Tribunal Upholds Interim Moratorium Under IBC, 2016, Invalidating Sale Under SARFAESI Act
In a significant judgment, the National Company Law Tribunal (NCLT), Chandigarh Bench, has set aside the sale certificate issued for the core assets of Mohan Rail Components Private Limited during an interim moratorium under Section 96 of the Insolvency and Bankruptcy Code (IBC), 2016. The Tribunal, comprising Mr. Kaushalendra Kumar Singh, Member (Technical), and Mr. Khetrabasi Biswal, Member (Judicial), delivered the order on July 21, 2026, in response to applications filed by Jaspal Singh and Narinder Kaur.
The judgment comes in the wake of contentious proceedings where Canara Bank, the financial creditor, had auctioned properties under the SARFAESI Act, 2002, despite a pending Corporate Insolvency Resolution Process (CIRP) application under Section 7 of the IBC. The properties, jointly owned by the corporate debtor and personal guarantors, were sold after the interim moratorium commenced, raising questions on the legality of the sale.
The Tribunal emphasized that the interim moratorium under Section 96 of the IBC comes into effect automatically upon filing an application under Section 94, thus rendering any actions, such as the issuance of a sale certificate, impermissible if done after the moratorium's commencement. The NCLT highlighted that such actions contravened the Code's objectives of preserving the corporate debtor as a going concern and maximizing asset value through a fair insolvency resolution process.
The decision underscores the importance of adhering to the IBC's statutory framework, particularly the automatic protection offered by the interim moratorium, which prohibits the continuation of asset sales that could undermine the insolvency resolution process. The Tribunal exercised its inherent powers under Rule 11 of the National Company Law Tribunal Rules, 2016, to prevent abuse of process and secure the ends of justice.
This judgment not only impacts the specific case at hand but also sets a precedent for future proceedings where simultaneous actions under the SARFAESI Act and the IBC may conflict. Legal experts believe this decision reinforces the IBC's supremacy in matters of insolvency and bankruptcy, ensuring that the rights of all stakeholders, including operational creditors and guarantors, are safeguarded.
Bottom Line :
Insolvency and Bankruptcy Code, 2016 - Sale certificate issued after commencement of interim moratorium under Section 96 of the Code is impermissible and liable to be set aside.
Statutory provision(s): Insolvency and Bankruptcy Code, 2016 Sections 7, 94, 96; National Company Law Tribunal Rules, 2016 Rule 11; SARFAESI Act, 2002.
Jaspal Singh v. Canara Bank, (NCLT)(Chandigarh Bench) : Law Finder Doc id # 2965192
