Claim on Goods not in Possession of Port Authority cannot be treated as Secured Creditor under IBC: NCLAT

The Chennai Bench of the National Company Law Appellate Tribunal ( NCLAT ) ruled that the claim on goods not in possession of port authority cannot be treated as secured creditor under the Insolvency and Bankruptcy Code, 2016 ( IBC ).

The appeal is directed against the order by which an application filed under Section 42 of the Insolvency and Bankruptcy Code, 2016 by the Appellant for setting aside the email dated 21.06.2023 sent by the Liquidator and further to direct the liquidator to treat the Appellant as a secured creditor for the purpose of distribution of liquidation assets as per Section 53 of the IBC has been dismissed as misconceived.

It was alleged that vide email dated 01.06.2023, the Appellant clarified that as per Section 171 of Indian Contract Act, 1872, the Appellant is entitled to be considered as secured creditor whereas the liquidator vide its email dated 21.06.2023 responded that the Corporate Debtor has been sold as going concern and the sale proceeds have been distributed to the stakeholders in accordance with the provisions of Section 53 of the IBC and further stated that he has filed an application before the Adjudicating Authority for closure of the liquidation process, therefore, it is not possible at this stage to reverse the process which has already been completed.

The main plank of argument of the Appellant is Section 171 of the Contract Act on the basis of which it is claimed that the Appellant should have been declared as a secured creditor and should have been included in the list of stakeholders for the purpose of distribution in terms of Section 53 of the IBC.

The counsel for the Appellant has vehemently argued that the Adjudicating Authority erred in its appreciation of the facts, however, on our pointed question as to how Section 171 would apply especially when there is no lien of the Appellant on the goods as a bailee because the possession of the goods ( assets ) was already with the liquidator, he could not refer to any other provisions in the act or any direct precedent in his favour.

A Two-Member Bench comprising Justice Rakesh Kumar Jain, Member ( Judicial ) and Shreesha Merla, Member ( Technical ) observed that “A careful reading of the aforesaid provision would show that wharfingers as the Appellant claiming itself to be a security for a general balance of account any goods bailed to them whereas in the present case, the goods are not in possession of the Appellant which is also admitted by the Appellant during the course of hearing and thus there was no actual lien to invoke Section 171 of the Contract Act.”

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