NCLT Mumbai (08.04.2019) in SBI Global Factors Ltd. vs. Sanaa Syntex Private Limited (MA 1123 /2018 in CP No.172 /IBC/NCLT/MB/MAH/2017) held that; (i). secured creditor is not required to share proceeds of realization of security interest with workmen, (ii). S. 29A is applicable to liquidation proceedings in a situation when the Secured creditor realises the security interest on its own.
“# 5. On perusal of the prayers made in this application, three pertinent questions come up for consideration of this Bench:
i. Whether SBI, the Financial Creditor is legally entitled to stay out of liquidation?
ii. Whether there is any bar on the Secured Creditor to sell the assets to erstwhile promoters/directors of the Corporate Debtor, if the secured creditor opts out of liquidatio OR.
Whether S. 29A is applicable to liquidation proceedings in a situation when the Secured creditor realises the security interest on its own?
iii. Whether the Secured Creditor exercising his right U/s 52(1)(b) of the Code has to make payment of workmen’s dues out of the amount realised from the sale of such secured assets as the EPF/workmen’s dues, which do not form part of the liquidation estate?
# 7. On careful reading of the above provisions (section 52), it is implicit that the rights of a secured financial creditor are protected by giving him an option to take away the assets secured with him out of liquidation. In such a scenario, the secured creditor has a liberty to realise its security interest on its own. All that has to be seen by the liquidator at this juncture is that whether the secured creditor is complying with the provisions of above subsection 3 of section 52 i.e. the records of such security interest maintained by an information utility and whether the Secured Creditor is complying with Regulation 37 of the IBBI (Liquidation Process), Regulations, 2016:
“37. Realization of security interest by secured creditor
(1) A secured creditor who seeks to realize its security interest under section 52 shall intimate the liquidator of the price at which he proposes to realize its secured asset.
(2) The liquidator shall inform the secured creditor within twenty one days of receipt of the intimation under sub-regulation (1) if a person is willing to buy the secured asset before the expiry of thirty days from the date of intimation under sub-regulation (1), at a price higher than the price intimated under sub-regulation (1).
(3) Where the liquidator informs the secured creditor of a person willing to buy the secured asset under sub-regulation (2), the secured creditor shall sell the asset to such person.
(4) If the liquidator does not inform the secured creditor in accordance with sub-regulation (2), or the person does not buy the secured asset in accordance with sub-regulation (2), the secured creditor may realize the secured asset in the manner it deems fit, but at least at the price intimated under sub-regulation (1).
(5) Where the secured asset is realized under sub-regulation (3), the secured creditor shall bear the cost of identification of the buyer under sub-regulation (2).
(6) Where the secured asset is realized under sub-regulation (4), the liquidator shall bear the cost of incurred to identify the buyer under sub-regulation (2).
(7) The provisions of this Regulation shall not apply if the secured creditor enforces his security interest under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002) or the Recovery of Debts and Bankruptcy Act, 1993 (51 of 1993).”
# 8. However, Sub-regulation (7) of the above said Regulation 37 (Liquidation Process) mentions that the provisions of regulation 37 shall not apply if the secured creditor enforces his security interest under SARFAESI Act, 2002 or RDDB Act, 1993. In the present case, SARFAESI proceedings are already initiated, hence, the Secured Creditor SBI is not even under an obligation to tell the liquidator the estimate of the amount that can be realized from sale of secured assets as per Regulation 37 stated above. Therefore, all SBI has to prove to the liquidator is that there was some property which was secured with itself against the loan granted.
# 11. Therefore, it is an undisputed assertion that the secured creditor’s rights have to be protected and respected. They must have the choice of taking their collateral and selling it on their own. Hence, the first question with respect to the secured creditor opting out of the liquidation estate, stands answered in the affirmative.
# 17….... Although the applicant/Liquidator has placed reliance on the judgement dated 12.09.2018 in the matter of Precision Fasteners V. EPF, passed by NCLT Mumbai in MA 576&752 of 2018 in CP No.1339/2017, wherein it was held that “All sums due to any workman or employee from the provident fund, pension fund and gratuity fund, shall not be a part of the liquidation estate and shall not be used for recovery in liquidation”. But this decision is in context of the rights of the employees and not in the context of the restriction imposed U/s 53(1)(b)(ii). This judgement is therefore, not applicable in the present context because of a common understanding that the EPF dues are not being treated as the assets to be covered in the liquidation estate, however, the same are the liability of the Corporate Debtor which has to be paid by the liquidator as per S. 53 of the Code, and not by the secured creditor out of the proceeds from the sale of secured assets if exercised their option U/s 52(1)(b) of the Code. Hence, this prayer of the applicant is rejected on above findings. Question (iii) is answered in negative.”
19. Hence, the intent of the legislature is quite clear and what is allowed by law or what is debarred by the law must not be misconstrued and interfered with. Therefore, MA 1123 of 2018 submitted by the liquidator is Partly Allowed by granting permission to the Secured Creditors to opt out of the Liquidation process, however, hereby imposing a bar on the secured creditors to sell the assets of the Corporate Debtor to disqualified persons U/s 29A. As far as the question of EPF dues to be paid by secured creditor moving out of liquidation is concerned, the same is out of the ambit of Sec 53 of the Code, hence, rejected.
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Blog; Secured Creditor - Distribution of funds during Liquidation process
In the appeal preferred by SBI, the Hon’ble NCLAT (18.11.2019) in State Bank of India Vs. Anuj Bajpai (Liquidator) [CA (AT) (Insolvency) No. 509 of 2019] inter-alia held that if during the liquidation process assets cannot be sold to a person who is ineligible under Section 29A, the said provision only applicable to the ‘Liquidator’ but also to the ‘secured creditor’, who opt out of Section 53 to realise the claim in terms of Section 52(1)(b) read with Section 52(4) of the IBC.
ReplyDelete# 15. Even if Section 52(4) is silent relating to the sale of secured assets to one or other persons, the Explanation below Section 35(1)(f) makes it clear that the assets cannot be sold who are ineligible under Section 29A,
# 16. If during the liquidation process assets cannot be sold to a person who is ineligible under Section 29A, the said provision only applicable to the ‘Liquidator’ but also to the ‘secured creditor’, who opt out of Section 53 to realise the claim in terms of Section 52(1)(b) read with Section 52(4) of the ‘I&B Code’.