NCLT Hyderabad: Asset Becomes Part Of Liquidation Asset If The Secured Creditor Fails To Comply With Regulation 21A

The Tribunal held that when the secured creditor fails to comply with Regulation 21A of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 (“2016 Regulations”), the asset that is subjected to security interest shall become part of the liquidation asset. It observed that just like the Resolution Process, the liquidation is also a time-bound process as any delay in the liquidation results in deterioration of the asset value, which will not be in the interests of the lenders and all other stakeholders.

Background Facts:

The Applicant had not given consent for including assets that are mortgaged in favor of the Applicant in the Liquidation estate of the Corporate Debtor and thus, the same were not included in the liquidation asset. However, the Applicant failed to sell the same within 180 days.

NCLT Verdict:

The NCLT Hyderabad dismissed the application to seek an extension in the sale of the assets on the perusal of the Regulation 21A of the 2016 Regulations:

21A. (1) A secured creditor shall inform the liquidator of its decision to relinquish its security interest to the liquidation estate or realise its security interest, as the case may be, in Form C or Form D of Schedule II:

Provided that, where a secured creditor does not intimate its decision within thirty days from the liquidation commencement date, the assets covered under the security interest shall be presumed to be part of the liquidation estate.

(2) Where a secured creditor proceeds to realise its security interest, it shall pay –

(a) as much towards the amount payable under clause (a) and sub-clause (i) of clause (b) of sub-section (1) of section 53, as it would have shared in case it had relinquished the security interest, to the liquidator within ninety days from the liquidation commencement date; and

(b) the excess of the realised value of the asset, which is subject to security interest, over the amount of his claims admitted, to the liquidator within one hundred and eighty days from the liquidation commencement date:

Provided that where the amount payable under this sub-regulation is not certain by the date the amount is payable under this sub-regulation, the secured creditor shall pay the amount, as estimated by the liquidator:

Provided further that any difference between the amount payable under this sub-regulation and the amount paid under the first proviso shall be made good by the secured creditor or the liquidator, as the case may be, as soon as the amount payable under this sub-regulation is certain and so informed by the liquidator.

(3) Where a secured creditor fails to comply with sub-regulation (2), the asset, which is subject to security interest, shall become part of the liquidation estate.]]

Explanation.- It is hereby clarified that the requirements of this regulation shall apply to the liquidation processes commencing on or after the date of the commencement of the Insolvency and Bankruptcy Board of India (Liquidation Process) (Amendment) Regulations, 2019.

The Tribunal held that when the secured creditor fails to comply with Regulation 21A of the 2016 Regulations, the asset that is subjected to security interest shall become part of the liquidation asset. It observed that just like the Resolution Process, the liquidation is also a time-bound process as any delay in the liquidation results in deterioration of the asset value, which will not be in the interests of the lenders and all other stakeholders.

Further, the Tribunal pointed out that the Applicant did not disclose any tenable reason for the extension of time and therefore, Sub-Rule 3 of Regulation 21A of 2016 Regulations comes into force as per which the asset shall become part of the liquidation estate. if the Applicant fails to sell the asset which is subject to security interest within a period of 180 days.

Case Title: ICICI Bank vs. MBS Impex Pvt Ltd.

Case No.: Cont. A (IBC) 13/2023, IA (IBC) 988, 1096 & 1378/2023 in CP(IB) No.407/7/HDB/2019

Counsel for Applicant: Ms. Jyothi Rani, Advocate

Counsel for Liquidator: Mr. G. Bhupesh, Advocate

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