TaxTMI 
TaxTMI 
2020 (7) TMI 422
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....es 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 not commence a liquidation process on account of t....
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....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 Corporate Debtor to the Banks would always be subject to the Respondent's lien. 6. Heard the....
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....ppens 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 the realization of assets by the Secured Creditors requires confirmation from the Creditors having at least 60% of t....
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....wer 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 severable, the secured creditor shall take over the management of such business of the borrower which is relatable to the security for the debt;] (c) appoint any person (hereafter referred to as the manager), ....
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....y, 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 way of lease or assignment or sale of such secured assets.] (9) [Subject to the provisions of the Insolvency and Bankruptcy Code, 2016, in the case of] financing of a financial asset by more than one secured creditors or joint financing of a financial asset by secured creditors, no....
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....or 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 be exercised by one or more of his officers authorized in this behalf in such manner as may be prescribed. (13) No borrower shall, after receipt of notice referred to in sub section (2), transfer by way of sale, lease or otherwise (other than in the ordinary course of his business) any of his secured assets referred to in the notice, without prior written consent ....
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.... 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 provision to file an application under section 52 before the Adjudicating Authority for enforcement of any right by 'Secured Creditor'. 32. As noticed above, the Application under sub-section (6) of Section 52 can be filed before the Adjudicating Authority and the Adjudicating Authority on receipt of such an application from the 'Secured Creditor' under sub-section (5), who in the course of real....
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.... 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 2019 directed the Liquidator to handover the symbolic possession of the fixed assets of the 'Corporate Debtor' to Finquest Financial Solutions Pvt. Ltd. with a finding that the said Applicant is entitled to realize the 'security interest' without noticing the aforesaid provisions as discussed above, the impugned Order dated 10th May, 2019 passed by the Adjudicating Authority (National Company Law Tribunal), Mumbai Bench, Mumbai cannot be upheld. The aforesaid impugned....