NCLAT holds that application was filed by a ‘Secured Creditor’ directly before the Adjudicating Authority for allowing it to recover the secured assets under Section 52 (6) of the I&B Code is not maintainable.
NCLAT sets aside the order passed by NCLT; holds only one Secured Creditor can enforce his right for realization of its debt out of the secured assets as per Section 52 of I&B Code; remits the matter to the Liquidator.
Finquest Financial Solutions Pvt. Ltd. (Applicant) filed an application under Section 60(5) r/w Section 52 of the Insolvency and Bankruptcy Code, 2016 (as the ‘I&B Code’) and Regulation 37 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 before the Adjudicating Authority (National Company Law Tribunal/NCLT), Mumbai Bench in the Liquidation proceeding against Reid and Taylor India Limited (‘Corporate Debtor’) with prayer to permit it to sell/ dispose of the secured assets of the ‘Corporate Debtor’ to realize its ‘security interest’ in accordance with the provisions of the I&B Code. NCLT, by impugned order dated 10th May, 2019 directed the ‘Liquidator’ to handover the symbolic possession of the fixed assets of the ‘Corporate Debtor’ to Applicant with observation that the said Applicant is entitled to realize the ‘security interest’ as provided under Section 52(1)(b) r/w Regulation 37 of the IBBI (Liquidation Process) Regulations, 2016. JM Financial Asset Reconstruction Company Limited, one of the ‘Secured Financial Creditor’ of the same very asset has challenged the impugned order dated 10th May, 2019. Appellant submitted that the Adjudicating Authority failed to consider that 1st Respondent sought to exclusively realize its alleged ‘security interest’ under Section 52 of the I&B Code by standing outside the liquidation process to the exclusion of other ‘Secured Creditors’ of the same very asset.
NCLAT peruses the records and observes that a Recovery Certificate has been issued by the Debts Recovery Tribunal wherein it has been ordered that Edelweiss Asset Reconstruction Company, along with other Banks are entitled to recover a sum of Rs.2495,49,98,442.20/-. It was further ordered that in case of failure to pay the said amount within 30 days, i.e., by 19th January, 2017, they are entitled to recover the same from the sale of the scheduled properties, which includes the immovable property of the ‘Corporate Debtor’ at Mysore. NCLAT further observes that The Adjudicating Authority has proceeded to pass the order giving a finding that 1st Respondent has first charge over the secured assets in question, which is 91% of the assets of the ‘Corporate Debtor’. NCLAT finds that a ‘Creditor’ in whose favour right of ‘security interest’ has been created, i.e., right, title or interest or a claim to property, which includes mortgage, charge, hypothecation or assignment from relinquish its ‘security interest’ or may claim under Section 52 of the I&B Code. NCLAT further finds that upon reading Section 52 in its totality, then it will be evident that a ‘Secured Creditor’ as per sub-section (2) of Section 52, realises its ‘security interest’ under clause (b) of sub-section (1), is required to inform the Liquidator of such ‘security interest’ and identify the asset subject to such ‘security interest’ to be realized. NCLAT observes that it’s the Liquidator, who is to permit the ‘Secured Creditor’ to realise ‘security interest’ after proof of the existence ‘security interest’ in accordance with clauses (a) and (b) of sub-section (3) of Section 52.
NCLAT further observes that, “after enforcement of right under Section 52 by one of the ‘Secured Creditor’, no other ‘Secured Creditor’ can enforce his right subsequently for realization of the amount for the same secured assets, as the excess amount by way of proceeds pursuant to the first enforcement is deposited in the account of the Liquidator”.
NCLAT thus holds that,
“only one Secured Creditor can enforce his right for realization of its debt out of the secured assets as per Section 52. NCLAT finds that 1st Respondent has moved before the Liquidator in terms of sub-section (2) of Section 52 for realizing the ‘security interest’. NCLAT also observes that in absence of any allegation that there is resistance in recovering the secured assets, the question of entertaining the application by the Adjudicating Authority under sub-section (6) of Section 52 does not arise. Therefore, NCLAT holds that except 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.”
NCLAT finds 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 realise the ‘security interest’ under Section 52. NCLAT further finds the application preferred by 1st Respondent is not maintainable 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.
NCLT sets aside the impugned order 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 realise the ‘security interest’ without noticing the relevant provisions. NCLAT thus, remits the present matter to the Liquidator to proceed in accordance with law, following Section 53 r/w Section 52 of the I&B Code.