2020 (3) TMI 705 - AT - Insolvency and Bankruptcy

Directions sought for keeping the mortgaged assets out of liquidation of the 'Corporate Debtor' - section 60(5)(c) of the 'Insolvency and Bankruptcy Code, 2016' - whether the Appellant, who is a 'Secured Financial Creditor', while opting out of liquidation process under section 52(1)(b) of the 'I B Code' is barred from selling the secured assets to the 'Promoters' or its related party or the persons who are ineligible in terms of section 29A of the I B Code? HELD THAT - It is clear that a Member, Shareholder/Promoter whoever is ineligible under section 29A cannot take over the 'Corporate Debtor' by way of arrangement and scheme under sections 230-232 of the Companies Act - From sub-section (4) of section 52, it is clear that secured creditor is entitled to enforce, realise, settle, compromise or deal with the secured assets in accordance with such law as applicable to the security interest being realised and to the secured creditor and apply the proceeds to recover the debts due to it. In terms of 'I B Code' the secured assets and the interest of the secured creditor to recover the proceeds of debts due to it has not been specifically prescribed, it does not make that the procedure prescribed under the 'SARFAESI Act, 2002' will be applicable to secured creditor to sale the proceeds. Even if section 52(4) is silent relating to 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 - 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'. Section 52 does not create any right in favour of one or other 'secured creditor' to realise its security interest in the manner specified in the said section where the 'secured creditor' realises security interest under clause (b) of section 52 is required to inform the liquidator of such security interest and identify the assets subject to such security interest (section 52(2) of the I B Code). Before security interest is realised by the 'secured creditor' under section 52, the 'Liquidator' is required to verify security interest and permit the secured creditor to realise only such security interest, the existence of which may be proved either by the records of such security interest maintained by an information utility or by such other means as may be specified by the Board (See section 52(3) of the I B Code). If it comes to the notice of the 'Liquidator' that a secured creditor intends to sale the assets, the person who are ineligible person in terms of section 29A, it is always open to reject the application under section 52(1)(b) read with section 52(2) and (3) of the 'I B Code'. There are no merits in the appeal - appeal dismissed.

Summary

Issues:
1. Interpretation of provisions under the Insolvency and Bankruptcy Code regarding the rights of secured creditors in the liquidation process.
2. Determining whether a secured creditor opting out of liquidation is permitted to sell assets to ineligible persons under section 29A.
3. Analysis of the restrictions imposed on the liquidator regarding the sale of assets to ineligible persons.
4. Examination of the powers of the liquidator and secured creditors in enforcing security interests and recovering debts.

Analysis:

Issue 1: The judgment revolves around the interpretation of provisions under the Insolvency and Bankruptcy Code concerning the rights of secured creditors during the liquidation process. The Liquidator filed an application seeking directions regarding the decision of a Secured Financial Creditor, State Bank of India, to keep its mortgaged assets out of the liquidation of the Corporate Debtor.

Issue 2: The primary question in this appeal was whether a Secured Financial Creditor, upon opting out of the liquidation process under section 52(1)(b) of the I&B Code, is prohibited from selling secured assets to ineligible persons under section 29A. The Appellant argued that a secured creditor opting out of liquidation is entitled to realize the security interest as per section 52(4) of the I&B Code.

Issue 3: The judgment delved into the restrictions imposed on the liquidator under section 35(1)(f) of the I&B Code, which prohibits the sale of assets to persons ineligible under section 29A. The objective was to prevent the assets from returning to defaulting parties and to maximize the value of stressed assets, aligning with the goals of the I&B Code.

Issue 4: The analysis also focused on the powers of secured creditors to enforce security interests and recover debts due to them. While the I&B Code does not explicitly prescribe procedures for secured creditors to sell assets, the judgment emphasized that the objective is to maximize the assets of the Corporate Debtor and balance the interests of stakeholders, including financial and secured creditors.

Overall, the judgment clarified that the restrictions on selling assets to ineligible persons apply not only to the liquidator but also to secured creditors opting out of the liquidation process. The decision highlighted the importance of upholding the objectives of the I&B Code and ensuring that the sale of assets aligns with the principles of maximizing asset value and protecting public interest.