Secured Creditor's Security Interest Becomes Part Of Liquidation Estate If Amount As Stipulated Under Regulation 21A(2) Is Not Deposited Within 90 days: NCLAT

Brief Facts:

The liquidation process against the Corporate Debtor (“CD”) KS Oils Ltd. commenced by an order dated 16.03.2021 passed by the NCLAT.

The Appellant claimed security interest in the immovable property of 12.84 acres in District Purba, Medinipur, Mauza Debhog J.L. No.149 and all plant and machinery attached to it or permanently fastened to anything attached. In Form-D, the Appellant did not relinquish its security interest for “Haldia Unit”, whereas security interest in respect of all other securities were relinquished.

The Liquidator by letter dated 21.01.2023 handed over Haldia property to the Appellant of 12.08 acres. With regard to claim of 8.02 acres, it was communicated that the said has already been part of the Liquidation Estate.

On 14.07.2023, the Liquidator communicated to the Appellant that Haldia Unit has become part of the Liquidation Estate by virtue of Section 21A of IBBI (Liquidation Process) Regulations, 2016 (“Liquidation Regulations”).

After issuance of Sale Notice dated 19.07.2023, the Appellant filed a MA No.03 of 2023, objecting to the decision dated 14.07.2023 of the Liquidator and further praying for setting aside the Sale Notice dated 19.07.2023 for Haldia Unit.

One Halder Venture Limited was declared as successful bidder in the Stakeholder Consultation Committee (“SCC”) Meeting held on 03.02.2024. A Letter of Intent (“LoI”) was issued.

The Adjudicating Authority by the impugned order rejected MA No.03 of 2023. The Adjudicating Authority held that non compliance by the Appellant of Regulation 21A, sub-regulation (2), the assets of Haldia Unit has become the Liquidation Estate of the CD.

Contentions:

The Appellant submitted that secured creditor has already exercised its right by not relinquishing security interest by virtue of Section 52 of IBC and Regulation 21A of Liquidation Regulation. There has been no default or refusal on the part of the Appellant to pay its share of amount payable under Section 53(1)(a) and 53(1)(b)(i).

It was also argued that it is the duty of the Liquidator to inform the secured creditor of estimate under Regulation 21A, if any amount is required to be paid. The finding of the Adjudicating Authority that Appellant has failed to comply with Regulation 21 is erroneous.

Per contra, the Respondent submitted that the Haldia Unit of 12.87 acres was handed over to the Appellant by the Liquidator on 21.01.2023 and within 90 days, neither necessary charges as required to be paid by the Appellant under Regulation 21A, sub-regulation (2) was paid, nor there was any communication till the expiry of 180 days.

It was also argued that as per Regulation 37, it was the obligation of the Appellant to communicate the Liquidator the amount for which the secured creditor is proceeding to sale the assets. No steps were taken by the Appellant under Regulation 37, nor it made necessary payment towards the amount payable under clauses (a) of sub-section (1) of Section 53, which was required to be done within 90 days from liquidation commencement date.

Observations:

The Tribunal noted that the Appellant received the Haldia Unit, with regard to which it did not relinquish its security interest and thereafter, it was required to take steps for sale of its secured interest as per the Liquidation Regulations.

The Tribunal noted that as per Regulation 37 of the Liquidation Regulations, it is the duty of the secured creditor to inform the liquidator the price at which he proposes to realise his security interest. It is thereafter the responsibility of the liquidator to see whether any other person is offering a higher price than the proposed price within 30 days from the date of intimation.

The Tribunal noted that as per Regulation 21A, the obligation to pay the amount as referred to in sub-clause (a) of sub-regulation (2) of Regulation 21 is on the security interest holder. It is relevant to notice that the requirement of making the payment as provided under 21A (2) (a) is 90 days from the liquidation commencement date.

The Tribunal observed that the Appellant failed to take steps under Regulation 37 of the Liquidation Regulations and did not communicate the estimated payment required to be made under Regulation 21A(2) to the liquidator. As a secured creditor, the Appellant was under an obligation to make the payment within 90 days from the liquidation commencement date.

The Tribunal also said that when obligation is linked with the time period, the Appellant cannot fall back on the argument that the Liquidator has not communicated the estimated amount to the secured creditor.

It further added that when secured creditor at no point of time even asked for estimated amount from the Liquidator and no steps were taken under Regulation 37 by the Appellant, it is not open for the Appellant to contend that Regulation 21A, sub-regulation (2) shall not apply, since he was not communicated the estimated amount by the Liquidator.

It further observed that the second proviso clearly protects the interest of the secured creditor to the extent that if there is any difference between the amount payable under sub-regulation (2) and the amount paid under the first proviso, the Liquidator or the creditor, as the case may be, is to do the needful.

The Tribunal further observed that a secured creditor is protected under second proviso to Regulation 21A(2) of the Liquidation Regulations even if no request for amount estimation is sent or the liquidator does not send any estimation and any payment is made. Therefore, the secured creditor cannot argue that the lack of communication from the liquidator exempts them from compliance with Regulation 21A(2).

The Tribunal concluded that in any view of the matter, due to non-fulfillment of obligation under Regulation 21A (2), the Haldia Unit has become part of the Liquidation Estate and the Liquidator has rightly proceeded to issue Sale Notice with the concurrence of SCC.

Accordingly, the present appeal was dismissed.

Case Title: Phoenix ARC Pvt. Ltd. Versus Kuldeep Verma Liquidator of KS Oils Ltd. & Ors.

Case Number:Company Appeal (AT) (Insolvency) No. 592 of 2024 & I.A. No. 3167 of 2024 & 1166 of 2025

Judgment Date: 20/03/2025

For Appellant : Mr. Amit Singh Chadha, Sr. Advocate with Mr. Suresh Dutt Dobhal, Mr. Shikhar and Mr. Abhinav Sharma, Advocates.

For Applicant : Mr. Krishnendu Dutta, Sr. Advocate with Mr. Sidhartha Sharma, Mr. Arjun Asthana and Ms. Shalini Basu, Advocates in I.A. No. 1166/2025 & I.A. No. 3167/2024.

For Respondents : Mr. Vivek Sibal, Sr. Advocate with Mr. Aditya J. Pandya, Advocates for Liquidator.

Mr. Siddharth Sangal and Ms. Richa Mishra, Advocates for R-2 to R-9.

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