The National Company Law Appellate Tribunal has held that a secured financial creditor while opting out of the liquidation process is barred from selling secured assets to promoters or its related party or persons who are ineligible in terms of Section 29A of I&B Code.
In the instant case titled SBI v. Anuj Bajpai the question raised before the NCLAT was:
Whether the Appellant, who is a Secured Financial Creditor, while opting out of the liquidation process under Section 52(1)(b) of the IBC is barred from selling the secured assets to the Promoters or its related party or the persons who are ineligible in terms of Section 29A of the Code?
The NCLAT found that a quick reading of Section 35(1)(f) shows that the 'Liquidator' cannot sell the 'Corporate Debtor's assets to those who are disqualified under Section 29A of the 'I&B Code'.
Under Section 230-232 of the Companies Act, a shareholder/promoter who is disqualified under Section 29A cannot take over the 'Corporate Debtor' by way of arrangement or scheme.
Section 52(1)(b) of the 'I&B Code' empowers a secured creditor to relate its security interest in the manner prescribed in the said Section, and sub-section (4) of Section 52 empowers a secured creditor to enforce, realise, settle, compromise, or deal with secured assets in accordance with the law applicable to the security interest being enforced.
Even while Section 52(4) is silent on the sale of secured assets to one or more persons, the Explanation following Section 35(1)(f) makes it plain that assets cannot be sold to anyone who is ineligible under Section 29A.
If assets cannot be sold to a person who is ineligible under Section 29A during the liquidation process, the said provision applies not only to the "Liquidator," but also to the "secured creditor" who opts out of Section 53 to realise the claim in accordance with Section 52(1)(b) read with Section 52(4) of the IBC.
The tribunal categorically held that:
“The object of the ‘I&B Code’ is to maximize the assets of the ‘Corporate Debtor’ and then to balance the stakeholders including maximization of the assets of the ‘Financial Creditor’ and other creditors including secured creditors. That the person not eligible under Section 29A cannot be permitted to submit the ‘Resolution Plan’ if default still exists”.
Hence, it was held that after obtaining the conditional permission from the competent authority that the ‘Liquidator’ to sale the assets under Section 52, the secured creditor cannot challenge the said condition as imposed by the ‘Liquidator’ as affirmed by the Adjudicating Authority.