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Oriental Bank Of Commerce (Now Punjab National Bank) v. ANIL ANCHALIA & ANR.
Factual and Procedural Background
The Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor was initiated on 15.10.2019. The Appellant (Oriental Bank of Commerce, now Punjab National Bank) had extended financial assistance to the Corporate Debtor in 2014 and held an exclusive charge over certain factory land, buildings, and plots in Ramnagar, West Bengal, which was registered with the Registrar of Companies, Kolkata. A liquidation order was passed on 15.02.2021, during which the Appellant relinquished its security interest over the secured assets, which then became part of the liquidation estate. The Liquidator sold these assets for Rs. 1,68,00,000/-. The Appellant claimed entitlement to receive the entire sale proceeds by virtue of its first and exclusive charge and sent an email asserting this right on 28.10.2021. However, the Liquidator distributed the proceeds on a pro-rata basis under Section 53 of the Insolvency and Bankruptcy Code, 2016 ("Code"). Aggrieved, the Appellant filed an Interim Application (I.A (I.B.C)/101(KB)2022) seeking direction for the Liquidator to distribute the entire sale proceeds to it. The Adjudicating Authority (NCLT, Kolkata Bench) rejected this application by order dated 04.03.2022, prompting the present appeal.
Legal Issues Presented
- Whether a secured creditor who has relinquished its security interest under Section 52 of the Code is entitled to receive the entire sale proceeds realized from the secured assets in liquidation proceedings.
- Whether the distribution of liquidation proceeds to such a secured creditor should be governed by the pro-rata waterfall mechanism under Section 53 of the Code.
Arguments of the Parties
Appellant's Arguments
- The Appellant contended that having the first and exclusive charge over the assets, it was entitled to receive the entire amount realized from the sale of those secured assets.
- The Appellant relied on a prior judgment of this Tribunal in Technology Development Board vs. Mr. Anil Goel & Ors, which was argued to support its claim.
- It was submitted that the said judgment was stayed by the Hon'ble Supreme Court in Civil Appeal No. 11060 of 2021, but the Appellant maintained entitlement to the entire sale proceeds.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Technology Development Board vs. Mr. Anil Goel & Ors | Held that secured creditors who relinquished security interest cannot claim amounts realized from secured assets and must follow the waterfall mechanism under Section 53. | The Court noted this judgment was stayed by the Supreme Court but found it less significant in light of subsequent Supreme Court rulings. |
| India Resurgence ARC Private Limited vs. Amit Metaliks Limited and Anr. (2021 SC OnLine SC 409) | Clarified that secured creditors who relinquish their security interest are entitled to payment only as per the waterfall mechanism under Section 53; dissenting secured creditors cannot claim amounts exceeding their entitlement. | The Court relied heavily on this Supreme Court judgment to hold that the Appellant’s claim to the entire sale proceeds was not tenable. |
| Indian Bank vs. Charu Desai, Erstwhile Resolution Professional & Chairman of Monitoring Committee of GB Global Ltd. & Anr. | Confirmed that when the value received by creditors under Section 53 is proportionate and in line with other financial creditors, challenges to distribution are to be repelled. | The Court applied this Tribunal’s recent decision to reinforce the principle that distribution must be in accordance with Section 53. |
Court's Reasoning and Analysis
The Court analyzed the legal position that once a secured creditor elects to relinquish its security interest under Section 52 of the Code, it loses the right to claim amounts realized from the secured assets exclusively. Instead, such creditors are entitled to receive payments as per the waterfall distribution mechanism under Section 53. The Court observed that this issue is settled law, no longer res integra, following the authoritative Supreme Court judgment in India Resurgence ARC Private Limited vs. Amit Metaliks Limited. The Supreme Court rejected the argument that dissenting secured creditors could enforce their security interest to receive amounts exceeding their entitlement, emphasizing equitable distribution among creditors. The Court further relied on a recent decision of this Tribunal in Indian Bank vs. Charu Desai which upheld the principle that distribution proportionate to claims under Section 53 must be respected. Consequently, the Court found no error in the Adjudicating Authority’s rejection of the Appellant’s application and dismissed the appeal.
Holding and Implications
The appeal is dismissed.
The Court’s decision confirms that secured creditors who relinquish their security interest in liquidation proceedings are not entitled to receive the entire proceeds realized from the sale of secured assets. Instead, their distribution is governed by the pro-rata waterfall mechanism under Section 53 of the Insolvency and Bankruptcy Code, 2016. This ruling upholds the equitable treatment of creditors and clarifies the limits of secured creditors’ rights post-relinquishment. The decision does not set new precedent but affirms established Supreme Court and Tribunal jurisprudence. The direct effect is that the Appellant will receive its share of liquidation proceeds on a pro-rata basis rather than the full amount realized from the secured assets.
NATIONAL COMPANY LAW APPELLATE TRIBUNAL,
PRINCIPAL BENCH, NEW DELHI
Comp. App. (AT) (Ins.) No. 547 of 2022 In the matter of:
Oriental Bank of Commerce
(Now Punjab National Bank) Zonal Sastra, 11 Hemanta Basu Sarani, 3rdFloor, Kolkata- 7000011
....Appellant Vs.
1. Anil Anchalia,
Liquidator of M/s. Bala Techno Industries Ltd. (In Liquidation) having its office at 16, B Robert Street, 2ndFloor, Kolkata- 700 012 Email: btil.cirp@gmail.com
2. UCO Bank,
Member of the Stakeholder's Consultation Committee of Bala Techno Industries Ltd. (in liquidation) Having its registered office at No.10, BTM Sarani, Kolkata- 700001,
West Bengal and its Asset Management Branch at No.5, L.L.R Sarani, Kolkata- 700 020
Email: arbkol@ucobank.com.in
…Respondents
For Appellant: Mr. Rajesh Kumar Gautam, Mr. Anant Gautam, Mr. Nipun Sharma and Mr. Vidur Ahluwalia, Advocates.
For Respondents: Mr. Anil Anchalia (R1 in person)
J U D G M E N T
(26th May, 2022) Ashok Bhushan, J.
1. This Appeal has been filed against the order dated 04.03.2022 passed by the Adjudicating Authority (National Company Law Tribunal), Kolkata Bench, Kolkata, rejecting the I.A (I.B.C)/101(KB)2022 filed by the Appellant. The brief facts of the case necessary to be noticed are:-
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The Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor was initiated by order dated 15.10.2019. The Appellant has extended the financial assistance to the Corporate Debtor in the year 2014. There was exclusive charge over factory land, building and plots at Ramnagar, West Bengal. The Exclusive Charge of the Appellant- Bank was also registered with the Registrar of Companies, Kolkata. The liquidation order was passed on 15.02.2021. In the liquidation proceedings, the Appellant relinquished its security with regard to secured assets. The secured assets, thus, formed the part of the liquidation assets. The liquidator sold the assets for a sum of Rs.1,68,00,000/-. The Appellant sent an e-mail on 28.10.2021 informing that the Appellant being first and exclusive charge on the security is entitled to receive the amount. The Liquidator distributed the sale proceeds on the pro- rata basis under Section 53 of the Insolvency and Bankruptcy Code, 2016 ("Code" for short). Being aggrieved, the Appellant filed an I.A (I.B.C)/101(KB)2022. In the I.A, following prayers were made by the Appellant:-
"a) Liquidator be directed to distribute the entire sale proceeds of the liquidation estate to Punjab National Bank since the same has exclusive charge over the property of the corporate debtor which has been sold by the Liquidator.
b) The delay in filing the present application may kindly be condoned.
c) Any other order and/or orders as Your Honour may deem fit and proper."
The Adjudicating Authority rejected the Application by impugned order.
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2. Learned Counsel for the Appellant challenging the order contends that the Appellant having first charge over the assets, he was entitled to receive the payment realised from the secured assets. Learned Counsel submits that this Appellate Tribunal in Company Appeal (AT) (Ins.) No. 731 of 2020
"Technology Development Board vs. Mr. Anil Goel & Ors." has taken the view that secured creditors after having relinquished their security interest could not claim any amount realised from secured assets once they elected for relinquishment of security interest, they would be governed by the waterfall mechanism under Section 53. It is submitted that against the judgment of this Tribunal dated 05.04.2021, Appeal has been filed before the Hon'ble Supreme Court being Civil Appeal No. 11060 of 2021 where the Hon'ble Supreme Court has stayed the judgment of this Tribunal. It is submitted that the Appellant is entitled to receive the entire amount realised from its secured assets.
3. We have considered the submissions of the learned Counsel for the Appellant and perused the record.
4. The Appellant had opted to relinquish its security exercising its right under Section 52 of the Code. After it relinquished the security, the secured creditors are entitled for receiving payment as per Section 53. The issue is no more res integra in view of the judgment of the Hon'ble Supreme Court in
"India Resurgence ARC Private Limited vs. Amit Metaliks Limited and Anr.- 2021 SC OnLine SC 409". In the case before Hon'ble Supreme Court, Appellant was Dissenting Financial Creditor and it challenged the distribution of the assets under the Resolution Plan. The argument was raised that the Dissenting Financial Creditor was entitled to receive the payment as per their
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secured interest. The argument was rejected and the Hon'ble Supreme Court in Paragraphs 17, 19, 20 & 21 laid down following:-
"17. Thus, what amount is to be paid to different classes or subclasses of creditors in accordance with provisions of the Code and the related Regulations, is essentially the commercial wisdom of the Committee of Creditors; and a dissenting secured creditor like the appellant cannot suggest a higher amount to be paid to it with reference to the value of the security interest.
19. In Jaypee Kensington(supra), this Court repeatedly made it clear that a dissenting financial creditor would be receiving the payment of the amount as per his entitlement; and that entitlement could also be satisfied by allowing him to enforce the security interest, to the extent of the value receivable by him. It has never been laid down that if a dissenting financial creditor is having a security available with him, he would be entitled to enforce the entire of security interest or to receive the entire value of the security available with him. It is but obvious that his dealing with the security interest, if occasion so arise, would be conditioned by the extent of value receivable by him.
20. The extent of value receivable by the appellant is distinctly given out in the resolution plan i.e., a sum of INR 2.026 crores which is in the same proportion and percentage as provided to the other secured financial creditors with reference to their respective admitted claims. Repeated reference on behalf of the
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appellant to the value of security at about INR 12 crores is wholly inapt and is rather ill-conceived.
21. The limitation on the extent of the amount receivable by a dissenting financial creditor is innate in Section 30(2)(b) of the Code and has been further exposited in the decisions aforesaid. It has not been the intent of the legislature that a security interest available to a dissenting financial creditor over the assets of the corporate debtor gives him some right over and above other financial creditors so as to enforce the entire of the security interest and thereby bring about an inequitable scenario, by receiving excess amount, beyond the receivable liquidation value proposed for the same class of creditors."
5. In a recent judgment delivered by this Appellate Tribunal in Company Appeal (AT) (Ins.) No. 644 of 2021 dated 06.05.2022 -"Indian Bank vs. Charu Desai, Erstwhile Resolution Professional & Chairman of Monitoring Committee of GB Global Ltd. & Anr.", a similar contention raised by the Indian Bank which was secured creditor who was Dissenting Financial Creditor was repelled. After relying the judgment of the Hon'ble Supreme Court in M/s. Amit Metaliks Ltd. (supra), this Tribunal in paragraphs 27 and 28 laid down following:-
"27. The Judgment of the Hon'ble Supreme Court, in the above case, is that when the extent of value received by the creditors under Section 53 is given which is in the same proportion and percentage as provided to the other Financial Creditors, the challenge is to be repelled."
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6. We thus, do not find any merit in the submissions of the Learned Counsel for the Appellant. The submission that earlier judgment of this Tribunal in "Technology Development Board" having been stayed by the Hon'ble Supreme Court on 29.06.2021, no reliance can be placed on the said judgment looses its importance in view of the subsequent judgment of the Hon'ble Supreme Court dated 13.05.2021 M/s. Amit Metaliks Ltd. (supra). The issue is no more res integra and no error is committed by the Adjudicating Authority in rejecting the Application filed by the Appellant. There is no merit in the Appeal. The Appeal is dismissed.
[Justice Ashok Bhushan] Chairperson
[Shreesha Merla] Member (Technical) Anjali/nn
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