2021 (4) TMI 1143 - Tri - Insolvency and Bankruptcy

Recovery proceedings for recovery of loan - Corporate Debtor failed to make repayment of its dues and has been declared as Non Performing Asset - It was submitted by the Learned Senior Counsel for the Applicant that the Applicant being a secured creditor has expressed his willingness to stand outside the purview of liquidation proceedings under Section 52 of IBC, 2016 - Effect of amended Regulation 21A of the IBBI (Liquidation Process) Regulations, 2016 which came into force on 06.01.2020, retrospective or prospective - possession of the entire Unit VII comprising of 164.05 acre, when they purportedly have security interest over only 85 acre of land. Whether the amended Regulation 21A of the IBBI (Liquidation Process) Regulations, 2016 which came into force on 06.01.2020 can be given retrospective effect? - HELD THAT - The IBBI vide its Circular No. IBBI/LIQ/024/2019 dated 26.08.2019, upon saddled with queries from the stakeholders with respect to the applicability of the amended regulations to the Liquidation process, has clarified that the Amended Regulations are not applicable to the Liquidation Processes, which had commenced before coming into force of the said Amended Regulations and that they are applicable only to the Liquidation processes, which commenced on or after the said Amended Regulations came into force. Thus, this circular amply clarifies the issues as to the prospective applicability of the Amended Regulations to the Liquidation process of the Corporate Debtor - since the Liquidation process in relation to the Corporate Debtor has commenced on 25.04.2018, the IBBI (Liquidation Process) Regulations, 2016, which was prevalent at that point of time only will apply to the facts and circumstances of the present case. Whether the Applicant is entitled to claim the possession of the entire Unit VII comprising of 164.05 acre, when they purportedly have security interest over only 85 acre of land? - HELD THAT - Once the Secured Creditor has expressed his willingness to stand outside the liquidation process, the Liquidator cannot have any hold over the said property and as such the property over which the secured creditor exercises his security interest would not form part of the 'Liquidation Estate' and the Liquidator is duty bound to hand over the physical possession of the said property to the Secured Creditor. However, it is to be noted here that to enforce the 'security interest' under Section 52(1)(b), the Creditor must either have 'exclusive charge' or 'sole first charge', which would enable it to enforce its 'security interest' - in view of the documents not being placed on record in order to substantiate the fact as to which property the Applicant is having 'exclusive charge' and 'sole first charge', this Tribunal hereby directs the Liquidator to identify the properties over which the Applicant is having 'exclusive charge' or 'sole first charge' and to hand over the physical possession of the same to the Applicant in order to exercise their security interest. It is also made clear that the properties over which the Applicant is having 'second charge' or 'pari passu' charge is to be held within the possession of the Liquidator and necessarily the said property forms part of the 'Liquidation Estate'. Application disposed off.

Summary

Issues Involved:
1. Retrospective application of amended Regulation 21A of the IBBI (Liquidation Process) Regulations, 2016.
2. Entitlement of the Applicant to claim possession of the entire Unit VII comprising 164.05 acres.

Issue-Wise Analysis:

1. Retrospective Application of Amended Regulation 21A:
The Tribunal examined whether the amended Regulation 21A of the IBBI (Liquidation Process) Regulations, 2016, which came into force on 06.01.2020, could be applied retrospectively. The Tribunal noted the cardinal principle that statutes are prospective unless explicitly stated otherwise. The IBBI had clarified through Circular No. IBBI/LIQ/024/2019 dated 26.08.2019 that amended regulations apply only to liquidation processes commencing after the amendments. Since the liquidation process for the Corporate Debtor commenced on 25.04.2018, the Tribunal concluded that the regulations in effect at that time would apply, not the amended Regulation 21A.

2. Entitlement to Claim Possession of Unit VII:
The Tribunal considered whether the Applicant, a secured creditor, could claim possession of the entire Unit VII when their security interest purportedly covered only 85 acres. The Tribunal referred to Regulation 37 of the IBBI (Liquidation Process) Regulations, 2016, which outlines the process for a secured creditor to realize its security interest. The Applicant had chosen to enforce its security interest under the SARFAESI Act, 2002, as per Section 52(1)(b) of the IBC, 2016, rather than relinquishing it under Section 53.

The Tribunal noted that to enforce security interest under Section 52(1)(b), the creditor must have an "exclusive charge" or "sole first charge." The Applicant claimed exclusive and pari passu charges over various portions of the property but failed to provide documentary evidence to substantiate these claims. Consequently, the Tribunal could not determine the specific parcels of land over which the Applicant had exclusive or sole first charge.

The Tribunal directed the Liquidator to identify the properties over which the Applicant had exclusive or sole first charge and to hand over possession of these properties to the Applicant. Properties over which the Applicant had second or pari passu charge would remain with the Liquidator and form part of the liquidation estate.

Additional Considerations:
The Tribunal also addressed the concerns of the 2nd Respondent, who argued that selling the 85 acres and 41.40 acres separately would reduce the value of the latter. The Tribunal acknowledged the need to maximize the value of the assets and directed that the properties be sold together if possible.

Conclusion:
The Tribunal ruled that the amended Regulation 21A of the IBBI (Liquidation Process) Regulations, 2016, could not be applied retrospectively to the liquidation process of the Corporate Debtor, which commenced before the amendments. The Tribunal also directed the Liquidator to identify and hand over possession of properties to the Applicant where they had exclusive or sole first charge, while properties with second or pari passu charge would remain part of the liquidation estate. The application was disposed of with these directions.