Adjudicating Authority Cannot Direct Realisation Of Security Interest U/S 52(5) Of IBC In Absence Of Resistance From Corporate Debtor: NCLT Mumbai

The National Company Law Tribunal (NCLT) Mumbai bench of Shri Anil Raj Chellan (Technical Member) and Shri K. R. Saji Kumar (Judicial Member)has held that the Adjudicating Authority cannot direct realisation of security interest under section 52(5) of the IBC when the Secured Creditor has failed to establish any resistance from the Corporate Debtor or any connected persons in realising the security interest. In this case, the assets sought to be charged in favor of the Creditor could not even be traced, therefore the NCLT refused to allow the application seeking distribution of the sale proceeds in favor of the Applicant. The Present Application has been filed under section 52(5) of the Insolvency and Bankruptcy Code, 2016 (IBC) seeking to realise security interest. During the hearing, the Applicant prayed that the Liquidator should be directed to distribute the sale proceeds from the movable and immovable assets among the secured creditors. It was also sought that the Liquidator should also be directed to repay the Applicant's claims by selling such assets. The Applicant submitted that this application has been filed to seek directions under section 52(5) of the IBC as the assets hypothecated to the Applicant could not be traced and the Code empowers the Adjudicating Authority pass direction when the Secured Creditor is unable to realise its security interest. Per contra, the Respondent submitted that the Application suffers from legal infirmities as it has been filed under Section 52(5) of the Code and at the same time claims a share in the distribution made as per Section 53 of the Code. It was further submitted that Not being able to trace the goods charged in favour of the Applicant is beyond the control of the liquidator. The Applicant has also not identified any security Case charged in their favour nor relinquished their security in favour of the Liquidator. The Tribunal noted that the Applicant is claiming to be the secured creditor based on the Hypothecation executed in his favor in 2010. However, no assets have been traced during the CIRP or Liquidation. Neither has the Applicant realised the security interest under section 52 of the IBC nor relinquished the interest under section 53 of the IBC. It held that therefore, the Liquidator treated the Applicant as an Unsecured Creditor under waterfall mechanism since no assets could be traced. As the Security Creditors who relinquished their security interest have not been paid their shares, the Applicant cannot be allowed to claim any distribution from the sale proceeds. The Tribunal held that the purpose of section 52(5) of the IBC is to direct realisation of the security interest when the Creditor encounters any resistance from the Corporate Debtor or any connected persons, not to saddle the Liquidator or Financial Auditor with the responsibility to trace the assets. As the Applicant failed to show any relinquishment of the security interest nor provided any evidence of resistance or existence of assets charged in his favor, the present application is meritless. Accordingly, the present application was dismissed. Case Title: Central Bank of India Case Number:IA (I.B.C) No. 1780/MB/2021 IN C.P. (IB) No. 2294/MB/2018 Order Date: 26/06/2025 Click Here To Read/Download The Order

Adjudicating Authority Cannot Direct Realisation Of Security Interest U/S 52(5) Of IBC In Absence Of Resistance From Corporate Debtor: NCLT Mumbai

Mohd Malik Chauhan

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