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2020 (2) TMI 1484 - Tri - Insolvency and BankruptcyDistribution of the sale proceeds of the company under Liquidation - ranking of secured creditors - preferential treatment for first charge holders over second charge holders - secured creditors' security is relinquished in a common pool - HELD THAT:- Perusal of the records, it is observed that the Applicant is having secured interest (second charge) only on the movable properties and not on immovable properties. Hence, the security interest is limited only to movable properties and not on entire assets of the Corporate Debtor. For distribution of assets under Section 53 of the Insolvency and Bankruptcy Code, 2016, his security interest is limited to movable assets. Whether inter-se priorities between the secured creditors i.e. between the first charge holder and second charge holder has to be taken into consideration while distributing the liquidation proceeds? - HELD THAT:- The whole stance in liquidation proceedings is to ensure parity and proportionality. However, the idea of proportionality is only as far as claims of similar ranking are concerned. A security interest determines the recovery rate of a defaulted loan; hence, the ranking of security interest directly determines the value of the defaulted loan. If, contractually, parties had put Mr. A on first priority, and Mr. B on second priority, there will be no parity whatsoever in the law pushing back Mr. A to the same status as Mr. B, as that would substantially erode the recovery rate for Mr. A - The concept of distribution waterfall existed both in the Companies Act, 1956 and 2013, and not a concept unique to the Code. In fact, Companies Act is the parent Act, based on which the Code was formulated, and it is important to refer to Section 529A which was introduced in the Companies Act, 1956 by virtue of Companies (Amendment) Act, 1985, to provide a protection to the workmen. The issue of ranking of secured creditors have been discussed by the Supreme Court in ICICI BANK LTD. VERSUS SIDCO LEATHERS LTD. [2006 (4) TMI 264 - SUPREME COURT] - If the secured creditors relinquish their security interest and make claim on the liquidation estate, will the first/second ranking remain, or all secured creditors will be of the same ranking. In this case, the Supreme Court discussed the legal position and maintained the ranking of the secured creditors. This Adjudicating Authority is of the considered view that the inter se priorities amongst the secured creditors will remain valid and prevail in distribution of assets in liquidation - Petition disposed off.
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