2024 (12) TMI 537 - AT - IBC

Security interest relinquished under Regulation 21A for non-payment of liquidation costs despite joint sale agreement

Suraksha Asset Reconstruction Ltd. Versus Varsha Bagri, Liquidator of Bharat NRE Coke Ltd.

Suraksha Asset Reconstruction Ltd. Versus Varsha Bagri, Liquidator of Bharat NRE Coke Ltd. - TMI Issues Involved:1. Compliance with Regulation 21A of the IBBI (Liquidation Process) Regulations, 2016.2. Payment of CIRP and liquidation costs by the Appellant.3. Appellant's right to realize its security interest under Section 52 of the IBC.4. Appellant's agreement to a joint sale in Joint Lenders' Meetings.5. Impact of pending issues regarding 32 acres of land on the Appellant's claim.Issue-wise Detailed Analysis:1. Compliance with Regulation 21A of the IBBI (Liquidation Process) Regulations, 2016:The core issue revolves around the compliance with Regulation 21A, which pertains to the presumption of security interest. The Appellant, a Financial Creditor, had informed the liquidator of its intention to realize its security interest under the SARFAESI Act, 2002. However, the liquidator argued that the Appellant failed to comply with Regulation 21A(2), which mandates payment towards CIRP and liquidation costs within ninety days from the liquidation commencement date. The Tribunal found that the Appellant did not make the required payments, leading to the security interest being subsumed into the liquidation estate as per Regulation 21A(3).2. Payment of CIRP and Liquidation Costs by the Appellant:The liquidator repeatedly requested the Appellant to pay Rs. 20 lakhs towards CIRP and liquidation costs. Despite acknowledging its obligation, the Appellant did not make the payment, citing the lack of a formal invoice from the liquidator. The Tribunal noted that the Appellant's failure to pay these costs resulted in the relinquishment of its security interest, as the Appellant did not fulfill its financial obligations under the liquidation process.3. Appellant's Right to Realize its Security Interest under Section 52 of the IBC:The Appellant contended that it had the right under Section 52 of the IBC to realize its security interest and had communicated its intention to do so. The Tribunal acknowledged that the Appellant had indeed communicated its intention but emphasized that realization of security interest was contingent upon compliance with the payment obligations under Regulation 21A. The Tribunal concluded that the Appellant's failure to pay the liquidation costs led to the security interest becoming part of the liquidation estate.4. Appellant's Agreement to a Joint Sale in Joint Lenders' Meetings:The liquidator argued that the Appellant had agreed to a joint sale of the assets in Joint Lenders' Meetings, which was inconsistent with its claim to realize its security interest independently. The Tribunal noted that the Appellant's representatives were present at these meetings and had agreed to the joint sale, which further undermined its position in the appeal. The Tribunal found that the Appellant's actions were inconsistent with its claim to independently realize its security interest.5. Impact of Pending Issues Regarding 32 Acres of Land on the Appellant's Claim:The Tribunal also considered the pending issues regarding a 32-acre land dispute between Bharat NRE Coke Ltd. and Gujarat NRE Coke Ltd. The liquidator highlighted that the resolution of these issues could impact the Appellant's claim. The Tribunal noted that the Appellant's security interest was subject to the outcome of these pending applications, further complicating its claim to the assets.Conclusion:The Tribunal concluded that the liquidator acted correctly in deeming the Appellant's security interest as relinquished due to non-payment of liquidation costs. The Appellant's failure to comply with the financial obligations under Regulation 21A and its agreement to a joint sale in the Joint Lenders' Meetings were key factors in the Tribunal's decision to dismiss the appeal. The Tribunal upheld the Adjudicating Authority's order, finding no grounds to exercise its appellate jurisdiction. The appeal was dismissed.