TaxTMI 
TaxTMI 
2020 (7) TMI 422
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.... a majority of Secured creditors. The Parties are represented by their original status in the main petition for the sake of convenience. 2. Brief facts of the case are as follows: The Adjudicating Authority has admitted the Company Petition mentioned above under section 9 of the Insolvency and Bankruptcy Code, 2016 (in short 'I&B Code') for initiation of CIRP vide Order dated 20thJanuary 2019. When no resolution was approved, then Corporate Debtor was ordered to be liquidated, and Appellant was appointed as Liquidator. After that during liquidation, the Respondent succeeded in Arbitration proceeding against the Corporate Debtor and exparte award was passed in favour of the Respondent. Based on the Arbitral Award the Respondent had been granted lien over the equipment and goods lying at the site of the Corporate Debtor (Secured Assets) and charged over its entirely or partially erected facilities at the site of the Corporate Debtor was created. The Secured Assets, on which the Respondent had been granted lien or a charge is the one which is already hypothecated to all other Secured Creditors vide Hypothecated Deed dated 24th September 2010. 3. The Liquidator could n....
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....e Adjudicating Authority has failed to appreciate that the Code does not provide for different categories of Secured Creditors neither based on nature of Charge/Security Interest nor based on the ranking of the respective charge. (v) The Adjudicate Authority has also failed to appreciate that the Appellant/Liquidator is to attempt to undertake the sale of the Corporate Debtor on a slump sale basis, which is not possible if the Security Interest of the Respondent is not relinquished. (vi) The Respondent in its Written Submissions contends that the Respondent has exercised its rights in terms of Section 52 of the Code. Under Section 52(1)(b) Respondent chose to realize its security interest as per provision of Section 52(iv) of the Code. The Respondent's right under Section 52 is unqualified and unbridled. It is further contended that exercise of the Respondent's right under section 52 cannot be subjected to the majority of the Secured Creditors, who have relinquished their Security Interest. It is also contended that the Corporate Debtor never acquired unencumbered right, title or interest in the goods. Consequently, the hypothecation of the goods by the Co....
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....tors are on the same footing regardless of the mode of creation of charge. 14. In this case, the Respondent happens to be a Secured Operational Creditor by an Arbitral Award dated 24th January 2018 by which the Respondent claims lien over the supplied equipment and goods lying at the site of the Corporate Debtor. It is important to mention that soon after passing this Award, CIRP started against the Corporate Debtor. Admittedly, all other Secured Creditors (Financial Creditors) relinquished their Security Interest to the liquidation estate. But a deadlock situation is created because the Respondent refuses to relinquish its Security Interest. Therefore, in the light of proviso to Regulation 32 to the Liquidation Process Regulation, the Liquidator cannot proceed to sell the assets of the Corporate Debtor, despite more than 73% of the Secured Creditors having relinquished their Security Interest. 15. It is pertinent to mention that the Respondent is also a Secured Creditor at par with the remaining ten other Secured Creditors. Enforcement of security interest is governed by the SEC 13 of the SARFAESI Act. As per terms of Section 13(9) of the SARFAESI Act, 2002 any steps about t....
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.... Provided that the reasons so communicated or the likely action of the secured creditor at the stage of communication of reasons shall not confer any right upon the borrower to prefer an application to the Debts Recovery Tribunal under section 17 or the Court of District Judge under section 17-A.] (4) In case the borrower fails to discharge his liability in full within the period specified in sub-section (2), the secured creditor may take recourse to one or more of the following measures to recover his secured debt, namely:- (a) take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realizing the secured asset; [(b) take over the management of the business of the borrower including the right to transfer by way of lease, assignment or sale for realizing the secured asset: Provided that the right to transfer by way of lease, assignment or sale shall be exercised only where the substantial part of the business of the borrower is held as security for the debt: Provided further that where the management of whole of the business or part of the business is sever....
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....eto, shall be recoverable from the borrower and the money which is received by the secured creditor shall, in the absence of any contract to the contrary, be held by him in trust, to be applied, firstly, in payment of such costs, charges and expenses and secondly, in discharge of the dues of the secured creditor and the residue of the money so received shall be paid to the person entitled thereto in accordance with his rights and interests. [(8) Where the amount of dues of the secured creditor together with all costs, charges and expenses incurred by him is tendered to the secured creditor at any time before the date of publication of notice for public auction or inviting quotations or tender from public or private treaty for transfer by way of lease, assignment or sale of the secured assets,- (i) the secured assets shall not be transferred by way of lease assignment or sale by the secured creditor; and (ii) in case, any step has been taken by the secured creditor for transfer by way of lease or assignment or sale of the assets before tendering of such amount under this sub-section, no further step shall be taken by such secured creditor for transfer by w....
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....n.-For the purposes of this sub-section,- (a) "record date" means the date agreed upon by the secured creditors representing not less than [sixty per cent] in value of the amount outstanding on such date; (b) "amount outstanding" shall include principal, interest and any other dues payable by the borrower to the secured creditor in respect of secured asset as per the books of account of the secured creditor. (10) Where dues of the secured creditor are not fully satisfied with the sale proceeds of the secured assets, the secured creditor may file an application in the form and manner as may be prescribed to the Debts Recovery Tribunal having jurisdiction or a competent court, as the case may be, for recovery of the balance amount from the borrower. (11) Without prejudice to the rights conferred on the secured creditor under or by this section, the secured creditor shall be entitled to proceed against the guarantors or sell the pledged assets without first taking any of the measures specified in clauses (a) to (d) of sub-section (4) in relating to the secured assets under this Act. (12) The rights of a secured creditor under this Act may b....
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....uch 'security interest' maintained by an information utility; or (b) by such other means as may be specified by the Board. Therefore, it is clear that it's the Liquidator, who is to permit the 'Secured Creditor' to realize 'security interest' after proof of the existence' security interest' in accordance with clauses (a) and (b) of sub-section (3) of Section 52. 30. As per sub-section (4) of Section 52, a 'Secured Creditor' may enforce, realize, settle, compromise or deal with the secured assets in accordance with such law as is applicable to the 'security interest' being realized and to the 'Secured Creditor' and apply to the proceeds to recover the debts due to it. 31. Under sub-section (5) of Section 52, if in the course of realization of secured asset, any 'Secured Creditor' faces resistance from the 'Corporate Debtor' or any person connected therewith in taking possession of, selling or otherwise disposing off the security, the 'Secured Creditor' may make an application to the Adjudicating Authority under sub-section (6) of Section 52. Otherwise in normal course, there is no p....
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....t the manner as prescribed under sub-section (2), (3) and (4) of Section 52, if a 'Secured Creditor' directly applies before the Adjudicating Authority for allowing it to recover the secured assets under sub-section (6) of Section 52, such Application is not maintainable. 39. As in the present case, we find that all the 'Secured Creditors' have claimed right over the same secured asset, which is 91% of the total secured asset and particularly when a suit is pending for declaration, as to which 'Secured Creditors' has the first charge, in such a case, it was not open to the Adjudicating Authority to allow the Application filed by the 1st Respondent to realize the 'security interest' under section 52. 40. In any case, as the Adjudicating Authority has no jurisdiction to entertain the Application under sub-section (6) of Section 52 in absence of any cause of action as per sub-section (5) of Section 52, the Application preferred by 1st Respondent is not maintainable. 41. In the present case, as the Liquidator has abdicated its power and the Adjudicating Authority without any jurisdiction by the impugned Order dated 10th May 201....