2020 (1) TMI 1079 - Tri - Insolvency and Bankruptcy

Permission to Liquidator to cause sale of assets of the Corporate Debtor under Regulation 32 of IBBI (Liquidation Process) Regulations - charge of hypothecation - pari passu nature of charge - liquidator only argument is that the charge of hypothecation is pari passu 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 - HELD THAT - To say that charge is pari passu 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 straight away 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 Respondent regarding machinery.
3. Claim of superior right by Respondent under Section 52 of the Insolvency & Bankruptcy Code.
4. Evaluation of equipment value and entitlement of Respondent.
5. Binding legal situations based on agreement and court orders.
6. Validity of hypothecation charge in favor of Bankers against Respondent's lien.
7. Arbitral award establishing Respondent's lien and charge over assets.
8. Comparison of rights between Respondent and Bankers.
9. Liquidator's argument for pari passu nature of hypothecation charge.
10. Distinction between lien and hypothecation in asset realization.
11. Creditor's liberty under Section 52 of the Code for secured debt.
12. Decision on Respondent's status as a secured creditor under Section 52.
13. Dismissal of the Liquidator's application.

Analysis:
1. The judgment pertains to an application by the Liquidator of a Corporate Debtor seeking permission to sell assets, contested by a Respondent claiming superior rights over machinery due to an Arbitrator's award. The Corporate Debtor's equipment value significantly decreased, leading to a dispute over the Respondent's entitlement under Section 52 of the Insolvency & Bankruptcy Code.

2. The Respondent argued its lien and charge over the machinery, emphasizing its superior right based on the Arbitrator's award. The Liquidator sought liberty to sell assets, citing the pari passu nature of the hypothecation charge created in favor of Bankers, which the Respondent was not party to.

3. The judgment highlighted the binding nature of the Arbitrator's order, establishing the Respondent's lien and charge over the assets, not contested by the Corporate Debtor. The Liquidator's failure to prove the superiority of Bankers' hypothecation charge over the Respondent's rights led to the dismissal of the application.

4. The distinction between lien and hypothecation was crucial in determining the rights of the parties in asset realization. The judgment emphasized the Respondent's status as a secured creditor under Section 52 of the Code, entitling it to realize its security interest over the assets in question.

5. Ultimately, the Tribunal dismissed the Liquidator's application, ruling in favor of the Respondent as a secured creditor with rights under Section 52, thereby preventing the sale of assets specified under Section 53 of the Code unless the Respondent relinquishes its security interest.