Secured creditors, including debenture holders, are obligated to contribute to liquidation costs under the Insolvency and Bankruptcy Code.
The National Company Law Appellate Tribunal (NCLAT), Chennai Bench comprising Justice M. Venugopal (Judicial Member) and Ajai Das Mehrotra (Technical Member) was hearing an appeal and observed that that secured creditors, including debenture holders, are obligated to contribute to liquidation costs under the Insolvency and Bankruptcy Code and must comply with procedural requirements for filing appeals, including obtaining and submitting certified copies of impugned orders, failing which they cannot claim exclusions under the Limitation Act.
The appellant, dissatisfied with the NCLT Bengaluru Bench's order dated May 25, 2023, in IA No. 399/BB/2020 in CP (IB) No. 189/BB/2018, filed an appeal under Section 9 of the I&B Code, 2016. The NCLT's order mandated that the appellant, a financial creditor, contribute to the liquidation process costs. The appellant contested this decision, arguing that it represented debenture holders, who are secured financial creditors but not financial institutions according to the I&B Code and RBI Act, and thus should not be liable for liquidation costs. They emphasized that they had opted out of the liquidation process to realize their security interest and claimed that the NCLT’s findings were unsupported, especially regarding their classification as financial institutions.
The appellant described its role as an investment manager for funds investing in secured, redeemable, non-convertible debentures and asserted that it did not meet the definition of a financial institution. Additionally, the appellant criticized the liquidator for not cooperating with secured creditors and managing the liquidation process effectively. They sought to overturn the NCLT's order, arguing it contradicted the provisions and intentions of the I&B Code, 2016.
The 1st Respondent's counsel countered by citing Regulation 21A of the IBBI (Liquidation Process) Regulations, 2016, which requires secured creditors who do not relinquish their security interest to pay specified amounts under Section 53(1)(a) and (b)(i) of the IBC. They referenced legal precedents emphasizing the mandatory compliance of secured creditors with these regulations. The counsel also noted that the appeal was filed without obtaining a certified copy of the impugned order, as required by the Supreme Court's judgment in V. Nagarajan v. SKS Ispat and Power Limited, which stressed the necessity of applying for a certified copy within the limitation period.
The Appellate Tribunal observed that the appellants did not apply for an exemption from filing the certified copy of the impugned order, as mandated by Rule 22 of the NCLAT Rules, 2016. The Tribunal emphasized that obtaining and filing a certified copy is a mandatory requirement and not a mere formality. As the appellants did not apply for a certified copy, they could not claim the exclusion of the time requisite for obtaining the copy under Section 12 of the Limitation Act, 1963.
Ultimately, the Appellate Tribunal upheld the NCLT's order, finding it legally sound and justified. The appeal was dismissed, and the Tribunal directed the appellants to file the certified copy of the impugned order within two weeks to ensure justice and prevent any injustice. The judgment emphasized the importance of timely compliance with filing requirements to facilitate the smooth execution of the liquidation process. The connected pending interlocutory applications were also closed.
Subscribers can access the case, along with case analysis, case research, ratio decidendi, headnotes, briefs, caselaw cross-references, etc. etc.
Click on the Citation
留言