State Bank of India Vs. Navjit Singh - From which it is clear, even if the secured creditor proceeds to realise its security interest it is liable to pay fee as contemplated under Regulation 21A(2)(a).

 NCLAT (16.02.2022) in State Bank of India Vs. Navjit Singh (Company Appeal (AT) (Insolvency) No. 151 of 2022) held that;

• From which it is clear, even if the secured creditor proceeds to realise its security interest it is liable to pay fee as contemplated under Regulation 21A(2)(a).

Excerpts of the order;

16.03.2022: Heard Learned Counsel for the Appellant-Mr. Atul Sharma and Learned Counsel for the Liquidator-Mr. Sumit Sinha.

 

# 2. This Appeal has been filed against the Order dated 30th November, 2021 passed by the Adjudicating Authority in the Application being I.A. No. 1456/ND/2021. The I.A. was filed by the State Bank of India where following prayers have been made:

“a. allow the present Application and adjudicate/ascertain the claim amount i.e. Rs. 29,34,54,879.59/- payable by the Corporate Debtor as on 28.02.2021 along with cost, pendente lite and future interest @ 10.55% p.a. from 01.03.2021 and Penal Interest @ 5% p.a. (simple) over the documented rate in respect of its Credit Facility together with interest, further interest, Liquidated Damages and other charges thereon at the contractual rates on the footing of the compound interest till payment and/or realization in full; and

b. set aside the communication/email dated 29.08.2020 and 01.10.2020 of the Liquidator to the extent of imposing conditions for the permission to sale of Agricultural Land bearing Survey Number Khasra No. 432 (4-16) and 433(4-16), situated at village Quadipur, Delhi;

c. direct the Liquidator to hand over physical possession of the Agricultural Land bearing Survey Number Khasra No. 432 (4-16) and 433(4-16), situated at village Quadipur, Delhi; and

d. permit the Applicant, being the secured creditor, to sell/realize the above-mentioned Mortgaged Property, under the aegis of this Hon’ble Tribunal; and

e. pass any other or further orders as this Hon’ble Court may deem fit and proper in the interest of justice and equity.”

 

# 3. The Adjudicating Authority has referred to Regulations 2(ea), 2A, 21A, 37 of the Liquidation Regulations and Section 52/53 of the Code in paragraph 13 and has passed following order:

• “13.As the Respondent has no objection in allowing the application subject to compliance of Liquidation Regulations, therefore, without going into the merits of the prayer of the Applicant, we dispose of the application with the direction to make payment of Liquidator’s fees and ensure compliance of Regulations 2(ea), 2A, 21A, 37 of the Liquidation Regulations and Section 52/53 of the Code, and act as per the provisions of law.”

 

# 4. Learned Counsel for the Appellant submits that there is no adjudication with regard to prayer ‘a’ where claim of Rs. 29,34,54,879.59/- was raised and further the Appellant was not liable to pay any fee with regard to the securities which are out of Liquidation Process as opted by the Appellant.

 

# 5. Learned Counsel for the Liquidator submits that claim of Rs. 29,34,54,879.59/- of the Appellant has already been admitted by the Liquidator hence no further adjudication was required with regard to the said claim. It is further submitted that even if the securities which are out of Liquidation Process, the Appellant is liable to pay fee as per Regulation 21A as well as 2(ea) of the Liquidation Regulations.

 

# 6. We have considered the submissions of Learned Counsel for the parties and perused the record. In so far as the claim of the Appellant is concerned of Rs. 29,34,54,879.59/- it has been admitted by the Liquidator the said claim is the claim admitted in the Liquidation Process and no further adjudication was called for with regard to the said claim. In the present case, the admission of the claim is not sought to be challenged by State Bank of India. In so far as the payment of Liquidator’s Fee in paragraph 13 as noted above, Adjudicating Authority has disposed of the application with the direction to make payment of Liquidator’s Fee and ensure compliance of Regulations 2(ea), 2A, 21A, 37 of the Liquidation Regulations and Section 52/53 of the Code. The order passed by the Adjudicating Authority does not warrant any interference. What was directed was as per Liquidation Regulation 21A as extracted in Paragraph 10 of the Judgment from which it is clear, even if the secured creditor proceeds to realise its security interest it is liable to pay fee as contemplated under Regulation 21A(2)(a). The Adjudicating Authority has only directed the Applicant to follow the regulations as noted in paragraph 13.

 

# 7. We do not find any error in the said direction which does not warrant any interference. Appellant has to comply with the Regulations as referred to in the Impugned Judgment.

 

With these observations, the Appeal is dismissed.

 

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Blogger’s Comments; Liquidation  Regulation 21A (2)(a) is in conflict with the provisions of the Code under section 52(8).

 

# Section 52. Secured creditor in liquidation proceedings.

(8) The amount of insolvency resolution process costs, due from secured creditors who realise their security interests in the manner provided in this section, shall be deducted from the proceeds of any realisation by such secured creditors, and they shall transfer such amounts to the liquidator to be included in the liquidation estate.

 

# Section 53. Distribution of assets. -

(1) Notwithstanding anything to the contrary contained in any law enacted by the Parliament or any State Legislature for the time being in force, the proceeds from the sale of the liquidation assets shall be distributed in the following order of priority and within such period as may be specified, namely: -

(a) the insolvency resolution process costs and the liquidation costs paid in full;

(b) the following debts which shall rank equally between and among the following:

- (i) workmen’s dues for the period of twenty-four months preceding the liquidation commencement date; and

- (ii) debts owed to a secured creditor in the event such secured creditor has relinquished security in the manner set out in section 52;

 

Liquidation Regulation 21A(2) reads as under;

(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.

Thus, as per Regulations, the secured creditor is required to share the proceeds from the realization of security interest, with the liquidator for the following;

• Insolvency resolution process costs. [Section 53(1)(a)]

• The Liquidation costs. [Section 53(1)(a)]

• Workmen’s dues for the period of twenty-four months preceding the liquidation commencement date. [Section 53(1)(b)(i)] 

 

Whereas as per the provisions of the Code [Section 52(8)], secured creditor is required to share the proceeds of realization of security interest for  “Insolvency resolution process costs” only.

 

Now the question arises whether the Board (IBBI) can frame regulations which are inconsistent with the provisions of the Code? 

 

Let’s look into Section 240 of the Code which grants powers to the Board for framing of the regulations.

 

Section 240. Power to make regulations. –

(1) The Board may, by notification, make regulations consistent with this Code and the rules made thereunder, to carry out the provisions of this Code.

(2) In particular, and without prejudice to the generality of the foregoing power, such regulations may provide for all or any of the following matters, namely: . . . . . . . .

 

Thus the Board does have powers to frame regulations which are consistent with the provisions of the Code only. While framing regulations, the Board can not travel beyond the provisions of the Code. 

 

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