2020 (7) TMI 422 - AT - Insolvency and Bankruptcy

Tribunal sets aside order, directs majority rule in liquidation process, binding on dissenting secured creditor.

The Tribunal allowed the appeal, setting aside the Impugned Order dated 20th November 2019. It directed the Liquidator to complete the liquidation process ... Liquidation process - right of the secured creditor - Permission to cause the sale of assets of the Surana Power Limited in Liquidation under Regulation 32 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations 2016 - Application rejected mainly on the ground that BHEL is a Secured Creditors, entitle to proceed under section 52 to realize its Security Interest - HELD THAT:- In the present case, the Secured Creditors which 73.76% in value have already relinquished the Security Interest into the liquidation estate. Thus, it would be prejudicial to stall the liquidation process at the instance of a single creditor having only 26.24% share (in value), in the secured assets. The Respondent does not hold a superior charge from the rest of the Secured financial creditors in the secured Assets. The above provision of SARFAESI Act will be applicable in this case to end this deadlock, and the decision of 73.76% of majority Secured Creditors, who have relinquished the Security Interest shall also be binding on the dissenting secured creditors, i.e. Respondent. It is pertinent to mention that the facts of the present case are different from that in the case of JM FINANCIAL ASSET RECONSTRUCTION COMPANY LTD. VERSUS FINQUEST FINANCIAL SOLUTIONS PVT. LTD., MR. RAVI SHANKAR DEVARAKONDA, EDELWEISS ASSET RECONSTRUCTION COMPANY, L&T FINANCE LIMITED, BANK OF INDIA, UNION BANK OF INDIA, PUNJAB NATIONAL BANK, ASSET RECONSTRUCTION COMPANY (INDIA) LTD. [2020 (1) TMI 275 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI] because in this case, the Liquidator has already concluded that the respondents charge on the Secured Assets is not exclusive. Therefore, the Respondent can realise a Security Interest as per provision Section 13(9) of the SARFAESI Act. Since the Respondent does not have a requisite 60% value in Secured Interest, therefore, the Respondent does not have right to realize its security interest, because it would be detrimental to the Liquidation process and the interest of the remaining ten Secured Creditors. The Appellant/Liquidator is directed to complete the Liquidation Process - Appeal allowed. Issues Involved:1. Whether the Adjudicating Authority erred in dismissing the Miscellaneous Application for permission to sell the assets of the Corporate Debtor.2. Whether the Respondent's refusal to relinquish its security interest created a deadlock in the liquidation process.3. Whether the Respondent's lien had a preference over the charge created in favor of the remaining secured creditors.4. Applicability of Section 52 of the Insolvency and Bankruptcy Code, 2016, and Section 13(9) of the SARFAESI Act, 2002.Issue-wise Analysis:1. Dismissal of Miscellaneous Application:The appeal originated from the Impugned Order dated 20th November 2019, where the Adjudicating Authority/National Company Law Tribunal, Chennai Bench, dismissed the Miscellaneous Application No. 1052 of 2019. This application sought permission to sell the assets of Surana Power Limited in liquidation under Regulation 32 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations 2016, based on the consent given by a majority of secured creditors. The Adjudicating Authority rejected the application on the grounds that the Respondent, a secured creditor, had not relinquished its security interest, thereby preventing the Liquidator from proceeding with the sale.2. Deadlock in Liquidation Process:The Liquidator was unable to commence the liquidation process due to some secured lenders not timely intimating their decision concerning the relinquishment of their securities. The Respondent was the last secured creditor to intimate its decision, and it expressed unwillingness to relinquish its security interest in the assets of the Corporate Debtor. This refusal created a deadlock situation, as the Liquidator could not proceed with the sale of assets without the relinquishment of security interest from all secured creditors. The Appellant argued that this deadlock was prejudicial to the liquidation process, as 73.76% of the secured creditors had already relinquished their security interest.3. Preference of Respondent's Lien:The Adjudicating Authority held that the Respondent's lien had a preference over the charge created in favor of the remaining secured creditors. However, the Appellant contended that this view violated the waterfall mechanism provided under Section 53 of the Insolvency and Bankruptcy Code, 2016. The Appellant also argued that all secured creditors were on the same footing regardless of the mode of creation of charge. The Respondent, being a secured operational creditor by an arbitral award, claimed a lien over the supplied equipment and goods lying at the site of the Corporate Debtor, creating a conflict with the other secured creditors who had a prior charge over the same assets.4. Applicability of Section 52 of IBC and Section 13(9) of SARFAESI Act:The Respondent exercised its rights under Section 52 of the Insolvency and Bankruptcy Code, 2016, choosing to realize its security interest. The Appellant argued that the Respondent's right under Section 52 was unqualified and could not be subjected to the majority of secured creditors who had relinquished their security interest. The Tribunal noted that Section 13(9) of the SARFAESI Act, 2002, requires confirmation from creditors representing at least 60% of the value of the total debt for the realization of assets. Since the Respondent did not hold a requisite 60% value in secured interest, it did not have the right to realize its security interest, as it would be detrimental to the liquidation process and the interests of the remaining secured creditors.Conclusion:The Tribunal allowed the appeal, setting aside the Impugned Order dated 20th November 2019. It directed the Liquidator to complete the liquidation process in light of the directions provided, emphasizing that the decision of the majority (73.76%) of secured creditors who had relinquished their security interest should be binding on the dissenting secured creditor (Respondent). The Tribunal concluded that the Respondent's refusal to relinquish its security interest created an unjust deadlock, and the liquidation process should proceed in accordance with the majority decision. No order as to costs was made.