Secured creditor loses right to pledged shares after failing to inform liquidator within prescribed timeframe under Regulation 21-A

Calcutta HC dismissed a writ petition challenging NCLT's order under Regulation 21-A of IBBI (Liquidation Process) Regulations, 2016. The court held that when a secured creditor failed to inform the liquidator of its decision regarding security interest within the prescribed timeframe, the liquidator properly presumed the pledged shares to be part of the liquidation estate. The petitioner's claim that Section 25 IBC should have been decided first was rejected as academic since the secured creditor's non-compliance rendered it inapplicable. The court found no irregularity in the order, noting that treating disputed shares as liquidation assets benefits all secured creditors through Section 53's priority distribution mechanism.

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Issues Involved:

1. Whether the NCLT should have decided the Liquidator's application under Section 25 of the IBC before the application under Regulation 21-A of the IBBI (Liquidation Process) Regulations, 2016.
2. Whether Alliance Broadband Services Pvt. Ltd. (respondent no. 3) was correctly declared a Secured Creditor.
3. Whether the NCLT acted without jurisdiction and violated principles of natural justice.
4. Maintainability of the writ petition in light of the availability of an alternative remedy under Section 61 of the IBC.

Summary:

Issue 1: Decision Sequence of Applications
The petitioner argued that the NCLT should have prioritized the Liquidator's application under Section 25 of the IBC over the application under Regulation 21-A. The court noted that Regulation 21-A was applied correctly, as it presumes assets covered under security interest to be part of the liquidation estate when the secured creditor fails to exercise security interest within 30 days.

Issue 2: Declaration of Alliance as Secured Creditor
The petitioner contended that Alliance was wrongly given the status of a Secured Creditor regarding certain shares. The court observed that the impugned order did not adjudicate Alliance's rights but presumed the shares to be part of the liquidation estate, benefiting all secured creditors, including the petitioner.

Issue 3: Jurisdiction and Natural Justice
The petitioner claimed the NCLT acted without jurisdiction and violated principles of natural justice by not providing reasons for declaring Alliance a Secured Creditor. The court found no arbitrariness or mala fides in the NCLT's order and held that the order under Regulation 21-A did not adjudicate Alliance's rights, thus no reasons were required for such non-existent adjudication.

Issue 4: Maintainability of the Writ Petition
The court addressed the maintainability of the writ petition, emphasizing that an appeal under Section 61 of the IBC is the appropriate remedy. The court highlighted that the petitioner could still file an appeal before the NCLAT, and the writ petition was dismissed without any order as to costs.

Conclusion:
The writ petition was dismissed, affirming that the NCLT's order under Regulation 21-A was correct and did not adversely affect the petitioner. The petitioner was advised to seek remedy through an appeal before the NCLAT.

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