2025 (8) TMI 1304 - AT - IBC

Appeal dismissed; Reg. 21A condonation denied where secured creditor failed to timely communicate non-relinquishment and late release email ignored

J.C. FLOWERS ASSET RECONSTRUCTION PRIVATE LIMITED Versus VIVEK PARTI, M/s DIANKA INDUSTRIES INDIA PVT. LTD.

NCLAT, PB dismissed the appeal. The tribunal upheld the dismissal of an interlocutory application seeking condonation of delay under Reg. 21A where the ... Relinquishment of security asset - presumption of the security interest - dismissal of interlocutory application praying for condonation of delay in communicating a secured creditor's decision under Regulation 21A of the IBBI (Liquidation Process) Regulations, 2016 - HELD THAT:- The liquidation order was passed by the Adjudicating Authority on 30.04.2024 relying on the resolution of the CoC held in meeting dated 16.12.2023. A copy of the liquidation order has been brought on the record at page 89 of the appeal. The Adjudicating Authority in the order dated 30.04.2024 has quoted the resolution of the CoC, which indicate that RBL Bank has also voted for the liquidation. In the present case, no information was sent by the RBL Bank, the Secured Creditor that it does not intend to relinquish security in the assets. The RBL Bank for the first time on 25.07.2024 sent an email to the Liquidator requesting for release of security interest. The Appellant is presumed to be well aware of the proceedings pending in the NCLT, New Delhi; the application which was filed by the RBL Bank praying for condonation of delay in communicating its intention not to relinquish security interest. The application has been dismissed by the impugned order. Neither RBL Bank nor the Appellant took any steps to pursue the application. The RBL Bank has not filed any application to recall the order dated 01.04.2025 showing any sufficient cause for non-appearance on 01.04.2025. It has also been submitted by learned counsel for the Liquidator and learned counsel for the Respondent No.2 that after dismissal of the application, the secured assets have already been sold and Sale Certificate has been issued in favour of the Respondent No.2 on 05.06.2025 by the Liquidator. There are no error in the order which warrant any interference in exercise of appellate jurisdiction by this Tribunal. No relief can be granted to the Appellant in this appeal - Appeal is dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether the Adjudicating Authority erred in dismissing the interlocutory application for condonation of delay in communicating a secured creditor's decision under Regulation 21A of the IBBI (Liquidation Process) Regulations, 2016, by dismissing the application in default. 2. Whether failure of a secured creditor to inform the liquidator within thirty days from the liquidation commencement date that it will not relinquish its security interest leads to a statutory presumption that the assets covered by the security interest form part of the liquidation estate, and the consequences of that presumption for subsequent realization, sale and possession. 3. Whether an assignment of the secured creditor's rights occurring after the liquidation commencement date but registered later affects (a) the duty to communicate decision within the prescribed thirty-day period, (b) entitlement to relief where the original creditor did not appear, and (c) the assignee's obligation to substitute itself in pending proceedings. 4. Whether relief sought by a secured creditor (or its assignee) to treat a secured asset as outside the liquidation estate and to direct physical handover can be granted after the liquidator has dealt with the assets (including auction and issuance of sale certificate) following the statutory presumption and dismissal of the creditor's application. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Dismissal in default and jurisdiction to condone delay under Regulation 21A Legal framework: Regulation 21A(1) of the IBBI (Liquidation Process) Regulations, 2016 requires a secured creditor to inform the liquidator, within thirty days from the liquidation commencement date, whether it will relinquish its security interest or realise it; the proviso creates a presumption that failure to intimate within thirty days makes the assets part of the liquidation estate. Adjudicating Authorities exercise case management and procedural control, including dismissal for non-appearance. Precedent Treatment: The Court's reasoning does not cite or purport to follow or overrule any binding precedents; the decision rests on statutory text and record-specific conduct. Interpretation and reasoning: The Tribunal noted that the Adjudicating Authority declined to exercise discretion to modify or relax the proviso to Regulation 21A and dismissed the application for non-appearance. The Adjudicating Authority's observation that the prayer had ramifications for the proviso to Regulation 21A reflects that the relief sought sought effectively a modification of the statutory presumption. The Tribunal emphasized that the applicant (secured creditor) made no effort to prosecute the application or seek recall of the dismissal, and thus no procedural infirmity was shown. Ratio vs. Obiter: Ratio - An Adjudicating Authority may dismiss an application for default where there is non-appearance and the applicant does not seek recall; absent demonstration of sufficient cause, appellate interference is not warranted. Obiter - Remarks about ramifications for modification of the proviso are consequential observations but not expanded into a general rule modifying the regulation. Conclusions: The Tribunal found no error in dismissal for default and no basis to interfere with the exercise of the Adjudicating Authority's procedural discretion, where the applicant did not pursue the matter or seek recall. Issue 2 - Effect of failure to intimate within 30 days: presumption and consequences Legal framework: Regulation 21A(1) creates a statutory presumption that if a secured creditor does not intimate within thirty days its decision to relinquish or realize security interest, the assets covered by the security interest shall be presumed part of the liquidation estate. Regulation 21A(2)-(3) and Section 52 of the Code govern realization and distribution where a secured creditor proceeds to realise. Precedent Treatment: The Tribunal applied the plain language of Regulation 21A without relying on external precedent. Interpretation and reasoning: The Tribunal applied the statutory presumption to the factual record: no timely communication was made by the secured creditor within thirty days of the liquidation commencement date, and the first communication (an email requesting release) occurred after the thirty-day period. Consequently, the assets were treated as part of the liquidation estate, and the liquidator was entitled to proceed with auction, realization and issuance of sale certificate. The Tribunal noted the liquidator had also filed an application challenging issuance of a Section 13(2) notice and was actively contesting the creditor's unilateral steps. Ratio vs. Obiter: Ratio - Non-communication within the statutory period triggers the presumption; the liquidator's actions in dealing with the asset pursuant to that presumption are valid absent successful relief from the Adjudicating Authority. Obiter - Reference to the liquidator's duty or contest over Section 13(2) notices is explanatory of facts, not a general rule. Conclusions: The Tribunal affirmed that the statutory presumption operated, the liquidator lawfully treated the assets as part of the liquidation estate, and subsequent auction and sale were not vitiated by the belated communication. Issue 3 - Effect of assignment on obligations and proceedings (duty to inform, substitution, and consequences) Legal framework: Assignment of financial assets is governed by contract and registration law; obligations to comply with liquidation regulations remain with the holder entitled to exercise the secured creditor's rights. Regulation 21A's thirty-day period runs from the liquidation commencement date and obligations are not automatically tolled by subsequent assignments. Precedent Treatment: No precedent was invoked; the Tribunal relied on the Assignment Agreement in the record and its dates to infer knowledge and opportunity to act. Interpretation and reasoning: The Tribunal noted the assignment was executed after the liquidation commencement date and registered only later; the Assignment Agreement itself disclosed the pendency of the insolvency proceedings. The Tribunal observed that neither the assignor nor the assignee pursued substitution or prosecuted the condonation application after dismissal. Given the assignment post-dated the thirty-day period, the assignee could not cure the original failure to communicate within the statutory window by subsequent registration alone; moreover, the assignee had the opportunity and obligation to substitute and to inform the Adjudicating Authority but did not do so. Ratio vs. Obiter: Ratio - Assignment after the liquidation commencement date does not retrospectively cure non-compliance with Regulation 21A; assignees must actively substitute and prosecute rights in ongoing liquidation proceedings. Obiter - Practical admonition that registration timing and knowledge of proceedings affect duties to act. Conclusions: The Tribunal held that the assignment did not validate the belated communication or excuse non-appearance; failure to substitute and pursue relief meant no entitlement arose for retrospective exclusion from the liquidation estate. Issue 4 - Availability of relief after liquidation steps taken (auction and sale certificate issued) Legal framework: Once the liquidator, acting under the statutory regime, includes assets in the liquidation estate and proceeds with auction and sale in accordance with regulations, subsequent attempts to treat assets as outside the estate depend on timely and successful judicial relief; otherwise, actions taken in good faith by the liquidator can render applications infructuous. Precedent Treatment: The Tribunal's conclusion relies on statutory operation and the sequence of actions rather than case law. Interpretation and reasoning: The Tribunal found that after dismissal of the condonation application, the liquidator proceeded to auction and sold the secured assets; a sale certificate was issued to the successful auction purchaser. The Tribunal accepted submissions that the application became infructuous insofar as relief sought to hand over physical possession or exclude the asset from the liquidation estate, because the liquidator had already lawfully dealt with the asset in reliance on the statutory presumption and the absence of any prosecuted challenge. Ratio vs. Obiter: Ratio - Post-sale relief seeking to exclude an asset from the liquidation estate or compel handover is unavailable where the liquidator has lawfully sold the asset pursuant to the statutory presumption, and the creditor/assignee failed to secure timely relief or prosecute proceedings. Obiter - None significant. Conclusions: The Tribunal held that no relief could be granted after the liquidator's sale and issuance of a sale certificate; the appeal seeking to overturn the dismissed application was dismissed for lack of merit and absence of grounds to interfere with the Adjudicating Authority's order.