2018 (3) TMI 232 - Tri - Insolvency and Bankruptcy

Corporate Insolvency Resolution Process - secured creditors right to deal with the secured assets - Held that - In the instant application, the Insolvency Resolution Process is completed and a Liquidator has been appointed and the Corporate Debtor is undergoing the liquidation process. Therefore, the question of secured creditors right to deal with the secured assets, cannot be questioned by the Liquidator on account of application of moratorium, for the period, which has been already expired. But the Liquidator has got every right to have verification of security interests and the account. Here, in this application, the Bank does not interfere the right of the Liquidator regarding the verification of the security interests held by the Bank. Subject to section 52(7) of the code the secured creditor can proceed with the remedy available to have recourse with the secured assets in accordance with Law for the time being in force. That being so, no directions interfering the right of a secured creditor can be passed in a case of this nature. Since the secured creditor already initiated action under section 13 of the SARFAESI Act, this Adjudicating Authority Cannot issue direction against the Bank holding that the Liquidator can have any manner of control over the assets secured to the Bank. However, the liquidator s right to verify the account and participation in the sale proceedings if any to be initiated by the Bank so as to see the interest of workmen dues is to be safeguarded and to see whether any surplus comes out of the sale cannot be interfered by the Bank. Upon the above said observation this application is liable to be dismissed.

Summary

Issues Involved:
1. Jurisdiction of the Liquidator over the Escrow Account and secured assets.
2. Compliance of the Bank with the Liquidator's directions.
3. Rights of the secured creditor under Section 52 of the Insolvency & Bankruptcy Code, 2016.
4. Applicability of the moratorium period under Section 14 of the Insolvency & Bankruptcy Code, 2016.
5. Priority of claims under Section 53 of the Insolvency & Bankruptcy Code, 2016.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Liquidator over the Escrow Account and secured assets:
The Liquidator filed an application under Section 35 of the Insolvency & Bankruptcy Code, 2016, seeking directions for J & K Bank to transfer control of the Escrow Account and appropriated amounts to the Liquidator. The Liquidator argued that under Section 35(l)(b), he is empowered to take custody and control of the assets of the corporate debtor, including the secured assets of the Bank.

2. Compliance of the Bank with the Liquidator's directions:
The Liquidator contended that the Bank failed to comply with his directions to transfer amounts recovered from the Escrow Account during the moratorium period. The Bank argued that it had exclusive control over the Escrow Account due to a Facility Agreement and that the moratorium under Section 14 did not apply to its actions.

3. Rights of the secured creditor under Section 52 of the Insolvency & Bankruptcy Code, 2016:
The Bank maintained that it had the right to enforce its security interests outside the liquidation process under Section 52(4) of the Insolvency & Bankruptcy Code, 2016, and the SARFAESI Act. The Tribunal acknowledged that the Bank's rights to deal with the secured assets fall under Section 52(4), which allows secured creditors to enforce and realize their security interests according to applicable laws.

4. Applicability of the moratorium period under Section 14 of the Insolvency & Bankruptcy Code, 2016:
The Tribunal noted that the moratorium period, which prohibits enforcement of security interests, was effective only until the completion of the Insolvency Resolution Process. Since the process was completed and the Corporate Debtor was undergoing liquidation, the moratorium no longer applied. The Bank's actions during the moratorium were known to the Liquidator, and no application was filed to prevent the Bank's operation and maintenance of the windmills.

5. Priority of claims under Section 53 of the Insolvency & Bankruptcy Code, 2016:
The Tribunal discussed the priority of claims under Section 53, noting that secured creditors who relinquish their security interests are given priority along with workmen's dues. However, the Bank chose to stay outside the liquidation process and did not relinquish its security interests. Therefore, the Bank's claim did not have priority over other claimants, including government dues.

Conclusion:
The Tribunal concluded that the secured creditor, J & K Bank, had the right to enforce its security interests outside the liquidation process under Section 52 of the Insolvency & Bankruptcy Code, 2016, and the SARFAESI Act. The Liquidator's application to take control of the Escrow Account and secured assets was dismissed, but the Liquidator retained the right to verify the security interests and participate in the sale proceedings to safeguard the interests of workmen and ensure any surplus from the sale was accounted for.