No Violation of Section 14(1)(d) IBC in Auction of Subsidiary's Assets Under SARFAESI Act: NCLAT Principal Bench

The National Company Law Appellate Tribunal Principal Bench, New Delhi of Justice Ashok Bhushan and Barun Mitra has held that there is no violation of Section 14 of the Insolvency and Bankruptcy Code in the auction of assets or facilities of a subsidiary company if the assets were handed over to the Corporate Debtor for operation and maintenance under the SARFAESI Act. Further, it was argued that the Conditional Deed of Assignment with Respondent No.1 was contrary to the Facility Use Agreement, and the Facility's continued use is vital for the Corporate Debtor's operations and recovery. Observations by the NCLAT: The NCLAT assessed the Facility Use Agreement between the Corporate Debtor and Respondent No.2 to determine whether the Corporate Debtor's operational and maintenance rights over the Facility constituted an occupation that contravened Section 14 of the IBC. Upon examining the Facility Use Agreement, the NCLAT noted that the Corporate Debtor was granted only the rights to operate and maintain the Facility with ownership remaining unequivocally with Respondent No.2. It noted that Clause 2.2 of the Agreement stipulated that despite the Corporate Debtor's rights to operate and maintain the Facility, the ownership remained with Respondent No.2.