Case Note & Summary
The appeal was filed by Cosmos Co-Operative Bank Ltd., a secured creditor of Pandit Automotive Pvt. Ltd. (corporate debtor), challenging an order of the NCLT Mumbai dated 14.11.2024. The corporate debtor had mortgaged its immovable property with the appellant as a guarantor for two borrower companies. The appellant issued notices under SARFAESI Act, 2002 and took symbolic possession on 18.10.2017. Subsequently, CIRP was initiated against the corporate debtor on an application by Reliance Commercial Finance Limited under Section 7 of IBC, and liquidation commenced. The appellant realized its security interest under Section 52 of IBC and sold the property. The liquidator filed I.A. No.4873/2023 seeking a direction to the appellant to contribute towards workmen's dues and liquidation costs. The NCLT allowed the application, directing the appellant to contribute proportionately towards workmen's dues under Section 226(1)(b) of Companies Act, 2013 and towards liquidation costs under Section 52(8) of IBC. The appellant appealed to NCLAT. The NCLAT held that Section 52 of IBC does not impose any obligation on a secured creditor who realizes its security outside liquidation to contribute to liquidation costs or workmen's dues. The waterfall mechanism under Section 53 applies only to the liquidator's distribution of assets, not to amounts realized by secured creditors outside liquidation. Section 226(1)(b) of Companies Act, 2013 is not applicable to liquidation under IBC. The impugned order was set aside, and the appeal was allowed.
Headnote
A) Insolvency Law - Secured Creditor's Rights - Section 52 IBC - Contribution to Liquidation Costs - A secured creditor who opts to realize its security interest outside the liquidation process under Section 52 of the Insolvency and Bankruptcy Code, 2016 is not required to contribute towards workmen's dues or liquidation costs. The adjudicating authority's direction to contribute under Section 226(1)(b) of the Companies Act, 2013 and Section 52(8) of IBC was set aside. Held that the waterfall mechanism under Section 53 does not apply to such secured creditors, and the liquidator cannot demand contribution from the amount realized by the secured creditor (Paras 1-19).
Issue of Consideration
Whether a secured creditor who realizes its security interest under Section 52 of the IBC, 2016 outside the liquidation process is liable to contribute towards workmen's dues and liquidation costs as directed by the adjudicating authority.
Final Decision
The appeal is allowed. The impugned order dated 14.11.2024 passed by the Adjudicating Authority (NCLT, Mumbai Bench, Court – II) in I.A. No.4873/2023 is set aside. No order as to costs.
Law Points
- Section 52 of IBC
- 2016 does not require a secured creditor who realizes its security outside liquidation to contribute to liquidation costs or workmen's dues
- Section 226(1)(b) of Companies Act
- 2013 is not applicable to liquidation under IBC
- The waterfall mechanism under Section 53 of IBC is not triggered when secured creditor opts out of liquidation process.
Case Details
2024 LawText (NCLAT) (01) 107
Company Appeal (AT) (Insolvency) No. 67 of 2025
Mr. Ramchandra Madan, Mr. Tushar Nigam (for Appellant); Mr. Avinash R. Khanolkar, Ms. Surekha Yadav, Ms. Khushbu Bhanushali, Mr. V. Deshpande (for Respondents)
Cosmos Co-Operative Bank Ltd.
CS Anaghaanasingaraju, Liquidator for Pandit Automotive Pvt. Ltd. & Ors.
Subscribe to unlock Case Details (Citation, Judge, Date & more)
Subscribe Now
Nature of Litigation
Appeal against order of NCLT directing secured creditor to contribute towards workmen's dues and liquidation costs.
Remedy Sought
Setting aside the impugned order dated 14.11.2024 passed by NCLT Mumbai.
Filing Reason
The appellant, a secured creditor, was directed by NCLT to contribute out of the amount realized under Section 52 of IBC towards workmen's dues and liquidation costs.
Previous Decisions
NCLT Mumbai allowed I.A. No.4873/2023 filed by the liquidator, directing the appellant to contribute proportionately towards workmen's dues under Section 226(1)(b) of Companies Act, 2013 and towards liquidation costs under Section 52(8) of IBC.
Issues
Whether a secured creditor who realizes its security interest under Section 52 of IBC outside liquidation is liable to contribute towards workmen's dues and liquidation costs.
Whether Section 226(1)(b) of Companies Act, 2013 applies to liquidation under IBC.
Submissions/Arguments
Appellant argued that Section 52 of IBC does not impose any obligation to contribute to liquidation costs or workmen's dues; the waterfall mechanism under Section 53 does not apply to secured creditors who opt out.
Respondent liquidator argued that the secured creditor must contribute proportionately towards workmen's dues and liquidation costs as per the impugned order.
Ratio Decidendi
A secured creditor who realizes its security interest under Section 52 of the IBC, 2016 outside the liquidation process is not required to contribute towards workmen's dues or liquidation costs. The waterfall mechanism under Section 53 applies only to the liquidator's distribution of assets, not to amounts realized by secured creditors outside liquidation. Section 226(1)(b) of the Companies Act, 2013 is not applicable to liquidation under the IBC.
Judgment Excerpts
This appeal by a secured creditor of the corporate debtor M/s. Pandit Automotive Private Ltd. has been filed challenging the order dated 14.11.2024 passed by the adjudicating authority...
By the impugned order, adjudicating authority has directed the appellant to make a contribution out of the amount realised by it under Section 52 of the Insolvency and Bankruptcy Code, 2016, proportionately towards workmen’s dues...
The appeal is allowed. The impugned order dated 14.11.2024 passed by the Adjudicating Authority... is set aside.
Procedural History
The corporate debtor mortgaged property with appellant. Appellant issued notice under SARFAESI Act and took symbolic possession on 18.10.2017. CIRP initiated on application by Reliance Commercial Finance Ltd. under Section 7 IBC. Liquidation commenced. Appellant realized security under Section 52 IBC. Liquidator filed I.A. No.4873/2023 seeking contribution. NCLT allowed the application on 14.11.2024. Appellant filed appeal before NCLAT on 14.01.2025.
Acts & Sections
- Insolvency and Bankruptcy Code, 2016: Section 52, Section 52(8), Section 53, Section 7
- Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002: Section 13(2), Section 13(4)
- Companies Act, 2013: Section 226(1)(b)
