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Mr. Srikanth Dwarakanath, Liquidator of Surana Power Ltd.- in Liquidation Versus Bharat Heavy Electricals Ltd.
Court / Forum : National Company Law Appellate Tribunal Case Number :
Company Appeal (AT) (Insolvency) No. 1510 of 2019 Coram : Justice Venugopal M, Member (Judicial), Mr. V.P. Singh, Member (Technical), Ms. Shreesha Merla, Member (Technical) Subject : Section 52 of the Insolvency and Bankruptcy Code, 2016 and Regulation 32 of Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 Date of Decision : June 18, 2020
The Hon’ble Adjudicating Authority had admitted Company Petition bearing no. CP/ 646/CB/ 2017 under section 9 of the Insolvency and Bankruptcy Code, 2016 (“Code”). As no resolution plan was approved, liquidation order was passed against Surana Power Ltd. (“Corporate Debtor”).
During liquidation, Respondent succeeded in arbitration proceedings against the Corporate Debtor and an ex-parte order was passed in favour of the Respondent. The arbitral award granted lien to the Respondent over the goods and equipment lying at the site of the Corporate Debtor (“Secured Assets”) and charge was also created on entirely or partially erected facilities at the site of Corporate Debtor. The Secured Assets were already hypothecated to all other secured creditors vide Hypothecation Deed dated September 24, 2010.
Except the Respondent, all other secured creditors with a value of 73.76% of the secured assets had relinquished their security interest into the liquidation estate of Corporate Debtor. But the Liquidator was unable to proceed with any further sale of assets without the receipts of relinquishment security interests from all secured creditors to whom said assets are charged.
Thereafter, the Liquidator filed Miscellaneous Application No. 1052 of 2019 for seeking permission to sell the assets of the Corporate Debtor which was rejected by the Hon’ble Adjudicating Authority vide order dated November 20, 2019 (“Impugned Order”).
Aggrieved by the Impugned Order, the Appellant preferred appeal before Hon’ble National Company Law Appellate Tribunal (“NCLAT”). The Respondent contended that it is exercising its right under section 52 of the Code and this right is unqualified and unbridled. Under section 52(1)(b), the Respondent has decided to realize its security interest as per section 52(4) of the Code. The rights of Respondent under section 52 of the Code cannot be subject to majority of secured creditors, who have relinquished their security interest. Also, the Corporate Debtor never acquired unencumbered right, title or interest in the goods. Therefore, hypothecation of the goods by the Corporate Debtor to the banks would always be subject to Respondent’s lien.
Whether the liquidation process can be stalled due to a secured creditor holding minority share in the value of secured assets?
The Hon’ble NCLAT held that the Adjudicating Authority has failed to appreciate that all the secured creditors are on same footing irrespective of the mode of creation of charge. The Respondent, in the present matter is a secured operational creditor due to an Arbitral Award dated January 24, 2018. Soon after passing of the Arbitral Award, Corporate Insolvency Resolution Process was initiated against the Corporate Debtor and all the secured creditors (Financial Creditors), other than the Respondent relinquished their security interest in the liquidation estate. As a result of which, the Liquidator is unable to sell the assets of the Corporate Debtor.
The Respondent is also a secured creditor at par with remaining 10 other secured creditors. Further, enforcement of security interest is governed by section 13 of SARFAESI Act, 2002 which provides under sub-section (9) that any steps required for realisation of assets require confirmation of creditors having at least 60% of the value of debt.
As the secured creditors having value of 73.76% have already relinquished security interest into the liquidation estate, therefore, it would be prejudicial to stall the liquidation proceedings at the instance of single secured creditor holding only 26.24% share in the secured assets of the Corporate Debtor
The Respondent does not have superior charge from the rest of the secured financial creditors in the Secured Assets. The aforesaid sub-section (9) of section 13 of the SARFAESI Act shall apply in the present case, and decision of 73.76% of majority secured creditors shall be binding on dissenting secured creditors i.e. the Respondent. The Respondent can only realise the security interest as per the aforesaid section. Further, the Respondent does not have requisite 60% in value of secured interest, therefore Respondent does not have right to realise his security interest as it would be detrimental to liquidation process and interest of remaining ten secured creditors.
Accordingly, the Hon’ble NCLAT allowed the Appeal.