All Assets Reflected In Balance Sheet Of Corporate Debtor Form Part Of Liquidation Estate U/S 36 Of IBC: NCLAT

The National Company Law Appellate Tribunal (NCLAT) New Delhi bench of Justice Yogesh Khanna (Judicial Member) and Mr. Arun Baroka (Technical Member) has held that all assets reflected in the balance sheet of the Corporate Debtor form part of the liquidation estate under Section 36 of the Insolvency and Bankruptcy Code, 2016 (Code) and cannot be distributed to creditors outside the framework prescribed under Sections 52 and 53 of the Code. If any asset of the Corporate Debtor has been realized by a creditor during liquidation, such asset must be returned to the Liquidator. Brief Facts: On 21 November 2017, a petition under section 7 of the code was filed against M/s Vegan Colloids Ltd (Corporate Debtor) which came to be admitted by the Adjudicating Authority (AA) and Mr. Anil Kohli (Appellant) was appointed as Interim Resolution Professional and later as Resolution Professional (RP). The corporate debtor was ordered to be liquidated on 10 October 2018 and the RP became the liquidator. The liquidator claimed the amount of ₹4,50,44,500/ deposited with the Punjab National Bank (Respondent No. 1) as part of the liquidation estate and requested its refund. As the Respondent did not comply, the Appellant filed an application before the AA on 26.06.2020, seeking directions to refund ₹4,50,44,500/- to the liquidation account, arguing that the amount was part of the Corporate Debtor's assets. On 16.06.2023, the Adjudicating Authority dismissed the Application, holding that the amount had been deposited by guarantors and was not an asset of the Corporate Debtor. Against this order, the present appeal has been filed. Contentions: The Appellant submitted that Payments have been received by the Company-M/s Vegan Colloids Ltd in liquidation and the same has been paid by the Respondent Nos. 2 and 3 to the Respondent No. 1. The same being asset of the Corporate Debtor was required to be part of the Liquidation Estate. It was also argued that during the liquidation process no creditor can realise any amount towards its debt satisfaction from the account of the Corporate Debtor. The only mechanism under which a creditor can realise its security interest is either through Sections 52 or 53 of the Code. It was further submitted that merely on the contention of the Bank that the amount has been received from guarantors AA gave a finding that the amount does not fall under the assets of the Corporate Debtor. The Respondent No.1 bank did not file any document to substantiate the said contention or to demonstrate that such amount has been received from the guarantors. Per contra, the Respondent No. 1 submitted that since Banks do not maintain separate accounts for borrowers and guarantors, any payment made by the guarantors is credited to the principal borrower's account and adjusted against its liability. Consequently, payments made by the guarantors reduced the Corporate Debtor's liability to the bank. It was further contended that the amount adjusted in towards the liability of the Corporate Debtor was the amount paid by the guarantors personally and or by way of arrangement with sister concern, to settle the liability towards bank being as guarantors. Lastly, it was submitted that since no amount is paid by the Corporate Debtor directly to the Bank, as such, no question arises to hand over the same to the Liquidator to make a part of Liquidation Estate. Observations: The Tribunal observed that the Respondent relinquished its security interest to the liquidation estate under section 52 of the code by its letter dated 17 December 2018. However, Rs. 2.5 crores were realised from the assets of the corporate debtor and distributed to the Respondent preferentially without any intimation to the liquidator which should have been distributed by the liquidator as per section 53 of the code. The Respondent failed to provide evidence that the reduced amount in the balance sheet of the corporate debtor was not its asset. The Tribunal further observed that general statements by the Respondent with respect to the adjustment of payment liability by guarantors or sister concerns cannot be relied upon in the absence of any concrete evidence. Under section 36 of the code, the liquidator must form a liquidation estate in which assets of the corporate debtor are included. It further added that section 36(2) further mandates the liquidator to hold the liquidation estate for the benefit of the creditors. Since any amount reflected in the balance sheet of the corporate debtor is their assets, the Adjudicating Authority should have considered the balance sheet showing reduced short term borrowing during liquidation. As per section 36 of the code any asset owned by the corporate debtor or relinquished by a secured creditor forms part of the liquidation estate. Based on the above, the Tribunal held that therefore, Respondent has ...

All Assets Reflected In Balance Sheet Of Corporate Debtor Form Part Of Liquidation Estate U/S 36 Of IBC: NCLAT

Mohd Malik Chauhan

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