2019 (11) TMI 1367 - Tri - Insolvency and Bankruptcy

CIRP proceedings - directions against the sole Respondent namely, M/S. Bharat Heavy Electricals Limited to permit the Liquidator to cause sale of assets of the Corporate Debtor - liquidator only argument is that the charge of hypothecation is paripassu in nature, therefore, liberty shall be granted to the Liquidator to sell the asset of the Corporate Debtor so as to distribute it among the Secured Creditors of the Corporate Debtor - Section 52 of the Insolvency Bankruptcy Code, 2016. HELD THAT - To say that charge is paripassu in nature, the Liquidator has to establish that the character of charge of lien created in favour of BHEL over the machinery entailed in this issue, and the character of hypothecation are of the same character. But, in the case of lien, it is deemed that the asset is lying with the lien holder, whereas in the case of hypothecation, it is construed that asset is lying with the borrower. In the case of hypothecation, the creditor has to seek possession and realisation, whereas in the case of lien, the creditor can straightaway realise from the asset and can put restraint upon the asset not to deal with it unless debt is cleared. Whenever any lien is created, the person having right of lien has a right to enforce the same against the asset in preference to charge of hypothecation. As to relief under section 52 of the Code, when debt is secured, the creditor is always at liberty to proceed u/s 52 of the Code under liquidation. That right cannot be whittled down by the RP by filing an application to enable him to treat it as an asset falling under section 53 of the Code. This Bench having considered that BHEL is a secured creditor entitled to proceed under section 52 to realise its security interest over the asset - the Applicant/Liquidator cannot cause the sale of the asset falling under section 52 in the manner specified under section 53 of the Code unless charge holder relinquishes the security interest. Application dismissed.

Summary

Issues:
1. Liquidator seeking directions for sale of assets of Corporate Debtor.
2. Dispute between Corporate Debtor and BHEL regarding machinery.
3. Assessment of equipment value.
4. BHEL's entitlement to claim relief under Section 52 of the Insolvency & Bankruptcy Code.
5. Binding legal situations based on agreement or court order.
6. Creation of charge in favor of Bankers not binding on BHEL.
7. Arbitrator's order binding on Corporate Debtor.
8. Superiority of BHEL's right over Bankers' hypothecation right.
9. Liquidator's argument for paripassu nature of hypothecation.
10. Comparison of lien and hypothecation.
11. Creditor's liberty under Section 52 of the Code.
12. BHEL's status as a secured creditor under Section 52.
13. Dismissal of the application.

Detailed Analysis:

1. The judgment pertains to an application filed by the Liquidator of a company under liquidation seeking directions to sell assets of the Corporate Debtor. The Liquidator sought permission based on the consent of a majority of Secured Creditors.

2. A dispute arose between the Corporate Debtor and BHEL regarding machinery. An Arbitrator's award declared BHEL as an unpaid seller with a lien over the equipment and charge over facilities, giving BHEL superior rights under the Insolvency & Bankruptcy Code.

3. The equipment's initial value was assessed at a significant amount, but its current worth has decreased substantially, impacting the proceedings.

4. BHEL claimed entitlement to relief under Section 52 of the Code, citing its secured status and the Arbitrator's award reinforcing its position.

5. The judgment emphasized that parties are bound by agreements or court orders. The Arbitrator's order regarding BHEL's rights over the assets was deemed binding on the Corporate Debtor.

6. The creation of a charge in favor of Bankers did not bind BHEL, as it was not a party to the hypothecation deed, highlighting the distinct rights of different creditors.

7. The Arbitrator's order regarding BHEL's lien and charge over assets was upheld as binding on the Corporate Debtor, as it remained unchallenged.

8. The judgment did not delve into the comparison of BHEL's rights with those of Bankers due to the absence of relevant arguments from the Liquidator.

9. The Liquidator argued for the paripassu nature of hypothecation, seeking permission to sell assets for equitable distribution among Secured Creditors.

10. The judgment discussed the differences between lien and hypothecation, emphasizing the enforcement rights and positions of creditors in each scenario.

11. Creditors, when secured, have the liberty to proceed under Section 52 of the Code during liquidation, preserving their rights to realize security interests.

12. BHEL was recognized as a secured creditor under Section 52, allowing it to enforce its security interest over the assets in question, preventing the sale without relinquishing security interests.

13. Consequently, the application was dismissed by the Bench, concluding the legal proceedings without imposing any costs on the parties involved.