Oriental Bank of Commerce (Now PNB) Vs. Anil Anchalia, Liquidator of M/s. Bala Techno Industries Ltd. - That when the extent of value received by the creditors under Section 53 is given which is in the same proportion and percentage as provided to the other Financial Creditors, the challenge is to be repelled.

 NCLAT (26.05.2022) in Oriental Bank of Commerce (Now PNB) Vs. Anil Anchalia, Liquidator of M/s. Bala Techno Industries Ltd. [Comp. App. (AT) (Ins.) No. 547 of 2022] held that;

• That secured creditors after having relinquished their security interest could not claim any amount realised from secured assets once they elected for relinquishment of security interest, they would be governed by the waterfall mechanism under Section 53.

• It has never been laid down that if a dissenting financial creditor is having a security available with him, he would be entitled to enforce the entire of security interest or to receive the entire value of the security available with him.

• It has not been the intent of the legislature that a security interest available to a dissenting financial creditor over the assets of the corporate debtor gives him some right over and above other financial creditors so as to enforce the entire of the security interest and thereby bring about an inequitable scenario, by receiving excess amount, beyond the receivable liquidation value proposed for the same class of creditors.

• That when the extent of value received by the creditors under Section 53 is given which is in the same proportion and percentage as provided to the other Financial Creditors, the challenge is to be repelled.

Excerpts of the order;

# 1. This Appeal has been filed against the order dated 04.03.2022 passed by the Adjudicating Authority (National Company Law Tribunal), Kolkata Bench, Kolkata, rejecting the I.A (I.B.C)/101(KB)2022 filed by the Appellant. The brief facts of the case necessary to be noticed are:-

• The Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor was initiated by order dated 15.10.2019. The Appellant has extended the financial assistance to the Corporate Debtor in the year 2014. There was exclusive charge over factory land, building and plots at Ramnagar, West Bengal. The Exclusive Charge of the Appellant- Bank was also registered with the Registrar of Companies, Kolkata. The liquidation order was passed on 15.02.2021. In the liquidation proceedings, the Appellant relinquished its security with regard to secured assets. The secured assets, thus, formed the part of the liquidation assets. The liquidator sold the assets for a sum of Rs.1,68,00,000/-. The Appellant sent an e-mail on 28.10.2021 informing that the Appellant being first and exclusive charge on the security is entitled to receive the amount. The Liquidator distributed the sale proceeds on the pro-rata basis under Section 53 of the Insolvency and Bankruptcy Code, 2016 (“Code” for short). Being aggrieved, the Appellant filed an I.A (I.B.C)/101(KB)2022. In the I.A, following prayers were made by the Appellant:-

• “a) Liquidator be directed to distribute the entire sale proceeds of the liquidation estate to Punjab National Bank (previously, Oriental Bank of Commerce) since the same has exclusive charge over the property of the corporate debtor which has been sold by the Liquidator.

• b) The delay in filing the present application may kindly be condoned.

• c) Any other order and/or orders as Your Honour may deem fit and proper.”

 

The Adjudicating Authority rejected the Application by impugned order.

 

# 2. Learned Counsel for the Appellant challenging the order contends that the Appellant having first charge over the assets, he was entitled to receive the payment realised from the secured assets. Learned Counsel submits that this Appellate Tribunal in Company Appeal (AT) (Ins.) No. 731 of 2020 “Technology Development Board vs. Mr. Anil Goel & Ors.” has taken the view that secured creditors after having relinquished their security interest could not claim any amount realised from secured assets once they elected for relinquishment of security interest, they would be governed by the waterfall mechanism under Section 53. It is submitted that against the judgment of this Tribunal dated 05.04.2021, Appeal has been filed before the Hon’ble Supreme Court being Civil Appeal No. 11060 of 2021 where the Hon’ble Supreme Court has stayed the judgment of this Tribunal. It is submitted that the Appellant is entitled to receive the entire amount realised from its secured assets.

 

# 3. We have considered the submissions of the learned Counsel for the Appellant and perused the record.

 

# 4. The Appellant had opted to relinquish its security exercising its right under Section 52 of the Code. After it relinquished the security, the secured creditors are entitled for receiving payment as per Section 53. The issue is no more res integra in view of the judgment of the Hon’ble Supreme Court in “India Resurgence ARC Private Limited vs. Amit Metaliks Limited and Anr.- 2021 SC OnLine SC 409”. In the case before Hon’ble Supreme Court, Appellant was Dissenting Financial Creditor and it challenged the distribution of the assets under the Resolution Plan. The argument was raised that the Dissenting Financial Creditor was entitled to receive the payment as per their secured interest. The argument was rejected and the Hon’ble Supreme Court in Paragraphs 17, 19, 20 & 21 laid down following:-

• “17. Thus, what amount is to be paid to different classes or subclasses of creditors in accordance with provisions of the Code and the related Regulations, is essentially the commercial wisdom of the Committee of Creditors; and a dissenting secured creditor like the appellant cannot suggest a higher amount to be paid to it with reference to the value of the security interest.

• 19. In Jaypee Kensington(supra), this Court repeatedly made it clear that a dissenting financial creditor would be receiving the payment of the amount as per his entitlement; and that entitlement could also be satisfied by allowing him to enforce the security interest, to the extent of the value receivable by him. It has never been laid down that if a dissenting financial creditor is having a security available with him, he would be entitled to enforce the entire of security interest or to receive the entire value of the security available with him. It is but obvious that his dealing with the security interest, if occasion so arise, would be conditioned by the extent of value receivable by him.

• 20. The extent of value receivable by the appellant is distinctly given out in the resolution plan i.e., a sum of INR 2.026 crores which is in the same proportion and percentage as provided to the other secured financial creditors with reference to their respective admitted claims. Repeated reference on behalf of the appellant to the value of security at about INR 12 crores is wholly inapt and is rather ill-conceived.

• 21. The limitation on the extent of the amount receivable by a dissenting financial creditor is innate in Section 30(2)(b) of the Code and has been further exposited in the decisions aforesaid. It has not been the intent of the legislature that a security interest available to a dissenting financial creditor over the assets of the corporate debtor gives him some right over and above other financial creditors so as to enforce the entire of the security interest and thereby bring about an inequitable scenario, by receiving excess amount, beyond the receivable liquidation value proposed for the same class of creditors.”

 

# 5. In a recent judgment delivered by this Appellate Tribunal in Company Appeal (AT) (Ins.) No. 644 of 2021 dated 06.05.2022 –“Indian Bank vs. Charu Desai, Erstwhile Resolution Professional & Chairman of Monitoring Committee of GB Global Ltd. & Anr.”, a similar contention raised by the Indian Bank which was secured creditor who was Dissenting Financial Creditor was repelled. After relying the judgment of the Hon’ble Supreme Court in M/s. Amit Metaliks Ltd. (supra), this Tribunal in paragraphs 27 and 28 laid down following:-

• “27. The Judgment of the Hon’ble Supreme Court, in the above case, is that when the extent of value received by the creditors under Section 53 is given which is in the same proportion and percentage as provided to the other Financial Creditors, the challenge is to be repelled.”

 

# 6. We thus, do not find any merit in the submissions of the Learned Counsel for the Appellant. The submission that earlier judgment of this Tribunal in “Technology Development Board” having been stayed by the Hon’ble Supreme Court on 29.06.2021, no reliance can be placed on the said judgment loses its importance in view of the subsequent judgment of the Hon’ble Supreme Court dated 13.05.2021 M/s. Amit Metaliks Ltd. (supra). The issue is no more res integra and no error is committed by the Adjudicating Authority in rejecting the Application filed by the Appellant. There is no merit in the Appeal. The Appeal is dismissed.

 

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Jayashree Mohan Vs. Pathukasahasram Raghunathan Raman Liquidator M/s. RA-NI Precast Pvt. Ltd. - The provisions of IBC never envisaged for termination of liquidation process and as such the prayer sought by the Applicant transcends beyond the scope of IBC.

NCLT Chennai (14.10.2022) in Jayashree Mohan Vs. Pathukasahasram Raghunathan Raman Liquidator M/s. RA-NI Precast Pvt. Ltd. [IA(IBC)/ 320(CHE)/ 2021 in CP/1156/ IB/2018] held that;

• “Further, there is no provision under IBC 2016 to come out of the liquidation process once a  liquidation is ordered, except by way of a Scheme under Section  230 of the Companies Act, 2013 or by Sale as a going concern. .   

• The provisions of IBC never envisaged for termination of liquidation  process and as such the prayer sought by the Applicant transcends beyond the scope of IBC. 

Excerpts of the Order;.

This is an Application filed by one of the suspended directors  of the Corporate Debtor which is under Liquidation namely RA-NI Precast Private Limited under Section 12A & 60(5) of IBC 2016 read with Regulations 30A of the IBBI Insolvency Resolution Process for Corporate Persons, Regulations 2016. 

 

# 2. Shorn of unnecessary details brief facts of the case are as under; 

2.1. The CIRP in respect of the Corporate Debtor was initiated by this Tribunal vide Order dated 05.04.2019 and the Respondent herein was appointed as the Interim Resolution Professional. 

2.2 In the first coc meeting held on 06.05.2019 Respondent herein was interim as the Resolution Professional of the Corporate Debtor. Thereafter the COC was constituted with two financial creditors viz. HDFC Bank and Deutsche Bank AG. It was submitted that there were Oppression and mismanagement proceedings pending before this Tribunal against the corporate Debtor in CP/46/2018 and CP/42/2018. 

2.3. The CIRP in respect of Corporate Debtor was  extended for further period of 150 days with effect from 01.10.2019. There after it could be seen that in the 5th coc meeting held on 03.01.2020 a decision was taken for extension of CIRP in relation to the Corporate Debtor for a period of 90 days, since 330 days already came to an end on 20.08.2020. However, this Tribunal vide order dated 04.03.2020 dismissed the said Application as it could not find exceptional circumstances to extend the CIRP period beyond 330 days. Hence, the Respondent has filed Application for Liquidation of the Corporate Debtor in IA/670/2020 and this Tribunal vide order dated 23.12.2020 has ordered for Liquidation of Corporate Debtor and appointed the Respondent herein as a Liquidator. 

 

# 3. It was submitted that the Applicant herein has taken significant effort and succeeded in settling all the existing debts of the Corporate Debtor including the debt owed to the Financial Creditors. It was further submitted by both M/s. HDFC Bank and M/s. Deutsche Bank, constituted 40% and 60% of the Committee of Creditors CoC, respectively have acknowledged the full and final repayment of the loans owed by the Company and have provided their No Objection Certificates. The details of the settlements arrived by the Applicant with the creditors of the Corporate Debtor: 

 

S.No.	Particulars	Amount Settled INR in Lakhs	Status	Amount
1.	FINANCIAL CREDITORS
a.	M/s. Deutsche Bank	38.43	Settled	51.43
b.	M/s. HDFC Bank	13.00	Settled
2.	OPERATIONAL CREDITORS
a.	M/s. SV Crane	0.70	Settled	19.39
b.	M/s. Sri Karpaga Vinayaga Crane Services	1.20	Settled
c.	M/s. PVM Crane Services	1.00	Settled
d.	M/s. Jaya Mangai Transport	2.00	Settled
e.	M/s. Rajasthan Tools & Hardware	1.80	Settled
f.	M/s. Nithish & Co.	3.50	Settled
g.	M/s. International Steels	4.50.	Settled
h.	M/s. Cera Chem Pvt. Ltd.	0.40	Settled
i.	M/s. Sri Vaari Crane Services	1.53.	Settled
j.	M/s. Thirupathi Stores	0.25	Settled
k.	M/s. Jeeva Crane Services	1.41	Settled
l.	M/s. Bulwark Maintenance Engineers	4.57	Ready for Settlement

 

# 4. It was submitted that the Applicant vide her letter dated  25.03.2021 informed the Liquidator about the settlements of the  debts and requested the Liquidator to approach this Tribunal with an appropriate application seeking withdrawal of the Liquidation proceedings, however in response to the same, it was submitted that the Liquidator vide his letter dated 31.03.2021 stated that withdrawal is not possible during the Liquidation process. 

 

# 5. It was submitted that the Corporate Debtor had an extremely good order book in its pipeline before the initiation of CIRP despite the macro level financial crunch for over five years and the economic slowdown. Inspite of the same the Corporate Debtor has settled all of its creditors. Further it was submitted the Applicant  has liquidated her personal assets and has brought in external  financing to reduce debt burden of the Corporate Debtor. 

 

# 6. The Learned Counsel for the Applicant read upon the decision of the Hon'ble NCLAT in the matter of Y. Shivram Prasad, in order to buttress his arguments that there is always a possibility of  reviving the Corporate Debtor through scheme of arrangement.  However, in the present case this Applicant has settled all the  creditors including Financial Creditors as well as Operational  Creditors the need for submitting a scheme has been obviated. Hence, it was submitted there is no impediment in in bringing to an  end the liquidation process and allow the revival of the Corporate  Debtor. Further, in order to bolster his arguments, the Learned  Counsel for the Applicant also relied upon the decision of Hon'ble NCLAT in the matter of V. Navaneetha Krishnan vs Central  Bank of India in Company Appeal (AT)(Ins) No. 288 of 2018  wherein it has been held as follows; 

• However, in view of Section 12A even during the liquidation period if any person, not barred under Section 29A satisfy the demand of 'Committee of Creditors' then such person may move before the Adjudicating Authority by giving offer which may be considered by the Committee of Creditors', and if by 90% voting share of the Committee of Creditors', accept the offer and decide for withdrawal of the application under Section 7 of the I&B Code, the observation as made above or the order of liquidation passed by the Adjudicating Authority will not come in the way of Adjudicating Authority to pass appropriate order. Both the appeals are dismissed with aforesaid observations. No cost. 

 

Thus, based upon the observations made by the Hon'ble NCLAT above mention order Applicant sought termination of the liquidation process. 

 

# 7. The Liquidator has filed its counter and it is submitted by the  Learned Senior Counsel for the Liquidator that during the CIRP  process Respondent has filed under Section 19(2) of the IBC, 2016  seeking co-operation from the erstwhile directors, key managerial  personnel and the statutory Auditors and the said Application as  numbered MA/1066/2019. 

 

# 8. The Respondent has filed various Applications under Section 66 of the IBC against one Mr. Kolanchinathan and Shri Satyamurthy Balaju Sreedhar the other key managerial Personnel of the Corporate Debtor. It was submitted that after the liquidation process of the Corporate Debtor the Respondent has  recovered a sum of Rs.16 lakh as part of the an Application filed under Section 66 of IBC it was submitted that there was non cooperation on the part of the suspended directors of the  Corporate Debtor even during the liquidation that one of the  scheme proponent has approached the Liquidator for submission of  the scheme and the Liquidator could not give them an opportunity  for the reason that the assets and liabilities of the Corporate  Debtor has not been ascertained at that time due to the non  completion of the books of accounts by the erstwhile management. 

 

# 9.  It was submitted the Liquidator made all the ground work for  disposing of the only Valuable asset of the Corporate Debtor (which is a land measuring 7.46 Acres located at Pinayur Village,  Kancheepuram District) and completed the valuation and the arrangements for conducting E-auction Sale. It was submitted that to his utter surprise, the Liquidator received intimation from the  Applicant about the settlement made by her seeking withdrawal of  the Liquidation proceedings. It was submitted that none of the  Financial Creditors has confirmed the receipt of such settlement to  the Respondent Liquidator and they never sought for the  withdrawal of their claims till date. 

 

# 10. It was submitted that the Liquidator has filed IA/383/CHE/2021 for the recovery of the property belonging to the Corporate Debtor along with all relevant documents establishing  the Corporate Debtor as the absolute owner of the said property to  which the Applicant has claimed ownership of the said land. It was submitted by the Learned Counsel for the Liquidator that all the allegations made by the Applicant against the Liquidator are baseless and are made to cover up the Applicants selective settlement made through improper channel which does not find any place in IBC. It was further submitted by the Operational  Creditor has accepted only 50% settlement of their dues and under  extreme duress and the fact that some of the Operational Creditors  who were settled 50% of dues have submitted their claims for the  balance amount before the Respondent Liquidator proves that the  dues are not settled. 

 

# 11. The Learned Counsel for the Respondent Liquidator submitted that if the Applicant herein is not disqualified under  Section 29A of IBC 2016 she could have submitted a Scheme  under Section 230 of the Companies Act 2013 and instead of doing  so, the Applicant has gone for selective settlements with the  Creditors which is nothing but a desperate attempt to escape from  her personal liabilities. Further, it was submitted that it was also within the knowledge of the Applicant that one of the financial creditors viz. HDFC Bank has not filed their claim before the Liquidator during the Liquidation process and Applicant herein has  settled the dues of the said financial creditor, which clearly proves  her vested interest to protect her from the personal liabilities..  

 

# 12. It was submitted that the settlements made by the Applicant  are not sustainable for the simple reason the Applicant is not  willing to settle any of the statutory dues like ESI, PF, & GST which  she is well aware of. It was further submitted the Applicant who is  the erstwhile director of the Corporate Debtor has all along been  non-cooperative and claims to have no knowledge about the  receivables and payables of the Corporate Debtor, has now been  able to claim ownership of the assets of the Corporate Debtor and  take out the liabilities selectively for making the selective and  preferential settlements at this juncture. 

 

# 13.  Thus, under these circumstances Learned Counsel for the  Liquidator submitted that the present Application filed by the  Applicant seeking withdrawal of the Liquidation process finds no  place in IBC and hence sought dismissal of the same. 

 

FINDINGS OF THIS TRIBUNAL 

# 14. We have heard the submissions made by the Ld. Counsels by  both the parties. 

 

# 15.  It is seen here that the Corporate Debtor was ordered for  Liquidation by this Tribunal vide order dated 23.12.2020 and the Liquidator took over the assets of the Corporate Debtor in terms of the Regulations specified under IBBI (Liquidation Process Regulation 2016). It is to be noted here that during the Liquidation process of the Creditors / Stakeholders are required to file their claim a fresh as on the date of commencement of Liquidation. 

 

# 16.  A perusal of the averments made in the Application show  that the Applicant has acted under the wrong notion that the  Corporate Debtor is still under CIRP and they can settle their  Creditors at any point of time and can come out by way of filing Application under Section 12A of IBC 2016. The provisions of the  IBC, 2016 treat CIRP and Liquidation Process as two separate stages and the procedures to be followed in each stage have been 

delineated by way of framing a separate regulation by the  regulator viz. IBBI.. 

 

# 17. The Corporate Debtor can be revived only at the stage during which it is undergoing in CIRP and it has been held by Hon'ble  NCLAT in the matter of Y. Shivaram Prasad that even during  Liquidation a Scheme can be given under Section 230 of the  Companies Act, 2016 for the revival of the Corporate Debtor.  Further, even during Liquidation, the Corporate Debtor can be sold  as a 'going concern'. Apart from the above process stipulated  supra, there is no other way which is recognised under the  provisions of the IBC, in which the Corporate Debtor can be  revived or come out of CIRP / Liquidation. 

 

# 18. In the present case it is requires to be seen that already 90  days' time period for submission of Scheme under Section 230 of  the Companies Act, 2013 granted for the Corporate Debtor already  expired during the liquidation process and by operation of law the 

property of the Corporate Debtor is require to be liquidated by the  Liquidator and proceeds out of the sale process and require to be  distributed in terms of Section 52 and 53 of 2016. 

 

# 19. In the present case it could be seen that the Applicant has settled the creditor viz. HDFC Bank who has not even submitted the claim before the Liquidator during the liquidation process. Also,  it is required to be noted that a non-cooperation Application under  Section 19(2) of IBC, 2016 is still pending against the Applicant   herein and the Applicant has still not handed over the land  documents which is belonging to the Corporate Debtor to the RP / Liquidator. This shows the defiant attitude of the Applicant towards  the orders passed by this Tribunal. Further, there is no provision under IBC 2016 to come out of the liquidation process once a  liquidation is ordered, except by way of a Scheme under Section  230 of the Companies Act, 2013 or by Sale as a going concern and  the provisions of IBC never envisaged for termination of liquidation  process and as such the prayer sought by the Applicant transcends beyond the scope of IBC. 

 

# 20. At this juncture, we find it apt to refer to the Judgment of the Hon'ble Supreme Court in the matter of Arun Kumar Jagatramka  -Vs- Jindal Steel and Power Ltd. & Anr., 2021 SCC OnLine SC  220 wherein the Hon'ble Supreme Court, after examining the  judicial interventions and innovations made under the provisions of  IBC, 2016 by the Adjudicating Authority and also by the Appellate  Authority, has held as follows; 

• 103. At this juncture, it is important to remember that the explicit recognition of the schemes under Section 230 into the liquidation process under the IBC was through the judicial intervention of the NCLAT in Y Shivram Prasad (supra). Since the efficacy of this arrangement is not challenged before us in this case, we cannot comment on its merits. However, we do take this opportunity to offer a note of caution for the NCLT and NCLAT, functioning as the Adjudicatory Authority and Appellate Authority under the IBC respectively, from  judicially interfering in the framework envisaged under the IBC. As we have noted earlier in the judgment, the IBC was introduced in order to overhaul the insolvency and bankruptcy regime in India. As such, it is a carefully considered and well thought out piece of legislation which sought to shed away the practices of the past. The legislature has also been working hard to ensure that the efficacy of this legislation remains robust by constantly amending it based on its experience. Consequently, the need for judicial intervention or innovation from the NCLT and NCLAT should be kept at its bare minimum and should not disturb the foundational principles of the IBC. This conscious shift in their role has been noted in the report of the Bankruptcy Law Reforms Committee (2015) in the following terms: 

• "An adjudicating authority ensures adherence to the process At all points, the adherence to the process and compliance with all applicable laws is controlled by the adjudicating authority. The adjudicating authority gives powers to the insolvency professional to take appropriate action against the directors and management of the entity, with recommendations from the creditors committee. All material actions and events during the process are recorded at the adjudicating authority. The adjudicating authority can assess and penalise frivolous applications. The adjudicator hears allegations of violations and fraud while the process is on. The adjudicating authority will adjudicate on fraud, particularly during the process resolving bankruptcy. Appeals/actions against the behaviour of the insolvency professional are directed to the Regulator/Adjudicator." 

• 104. Once again, we must clarify that our observations here are not on the merits of the issue, which has not been challenged before us, but only limited to serve as quiding principles to the benches of NCLT and NCLAT adjudicating disputes under the IBC, going forward.         (emphasis supplied) 

 

# 21. Thus, in view of the reasons stated supra and also guided by the principle of Hon'ble Supreme Court in the matter of Arun Kumar (supra), the present Application filed by the Applicant is not sustainable and liable to dismissed and accordingly stands dismissed. No costs. 

 

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