Secured Creditor Is Liable To Pay Liquidator's Fees Under Rule 21A Of Liquidation Regulations If Option U/S 52 Of IBC Is Exercised: NCLAT

The NCLAT New Delhi bench of Justice Ashok Bhushan (Judicial Member), Barun Mitra( Technical Member) and Arun Baroka (Technical Member) has held that the fee of the liquidator has to be paid within 90 days from the liquidation commencement date as provided under Regulation 21A of the Liquidation Regulations if the secured creditor opts to realise its security interest under section 52 of the code. Brief Facts The present appeal has been filed against an order passed by the Adjudicating Authority by which the AA directed the appellant to pay fees of the Liquidator. The corporate debtor was admitted into insolvency on September 16, 2021 on an application filed by Narendra Solvex Private Limited. When no resolution plan was approved, the corporate debtor was ordered to be liquidated. Shikshak Shahakari Bank Ltd chose to realise its security interest under the SARFAESI Act. Dispute arose pertaining to fees of the liquidator. The bank alleged that the fees calculated by the liquidator is exorbitant and unsupported by law. Thereafter, the liquidator filed an IA seeking payment of its fees. The NCLT, Mumbai, allowed the I.A. It is the case of the appellant that the Respondent had not played any role in realising the asset and the Appellant had itself set the recovery machinery in motion under the provisions of the SARFAESI Act and recovered its amount by auction of the secured asset and that Respondent / Liquidator is illegally demanding a fee contrary to the provisions of law which has not accrued in the first place. It is also submitted that the term 'amount realised' means an amount that is being realised from the sale of an asset where the asset changes. Secondly, in cases where the funds are readily available for distribution, the Liquidator is entitled to a fee only on distribution. It was further contended that the Respondent is only eligible for entitlement of fee under Regulation 4 Sub-Regulation 2(b), only when the Liquidator has actually realised or distributed any amount. However, in the present case, there has neither been any distribution nor any realisation of amounts by the Respondent, in so far as the secured asset of the Appellant is concerned. On the other hand, it is the case of the respondent that the Appellant did not comply with Regulation 21-A of the Liquidation Process Regulations, 2016, within the 90 days of the liquidation commencement date. The Appellant was required to pay the following costs in order to comply with Regulation 21- A(2) of the Liquidation Process Regulations . It further argued that the Respondent / Liquidator, on 15.05.2023, requested the Appellant to remit the pending CIRP /liquidation cost, including the fee of the Liquidator, which is a condition precedent as mandated under Regulation 21-A(2) of the Liquidation Process Regulations, 2016. Observations: The tribunal at the outset observed that Regulation 21-A of the Liquidation Process Regulations, 2016,mandates Secured Creditors to inform the Liquidator of their decision to realise their security interest and to pay their share of the liquidation costs within 90 days. It was agreed by the Appellant that the liquidation cost will be shared as per Regulation 21-A but was raising clarifications regarding its calculations and which was clarified also by the liquidator again and again and this exchange was going on for quite some time. The tribunal after going through the relevant provisions observer that “It will be clear from this provision that the Secured Creditor is mandatorily obligated to pay its share as per Section 53(1)(a) and 53(1)(b)(i)of the Code which provides for distribution of assets from the sale of liquidation assets in the order of priority. (waterfall mechanism). Further, Regulation 21A (3) of Liquidation Process Regulations, 2016, provides that where a Secured Creditor fails to comply with Sub-Regulation (2), the asset, which is subject to security interest, shall become part of the liquidation estate.” It further added that the Appellant failed to comply with this mandate. The protracted email exchange between the parties confirms that despite repeated reminders, the Appellant neither paid full liquidation costs nor demonstrated compliance with Regulation 21A(2). The 90-day period from the liquidation commencement date also lapsed without payment of the requisite costs. In Small Industries Development Bank of India (SIDBI) v. Shri Vijender Sharma (2021) this tribunal has held that “It thus becomes quite clear that compliance of regulations 2(ea), 2-А, 21-A and 37 of the Liquidation Process Regulations and Section 52/53 of the IBC are absolutely necessary even if the secured creditor proceeds to realise its security interest.” This case squarely supports the case of the respondent. Finally, the tribunal opined that “with respect to the Secured Financial ...

Secured Creditor Is Liable To Pay Liquidator's Fees Under Rule 21A Of Liquidation Regulations If Option U/S 52 Of IBC Is Exercised: NCLAT

Mohd Malik Chauhan

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