The National Company Law Appellate Tribunal (NCLAT) New Delhi bench held that a secured creditor’s security interest will become part of the liquidation estate if, within ninety days of the liquidation commencement date, if they do not deposit the sum required by Regulation 21A(2) of the Liquidation Regulations, despite having chosen to realize it under Section 52 of the Insolvency and Bankruptcy Code, 2016 (Code).
With a ruling issued by the NCLAT on March 16, 2021, the liquidation process against the Corporate Debtor (“CD”) KS Oils Ltd. got underway. The appellant, Phoenix ARC Pvt. Ltd., asserted a security interest in the 12.84-acre immovable property in District Purba, Medinipur, Mauza Debhog J.L. No.149, as well as any equipment and plant permanently affixed to it or attached to it. The appellant did not give up its security interest in the “Haldia Unit” in Form-D, but it did give up its security interest in all other securities.
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In accordance with Section 21A of the IBBI (Liquidation Process) Regulations, 2016 (“Liquidation Regulations”), the Liquidator informed the Appellant on July 14, 2023, that Haldia Unit had joined the Liquidation Estate. Following the issuing of the Sale Notice dated 19.07.2023, the Appellant filed MA No.03 of 2023, contesting the Liquidator’s judgment dated 14.07.2023 and requesting that the Sale Notice dated 19.07.2023 for Haldia Unit be set aside.
On February 3, 2024, One Halder Venture Limited was announced as the winning bidder at the Stakeholder Consultation Committee (“SCC”) meeting. There was a Letter of Intent (“LoI”). In the contested order, the adjudicating authority denied MA No. 03 of 2023. The assets of the Haldia Unit became the CD’s Liquidation Estate due to the appellant’s noncompliance with Regulation 21A, sub-regulation (2), the adjudicating authority found.
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The appellant argued that, in accordance with Section 52 of the IBC and Regulation 21A of the Liquidation Regulation, the secured creditor had already exercised its right by refusing to give up the security interest. The appellant has not defaulted or refused to pay its portion of the sum due under Sections 53(1)(a) and 53(1)(b)(i).
It was further stated that, in accordance with Regulation 21A, the liquidator has an obligation to notify the secured creditor of estimation if any sum needs to be paid. It is incorrect for the Adjudicating Authority to conclude that the appellant has not complied with Regulation 21. In contrast, the Respondent argued that the Liquidator had given the Appellant the 12.87-acre Haldia Unit on January 21, 2023, but that within ninety days, the Appellant had not paid the required fees under Regulation 21A, sub-regulation (2), nor had there been any correspondence until 180 days had passed.
The Tribunal found that as per Regulation 37 of the Liquidation Regulations, it is the duty of the secured creditor to inform the liquidator the price at which he proposes to realise his security interest. It is thereafter the responsibility of the liquidator to see whether any other person is offering a higher price than the proposed price within 30 days from the date of intimation.
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The bench of Justice Ashok Bhushan (Judicial Member) and Mr. Barun Mitra (Technical Member) found that the Appellant failed to take steps under Regulation 37 of the Liquidation Regulations and did not communicate the estimated payment required to be made under Regulation 21A(2) to the liquidator. As a secured creditor, the Appellant was under an obligation to make the payment within 90 days from the liquidation commencement date.
The bench viewed that when obligation is linked with the time period, the Appellant cannot fall back on the argument that the Liquidator has not communicated the estimated amount to the secured creditor. It further added that when secured creditor at no point of time even asked for estimated amount from the Liquidator and no steps were taken under Regulation 37 by the Appellant, it is not open for the Appellant to contend that Regulation 21A, sub-regulation (2) shall not apply, since he was not communicated the estimated amount by the Liquidator.
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The Tribunal noted that even if no request for an amount estimate is sent, or if the liquidator does not send an estimate and payment is made, a secured creditor is protected under the second proviso of Regulation 21A(2) of the Liquidation Regulations. As a result, the secured creditor cannot claim that they are free from Regulation 21A(2) due to the liquidator’s lack of communication.
The bench dismissed the appeal, concluding that the Haldia Unit had become part of the Liquidation Estate due to non-fulfillment of the obligation under Regulation 21A (2), and that the Liquidator had properly issued a Sale Notice with the SCC’s consent.
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