NCLAT Rules No Violation Of IBC Section 14(1)(d) In Auction Of Subsidiary Assets

NCLAT Rules No Violation Of IBC Section 14(1)(d) In Auction Of Subsidiary Assets

The National Company Law Appellate Tribunal (NCLAT), Principal Bench in New Delhi, has determined that there is no breach of Section 14(1)(d) of the Insolvency and Bankruptcy Code (IBC) when assets of a subsidiary company are auctioned if those assets were handed over to the Corporate Debtor for operation and maintenance under the SARFAESI Act.

Wind World (India) Limited, referred to as the "Corporate Debtor," is the holding company for Wind World (India) Infrastructure Pvt. Ltd., a subsidiary responsible for constructing and operating a power switchyard (the Facility). This Facility Agreement, effective December 28, 2007, allowed the Corporate Debtor to use, operate, and maintain the Facility. The agreement, amended periodically up to 2016, was backed by loan agreements with Indian Renewable Energy Development Agency Limited (Respondent No.1), which secured loans with hypothecation of the Facility assets.

Following defaults in loan repayments, Respondent No.1 began recovery proceedings under the SARFAESI Act. This included issuing an Expression of Interest (EoI) to find new operators for the Facility. The Corporate Debtor challenged this move, arguing it violated Section 14(1)(d) of the IBC, which imposes a moratorium on recovery actions during the Corporate Insolvency Resolution Process (CIRP).

The Corporate Debtor contended that issuing the EoI contravened Section 14(1)(d) since it was authorized to operate and maintain the Facility, and thus, the EoI should not be issued during the moratorium. They claimed the Facility Use Agreement should remain effective and not be terminated under SARFAESI Act provisions while CIRP is underway.

Respondent No.1 countered that Section 14(1)(d) was not applicable, asserting that it was not the owner or lessor of the Facility, but rather, Respondent No.2 retained ownership.

Upon review, the NCLAT concluded that the Facility Use Agreement only granted operational and maintenance rights to the Corporate Debtor, with ownership remaining with Respondent No.2. The Tribunal noted that these rights did not equate to legal possession or occupation under Section 14(1)(d) of the IBC, which prohibits recovery of property occupied and possessed by the Corporate Debtor.

The NCLAT upheld the decision of the Adjudicating Authority, ruling that the Corporate Debtor’s operational role did not constitute possession or occupation of the Facility under Section 14(1)(d). Consequently, the appeal was dismissed.