NCLAT held that the secured creditor is required to pay liquidation costs within 90 days under Regulation 21-A(2) to retain its security interest and upheld the Liquidator's fee claim.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, comprising Justice Ashok Bhushan (Chairperson) and Technical Members Mr. Barun Mitra and Mr. Arun Baroka, held that a secured creditor opting to realize its security interest under Section 52(1)(b) of the Insolvency and Bankruptcy Code, 2016, must comply with Regulation 21-A(2) of the IBBI (Liquidation Process) Regulations, 2016, by paying the liquidation costs, including the Liquidator's fee, within 90 days of liquidation commencement. Failure to comply results in the secured asset forming part of the liquidation estate and the Liquidator’s fees remain payable even without actual realization or distribution of the secured asset.
The present appeal was filed under Section 61 of the Insolvency and Bankruptcy Code, 2016 ("IBC"), challenging the order of the NCLT, Mumbai Bench-IV, which directed the Appellant, Shikshak Sahakari Bank Ltd., to pay the Liquidator’s fee amounting to ₹25,47,229. The Corporate Insolvency Resolution Process (CIRP) of Narendra Solvex Private Limited had been initiated on 16.09.2021, and upon its failure, liquidation was ordered on 27.01.2024, and subsequently rectified on 28.03.2023. The Liquidator issued a public announcement on 06.04.2023, fixing 06.05.2023 as the deadline for submission of claims. The Appellant, a secured creditor, filed its claim of ₹5,95,45,557 in Form D and opted to retain its security interest under Section 52(1)(b) of the IBC.
The dispute arose when the Appellant set the auction reserve price of the secured asset at ₹2,24,15,000 but failed to pay the Liquidator's fee, disputing its legality. The Liquidator, in emails dated 12.06.2023 and 17.06.2023, clarified the fee’s calculation under Regulation 4(2)(b) and Regulation 21-A(2) of the IBBI (Liquidation Process) Regulations, 2016. The Appellant contended that the Liquidator's demand was invalid as Regulation 4(2)(b) mandates fees to be accrued only on the actual realization or distribution of assets. Further, they argued that the issue was barred by res judicata due to a prior application withdrawn by the Liquidator.
The Liquidator, however, emphasized that Regulation 21-A(2) obligated secured creditors to pay liquidation costs within 90 days of liquidation commencement, failing which the asset would become part of the liquidation estate. The NCLT upheld the Liquidator’s stand, interpreting Regulation 4(1A) and 4(2)(b), and directed the Appellant to pay the fees. Aggrieved, the Appellant challenged the order, maintaining that no realization or distribution had occurred to warrant such payment.
The NCLAT, while dismissing the appeal, affirmed the Adjudicating Authority's findings and held that secured creditors exercising their rights under Section 52(1)(b) must comply with Regulation 21-A, which mandates payment of liquidation costs, including the Liquidator's fee. The Tribunal observed that failure to comply within the stipulated 90-day period results in the secured asset forming part of the liquidation estate. It clarified that the Liquidator’s entitlement to fees is valid even when the asset is realized independently by the secured creditor. The NCLAT relied on precedents, including State Bank of India v. Navjit Singh and SIDBI v. Vijender Sharma, underscoring the secured creditor's obligations under Sections 52/53 of the IBC and relevant regulations.
Concluding that the Liquidator had acted in compliance with the regulations and diligently sought payment of liquidation costs, the NCLAT upheld the NCLT's order. The appeal was dismissed, and pending IAs were closed, with no order as to costs.
Mr. Abhijeet Sinha, Sr. Advocate with Mr. Sarthak Gaurav, Advocates represented the Appellant.
Mr. Anirban Bhattaharya, Mr. Nipun Gautam, Mr. Rajeev Chowdhary and Ms. Priyanka B., Advocates appeared for the Respondent.
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