Tribunal remits matter to Liquidator for verification of security interests under I&B Code

The Tribunal set aside the Adjudicating Authority's order and remitted the matter to the Liquidator for proper verification and realization of security interests in accordance with Sections 52 and 53 of the I&B Code. The Liquidator was directed to determine the first charge and address any pending disputes before a court. The appeal was allowed without costs.

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Issues Involved:

1. Entitlement of Finquest Financial Solutions Pvt. Ltd. to realize its security interest.
2. Jurisdiction of the Adjudicating Authority under Section 52 of the I&B Code.
3. Priority and validity of first charge over the secured assets.
4. Procedure for realizing security interest under the I&B Code.
5. Role and responsibilities of the Liquidator in liquidation proceedings.

Issue-wise Detailed Analysis:

1. Entitlement of Finquest Financial Solutions Pvt. Ltd. to Realize Its Security Interest:

The primary issue is whether Finquest Financial Solutions Pvt. Ltd. (Finquest) is entitled to realize its security interest over the assets of the Corporate Debtor. Finquest filed a Miscellaneous Application under Section 60(5) read with Section 52 of the Insolvency and Bankruptcy Code (I&B Code) and Regulation 37 of the IBBI (Liquidation Process) Regulations, 2016, seeking permission to sell/dispose of the secured assets to realize its security interest. The Adjudicating Authority initially directed the Liquidator to hand over the symbolic possession of the fixed assets to Finquest, recognizing its entitlement to realize the security interest under Section 52(1)(b) read with Regulation 37.

2. Jurisdiction of the Adjudicating Authority under Section 52 of the I&B Code:

The Appellant argued that the Adjudicating Authority lacked the power to decide disputed questions of fact regarding the realization of security interest by a Secured Creditor and to determine inter-se priority of charges between Secured Creditors. The Tribunal agreed, noting that the Adjudicating Authority’s jurisdiction is limited under Section 52(6) to cases where a Secured Creditor faces resistance in realizing its security interest. Since there was no allegation of resistance in this case, the application by Finquest was deemed not maintainable.

3. Priority and Validity of First Charge over the Secured Assets:

The dispute centered on whether Finquest had an exclusive first charge over the secured assets. The Tribunal highlighted that the Adjudicating Authority failed to properly consider the pending suit (Suit No. 84 of 2013) regarding the first charge, which had not been adjudicated. The Tribunal emphasized that the Adjudicating Authority should not have passed an order on the issue of first charge while the suit was pending. Additionally, the Tribunal noted that the Recovery Certificate issued by the Debts Recovery Tribunal entitled Edelweiss Asset Reconstruction Company and other banks to recover sums from the sale of the Corporate Debtor’s properties, including the Mysore Plant.

4. Procedure for Realizing Security Interest under the I&B Code:

Section 52 of the I&B Code allows a Secured Creditor to either relinquish its security interest to the liquidation estate or realize it independently. The Tribunal clarified that the realization of security interest must follow the procedure outlined in Section 52(2) and (3), which requires the Liquidator to verify the security interest and permit realization based on records maintained by an information utility or as specified by the Board. The Tribunal found no evidence that Finquest had approached the Liquidator as required under Section 52(2) and (3).

5. Role and Responsibilities of the Liquidator in Liquidation Proceedings:

The Tribunal underscored the Liquidator’s role in verifying and permitting the realization of security interests. It noted that the Liquidator had abdicated its responsibility by not following the prescribed procedure. The Tribunal remitted the matter to the Liquidator to proceed in accordance with law, ensuring compliance with Sections 52 and 53 of the I&B Code. The Liquidator was directed to determine the first charge from records maintained by an information utility or as specified by the Board and to inform the parties if any dispute regarding the first charge was pending before a court.

Conclusion:

The Tribunal set aside the impugned order of the Adjudicating Authority and remitted the matter to the Liquidator to act in accordance with the law, following the procedures outlined in Sections 52 and 53 of the I&B Code. The Liquidator was instructed to verify the first charge and proceed accordingly, considering any pending disputes before a court. The appeal was allowed with the aforementioned observations and directions, with no costs awarded.

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