The Cuttack bench of the National Company Law Tribunal (NCLT) dismissed an application filed by the liquidator seeking directions for distribution of the balance sale consideration and for extending the time for distribution of sale proceeds under Section 53 of the IBC Code.
The Corporate Debtor was allowed into CIRP by the Tribunal after a liquidation application was submitted to the NCLT, Mumbai. Since no effective resolution plan was reached during the CIRP, and in light of the CoC’s ruling, the NCLT Mumbai Bench issued an order of liquidation, designating the applicant, IDFC Bank, as the corporate debtor’s liquidator.
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In accordance with this, the liquidator started an online auction with a reserve price of Rs. 400 crores to sell the corporate debtor’s assets on a slump sale basis. The highest bidder, Jindal Steel and Power Limited (JSPL), started depositing the selling consideration cash.
The liquidator of the corporate debtor then filed an interim application with the NCLT, Cuttack, asking for clarification and instructions on how to divide the remaining sale consideration of Rs. 30,26,42,850/-, which was the share of the second charge financial creditors, among the secured creditors under Section 53 of the IBC because the corporate debtor was divided into two categories. In its ruling dated January 15, 2024, the Adjudicating Authority instructed the Applicant to notify each and every one of the Corporate Debtor’s Secured Creditors.
In order to get the proper instructions on the distribution of sale proceeds pertaining to the share of second charge holders, the liquidator submitted an application to the relevant body.
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The Tribunal, which was made up of Banwari Lal Meena (Member (Technical) and Justice Deep Chandra Joshi (Member (Judicial)), ruled that the secured creditors could not prioritize other similar creditors when the sale proceeds of the secured assets were being distributed after giving up their security interests.
The bench ruled that “once a Secured Creditor relinquishes its security interest to the liquidation estate, it cannot seek priority among other secured creditors on the basis of the charge and is only entitled to receive proceeds from the sale of assets in the manner specified under Section 53 of the Code.”
Without granting the first charge financial creditors any precedence, the NCLT instructed the liquidator to divide the remaining sale proceeds among the secured creditors on a pro rata basis.
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