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IBC 2016 and SARFAESI Act, 2002 Interplay: An Impactful Analysis in a Landmark Judgment

IBC 2016 and SARFAESI Act, 2002 Interplay: An Impactful Analysis in a Landmark Judgment


The recent judgment by the Kerala High Court, presided over by Hon’ble Mr. Justice N. Nagaresh, in the case of Jeny Thankachan vs. Union of India and Ors. offers a significant interpretation of the Insolvency and Bankruptcy Code, 2016 (IBC 2016) and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act, 2002). This case critically examines the interplay between the two statutes, especially in the context of insolvency proceedings involving individuals and partnership firms.

Key Judgments of the Court

  1. Automatic Moratorium under IBC: The Court elucidated that under Part III Chapter III of the IBC, pertaining to individuals and partnership firms, the interim moratorium under Section 96 and the moratorium under Section 101 are automatic by the operation of law. This implies that the declaration of a moratorium by the adjudicating authority is not a prerequisite.
  2. Filing of Application under Section 96: The Court held that the mere uploading of an application under Section 96 of the IBC does not constitute the filing of an application. It emphasized the necessity for an application to be complete in all respects and free from procedural defects to be considered valid.
  3. Interim Moratorium and NCLT’s Role: In this specific case, since the National Company Law Tribunal (NCLT) did not assign a regular case number to the petitioner’s application, the interim moratorium under Section 96(1)(b)(i) could not be operationalized. This underscores the importance of NCLT’s acknowledgment of an application for triggering the moratorium.
  4. Overriding Effect of IBC 2016 and its Relationship with SARFAESI Act, 2002: While acknowledging the overriding effect of IBC 2016 as per Section 238, the Court clarified that IBC 2016 does not entirely oust the operation of SARFAESI Act, 2002. Both acts operate in distinct domains, and unless there is direct conflict or repugnancy, one does not overshadow the other in totality.
  5. Section 94 Proceedings and Guarantors: The initiation of proceedings under Section 94 of the IBC by a partner of an LLP in the capacity of a guarantor does not extend to proceedings initiated against the petitioner under the SARFAESI Act in the capacity of a guarantor.

Analysis and Implications Between the IBC 2016 and the SARFAESI Act

This judgment is a landmark in understanding the nuanced relationship between the IBC and the SARFAESI Act. It clarifies that while IBC has an overarching framework for insolvency and bankruptcy, it does not completely negate the provisions of the SARFAESI Act. Particularly, the judgment is pivotal in cases involving individual insolvency where the applicant’s procedural adherence is crucial for the application’s acceptance and the subsequent triggering of the moratorium.

Furthermore, the ruling highlights the importance of the NCLT’s role in acknowledging and numbering applications, which is a key factor in determining the applicability of moratorium provisions. This adds a layer of judicial scrutiny to ensure that applications are not only technically sound but also substantively complete.

Conclusion of Kerala High Court’s on IBC 2016 and SARFAESI Act

The Kerala High Court’s ruling in Jeny Thankachan vs. Union of India and Ors. provides a detailed legal framework for understanding the interaction between IBC 2016 and SARFAESI Act, 2002. It underlines the significance of procedural accuracy and judicial acknowledgment in insolvency applications and delineates the boundaries within which the IBC and SARFAESI Act operate. This judgment will serve as a guiding precedent for future cases involving the interplay of these two pivotal financial legislations.



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