Liquidation security rights depend on strict compliance, while distribution disputes go back for fresh adjudication and delay bars a separate challenge.

A secured creditor may realise security outside liquidation only by strict compliance with the liquidation code and regulations; where a consortium lender's claimed first pari passu charge was conditional and the required steps for realisation were not completed, the asset could be included in the liquidation estate. Distribution of liquidation sale proceeds was not finally determined at the appellate stage and was remanded for fresh adjudication by the adjudicating authority under the statutory waterfall framework. A separate challenge to reliefs under Section 32A was held time-barred because limitation runs from the specific impugned order and cannot be enlarged beyond the statutory maximum.

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Issues: (i) whether the liquidator could treat the appellant's security interest as forming part of the liquidation estate for sale of the corporate debtor as a going concern; (ii) whether the appellant was entitled to separate consideration of its claim in the distribution of liquidation sale proceeds; and (iii) whether the third appeal challenging reliefs under Section 32A was maintainable in view of limitation.

Issue (i): whether the liquidator could treat the appellant's security interest as forming part of the liquidation estate for sale of the corporate debtor as a going concern.

Analysis: The appellant's asserted first pari passu charge was found to be conditional upon execution of an inter se agreement and reciprocal ceding of charge, which never materialised. The appellant also failed to comply with the statutory steps for realisation of security outside liquidation, including timely payment of the amounts required under the liquidation framework and communication of the realisation plan. In a consortium lending structure, the decision of the majority secured creditors to relinquish security was treated as binding, and non-compliance with the liquidation regulations attracted the statutory consequence of the secured asset forming part of the liquidation estate.

Conclusion: The liquidator's action in bringing the security interest into the liquidation estate was upheld and the issue was decided against the appellant.

Issue (ii): whether the appellant was entitled to separate consideration of its claim in the distribution of liquidation sale proceeds.

Analysis: The sale of the corporate debtor as a going concern had already been completed and the sale certificate issued, but the inter se distribution of sale proceeds among stakeholders had not yet been finally determined. Matters relating to claims, creditor classification, and distribution under the liquidation waterfall require adjudication by the adjudicating authority in the first instance, especially where the factual and legal entitlements of creditors remain in issue. In these circumstances, the appellate forum declined to undertake final determination of distribution and directed the adjudicating authority to decide the question afresh in accordance with the statutory framework.

Conclusion: The matter of distribution was remanded for decision by the adjudicating authority, which was directed to determine the issue within a fixed time.

Issue (iii): whether the third appeal challenging reliefs under Section 32A was maintainable in view of limitation.

Analysis: The impugned order in the third appeal was challenged after a delay far beyond the outer limit permitted for condonation under the insolvency appellate provision. The explanation based on continuing cause of action and connected proceedings was rejected, since limitation runs from the date of the specific order challenged and cannot be enlarged beyond the statutory maximum.

Conclusion: The third appeal was held to be barred by limitation and dismissed as not maintainable.

Final Conclusion: The challenge to the inclusion of the secured assets in the liquidation estate failed, the dispute on distribution was sent back for fresh adjudication, and the appeal against the Section 32A order was rejected as time-barred.

Ratio Decidendi: A secured creditor's right to realise security in liquidation is available only on strict compliance with the liquidation code and regulations, and in a consortium structure a valid majority decision coupled with statutory non-compliance can result in automatic inclusion of the asset in the liquidation estate; questions of distribution of sale proceeds are to be determined by the adjudicating authority in the first instance.

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