The Federal Bank Ltd. Vs. Ruben George Joseph, Liquidator, M/s. Platino Classic Motors (India) Pvt. Ltd. - Regulation 21A (3) provides the consequences of non-compliance of direction provided in Regulation 21A(2)(b), accordingly on the expiry of 180 days if the secured creditor failed to realize the amount and paid to the liquidator the secured asset automatically shall vests with the liquidator as part of liquidation estate.

 NCLT Kochi (23.06.2023) In The Federal Bank Ltd. Vs. Ruben George Joseph, Liquidator, M/s. Platino Classic Motors (India) Pvt. Ltd. [IA(IBC)/139/KOB/2023 in IA(IBA)/176/KOB/2022 in IBA/25/KOB/2020] held that;

• Whether any provision where the time limit prescribed is mandatory or directory the Madras High court in Shahji Purushottam vs Union of India, observed that when there is no consequential result is prescribed it will consider as only a directory, and when there is consequential result is prescribed then the provision is mandatory.

• Regulation 21A (3) provides the consequences of non-compliance of direction provided in Regulation 21A(2)(b), accordingly on the expiry of 180 days if the secured creditor failed to realize the amount and paid to the liquidator the secured asset automatically shall vests with the liquidator as part of liquidation estate.

• The period mentioned in Regulation 21A(2)(b) is mandatory, hence the period of 180 days prescribed under Regulation 21A(2)(b) of IBBI (Liquidation Process)2016 cannot be extended.

Excerpts of the Order;

# 1. The present application has been filed under Section 60(5) of the Insolvency and Bankruptcy Code, 2016 read with Rule 11 of the NCLT Rules, 2016, by the Applicant who is the Secured Creditor of Corporate Debtor M/s. Platino Classic Motors (India) Pvt Ltd. seeking the time extension of 180 days from 29.03.2023 for effecting the sale of secured asset under the SARFAESI Act, and remit the excess amount, over it’s admitted claim etc; 

# 2. The facts as narrated in the application and explained by the Applicant are summarized hereunder: 

• i. The Applicant being a secured creditor opted to realize its security as provided in Section 52(l)(b) of the Insolvency and Bankruptcy Code (for short code) and informed the Liquidator of its security interest and identified the asset subject to such security interest to be realised. The Applicant has submitted Form- D as provided under Regulation 2lA (l) of the IBBI (Liquidation Process) Regulations 2016 on 28.10.2022. The Liquidator has verified the security interest and permitted the Applicant to realize its security interest which has been proved before him. The Applicant has paid the amount payable under Section 53(1)(a) & 53(1)(b)(i) to the Liquidator as it would have shared in case it had relinquished the security interest within the time allotted. 

• ii. Thereafter on 15.11.2022 the Liquidator directed the Applicant to inform him of the Value of its Secured asset. Accordingly, the Applicant informed on 29.11.2022 the Value of its Secured asset as Rs, 15,00,00,000/-. The Liquidator on 23.12.2022, informed the Applicant that he could not find a buyer for a better price and permitted the Bank to proceed under the SARFAESI Act and the Possession of the secured Asset was surrendered to the Applicant on 27.12.2022. 

• iii. It is stated that the fixed Reserve Price of the Secured asset being Rs 19,00,00,000/-, they issued a sale notice dated 07.01.2023 as provided under the SARFAESI Act and Enforcement of Security Interest Rules 2002 fixing the sale on 08.02.2023. There were several inquiries from various quarters and the same was known to the erstwhile Directors of the Corporate Debtor as well. One of the erstwhile Directors of the Corporate Debtor approached the Honourable High Court of Kerala challenging interalia the sale notice issued by the Applicant by filing WP(C)No. 3780/2023, contending that a Financial Creditor who has initiated CIRP under Section 7 of the code cannot opt to realise its security interest as provided under Section 52(1)(b) of the Code. The Honourable High Court admitted the Writ Petition without staying the sale to be held on 08.02.2023. However, the sale proposed to be held on 08.02.2023 could not be undertaken for want of bidders. In this circumstance, the Applicant has again notified the sale on 01.03.2023 by issuing a sale notice dated 10.02.2023 fixing the reserve Price at Rs. 17,00,00,000/-. Based on that the Writ Petition was amended by incorporating certain additional allegations to the effect that the bank has not submitted Form-D within the time allowed and hence it is not entitled to realize its security independently and moved again on 28.02.2023 and pressed for an interim order. But the Hon’ble High Court declined the Interim Order sought for as per Order dated 28.02.2023. It is further stated that the Petitioner in WP(C)No. 3780/2023 challenged Annexure A1 before the Division Bench by filing Writ Appeal No. 485/2023. The Petitioner in WP(C)No. 3870/2023 has made wide publicity regarding the pendency of the Writ Petition and that of the Writ Appeal among the prospective buyers and ultimately the sale proposed to be held on 01.03.2023 also could not be successful for want of bidders. In the circumstances, the Applicant again brought notified a sale to 17.03.2023 by issuing the sale notice dated 01.03.2023 fixing the Reserve Price at Rs.15,00,00,000/-. When the Writ Appeal came up for hearing the fact that the sale notified on 01.03.2023 could not be successful and that a new sale notification has been issued for sale on 17.03.2023 has been brought to the notice of the Hon’ble Court on 06.03.2023. The Appellant withdrew the Writ Appeal leaving open the legal and factual contentions raised by them in the Writ Appeal and without prejudice to their right to challenge the fresh sale notice at appropriate proceedings. 

• iv. It is stated that by amending the WP(C) No. 3780/2023 the Petitioner pressed for an interim relief to stay the sale to be held on 17.03.2023. Even though the Hon’ble High Court did not stay the sale proceedings, passed an order that if any sale is held the same shall be subject to the result of the Writ Petition. However, the sale slated on 17.03.2023 also could not be held due to the availability of bidders. 

• v. It is further stated that the time limit provided under Regulation 21A(2)(b) of IBC, 2016 to remit the excess if any of the realized value of the asset over the admitted claim of the Applicant is to expire on 29.03.2023. The reason is not attributable to the Applicant as it has made all earnest efforts to realize its security interest for the maximum price to the benefit of the entire creditors. However, this is due to the tactics of the erstwhile Directors of the Corporate Debtor. Ultimately it is the time for making the remittance as provided under Regulation 2lA(2)(b) extended by this Adjudicating Authority, the asset which is subject to the security interest of the Applicant shall become part of the liquidation estate which would cause irreparable injury and prejudice to the Applicant. 

# 3. On 26.04.2023, the Respondent/Liquidator filed his reply statement and stated that the prayer is beyond the scope of the statute and hence cannot be granted, as there is no provision for an exclusion of time under the statute. Therefore, he has stated that the application is not maintainable. The Point for consideration is: 1. Whether the period of 180 days prescribed under Regulation 21A (2) (b) of IBBI (Liquidation Process) 2016 can be extended? 

# 4. The corporate debtor was ordered to liquidation by this Adjudicating Authority on 30.09. 2022.The applicant being a secured creditor opted to realize its security interest by filing form ‘D’ of Schedule II of IBBI (Liquidation Process) Regulations 2016 and obtained the possession of immovable secured asset from the respondent liquidator on 27.12.2022. The applicant could not realize the amount as expected on or before 29.03.2023 i.e., within 180 days from the date of commencement of liquidation. Even though the applicant narrated about the pending of writ petitions filed by the erstwhile director of corporate debtor, admittedly there was no stay and applicant also thrice issued notification to auction the property but sale could not be succeeded because of want of bidders. Now the applicant filed this application for extension of time. 

# 5. The Regulations 21A (2) (b) and 21(A) 3 of IBBI (Liquidation Process) 2016 are reads as follows: 

• b) the excess of the realized 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 subregulation 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 subregulation (2), the asset, which is subject to security interest, shall become part of the liquidation estate. 

# 6. The point is whether the time limit of 180 days prescribed in Regulation 21 A (2) (b) is mandatory or directory in nature. To decide whether any provision where the time limit prescribed is mandatory or directory the Madras High court in Shahji Purushottam vs Union of India, observed that when there is no consequential result is prescribed it will consider as only a directory, and when there is consequential result is prescribed then the provision is mandatory. 

# 7. In our case the word “shall” has been used in Regulation 21A (2), apart from this Regulation 21A (3) provides the consequences of non-compliance of direction provided in Regulation 21A(2)(b), accordingly on the expiry of 180 days if the secured creditor failed to realize the amount and paid to the liquidator the secured asset automatically shall vests with the liquidator as part of liquidation estate. Here also the word “shall” have been used. In the scenario it is evident that the period mentioned in Regulation 21A(2)(b) is mandatory, hence the period of 180 days prescribed under Regulation 21A(2)(b) of IBBI (Liquidation Process)2016 cannot be extended. Thus, this point is answered. In the result the application is DISMISSED. 

# 8.The Registry is directed to communicate this order to the respective parties through email. 

# 9. Certified copy of the order be issued on request of the parties as per the procedure. 

# 10. File be consigned to records. 

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Trimurti Associates Private Limited vs BKM Industries Limited - Any notional realisation by the Applicant as per section 52(1)(b) of the Code and further subsections of section 52 of the Code is irrelevant in the context of determining entitlement of a dissenting financial creditor under section 30(2)(b) of the Code.

 NCLT Kolkata (01.03.2023) In Trimurti Associates Private Limited  vs BKM Industries Limited [IA. (IB) No. 471/KB/2022 In C.P. (IB) No. 2078/KB/2019] held that;

• As per regulation 37(1)(d) of CIRP Regulations, 2016, a Resolution Plan can include satisfaction or modification of any security interest.

• Any notional realisation by the Applicant as per section 52(1)(b) of the Code and further subsections of section 52 of the Code is irrelevant in the context of determining entitlement of a dissenting financial creditor under section 30(2)(b) of the Code.

• 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.

Excerpts of the order; 

# 1. The Court convened through hybrid mode. 

# 2. This is an application by ICICI Bank seeking directions on the Resolution Professional to take into account the priority of distribution of the plan realizations taking into account the priority assigned to the dissenting financial creditors who are also secured creditors. Submissions of the learned Senior Counsel appearing for the Applicant 

# 3. The Applicant i.e. ICICI Bank is a secured Financial Creditor of BKM Industries Limited. Pursuant to the admission of the Corporate Debtor into Corporate Insolvency Resolution Process, the Applicant submitted its claim for an amount of Rs.15.52 Crore with the Interim Resolution Professional on 14 January 2021. The claim was admitted. 

# 4. It is further submitted that the Applicant is the sole term lender having first pari passu charge over the movable and immovable properties of the Corporate Debtor situated at Medak (Andhra Pradesh) and Silvassa (Dadra and Nagar Haveli) as security for its outstanding dues vis-a-vis the Corporate Debtor. 

# 5. It has been contended that while determining the calculation methodology of the creditor’s proportional share the interest of the dissenting Creditor having a security interest have not been taken into consideration and they have been treated at par with the other creditors who are eligible to get the realizations from the plan in terms of Section 53 of the Code. 

# 6. Mr.Ratnanko Banerji, learned Sr. Counsel appearing on behalf of the Applicant submits that the applicant has been grossly prejudiced because of decision of the Resolution Professional for accepting and recommending a plan to the Committee of Creditors (“CoC”) wherein the Applicant has been treated at par with the other creditors thereby making him eligible to get a far lesser value of the proceeds of the plan than he otherwise is entitled to as per Code. Mr. Banerji led us through to the provisions of section 30 (2)b of the Code, which inter alia provides for payment of the debt of the Financial Creditors who do not vote in favour of the Resolution Plan in such a manner,as may be specified by the Board, which shall not be less than the amount to be paid to such creditors in accordance with section 53 (1) of the Code in the event of liquidation of the Corporate Debtor. 

# 7. Mr. Banerji placed further reliance on explanation 1 of the said provision of the Code which states that for removal of doubts it is hereby clarified that a distribution in accordance with the provisions of this clause shall be fair and equitable to such creditors. 

# 8. Even under the erstwhile winding up regime under the provisions of the Companies Act, prior to the enactment of the Code, the Hon’ble Supreme Court dealt with the instant question of law in the matter of ICICI Bank vs. Sidco Leathers Ltd. [2006 10 SCC 452], wherein the intent of the legislature vis-à-vis the provisions of Section 529 and Section 529A of the Companies Act, 1956 was interpreted. The Hon’ble Supreme Court while taking note of provisions of Section 48 of Transfer of Property Act, 1882, observed that the claim of first charge holder shall prevail over the claim of the second charge holder and on occasions, where debts due to both the first charge holder and the second charge holder are to be realized from the property belonging to the mortgager, the first charge holder will have to be repaid first i.e., the amounts would be distributed basis the security available with each of the creditors. 

# 9. It is also submitted that the fact that there are no provisions of the Code which abrogates security interest during insolvency resolution, the field continues to be occupied by settled law protecting the sanctity and inter priority rights amongst creditors on the basis of security interest se inter alia under the Transfer of Property Act, 1882. These principles and provisions, not being in conflict with the provisions of the Code, are not overridden by the provisions of Section 238 of the Code, which only comes into play only in the event of conflict. 

# 10. That in the event, the priority of a secured creditor having first charge as its security interest is ignored, then there would be no incentive for a secured financial creditor to opt for resolution of a company under the Code and rather such a secured financial creditor would opt for the liquidation of a company by enforcing its security interest outside the purview of the provisions of the Code. The primary objective of the Code is to maximize the value of the assets of a corporate debtor through insolvency regime in a time bound manner and the essence of the enactment of the Code would be lost, in the event a secured financial creditor is not incentivised for resolution of a corporate debtor. Submission of learned Counsel appearing on behalf of the Resolution Professional 

# 11. Shri Rishav Banerjee, Ld. Counsel appearing for the Resolution Professional stated that the Applicant is a dissenting secured Financial Creditor, who did not vote in favour of the Resolution Plan. 

# 12. The resolution plan of the successful Resolution Application has been approved by the 78.79% Committee of Creditors (COC) of the Corporate Debtor in their commercial wisdom and an application for approval of resolution plan has already been filed by the Resolution Professional. 

# 13. The entire case of ICICI Bank is premised on the basis that ICICI Bank holds a higher value of security interest and is thus entitled to a higher share as per section 53 of the Code. It is also the contention of the ICICI Bank that the security interest created in favour of the ICICI Bank by the Corporate Debtor is being taken away by way of the approved resolution plan. Such contention of the ICICI Bank is legally flawed as per regulation 37(1)(d) of CIRP Regulations, 2016, a Resolution Plan can include satisfaction or modification of any security interest. Thus, a Resolution Plan can deal with the security interest created in favour of the ICICI Bank. 

# 14. The Applicant has disputed the methodology of computation of it’s proportional share of the amount to be paid to the Applicant in the event of liquidation of the Corporate Debtor i.e. the Liquidation Value of the Corporate Debtor, that is receivable by it from the Resolution Applicant under section 30(2)(b) of the Code read with section 53(1)(b)(ii) of the Code on account of being a dissenting Financial Creditor. 

# 15. The learned Counsel submitted that section 30(2)(b) read with section 53(1) only presupposes a notional relinquishment of security interest, by a dissenting financial secured creditor, to the liquidation estate as per section 52(1)(a) Code. Section 30(2)(b) of the Code does not concern any value that could notionally be realized by the Applicant if it were to proceed under section 52(1)(b) of the Code. Section 52 of the Code is merely invoked in section 53(1) insofar as a relinquishment of security interest is governed by section 52(1)(a) of the IBC. Any notional realisation by the Applicant as per section 52(1)(b) of the Code and further subsections of section 52 of the Code is irrelevant in the context of determining entitlement of a dissenting financial creditor under section 30(2)(b) of the Code. 

# 16. Shri Rishav Banerjee, further stated that CoC has worked out the distribution in accordance with the law and there is no reason for any misapprehension on this count. 

# 17. The Applicant is being paid a sum of money to achieve compliance with section 30(2)(b), which stipulates a minimum payment of the liquidation value receivable by such dissenting secured financial creditor under section 53(1). The learned Counsel placed reliance on India Resurgence ARC Private v. Amit Metaliks Limited and Another 2021 SCC Online SC 409, 

• “18. In the case of Jaypee Kensington (supra), the proposal in the resolution plan was to the effect that if the dissenting financial creditors would be entitled to some amount in the nature of liquidation value in terms of Sections 30 and 53 of IBC read with Regulation 38 of the CIRP Regulations, they would be provided such liquidation value in the form of proportionate share in the equity of a special purpose vehicle proposed to be set up and with transfer of certain land parcels belonging to corporate debtor. Such method of meeting with the liability towards dissenting financial creditors in the resolution plan was disapproved by the Adjudicating Authority; and this part of the order of the Adjudicating Authority was upheld by this Court with the finding that the proposal in the resolution plan was not in accord with the requirement of ‘payment’ as envisaged by clause (b) of Section 30(2) of the Code. In that context, this Court held that such action of ‘payment’ could only be by handing over the quantum of money or allowing the recovery of such money by enforcement of security interest, as per the entitlement of a dissenting financial creditor. …”[Emphasis supplied] 

# 18. The learned Counsel submitted that inter se priority of charges held by secured creditors is irrelevant when determining payout to secured creditors under section 53(1) of the Code. 

# 19. He has brought to our notice following judgments: 

i. Technology Development Board v. Anil Goel [Company Appeal (AT) (Insolvency) No.731 of 2020(paragraphs 9-11) 

ii. India Resurgence ARC Private v. Amit Metaliks Limited and Another 2021 SCC Online SC 409(paragraphno. 17) which reads as follows; 

• “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.” 

Rejoinder to the reply of the Respondent

# 20. Mr.Ratnanko Banerji submitted that no reliance can be placed on Technology Development Board operation of the said judgment has been stayed by the interim order of the Hon’ble Supreme Court by its order dated June 29, 2021, in Stressed Asset Stabilisation Fund v. Technology Development Board [C.A. No. 2206/2021]. 

# 21. However, Mr.Ratnanko Banerji appearing for ICICI Bank placed reliance on para no. 21 of India Resurgence ARC which states that; 

• “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.” 

Analysis and Findings 

# 22. Heard the learned counsel on both the sides and perused the pleadings. The matter essentially relates to the prayer of ICICI bank to treat them at par with the assenting financial creditors as they are also in the category of Secured financial creditor. At the outset we place reliance on para No. 22 of Amit Metaliks supra. which states as under: 

• “It needs hardly any emphasis that if the proposition suggested on behalf of the appellant were to be accepted, the result would be that rather than insolvency resolution and maximisation of the value of assets of the Corporate Debtor, the processes would lead to more liquidations, with every secured financial creditor opting to stand on dissent. Such a result would be defeating the very purpose envisaged by the Code; and cannot be countenanced. We may profitably refer to the relevant observations in this regard by this Court in Essar Steel as follows:-- “ 

• Indeed, if an “equality for all” approach recognising the rights of different classes of creditors as part of an insolvency resolution process is adopted, secured financial creditors will, in many cases, be incentivised to vote for liquidation rather than resolution, as they would have better rights if the corporate debtor was to be liquidated rather than a resolution plan being approved. This would defeat the entire objective of the code which is to first ensure that resolution of distressed assets takes place and only if the same is not possible should liquidation follow.” 

# 23. In the facts and circumstances, we also hold just because of the fact that a creditor enjoys the protection of a security interest he cannot be treated any higher than the other creditors, who may have financed the Corporate Debtor while not enjoying any kind of protection in the shape of a security interest and thus such creditors have consistently run the risk of not getting paid their dues in the shape of realisation from the security interest or otherwise for a considerably longer period while the secured creditor was very happily staying put with the protection of a security interest for if it so happens, then all the secured creditors would like to give dissenting view in the CoC, which will not lead to the maximization of the value of the Corporate Debtor and thus defeating the very purpose of resolution envisaged in the Code. 

# 24. In view of the above, we do not find any reason to interfere in the commercial wisdom of the CoC and accordingly reject the prayer of the applicant. 

# 25. Accordingly, IA 471/KB/2022 shall stand rejected. 

# 26. The Registry shall e-mail copy of this order to the Counsel on record for the Applicant and for the Respondents, and the Resolution Professional, for information and for taking necessary steps. 

# 27. Certified Copy of this order may be issued, if applied for, upon compliance of all requisite formalities.

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Kuldeep Verma, the Liquidator of Eastern Gases Limited Vs. DBS Bank Limited, - Secured creditor while realizing its security interest can not charge Interest after the Liquidation Commencement Date.

 NCLT Kolkata (14.07.2022) in Kuldeep Verma, the Liquidator of Eastern Gases Limited  Vs. DBS Bank Limited, [I.A. No. 883 of 2021 In C.P (IB) No. 482 of 2017] held that

• Thus, plea of respondent neither does the Code regulate nor does the Code provide or delegate powers and/or authority to the liquidator to restrain or restrict the Creditor from charging interest for the period after filing of Form D and actually enforcing its security interest and realizing its debt due is in-correct, contrary to provisions/regulations of the Code, indicated above and the same is, therefore, rejected. 

Excerpts of the order;

# 1. The court convened through hybrid mode. 

 

# 2. The instant application has been filed under Section 52(7) and Section 65(5) of Insolvency and Bankruptcy Code, 2016 seeking for the following reliefs; 

• i. Necessary direction upon the Respondent to pay a sum of Rs. 1.84 crores to the Liquidation estate on account of the excess realized moneys as per Section 52(7) of the Code; 

• ii. Necessary direction of interest @12% should be paid by the respondent on the withheld amount of Rs. 1.84 crores from 1st April, 2021 till the date of payment of this amount by the Respondent to the Liquidation Estate. 

 

# 3. The contentions of applicant are summarized hereinbelow; 

i. Since there was no Resolution Plan at the end of CIRP period, the liquidation of Corporate Debtor was directed vide order dated 21st of August, 2018 and the applicant was appointed as liquidator. 

 

ii. The applicant caused public announcement in Form- B on 26th of August, 2018 through newspapers. 

 

iii. The respondent herein filed its claims with the applicant in Form- D on 18th of September, 2018. 

 

iv. As per Form- D, on the date of commencement of liquidation date, respondent submitted a claim of Rs. 17.4162/-. Details of which are mentioned in paragraph 7 of this application. 

v. In Form- D respondent stated that for long term loan, the respondent had exclusive charge over the fixed assets of the company situated at Bangalore and Hyderabad (land and building and plant and machinery) and pari passu charge along with other lenders for the over draft and short-term loan facilities sanctioned by the Respondent to the Corporate Debtor. 

 

vi. The liquidator admitted a claim of Rs. 17,41,62,136/- of the respondent, being Rs. 7,73,48,285/- for the Long-Term Loan, Rs. 8,37,00,822/- for Short Term Loan and Rs. 1,31,13,029/- for over draft term loan. It was agreed to handover possession of the above referred properties to the respondent so that it could realize the same in accordance with Section 52(1) (b) of the Code read with Regulation 37 of Liquidation Regulations. A copy of e-mail dated 23rd of June, 2019 is annexed as Annexure- F with this application. 

 

vii. Respondent vide its letter dated 31st of July, 2020 informed the liquidator that they were intending to realize its secured interest at a reduced rate of Rs. 14.44 crores due to intervening circumstances (Covid-19 lockdown). 

 

viii. The buyer had negotiated and reduced the price from 15.25 Crores. The liquidator thereafter vide its e-mail dated 24th of August, 2020 confirmed the respondent that there was no purchaser who is willing to purchase the secured assets at a greater price than the price offered by respondent in the above referred letter. This e-mail dated 31st of July, 2020 in annexed as Annexure –H with this application. 

 

ix. Thereafter possession of Bangalore factory and the Hyderabad factory was transferred by liquidator to respondent around 28th of January, 2021 and 4th of November, 2020 respectively. The liquidator states that though the liquidation was confirmed in June, 2019 the respondent took possession on the above referred dates due to Covid19 reasons and shortage of manpower. In the interim period, the liquidator took care of the aforesaid assets on behalf of the respondent and the respondent reimbursed the liquidator costs and other charges in this context to the liquidator. 

 

x. Subsequently, the plants at Bangalore and Hyderabad were sold by the respondent in March, 2021 and December, 2020 respectively for a consideration of Rs. 6.65 crores and 7.79 crores respectively aggregating to Rs. 14.40 Crores. 

 

xi. Since the amount realized by the respondent for its long term loan facilities was in excess to that of entire claim, the DBS made payment of excess amounts to the liquidator in a phased manner from March, 2021 till 30thJuly, 2021 as per scheduled mentioned at page 18 of this application. 

 

xii. The Stakeholders committee meeting was held on 10th of February, 2021. The respondent represented that sale proceeds of Rs. 14.40 crores of the 2 exclusive properties, the respondent will not only appropriate its long-term loan dues (inclusive of interest and charges) not till the liquidation commencement date but also interest and other charges till the sale and realization of assets by the respondent. 

 

xiii. The liquidator contested by stating the date has been crystallized on the liquidation commencement date on the basis of claims lodged by them.The proceeds are distributed on the basis of dues as on liquidation commencement date and not on the date of distribution. 

 

xiv. The applicant sought calculations of the amounts realized from the sale by the respondent and the amount paid/due to the liquidation Estate as per Section 52 of the Code. (Annexure-J with this application). 

 

xv. Respondent through its e-mail dated 11th of August, 2021 gave its detailed calculation. In the e-mail dated 11th of August, 2021 it transpires that the respondent is holding a sum of Rs. 20 lacs as future contingent liabilities and has not transferred the same to the liquidation Estate.  Respondent insisted they will charge interest till the date of the sale and there is no prohibition in the Code as such. 

 

xvi. The total amount of interest charged by the respondent for the period of liquidation commencement date till sale of assets is Rs. 1.64 Crores. 

xvii. Respondent has further withheld an amount of Rs. 20 Lacs as the future contingency funds and the same is without any basis. 

 

xviii. The respondent is required to pay an amount of Rs. 1.85 crores to the liquidator on account of the excess realized money along with 12% interest from the respondent. 

 

# 4. The contentions/submissions of the respondent are summarized hereinafter: 

i. The respondent in accordance with Section 52 on the Insolvency and Bankruptcy Code, 2016 applied to the liquidator to realize its security with respect to the long-term loan facility and accordingly the Secured Creditor proceeded to realize its security in accordance with such provision. 

 

ii. Reference is made to Section 52 of Insolvency and Bankruptcy Code, 2016 while stating from a perusal of the said Section it is apparent that the Secured Creditor is entitled to realize its security interest and apply the proceeds to recover the debts due to it and tender to the liquidator any surplus funds which is in excess of the debts due. The Provision nowhere talks about the claim filed by the Secured Creditor with the liquidator but specifically provides for realization towards “debts due to it,” The term “debt” has been defined in Section 3(11) of the Code as follows: “debts means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt” Furthermore “financial debt” has been defined under Section 5(8) which inter alia reads as follows: 

• “financial debt” means a debt along with interest, if any, which is disbursed against the consideration for the time value of money and includesa. Money borrowed against the payment of interest; 

• b. Any amount raised by acceptance under any acceptance credit facility or its dematerialised equivalent; 

• c. Any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument; 

• d. The amount of any liability in respect of any lease or hire purchase contract which is deemed as a finance or capital lease under the Indian Accounting Standards or such other accounting standards as may be prescribed; 

• e. Receivables sold or discounted other than any receivables sold on non-recourse basis; 

• f. Any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of a borrowing.

 

iii. The calculation of interest is part and parcel of the definition of debts as stated hereinabove, as such the Secured Creditor is at full liberty to charge interest while recovering its dues under Section 52 and there can be no contrary interpretation of the same. Moreover, Section 35 of the Code, enumerates the Powers and Duties of the Liquidator. Sub-Clause (j) of the provision reads as follows: 

• “(j) to invite and settle claims of creditors and claimants and distribute proceeds in accordance with the provisions of the Code”. 

 

iv. Reliance is also placed on Regulation 37 of Insolvency and Bankruptcy Board of India (Liquidation Process) Regulation 2016 and it has been argued that it is undisputed that the procedure is laid down in the said  Regulation has been duly followed by the Respondent in realizing its security interest and that there are no lacunae in the same. It is stated that there is nothing either in the Code or in the Regulation which states that the Secured Creditor is not entitled to recover its interest as accrued from the date of liquidation while realizing its security interest. Further, the Code neither provides for or empowers the liquidator to restrain a secured financial creditor from charging interest from the date of its filing its claim on the liquidation commencement date till such time the secured asset is sold by such financial creditor outside the liquidation estate in due adherence and compliance with the law.

 

v. In course of the proceedings, the Respondent Bank has also brought on record various security and loan documents executed between the parties i.e. the Respondent Band and the Corporate Debtor, viz. the sanction letter, Term Loan Agreement, Demand Promissory Note as well as Deed of Hypothecation. The Respondent Bank, in course of its submissions has further highlighted and established before this Tribunal that the right of the bank, being a secured Financial Creditor, is envisaged in terms of the contracts executed by and between the parties, which are valid and enforceable. Neither does the Code regulate nor does the Code provide or delegate powers and/or authority to the liquidator to restrain or restrict the Creditor from charging interest for the period after filing of Form D and actually enforcing its security interest and realizing its debt due in accordance with law. It has been established that the Respondent Bank, under civil laws, are governed by the contractual obligations and is otherwise entitled to charge pre-suit interest, pendente lite interest as well as post-suit interest till such date the debts due and payable are repaid in their entirety unless specifically restricted by the Code or its Regulations laid down thereunder.

 

vi. Reliance is placed on the judgment of the Hon’ble Supreme Court of India in C.K. Saskan vs. Dhanlakshmi Bank Limited [(2009) 11 SCC 60] [Paragraph Nos. 12 to 15] where the Hon’ble Supreme Court of India had held that interest can be awarded in terms of an agreement or statutory provisions as well as by reason of usage, trade having the force of law or an equitable consideration and had further awarded interest pendente lite and future interest which it found, just proper and reasonable. 

 

vii. Regulation 21A of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 is not applicable in the present case as this Regulation was brought subsequent to Liquidation proceedings initiated in the present case on 21st of August, 2018.  

 

viii. It is also contended on behalf of the respondent the difference in amounts between form C and D is by way of interest that accrued in the meantime. The rate has been charged at the contractual rate of interest. The filing of a claim before the liquidator in form D does not preclude or prevent or stand in the way of respondent for claiming further interest.The claim in Form D was filed on 18th of September, 2018 together with up-to-date interest. The sale of secured assets of respondent took place on 22nd of October, 2020 in respect to the properties and the sale proceeds were received on 22nd of October, 2020 and 14th of January, 2021 respectively. The respondent during the interregnum period was entitled to continue charge interest charges and costs which the respondent has done in the present case. The interest charged by the respondent is period from date of filing form D till the date of realization of money by respondent. The Form D does not restrict in any manner or relation the future claims of the respondent on account of interest cost and charges. 

 

ix. The above contentions referred in paragraphs have been raised by respondent in its reply affidavit in paragraphs I, J, K and paragraph 8. 

 

x. In paragraph 10 of reply affidavit respondent has denied that the date has been crystallized on the liquidation commencement date and no other or future claim on account of interest was recoverable by the respondent. 

 

# 5. We have heard the Ld. Counsel for the parties and perused the application on the record produced before us along with the pleadings.We find that:

a. The issue that arises out the respective contentions of the parties as referred hereinafter is to see whether the plea of respondent, “neither does the Code regulate nor does the Code provide or delegate powers and/or authority to the liquidator to restrain or restrict the Creditor from charging interest for the period after filing of Form D and actually enforcing its security interest and realizing its debt due” is correct or not. 

 

b. According to the applicant as contended in paragraph 18, it could only be till the commencement of liquidation whereas as per the respondent which could raise its claims in the form of interest etc. till actual realization. 

 

c. For analysing submission on behalf of the Bank and to decide the issue in hand, it is relevant to refer to Chapter IV Regulation 12 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulation 2016 reproduced hereinafter; 

• CHAPTER IV. 

• 12. Public announcement by liquidator—

• (1) The liquidator shall make a public announcement in Form B of Schedule II within five days from his appointment. 

• (2) The public announcement shall- (a) Call upon stakeholders to submit their claims or update their claims submitted during the Corporate Insolvency Resolution Process, as on the liquidation commencement date; and (b) Provide the last date for submissions or updation of claims, which shall be thirty days from the liquidation commencement date.

 

# 6. We also notice, on the date of commencement of liquidation in present case on 21-08-2018, position of this part of Regulation prior to the substitution ( On 27-07-2019) stood as hereinbelow. 

• “(2) The public announcement shall— Call upon stakeholders to submit their claims as on the liquidation commencement date; and Provide the last date for submission of claim, which shall be thirty days from the liquidation commencement date.” (Emphasis supplied). 

 

# 7. Therefore, a plain reading of even the previous regulation, prior to 25-07- 2019,makes clear that it is the date of commencement of liquidation and 30 days thereafter which is time limit and stage for submission of the claims by stakeholders. Admittedly, respondent submitted his claims in form D. Now we see from Form D (Proof of claims of Financial Creditors) or Form C (Proof of claim of operation creditor except workmen and employees), part of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016, there is column 3 which prescribes 

• ‘Total amount of Claim. Including Interest as at the Liquidation Commencement Date and details of nature of claim (Whether Term Loan, Secured Unsecured)” 

 

# 8. From the above we conclude that: 

a. All claims including interest have to be raised in Form C or D as applicable. 

 

b. Further for raising any such claims by stakeholders, Regulation 12 Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016, prescribes outer limit of thirty days from the date of commencement of Liquidation. This is further evident from Form B wherein the claims are invited by the Liquidator wherein time for submission of these claims is thirty days.

 

c. Thus, plea of respondent neither does the Code regulate nor does the Code provide or delegate powers and/or authority to the liquidator to restrain or restrict the Creditor from charging interest for the period after filing of Form D and actually enforcing its security interest and realizing its debt due is in-correct, contrary to provisions/regulations of the Code, indicated above and the same is, therefore, rejected. 

 

d. There are various stages of process of liquidation under the Regulations apart from inviting claims and for which time lines have been prescribed with a view to achieve objective of the Code. 

 

# 9. For the foregoing reasons, we allow this IA and direct the respondent bank to pay an amount of Rs. 1.84 crores to the liquidation estate along with interest @ 6% on this amount from 1st of April, 2021, till the date of its actual payment by the respondent to the liquidation estate. IA 883/KB/2021 is disposed of and CP No.482/KB/2017 is listed for progress report on 29 August, 2022. 

 

# 10. Certified copy of this order may be issued, if applied for, upon compliance of all requisite formalities. 

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