By invoking the provisions of SARFAESI Act, 2002, XYZ Bank took physical possession of property of ABC Co. Ltd., as the latter defaulted in payment of loan given by XYZ Bank. Subsequently ABC Co. Ltd. was brought under C

In terms of Section 13(4) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests Act, 2002 (SARFAESI Act) once a corporate debtor defaults in repaying the loan amount taken from the bank, the bank can file the application to take over the physical possession of the property of the corporate debtor. Section 18(f) of Insolvency and Bankruptcy Code, 2016 prescribing duties of Resolution Professional stipulates that the Resolution Professional shall take control and custody of any asset over which the corporate debtor has ownership rights as recorded in the balance sheet of the corporate debtor, including assets that may or may not be in possession of the corporate debtor. Besides Section 238 of Insolvency and Bankruptcy Code, 2016 stipulates that the provisions of this code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law. Considering the 'notwithstanding' provision contained in Insolvency and Bankruptcy Code, 2016, the resolution professional will have right over the property of ABC Co Ltd. NCLAT in Encore Asset Reconstruction Company Pvt. vs. Ms. Charu Sandeep Desai & Ors , upheld that Section 18 of Insolvency and Bankruptcy Code, 2016 will prevail over Section 13(4) of the SARFAESI Act. However, as explained in the objectives of Insolvency and Bankruptcy Code, 2016, the secured creditors may relinquish their security interest in the estate and the recoveries that are obtained are paid out through a well-defined waterfall mechanism. Thus by virtue of being a secured creditor, XYZ Bank can file its claim and participate in the resolution process so that its interest is also protected.