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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 ..... 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) takes place. ii. The Respondent Bank to give an undertaking to the liquidator that it shall not sell the mortgaged property to any person who is not eligible to be a Resolution Applicant, in case they realise their security interest on their own; iii. SBI to ensure all sums due to any workman or employee from the provident fund, pension fund and gratuity fund be paid first out of monies realised from selling mortgaged assets by SBI in terms of Section 36(4)(a)(iii), when SBI exercises its rights U/s 52 of the Code and such dues should not be made a part of the liquidation estate U/s 53. 3. The liquidator submits that SBI, the Respondent Bank wishes to stay out of liquidation U/s 52 of the Code and realise its security interest on its own. Hence, the mortgaged properties shall not be a part of the Liquidation estate. The Applicant further submits that there is a suspicion that the Respondent bank may sell the secured assets to the erstwhile promot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... security interest, the existence of which may be proved either- (a) by the records of such security interest maintained by an information utility; or (b) by such other means as may be specified by the Board. (4) A secured creditor may 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. (5) If in the course of realising a secured asset, any secured creditor faces resistance from the corporate debtor or any person connected therewith in taking possession of, selling or otherwise disposing off the security, the secured creditor may make an application to the Adjudicating Authority to facilitate the secured creditor to realise such security interest in accordance with law for the time being in force. (6) The Adjudicating Authority, on the receipt of an application from a secured creditor under sub-section (5) may pass such order as may be necessary to permit a secured creditor to realise security interest in accordance with law for the time being in force. (7) Where the enforcement of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dator does not inform the secured creditor in accordance with sub-regulation (2), or the person does not buy the secured asset in accordance with sub-regulation (2), the secured creditor may realize the secured asset in the manner it deems fit, but at least at the price intimated under sub-regulation (1). (5) Where the secured asset is realized under sub-regulation (3), the secured creditor shall bear the cost of identification of the buyer under sub-regulation (2). (6) Where the secured asset is realized under sub-regulation (4), the liquidator shall bear the cost of incurred to identify the buyer under sub-regulation (2). (7) The provisions of this Regulation shall not apply if the secured creditor enforces his security interest under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002) or the Recovery of Debts and Bankruptcy Act, 1993 (51 of 1993)." 8. However, Sub-regulation (7) of the above said Regulation 37 (Liquidation Process) mentions that the provisions of regulation 37 shall not apply if the secured creditor enforces his security interest under SARFAESI Act, 2002 or RDDB Act, 1993. In the presen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... impediment is of a limited nature for the specific purpose of protecting the pari passu charge of the workmen's dues and subject thereto, SFCs can continue to exercise their statutory rights as secured creditors without being reduced to the status of unsecured creditors required to prove their debts in insolvency and stand in line with other unsecured creditors. Neither is the apprehension expressed justified, nor the contention sound. We, therefore, hold as under : 1. The right unilaterally exercisable under section 29 of the SFC Act is available against a debtor, if a company, only so long as there is no order of winding up ; 2. The SFCs cannot unilaterally act to realise the mortgaged properties without the consent of the official liquidator representing workmen for the pari passu charge in their favour under the proviso to section 529 of the Companies Act, 1956. 3. If the official liquidator does not consent, the SFCs have to move the Company Court for appropriate directions to the official liquidator who is the pari passu charge holder on behalf of the workmen. In any event, the official liquidator cannot act without seeking directions from the Company Court and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed U/s 35(1)(f) of the Code. This restriction is definitely limited to the scope and ambits of S. 52 of the Code wherein Secured Creditor is provided with certain exclusive rights and options during the commencement of liquidation proceedings. S. 52 is silent about a restriction as per the proviso annexed to S. 35(1)(f) according to which a liquidator is not applied to sell an immovable property to any person not eligible to be a resolution applicant. S. 29A has given a long list of disqualification of such persons demarcated as "disqualified persons" for submission of a resolution plan. The intent of the introduction of S. 29A is not to give benefit to defaulters. The defaulters disqualified U/s 29A should not get any benefit under this code. This is a clear message conveyed through S. 29A. A defaulter must not be benefitted by entering into those very assets through side doors, otherwise not permitted to enter from the front doors, for e.g. by submission of resolution plan. Therefore, it is logical as well as legally justifiable to extend the scope of S. 29A while dealing with the liquidation of the assets a debtor company. The Hon'ble legislatures were very much aware about this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ought to apply to the secured Financial Creditors if they exercise their option to liquidate an asset independently. 15. Hence, this prayer of the applicant/Liquidator, that the secured creditor availing its option U/s 52 of the Code should not sell the assets to the erstwhile promoters/directors, is hereby accepted. The answer to question No. (ii) is in affirmative. 16. The last question (iii) to be addressed is that whether the secured creditor is liable to pay the EPF dues in priority out of the proceeds of sale of secured assets in view of Section 326 of the Companies act, 2013. Section 326(4) states that "(4) The following shall not be included in the liquidation estate assets and shall not be used for recovery in the liquidation:- (a) assets owned by a third party which are in possession of the corporate debtor, including- (i) assets held in trust for any third party; (ii) bailment contracts; (iii) all sums due to any workman or employee from the provident fund, the pension fund and the gratuity fund; (iv) other contractual arrangements which do not stipulate transfer of title but only use of the assets; and (v) such other assets as may be notified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... man or employee from the provident fund, pension fund and gratuity fund, shall not be a part of the liquidation estate and shall not be used for recovery in liquidation". But this decision is in context of rights of the employees and not in context of the restriction imposed U/s 53(1)(b)(ii). This judgement is therefore, not applicable in the present context because of a common understanding that the EPF dues are not being treated as the assets to be covered in the liquidation estate, however, the same are the liability of the Corporate Debtor which has to be paid by the liquidator as per S. 53 of the Code, and not by the secured creditor out of the proceeds from the sale of secured assets if exercised their option U/s 52(1)(b) of the Code. Hence, this prayer of the applicant is rejected on above findings. Question (iii) is answered in negative. 18. An important observation is made in the present case that once the secured creditor is out of liquidation U/s 52(1)(b) of the Code, it is relieved from all the clutches of the insolvency code or the liquidation process. To move under SARFAESI Act, or any other act, to sell the assets to any party, is all the prerogative of the secured ..... X X X X Extracts X X X X X X X X Extracts X X X X
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