Inclusion of Mortgaged Property in Liquidation Estate Was Right As Applicant Didn’t Comply With Reg. 21A Requirements

Case Details: Phoenix ARC Pvt Ltd. v. Kuldeep Verma, Liquidator of K S Oils Ltd. - [2024] 160 taxmann.com 79 (NCLT-Indore)

Judiciary and Counsel Details

• • Mahendra Khandelwal, Judicial Member & Kaushalendra Kumar Singh, Technical Member
  • Amit Singh Chadha & Ms Soumya Dharwa for the Applicant.
  • Vivek Sibal & Aditya J. Pandya for the Respondent.

Facts of the Case

In the instant case, the corporate debtor took loans from banks and the said facility granted by banks was secured by a mortgage created on ‘H’ property rights. Meanwhile, banks assigned all their rights, title and interest in non-performing assets/debt of the corporate debtor in favour of the applicant vide the assignment deed.

Later, a liquidation order was passed against the corporate debtor by the NCLT and the respondent was appointed as liquidator. Pursuant to the liquidation order, the liquidator invited a Scheme of compromise/arrangement (scheme) under section 230 of the Companies Act, 2013 for the revival of the corporate debtor and, the applicant filed its claim in Form- D for 12.84 acres of land and buildings and machinery thereon of H property.

Subsequently, the applicant through its e-mail informed the liquidator of its unwillingness to relinquish security interest in respect of H’s property and further requested the liquidator to hand over possession of the said property. However, since nothing was realized from the said property even after so many days, the liquidator vide e-mail informed the applicant that H Property now form part of the liquidation estate and instructed to take back possession of the said property from the applicant.

Thereafter, the applicant filed an instant application against the illegal act of liquidator by interfering in the rights of the applicant being secured creditor with respect to a security interest on H Property.

It was noted that when the applicant proceeded to realize security interest, it was their duty to ask the liquidator for an estimated amount, although there was no document shown to indicate that the applicant asked the same from the liquidator.

NCLT Held

The NCLT observed that regulation 44 of the IBBI (Liquidation Process) Regulations, 2016, provides for a timeline within which the liquidation process has to be completed and if the contention of the applicant was accepted, then the liquidation process could not be completed within the stipulated/ reasonable period.

Further, as per Regulation 21A(1) of Liquidation Process Regulations, 2016, a secured creditor is required to inform the liquidator within 30 days from the liquidation commencement date of its decision to relinquish its security interest to the liquidation estate or realize its security interest, failing which the assets covered under the security interest are presumed to be part of the liquidation estate.

The NCLT held that since the applicant failed to comply with the requirements of Regulation 21A of the IBBI (Liquidation Process) Regulations, the decision of the liquidator that the entire property forms part of the liquidation estate would not be contrary to the law.