2025 (3) TMI 1070 - AT - IBC

Objection to the decision of Liquidator to include the Haldia property in the Liquidation Estate - HELD THAT - The present is a case where no steps were taken by the Appellant under Regulation 37 and at no point of time even a communication was sent by the Appellant to the Liquidator for informing about the estimated amount required to be paid under Regulation 21A (2) (a). As noted above the Applicant as a secured creditor was to make payment under sub- regulation (2) of Regulation 21A within 90 days from the liquidation commencement date. When obligation is linked with the time period the Appellant cannot fall back on the argument that the Liquidator has not communicated the estimated amount to the secured creditor. When secured creditor at no point of time even asked for estimated amount from the Liquidator and no steps were taken under Regulation 37 by the Appellant it is not open for the Appellant to contend that Regulation 21A sub-regulation (2) shall not apply since he was not communicated the estimated amount by the Liquidator. The second proviso clearly protects the interest of the secured creditor to the extent that if there is any difference between the amount payable under sub-regulation (2) and the amount paid under the first proviso the Liquidator or the creditor as the case may be is to do the needful. Thus even if a secured creditor who does not write to the Liquidator for any estimation or Liquidator does not send any estimate and any amount is paid by the secured creditor he is well protected by second proviso and thus the secured creditor cannot fall back on the argument that Liquidator having never communicated the estimated amount sub- regulation (2) of Regulation 21A is not attracted. The view taken by the Liquidator as well as by the Adjudicating Authority that by virtue of sub-Regulation 2 of Regulation 21A Haldia Unit is also part of the Liquidation Estate of the CD is correct and cannot be faulted. It appears that SCC in its Meeting dated 03.02.2024 has declared the Halder Venture Ltd. as successful bidder. Halder Venture has submitted the EMD of Rs.5, 71, 00, 000/- on 30.01.2024. We have already noticed that as per the SCC decision auction of Haldia Unit was subject to order passed by NCLT in MA 03 of 2023 which MA remained pending till the order was passed by the Adjudicating Authority on 16.02.2024. It is further relevant to notice that Liquidator on non-payment of entire amount by Halder Venture has proceeded to issue fresh Sale Notice for auction to be held on 30.08.2024. It has been submitted before us that no bidder came forward and no auction has yet taken place of the units. Conclusion - i) The Appellant s failure to comply with Regulation 21A resulted in the Haldia property becoming part of the Liquidation Estate affirming the Liquidator s actions. ii) The secured creditors must actively comply with the requirements of the IBBI regulations to retain their security interests during liquidation. iii) The successful bidder Halder Venture Ltd. is allowed to complete the purchase of the Haldia property by depositing the balance amount with interest recognizing the bidder s readiness to fulfill its obligations. Appeal dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment include:

• Whether the Appellant, Phoenix ARC Pvt. Ltd., properly retained its security interest in the Haldia property during the liquidation process of KS Oils Ltd., or if the property became part of the Liquidation Estate due to non-compliance with relevant regulations.
• Whether the Liquidator acted correctly in including the Haldia property in the Liquidation Estate and proceeding with its sale.
• Whether the successful bidder, Halder Venture Ltd., should be allowed to complete the purchase of the Haldia property despite delays in payment.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Retention of Security Interest by Phoenix ARC Pvt. Ltd.

• Relevant legal framework and precedents: The issue revolves around the interpretation of Section 52 of the Insolvency and Bankruptcy Code (IBC) and Regulation 21A of the IBBI (Liquidation Process) Regulations, 2016, which governs the relinquishment or realization of security interests by secured creditors during liquidation.
• Court's interpretation and reasoning: The Court emphasized that the secured creditor must comply with Regulation 21A, which requires the creditor to pay certain amounts within specified timeframes to retain its security interest. The Appellant failed to comply with these requirements, leading to the presumption that the Haldia property became part of the Liquidation Estate.
• Key evidence and findings: The Appellant did not pay the amounts required under Regulation 21A(2) within the stipulated 90 days from the liquidation commencement date, nor did it communicate any intention to do so.
• Application of law to facts: The Appellant's failure to comply with the regulatory requirements resulted in the Haldia property being treated as part of the Liquidation Estate, as per the presumption under Regulation 21A(3).
• Treatment of competing arguments: The Appellant argued that it was not informed of the estimated amounts by the Liquidator; however, the Court noted that the Appellant did not request such information or take necessary steps under Regulation 37.
• Conclusions: The Court concluded that the Appellant's non-compliance with Regulation 21A resulted in the inclusion of the Haldia property in the Liquidation Estate.

Issue 2: Liquidator's Actions and Sale of Haldia Property

• Relevant legal framework and precedents: The actions of the Liquidator are governed by the IBBI (Liquidation Process) Regulations, particularly Regulations 21A and 37, which outline the process for realizing security interests and conducting sales during liquidation.
• Court's interpretation and reasoning: The Court found that the Liquidator acted within the legal framework by including the Haldia property in the Liquidation Estate due to the Appellant's non-compliance with the regulations.
• Key evidence and findings: The Liquidator issued multiple sale notices for the Haldia property, and the property was eventually sold to Halder Venture Ltd. for Rs.57.10 crores, which was consistent with the estimated value.
• Application of law to facts: The Liquidator's actions were consistent with the requirements of the IBBI regulations, and the sale process was conducted with the concurrence of the Stakeholder Consultation Committee (SCC).
• Treatment of competing arguments: The Appellant's objections to the sale were dismissed due to its failure to comply with the regulatory requirements.
• Conclusions: The Court upheld the Liquidator's decision to include the Haldia property in the Liquidation Estate and proceed with its sale.

Issue 3: Completion of Sale to Halder Venture Ltd.

• Relevant legal framework and precedents: The completion of the sale is subject to the terms of the auction and the ability of the successful bidder to fulfill payment obligations.
• Court's interpretation and reasoning: The Court considered the willingness of Halder Venture Ltd. to complete the purchase by paying the balance amount with interest and the precedent set by the Supreme Court regarding the extension of payment timelines.
• Key evidence and findings: Halder Venture Ltd. had submitted the Earnest Money Deposit (EMD) and expressed readiness to pay the remaining amount with interest.
• Application of law to facts: The Court found sufficient cause to allow Halder Venture Ltd. to complete the purchase by depositing the balance amount with interest within 30 days.
• Treatment of competing arguments: The Court balanced the interests of the Liquidator and the successful bidder, considering the lack of other bidders and the legal framework for extending payment timelines.
• Conclusions: The Court permitted Halder Venture Ltd. to complete the purchase of the Haldia property by paying the balance amount with interest.

3. SIGNIFICANT HOLDINGS

• The Court held that the Appellant's failure to comply with Regulation 21A resulted in the Haldia property becoming part of the Liquidation Estate, affirming the Liquidator's actions.
• The Court established that secured creditors must actively comply with the requirements of the IBBI regulations to retain their security interests during liquidation.
• The Court allowed the successful bidder, Halder Venture Ltd., to complete the purchase of the Haldia property by depositing the balance amount with interest, recognizing the bidder's readiness to fulfill its obligations.