The High Court ruled that security interests over assets of a ...

Security Interests Over Corporate Debtors Must Defer to IBC's Asset Distribution Rules During Insolvency Proceedings.

November 20, 2024

Case Laws     IBC     HC

The High Court ruled that security interests over assets of a corporate debtor to secure amounts due under a judgment or decree must give way to the provisions of the Insolvency and Bankruptcy Code (IBC). The IBC governs insolvency and bankruptcy proceedings, which may lead to an approved resolution plan or liquidation. The interplay between rights of a judgment creditor and implications of insolvency law as existed earlier cannot apply when the IBC governs the field. The court clarified that a previous ruling releasing funds deposited by a corporate debtor to a judgment creditor is limited to that case, as the Supreme Court has conclusively released the ICICI Guarantee in the present case based on similar pleadings. Considering the IBC provisions and their implications for decree holders, the monies deposited by the corporate debtor appellant constitute its assets, though not in its possession. The appellant is permitted to withdraw the appeal and the amounts deposited, along with accrued earnings, as continuing with the deposit serves no meaningful purpose given the IBC's waterfall mechanism for distribution in liquidation proceedings.

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