Secured creditor realisation in liquidation depends on Regulation 21A compliance; joint sale consent also defeats independent enforcement claim.

A secured creditor under the Insolvency and Bankruptcy Code may choose to realise security interest in liquidation, but Regulation 21A requires timely intimation and payment of the proportionate CIRP and liquidation costs demanded by the liquidator. Where the creditor intimated an intention to realise security yet failed to make the required payment despite repeated demands, the secured asset was treated as part of the liquidation estate. Participation in joint lenders' meetings and consent to a joint sale arrangement, especially where assets were intermingled and not clearly demarcated, further weakened any claim to independent realisation. The appellate challenge was therefore rejected and the declaration subsuming the security interest into the liquidation estate was sustained.

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Issues: (i) Whether a secured creditor who had intimated an intention to realise its security interest but failed to pay the proportionate CIRP and liquidation costs within the time prescribed under Regulation 21A of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 could resist the declaration that its security interest had become part of the liquidation estate; (ii) Whether the secured creditor's participation in joint lenders' meetings and agreement to joint sale of the assets affected its claim to independently realise the security interest.

Issue (i): Whether a secured creditor who had intimated an intention to realise its security interest but failed to pay the proportionate CIRP and liquidation costs within the time prescribed under Regulation 21A of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 could resist the declaration that its security interest had become part of the liquidation estate.

Analysis: Section 52 of the Insolvency and Bankruptcy Code, 2016 permits a secured creditor either to relinquish security interest to the liquidation estate or to realise it in the manner prescribed. Regulation 21A requires timely intimation of the decision and, where the creditor proceeds to realise the security, payment of the amounts that would have been shared in liquidation as well as the estimated amount demanded by the liquidator when the exact figure is not yet certain. On the admitted facts, the creditor had informed the liquidator of its intention to realise security interest and therefore Regulation 21A(1) was not the governing default mechanism. However, despite repeated demands and an estimated claim raised by the liquidator, no payment was made towards the required liquidation costs. In that situation, Regulation 21A(2) and 21A(3) operated so that the secured asset became part of the liquidation estate.

Conclusion: The declaration that the security interest stood subsumed into the liquidation estate was upheld and the challenge failed.

Issue (ii): Whether the secured creditor's participation in joint lenders' meetings and agreement to joint sale of the assets affected its claim to independently realise the security interest.

Analysis: The record of the joint lenders' meetings showed participation by the secured creditor's representatives and consent to a joint sale arrangement in view of intermingled assets and absence of clear physical demarcation. The agreed course was linked to value maximization and distribution of proceeds in accordance with Section 53 of the Insolvency and Bankruptcy Code, 2016. In those circumstances, it was not open to the secured creditor to insist on a contrary stand to independently enforce its security as if the joint sale understanding had no bearing.

Conclusion: The secured creditor could not displace the joint sale position recorded in the meetings.

Final Conclusion: The impugned order did not warrant interference, and the appellate challenge was rejected.

Ratio Decidendi: Where a secured creditor elects to realise security interest in liquidation but does not comply with the payment obligation under Regulation 21A, the secured asset becomes part of the liquidation estate; subsequent consent to a joint sale arrangement further undermines a contrary claim to independent realisation.

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