TaxTMI 
TaxTMI 
2025 (7) TMI 645
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.... contribution out of the amount realised by it under Section 52 of the Insolvency and Bankruptcy Code, 2016, (for short the 'Code' or the 'IBC'), proportionately towards workmen's dues in accordance with the Section 226(1)(b) of the Companies Act, 2013 and also towards liquidation cost in terms of the Section 52(8) of the IBC. Aggrieved by the order impugned, this appeal has been filed. 2. Brief facts of the case necessary to be noticed for deciding the appeal are: i. The corporate debtor mortgaged its immovable property with the appellant as a guarantor to two borrower companies namely M/s. Pandit Automotive Sangli Private Limited and M/s. Pandit Automotive Satara Private Ltd. ii. The appellant issues notice under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short the 'SARFAESI Act, 2002), calling upon the borrower companies and the corporate debtor to repay the amount mentioned therein with interest. iii. On account of failure of borrower companies and corporate debtor, appellant issued notice under Section 13(4) and took symbolic possession on 18.10.2017. iv. ....
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....ing Authority heard the liquidator as well as the secured creditor in the application and by impugned order has allowed the application. In paragraph 41 of the judgement following order has been passed: "41. In the light of the foregoing discussion, IA No. 4874/2023 filed by the Liquidator is hereby allowed to the extent that Respondents No. 1 and 2 shall make contribution out of the amount realised by them under Section 52 of the Code proportionately towards workmen's dues in accordance of Section 326 (1) (b) of the Companies Act, 2013 and also towards liquidation cost in terms of Section 52 (8) of the Insolvency and Bankruptcy Code, 2016. There shall be, however, no order as to cost." xiv. Appellant aggrieved by this order has come up in this appeal. 3. We have heard learned counsel Mr. Ramchandra Madan and Mr. Tushar Nigam appearing for the appellant. Learned counsel Mr. Avinash R Khanolkar has appeared for the liquidator and learned counsel Mr. V. Deshpande has appeared for Respondent No. 3. 4. Learned counsel for the appellant challenging the impugned order submits that Regulation 21A was inserted in the Liquidation Regulation 2016 only on 25.07.2019, which e....
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....appellant submits that adjudicating authority has correctly appreciated the legal position and issued direction to the appellant to contribute towards the workmen's dues and liquidation cost. It is submitted that adjudicating authority has passed the direction in the peculiar situation arising in the present case. Adjudicating authority nowhere has applied the provisions of Regulation 21A. Adjudicating authority has rightly placed reliance on the provisions of SARFAESI Act, 2002 and the Companies Act 2013. Adjudicating authority has not exceeded its jurisdiction in issuing directions. Appellant has realised its security interest under the provisions of SARFAESI Act, 2002. Appellant is liable to comply the requirement of SARFAESI Act, 2002, under which provisions appellant was liable to contribute towards workmen's dues. The process of realization of its security interest by the appellant has not been affected by the impugned order. Only direction is to contribute towards the unpaid workmen's dues and liquidation cost. 6. We have considered the submissions of the counsel for the parties and perused the records. 7. Regulation 21A of the Liquidation Regulation, 2016 has been ins....
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....esent case as noted above liquidation proceeding had commenced vide order dated 09.08.2018. Regulation 21A thus is clearly not applicable in the facts of the present case. Adjudicating authority being conscious of the fact has made observations in paragraphs 31 & 33 of the judgement: "31. The liquidator has candidly admitted that Regulation 21 A of the Liquidation Rules, 2016 was introduced only with effect from 25.07.2019 and the explanation to the said Regulation itself provides that the requirements of this Regulation shall apply to the liquidation processes commencing on or after the date of commencement of the said amendment i.e. 25.07.2019 whereas the liquidation in this case commenced much earlier on 09.08.2018. Now, the question arises as to whether under the circumstances, the Respondents can be made to contribute towards the liquidation cost and also towards the outstanding dues of the workmen or not. 33. However, the question is that Regulation 21 A is not applicable to the instant case, being prospective in nature, and in the absence of the said Regulation, how and in what manner, the situation cropping up in this case has to be or can be resolved whic....
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....SARFAESI Act, 2002 deals with enforcement of security interest. As noted above notices were issued by the appellant under Section 13(2) and Section 13(4) of the SARFAESI Act, 2002, and the appellant proceeded to realise its security interest under Section 13. Section 13(9) on which reliance has been placed by the adjudicating authority in the impugned order is as follows: "13. Enforcement of security interest. - (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 secured creditor shall be entitled to exercise any or all of the rights conferred on him under or pursuant to sub- section (4) unless exercise of such right is agreed upon by the secured creditors representing not less than 8[sixty per cent.] in value of the amount outstanding as on a record date and such action shall be binding on all the secured creditors: Provided that in the case of a company in liquidation, the amount realised from the sale of secured assets shall be distributed in accordance with the provisions of section 5....
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....e the Section 13(9) begins with the phrase "subject to provision of Insolvency and Bankruptcy Code, 2016". The above phrase thus makes the provision of Section 13(9) subject to Insolvency and Bankruptcy Code, 2016. Section 52(4) of the IBC itself permits secured creditor to enforce or realise its secured assets in accordance with such law as applicable to the security interest. Appellant having invoked the SARFAESI Act, 2002 for realizing its security interest. There is no conflict between the provisions of Section 13(9) of the SARFAESI Act, 2002 and the IBC. Thus, security realization by the appellant is in accordance with the provisions of Section 52(4) of the IBC. The secured creditors having opted to realise its security outside the liquidation process and decided not to put the secured assets in the liquidation estate, the provisions of Section 13(9) are fully attracted in the realization of security interest by the appellant. The statutory scheme as delineated by Section 13(9) proviso clearly indicates that amount realised from the sale of secured assets is to be distributed as per the Companies Act 1956. Companies Act 1956, having been repealed and Companies Act ....
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.... the insolvency resolution process; and (e) any other costs as may be specified by the Board;" 18. The expression insolvency resolution process cost itself is clearly referred to Section 5(13) and any cost which is payable by secured creditor under Section 52(8) has to confine to insolvency resolution process cost mentioned in Section 5(13). Section 5(13) of the IBC does not include any liquidation cost. 19. We thus do not subscribe to the view of the adjudicating authority that direction to pay liquidation cost can be sustained under Section 52(8) of the IBC. 20. Learned counsel for the appellant has relied on BLRC Report. Learned counsel for the appellant has referred to paragraph 5.5.6, which is as follows: "5.5.6 Right of the secured creditors to withdraw from collective Liquidation Once the moratorium is lifted at the closure of the IRP, the secured creditors can initiate debt recovery action on the assets of the entity. As recognised in other jurisdictions and in the IRP under the Code, the Committee argues that there are likely benefits to collective action in liquidation just as there is in assessing viability during the IRP (Mukherjee, T....
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....liquidation assets, there will be no liquidation proceeds and hence there will be no resource to meet the liquidation costs. It is necessary to provide that the liquidation costs must be met out of proceeds from sale of secured assets whether these are sold as part of liquidation asset or security interests are realised outside." 23. The amendments in Liquidation Regulations were incorporated on 25.07.2019, i.e., subsequent to the discussion paper, which now specifically provides that the contribution by the secured creditors who realises their security interest outside the liquidation process. 24. Learned counsel for the appellant has also placed reliance on the judgement of the Hon'ble Supreme Court in Writ Petition (Civil) No. 421/2019, 'Mosar Baer Karamchari Union' Vs. 'Union of India & Ors.' reported in [(2023) 9 SCC 499]. In the above Writ Petition, the petitioners have prayed for striking of Section 327(7) of the Companies Act 2013. The Writ Petition was dismissed and the statutory provisions of Companies Act were upheld. Repelling the contentions of the writ petitioner that provisions of Sections 326 & 327 are arbitrary following was observed in paragraphs 26 to 29: ....
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....or the recovery in the liquidation. Therefore, a conscious decision has been taken by Parliament/Legislature in its wisdom to keep out of all sums due to any workman/employee from the provident fund, the pension fund and the gratuity fund from the liquidation estate assets [as per Section 36(4)] and that the workmen's dues for the period of twenty-four months preceding the liquidation commencement date shall rank equally between the workmen's dues to the said extent and the dues to the secured creditor. Therefore, the same cannot be said to be arbitrary and violative of Article 21 of the Constitution of India as contended on behalf of the petitioner. As per the settled position of law, IBC is a complete code and the object and purpose of IBC is altogether different than that of the 1956 Act/the 2013 Act. IBC is a new insolvency mechanism, therefore, the provisions under IBC cannot be compared with that of the earlier regime, namely, the Companies Act, 1956/the Companies Act, 2013. 29. At this stage, it is required to be noted that the issue with respect to the workman and the secured creditor being kept at equal footing under Section 53 IBC is only in a case wherei....