ownership of the property would be transferred to the appellant only after the receipt of the entire sale consideration by the vendors as a condition precedent. Upon interpretation of the sale deed, the Court found that the title was intended to be passed only on the payment of the balance consideration.

In the present case, the present case arises out of a statutory sale. The sale would be governed by Rules 8 and 9 of the Security Interest (Enforcement) Rules. The sale would be complete only when the auction purchaser makes the entire payment and the authorised officer, exercising the power of sale, shall issue a certificate of sale of the property in favour of the purchaser in the Form given in Appendix V to the said Rules.

Undisputedly, in the present case, the balance amount has been accepted by the appellant Bank on 8th March 2019. As has been decided by the Supreme Court in S. Karthik and Others v. N. Subhash Chand Jain and Others and Shakeena and Another v. Bank of India and Others, the sale under the statutory scheme as contemplated under Rules 8 and 9 of the said Rules would stand completed only on 8th March 2019. Admittedly, this date falls much after 3rd January 2019, i.e., on which date CIRP commenced and moratorium was ordered. As such, the NCLT did not  accept the argument on behalf of the appellant Bank that the sale was complete upon receipt of the part payment.

In view of the provisions of Section 14(1)(c) of the IBC, which have overriding effect over any other law, any action to foreclose, recover or enforce any security interest created by the Corporate Debtor in respect of its property including any action under the SARFAESI Act is prohibited. The NCLT was of the view that the appellant Bank could not have continued the proceedings under the SARFAESI Act once the CIRP was initiated and the moratorium was ordered.