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Issues: (i) Whether the secured creditor's asserted security interest could be compelled into the liquidation estate and the liquidation sale as a going concern sustained; (ii) whether the dispute on distribution of liquidation sale proceeds should be decided at the appellate stage or remitted to the Adjudicating Authority; (iii) whether the third appeal was barred by limitation.
Issue (i): Whether the secured creditor's asserted security interest could be compelled into the liquidation estate and the liquidation sale as a going concern sustained.
Analysis: The Appellant claimed a right to realise its security interest independently under Section 52 of the Insolvency and Bankruptcy Code, 2016 and challenged the assumption that its security stood relinquished. The record, however, showed that the alleged pari passu charge was conditional, dependent on inter se arrangements and reciprocal documentation that were never completed. The Appellant also did not take effective steps to realise the security within the statutory framework, did not comply with the payment obligations contemplated by Regulation 21A of the IBBI (Liquidation Process) Regulations, 2016 within time, and did not intimate a realisation value under Regulation 37. In a consortium structure, the majority of secured creditors had relinquished security and the applicable law under Section 52(4) read with Section 13(9) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 supported that collective decision.
Conclusion: The challenge to inclusion of the asset in the liquidation estate failed, and the liquidation sale process was upheld.
Issue (ii): Whether the dispute on distribution of liquidation sale proceeds should be decided at the appellate stage or remitted to the Adjudicating Authority.
Analysis: The sale had already been concluded and the sale certificate had been issued, but the question of how the sale proceeds should be distributed among stakeholders had not attained finality. Distribution under Section 53 of the Insolvency and Bankruptcy Code, 2016 requires first-instance determination of claims, classification, priorities, and inter se entitlements by the Adjudicating Authority. The appellate forum found it inappropriate to decide that factual and legal question for the first time and held that the issue required adjudication below.
Conclusion: The matter on distribution of sale proceeds was remitted to the Adjudicating Authority for decision in accordance with Section 53.
Issue (iii): Whether the third appeal was barred by limitation.
Analysis: The third appeal was filed beyond the statutory period prescribed under Section 61 of the Insolvency and Bankruptcy Code, 2016. The delay exceeded the outer limit that can be condoned under the Code, and the plea that it formed part of a continuing cause of action did not extend limitation. The tribunal therefore held that it had no jurisdiction to condone the delay beyond the prescribed limit.
Conclusion: The third appeal was held to be barred by limitation and was dismissed as not maintainable.
Final Conclusion: The first appeal and the third appeal failed, while the second appeal resulted in a remand limited to distribution of sale proceeds, leaving the concluded liquidation sale undisturbed and the stakeholder distribution question open before the Adjudicating Authority.
Ratio Decidendi: A secured creditor's right to stand outside liquidation under Section 52 is conditional and must be exercised strictly in compliance with the liquidation regulations and the collective framework governing consortium security; failure to do so permits inclusion in the liquidation estate, while distribution disputes under Section 53 must first be determined by the Adjudicating Authority and limitation under Section 61 cannot be extended beyond the statutory outer limit.
Secured creditor rights in liquidation, distribution of sale proceeds, and statutory limitation were decided under the insolvency framework.
A secured creditor's right to stand outside liquidation under Section 52 is conditional and must be exercised in strict compliance with the liquidation framework; where the alleged pari passu security arrangement was incomplete and the creditor failed to act within the prescribed regulatory steps, inclusion of the asset in the liquidation estate was upheld and the liquidation sale remained undisturbed. Distribution of sale proceeds under Section 53 had to be determined first by the Adjudicating Authority, so that issue was remitted for first-instance adjudication. A third appeal filed beyond the statutory outer limit under Section 61 was held barred by limitation, and delay could not be condoned beyond that limit.
Realisation of security interest in liquidation - Automatic inclusion in liquidation estate - Pari Passu Charge - Joint security and majority decision of secured creditors - Distribution of liquidation proceeds - barred by limitation - Going Concern Sale - Mandatory Statutory Compliance - Inter Se Priority of Secured Creditors - Limitation in appeal under the Insolvency and Bankruptcy Code. - Realisation of security interest in liquidation - Automatic inclusion in liquidation estate - HELD THAT:- The Tribunal held that the appellant could not establish a valid and perfected independent pari passu charge, since the asserted charge was conditional upon fulfillment of reciprocal NOCs and execution of an inter se agreement, which never materialised. Even assuming the appellant to be a secured creditor, the right under Section 52 was held to be a qualified right requiring strict compliance with the Code and the Liquidation Regulations. The appellant had merely expressed an intention not to relinquish security, but did not pay the CIRP and liquidation-related dues within the prescribed period, did not intimate any proposed realisation value, did not initiate enforcement proceedings, and did not effectively participate in the liquidation process. In a consortium structure with shared security, the Tribunal further held that Section 13(9) of SARFAESI constituted the applicable law under Section 52(4), and the decision of secured creditors representing the statutory majority to relinquish security bound the appellant. The consequence under Regulation 21A(3), therefore, followed automatically and the secured assets formed part of the liquidation estate. [Paras 125, 126, 127, 128, 129] The challenge to the inclusion of the secured assets in the liquidation estate and to the e-auction sale failed, and the first appeal was dismissed. Distribution of liquidation proceeds - Adjudication by the Adjudicating Authority in the first instance - HELD THAT:- The Tribunal held that, after conclusion of the auction and deposit of the sale consideration, issuance of the sale certificate was only a consequential step and did not suffer from infirmity. However, questions relating to distribution of sale proceeds, status of creditors, nature and extent of security interest, and entitlement under Section 53 involve factual and legal determination that must first be undertaken by the Adjudicating Authority. Since that question was already pending there, the Tribunal declined to adjudicate the distribution dispute at the appellate stage and confined the remand to that limited issue. [Paras 132, 133, 134, 135, 136] The second appeal was disposed of by upholding issuance of the sale certificate and remanding the limited question of distribution of liquidation sale proceeds to the Adjudicating Authority. Limitation in appeal under the Insolvency and Bankruptcy Code - Outer limit for condonation of delay - HELD THAT: - The Tribunal held that under Section 61 an appeal must be filed within 30 days, with a further condonable period of only 15 days on sufficient cause being shown. The impugned order gave rise to an independent cause of action, and pendency of related appeals or subsequent consequences of that order could not extend the statutory period. As the appeal had been filed with a delay of 171 days, the delay was beyond the Tribunal's jurisdiction to condone. [Paras 138, 140, 141, 142] The third appeal was dismissed as barred by limitation and not maintainable. Final Conclusion: The Tribunal upheld the inclusion of the appellant's asserted secured assets in the liquidation estate and found no infirmity in the liquidation sale conducted as a going concern. The dispute regarding distribution of sale proceeds was left to be decided by the Adjudicating Authority, while the separate appeal against the later order was rejected as time-barred.