NCLAT held that the non-payment of liquidation costs by the Appellant led to the automatic relinquishment of its security interest under the IBBI (Liquidation Process) Regulations.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, comprising Justice Ashok Bhushan and Technical Member Mr. Barun Mitra, reviewed an appeal and held that under Regulation 21A(2) and 21A(3) of the IBBI (Liquidation Process) Regulations, 2016, a secured creditor's failure to pay the proportionate CIRP and liquidation costs within the stipulated timeline leads to the deemed relinquishment of its security interest, which then forms part of the liquidation estate. The Tribunal further held that such relinquishment cannot be challenged when the creditor has previously consented to a joint sale of assets for value maximization.
In the present case, the National Company Law Appellate Tribunal (NCLAT) dismissed the appeal challenging the Adjudicating Authority’s (NCLT, Kolkata Bench) order dated 13.03.2024. The matter arose during the liquidation proceedings of Bharat NRE Coke Ltd. (Corporate Debtor), initiated after no resolution plan was approved, and liquidation commenced on 11.12.2019. The Appellant, a secured Financial Creditor, had notified the liquidator on 10.01.2020 of its intention to realize its security interest under Section 52 of the Insolvency and Bankruptcy Code, 2016 (IBC) and the SARFAESI Act, 2002.
The dispute centred on non-payment of CIRP and liquidation costs demanded by the liquidator. On 29.05.2023, the liquidator issued an e-mail declaring that the Appellant’s security interest stood relinquished under Regulation 21A(2) and (3) of the IBBI (Liquidation Process) Regulations, 2016, due to the Appellant's failure to comply with payment obligations. While the Appellant argued that Regulation 21A must be interpreted harmoniously with Section 52 of the IBC and contended that the regulation would otherwise be ultra vires, the liquidator maintained that the Appellant had agreed in Joint Lenders’ Meetings to participate in a joint sale of assets for value maximization.
The NCLAT, after reviewing the facts, found that the Appellant had issued a notice under Section 13(2) of the SARFAESI Act on 20.08.2021, following its prior communication to realize the security interest on 10.01.2020. However, despite demands for proportionate liquidation costs on 16.02.2023 and 29.05.2023, the Appellant failed to make the payment as required under Regulation 21A(2). The Tribunal noted that Regulation 21A(3) clearly stipulates that in such instances, the security interest is deemed to form part of the liquidation estate.
Further, the NCLAT emphasized the Appellant’s participation in Joint Lenders’ Meetings held on 22.03.2024 and 12.04.2024, where it, along with other stakeholders, consented to a joint sale of assets due to the intermingling of properties and the absence of physical demarcation. The Tribunal observed that the Appellant’s subsequent attempt to realize its security interest contradicted its earlier agreement in the meetings.
Concluding that the liquidator’s communication dated 29.05.2023 was justified, the NCLAT held that the Adjudicating Authority had correctly refused to grant any relief in IA No.1069 of 2023. The appeal was accordingly dismissed, with the Tribunal finding no valid grounds to interfere with the impugned order.
Mr. Abhijeet Sinha, Sr. Advocate with Mr. Chitranshul A. Sinha, Ms. Pallavi, Mr. Shivam Shorewala and Ms. Rakshita Bhargava, Advocates represented the Appellant.
Mr. Joy Saha, Sr. Advocate with Mr. Shamboo Nandy and Ms. Anoushka Dey, Advocates appeared for the Respondent.
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