Liquidation Proceeds Must Be Distributed Amongst Secured Creditors Based On Admitted Claims U/S 53 Of IBC: NCLAT

Brief Facts

The corporate debtor was admitted into insolvency on the basis of an application filed by the State Bank of India under section 7 of the code. The CD was ordered to be liquidated when no plan was approved.

Liquidator informed the IDBI that in reference to the list of stakeholders as on 07.12.2021, the share of IDBI is considered as 10%. Liquidator proposed to distribution of sale proceeds as per security interest which was opposed by the IDBI Bank.IDBI Bank sent objection that proceeds be distributed in proportion to their admitted claim in pro-rata basis.

In 10th SCC Meeting held on 26.09.2022, the methodology adopted for distribution was discussed and despite objection by the IDBI Bank, Liquidator agreed for distribution of sale proceeds on the basis of charge on the security interest of individual Creditors.

An undertaking was given by Secured Creditors, including IDBI that they forthwith return any excess money received by them for distribution, in case, Tribunal or Hon'ble Supreme Court decides that they are not entitled for the same.

The respondent accepted the under protest. Thereafter an IA was filed questioning the distribution of the liquidator and sought pro-rate allocation based on admitted debt. The liquidator defended its distribution which was not accepted by the Adjudicating Authority and held that distribution of the liquidation proceeds must be as per section 53 of the code. Accordingly, the liquidator was directed to redistribute the assets.

Contentions:

The appellant submitted that while considering Section 529 and 529-A of the Companies Act, 1956, the Supreme Court in 'ICICI Bank Ltd.' Vs. 'Sidco Leathers Ltd. & Ors.'(2006) has held that although the debt due to the workmen and the Secured Creditors were to be treated as par or pari passu with each other, however, this does not signify that inter se priority amongst the Secured Creditors is excluded.

It was also argued that Insolvency Law Committee (ILC) in its Report published on 26.03.2019 opined that priority of charge on the secured assets has to be considered while returning the share of concerned Creditors.

Per contra, the respondent submitted that till the reference made by the Hon'ble Supreme Court in 'DBS Bank Limited Singapore' Vs. 'Ruchi Soya Industries Limited & Anr.' (2024) are answered overruling the law laid down by the Hon'ble Supreme Court in ''India Resurgence Arc Pvt. Ltd.' Vs. 'Amit Metaliks Ltd. & Anr.' (2021), the law laid down by the Hon'ble Supreme Court in 'Amit Metaliks Limited' (Supra) binds all.

It was also argued that Adjudicating Authority in the Impugned Order has correctly applied Section 53(1) and held that as per Section 53(1) distribution has to be as per admitted claim and cannot be on the basis of security interest of different Secured Creditors.

It was also argued that in view of the law laid down by the Hon'ble Supreme Court, reliance by the Appellant on the undertaking given before the Adjudicating Authority is not relevant. When the law is clear, any undertaking cannot justify an illegal distribution.

Observations:

The tribunal observed that there can be no dispute with regard to proceedings which arose out of the Order of the NCLT Ahmedabad in 'Technology Development Board of India' Vs. 'Anil Goel, Liquidator of M/s. Gujarat Oleo Chem Ltd. & Ors.'2017 where it was held that inter se priority amongst the Secured Creditors will remain valid and prevail in the distribution of assets in Liquidation, is pending consideration before the Hon'ble Supreme Court.

It further added that the reliance placed by the respondent on the Supreme Court judgment in Amit Metaliks Limited' (Supra), is correct as it is the law prevailing at the moment where the court has not accepted the submissions that distribution is to be made as per the value of security interest.

It further observed that “the Adjudicating Authority has rightly taken the view that the distribution amongst the Secured Creditors has to be on the basis of their admitted claim, which is the statutory scheme delineated by Section 53(1) and the law declared by the Hon'ble Supreme Court existing as on date in 'Amit Metaliks Limited' (Supra).”

The tribunal further noted that the report of the Insolvency Law Committee cannot be referred to in view of the clear law laid down by the Supreme Court in 'Amit Metaliks Limited' (Supra) which is binding on all as per Article 141 of the Indian Constitution.

The tribunal further noted that reliance placed by the appellant on the judgment of the Supreme Court is 'ICICI Bank Ltd.' (Supra) misplaced as this judgment was passed while considering sections 529 and 529A of the companies act when the IBC did not come into force. However, the law with respect to section 53 of the IBC has already been settled by the Supreme Court in 'Amit Metaliks Limited' (Supra) which is the prevailing law while considering the present case therefore will bind all judicial authorities.

The tribunal concluded that “Adjudicating Authority has not committed any error in directing distribution of sale proceeds as per the admitted claim of the Financial Creditor pro-rata basis and the directions issued by the Adjudicating Authority is in accordance with law as declared by the Hon'ble Supreme Court in 'Amit Metaliks Limited' (Supra).”

Accordingly, the present appeal was dismissed.

Case Title: State Bank of India Versus IDBI Bank Ltd. and Anr.

Case Number:Company Appeal (AT) (Insolvency) No. 321 of 2024

Judgment Date: 28/01/2025

For Appellant : Mr. Krishnan Venugopal Sr. Advocate with Mr. Sanjay Kapur, Mr. Devesh Dubey and Mr. Arjun Bhatia, Advocates.

For Respondents : Mr. Abhijeet Sinha Sr. Advocate with Ms. Prachi Johri, Ms. Abhipsa Sahu and Mr. Rishi Jhakur, Advocates for R-1/ IDBI Bank. Mr. Rahul Gupta, Advocate for R-2.