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TMI Blog2019 (5) TMI 401X X X X Extracts X X X X X X X X Extracts X X X X ..... SARFAESI Act, 2002 or RDDB Act, 1993. In the present case, SARFAESI proceedings are already initiated, hence, the Secured Creditor SBI is not even under an obligation to tell the liquidator the estimate of the amount that can be realized from sale of secured assets as per Regulation 37 stated above. Therefore, all SBI has to prove to the liquidator is that there was some property which was secured with itself against the loan granted. The secured creditor s rights have to be protected and respected. They must have the choice of taking their collateral and selling it on their own. Hence, the first question with respect to the secured creditor opting out of the liquidation estate, stands answered in affirmative. Whether Section 29A is applicable to liquidation proceedings in a situation when the Secured creditor realises the security interest on its own? - HELD THAT:- The Hon ble legislatures were very much aware about this attempt of the defaulters to indirectly take control of the stressed assets, therefore, restriction was imposed in the Proviso annexed to sub-section f of S. 35(1). As far as s. 52 is concerned, the scope is limited to grant rights to a Financial Creditor fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 - Mr M.K. Shrawat, Member (J) For The Applicant : Adv. Khushboo Shah Rajani a/w Ayush J. Rajani a/w Anuj Bajpai, Liquidator For The Respondent : Mr. Shailendra Joshi ORDER Per: M. K. Shrawat, Member (J) 1. The Corporate Insolvency Resolution Process of Sanaa Syntex Private Limited (the Corporate Debtor) began on 22.08.2017, pursuant to admission of Section 7 application (CP 172/I BP/NCLT/MB/2017) filed by a Financial Creditor State Bank of India. The Corporate Debtor could not be revived and Liquidation order was passed on 19.07.2018. Consequently, Mr. Anuj Bajpai was appointed as the Liquidator. 2. The present Miscellaneous Application has been preferred under section 60(5)(c) of I BC by the said Liquidator, seeking necessary directions of this Tribunal on decision of Secured Financial Creditor, State Bank of India to keep its mortgaged assets out of liquidation of the Corporate Debtor. The reliefs sought under this application are as under: i. Directions to SBI that in case they want to opt out of liquidation, no contravention of Section 35(1)(f) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his right U/s 52(1)(b) of the Code has to make payment of workmen s dues out of the amount realised from the sale of such secured assets as the EPF/workmen s dues, which do not form part of the liquidation estate? 6. To answer these questions, it is worth to examine Section 52 , hence reproduced herein below:- 52. Secured creditor in liquidation proceedings: (1) A secured creditor in the liquidation proceedings may- (a) relinquish its security interest to the liquidation estate and receive proceeds from the sale of assets by the liquidator in the manner specified in section 53; or (b) realise its security interest in the manner specified in this section. (2) Where the secured creditor realises security interest under clause (b) of sub-section (1), he shall inform the liquidator of such security interest and identify the asset subject to such security interest to be realised. (3) Before any security interest is realised by the secured creditor under this section, the liquidator shall verify such security interest and permit the secured creditor to realise only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red financial creditor are protected by giving him an option to take away the assets secured with him out of liquidation. In such a scenario, the secured creditor has a liberty to realise its security interest on its own. All that has to be seen by the liquidator at this juncture is that whether the secured creditor is complying with the provisions of above subsection 3 of section 52 i.e. the records of such security interest maintained by an information utility and whether the Secured Creditor is complying with Regulation 37 of the IBBI (Liquidation Process), Regulations, 2016: 37. Realization of security interest by secured creditor (1) A secured creditor who seeks to realize its security interest under section 52 shall intimate the liquidator of the price at which he proposes to realize its secured asset. (2) The liquidator shall inform the secured creditor within twenty one days of receipt of the intimation under sub-regulation (1) if a person is willing to buy the secured asset before the expiry of thirty days from the date of intimation under sub-regulation (1), at a price higher than the price intimated under sub-regulati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Reliance can be placed on the decision in the matter of International Coach Builders Ltd. V. Karnataka State Financial corporation, order dated 05.03.2003, passed by the Hon ble Supreme Court [MANU/SC/0189/2003], wherein the question was not very similar to the present question in hand, but has some bearing in deciding the present application. It was held that the consent of the official liquidator has to be taken by the secured creditor in order to realise the mortgaged properties, and if he does not consent, the secured creditor may move the company court for appropriate directions to the official liquidator. Therefore, the option of opting out of the liquidation estate was always given and open to the secured creditors. For the sake of completeness the relevant observation and the verdict of the Hon ble Court are reproduced below: Finally, counsel for the SFCs urge that the view we are to take would obliterate the difference between a creditor opting to stay outside up and one who opts to prove his debts in winding up. We are unable to accept it. As a result of the amendments made by the Act of 1985 in the Companies Act, 1956, the SFCs as secured creditors, m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quidator shall have the following powers and duties, namely:- .. .(f) subject to section 52, to sell the immovable and movable property and actionable claims of the corporate debtor in liquidation by public auction or private contract, with power to transfer such property to any person or body corporate, or to sell the same in parcels in such manner as may be specified; Provided that the liquidator shall not sell the immovable and movable property or actionable claims of the corporate debtor in liquidation to any person who is not eligible to be a resolution applicant. 13. To answer the question that whether the restriction of disqualification imposed U/s 29A be applied not only on the liquidator as prescribed under the First Proviso of S. 35(1)(f) but also when a Financial Creditor is exercising its right U/s 52(1)(b) to realise its security interest by dealing with the secured assets, a Co-joint reading of all these sections is required. The expression used in S. 35(1)(f) is that the Liquidator shall have the powers to sell the immovable property by public auction in the manner as sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cision of the Hon ble Supreme court in Swiss Ribbons Pvt. Ltd. Ors V. Union Of India Ors. [W.P. (Civil) 99 of 2018] Order dated 25.01.2019, wherein made an observation as under: According to the learned counsel for the petitioners, when immovable and movable property is sold in liquidation, it ought to be sold to any person, including persons who are not eligible to be resolution applicants as, often, it is the erstwhile promoter who alone may purchase such properties piecemeal by public auction or by private contract. The same rationale that has been provided earlier in this judgment will apply to this proviso as well there is no vested right in an erstwhile promoter of a corporate debtor to bid for the immovable and movable property of the corporate debtor in liquidation. Further, given the categories of persons who are ineligible under Section 29A, which includes persons who are malfeasant, or persons who have fallen foul of the law in some way, and persons who are unable to pay their debts in the grace period allowed, are further, by this proviso, interdicted from purchasing assets of the corporate debtor whose debts they have either wilfully not paid or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2016. Even otherwise, the above provision clarifies that EPF dues are not to be included in the liquidation estate. The present position is that Sec 53 of the Code gives the waterfall mechanism for distribution of proceeds from the sale of assets of the Corporate Debtor. S. 53 (1)(b) states that after meeting the CIRP and liquidation cost, second priority will be given equally to (i.) workmen s dues for the period of two years preceding the liquidation commencement date and,( ii). the debts owed to a secured creditor in the event such secured creditor has relinquished security in the manner set out in section 52(1)(a). Therefore, workmen s dues or EPF dues are placed in the waterfall mechanism and are not to be paid as per S. 326 of the Companies Act, 2013 because of S. 238 of the Code which gives overriding provisions to the insolvency Code and secondly, S. 326 as of now stood de-notified. While drafting Sec 53 of the Code the Hon ble legislatures have taken due care by acknowledging the existence of Sec 52 in the code, hence, in Sec 53(1)(b)(ii) it is prescribed that although the debts shall rank equally between workmen s dues and secured creditors ..... X X X X Extracts X X X X X X X X Extracts X X X X
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