National Company Law Tribunal, Cuttack: In an application filed by the liquidator (‘Applicant’) of the corporate debtor, i.e., Monnet Power Company Limited (“Monnet”), seeking directions for distribution of the balance sale consideration and for extending the time for distribution of sale proceeds under Section 53 of the Insolvency and Bankruptcy Code, 2016 (‘IBC’) read with Regulation 42 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 (‘the Regulations’), a two-member bench of Deep Chandra Joshi (Judicial Member) and Banwari Lal Meena (Technical Member), allowed the application holding that Secured Creditors cannot seek priority over other similar creditors during the distribution of the sale proceeds of the secured assets. Accordingly, the Tribunal directed the Applicant to distribute Rs. 30.26 Crores among the Secured Creditors of Monnet on a pro rata basis without giving any priority of charge.
Background
In 2018, the Tribunal, Mumbai bench, admitted Monnet into the Corporate Insolvency Resolution Process (“CIRP”). The Applicant was appointed as the Resolution Professional (“RP”) by the Committee of Creditors (hereinafter referred to as “CoC”). As there was no successful resolution achieved during the CIRP and based on the decision taken by the CoC, an order of liquidation was passed by the Tribunal, and the Applicant was appointed as the liquidator.
Pursuant to the 9th round of e-auction, Jindal Steel and Power Limited emerged as the Successful Bidder with the highest bid of Rs. 410 Crores as against the reserve price of Rs. 400 Crores.
Thereafter, as per the order of this Tribunal, the Applicant sent notices to all Secured Creditors. The Indian Bank, which was a first and second pari passu charge holder of Monnet contended that received its share as a first-charge holder and not as the second-charge holder. Other banks such as the IL&FS Financial Services Ltd. and IPCI Limited, who were second pari passu charge holders, challenged the action of the Applicant contending that the Applicant arbitrarily kept on hold the distribution of the share of the second charge Secured Creditors despite having distributed the share of the first-charge Secured Creditors who had relinquished their security interest.
They contended that this was contrary to Section 53(1) of the IBC as both the said charges of Secured Creditors belonged to a single category without any ranking amongst them, thereby warranting the same proportion and percentage of share to be maintained amongst all the Secured Creditors of Monnet.
Thus, the Applicant filed the present Application seeking appropriate directions regarding the distribution of Rs 30,26,42,850 Crores pertaining to the share of second charge holders.
Issue
Whether there can be any classification inter se the Secured Creditors in relation to the distribution of the sale proceeds received from the sale of the assets of the Corporate Debtor as per Section 53 of IBC.
Analysis and Decision
Upon perusal of Sections 52 and 53 of the IBC, the Court stated that a bare perusal revealed that Section 52(1) has two alternate clauses whereby a Secured Creditor has been given an option to relinquish its security or realise its security. Correspondingly, there are two categories of Secured Creditors under Section 53(1) of the IBC.
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Those creditors who have relinquished their security interest under Section 52(1)(a) of the IBC and are covered under Section 53(1)(b)(ii). They shall rank equally between and among the workmen’s dues for the period of 24 months preceding the liquidation commencement date as provided under Section 53(1)(b)(i) of the IBC.
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Those creditors who realise their security interest under Section 52(1Xb) of the IBC and are covered under Section 53(1)(e)(ii) of the IBC. They shall rank equally between and among any amount due to the government for the period of two years preceding the liquidation commencement date.
Regarding the issue of concerning the inter-se priorities among the Secured creditors in the CIRP and the Liquidation proceedings, the Tribunal referred to the various decisions of the NCLAT and Supreme Court and stated after relinquishing its security interest, Secured Creditors cannot seek priority over other similar creditors during the distribution of the sale proceeds of the secured assets. In this regard, the Tribunal placed reliance on Oriental Bank of Commerce v. Anil Anchalia 2022 SCC OnLine NCLAT 3456, India Resurgence ARC (P) Ltd. v. Amit Metaliks Ltd. (2021) 19 SCC 672, and Beacon Trusteeship Ltd. v. Jayesh Sanghrajka, 2024 SCC OnLine NCLAT 667.
Thus, the Tribunal directed the Applicant to distribute the balance amount of Rs. 30.26 Crores among the Secured Creditors of Monnet on a pro rata basis without giving any priority of charge.
The Tribunal also noted that in the present case if the balance amount of Rs. 30.26 Crores was distributed among the Secured Creditors based upon the nature of security held by them, then four Secured Creditors, namely, IFCI Ltd., IL&FS Financial Services Ltd., Indian Overseas Bank and Canara Bank holding only a second charge over Monnet’s assets would not receive any amount from the sale consideration, despite total admitted claims of the accounting for approximately 4.4% of the Corporate Debtor.
The Tribunal further stated that as per Regulation 39 of the Regulations, the liquidator is duty-bound to recover and realise all assets of and dues to the Corporate Debtor in a time-bound manner for maximising the value for the stakeholders. Further, as per Regulation 42(2) of the Regulations, the liquidator is mandated to distribute the proceeds from realisation within 90 days from the receipt of the amount to the stakeholders. However, in the present case, the Applicant, despite his best efforts, was unable to comply with the timelines prescribed due to the pendency of this litigation, which was filed way back in 2023. Therefore, the Tribunal extended the timeline for the distribution of the sale proceeds and directed the applicant to complete the distribution process within 60 days.
[IDFC Bank Limited v. Monnet Power Company Limited, IA (IB) No. 69 CB of 2023 in TP No. 17 CTB of 2021, decided on 02-05-2025]
Advocates who appeared in this case :
For the applicant: Saswat K. Acharya
For the respondents: Abhinay Sharma, Aishwarya Dash, Raj Kumar Rout, Parul Khurana, Deeksha Prakash, Pooram Chand Roy, Lakshmi Kant Srivastava, Supriyo Ranjan Mahapatra, Prakash Chandra Mahapatra, Binay Kumar Pattajoshi, and Sarthak Mishra