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TMI Blog2024 (3) TMI 931X X X X Extracts X X X X X X X X Extracts X X X X ..... nsolvency Resolution Process (CIRP) commenced which subsequently culminated in liquidation proceedings being initiated on April 6, 2022, had evidently and admittedly failed in its intention to realize its security interest and thereby having failed to discharge its obligation under Regulation 21-A, cannot be permitted to retain the shares held as security. Thus, respondent no. 3 was directed to hand over the share certificates in original to the Liquidator within a week from the date of pronouncement of the order. 2. Other applications were also disposed of by the same order. 3. The primary grievance of the petitioner is that the NCLT ought to have decided the Liquidator's application under Section 25 of the Insolvency and Bankruptcy Code (IBC), 2016 prior to deciding the application under Regulation 21-A of the IBBI (Liquidation Process) Regulations, 2016 (hereinafter referred to as, "the 2016 Regulation"). 4. It is argued that by the observations as mentioned above, Alliance was given the status of a Secured Creditor with regard to certain shares of the Corporate Debtor (CD). Such shares of respondent no. 3-Alliance were owned by the CD. According to respondent no. 3-Alliance, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned counsel for the petitioner argues that in the pending application under Section 25 of the IBC, a relief was sought for declaring the shares-in-question as illegally captured by Alliance. Without listing the same on the date of passing of the impugned order, the application filed by the Liquidator to approve the sale, bearing IA No. 427 of 2023, was listed along with the application filed by the Suspended Board of Directors of the CD bearing IA No. 334 of 2023 for setting aside the collusive sale of shares on old valuation at a lower price. 15. Under Section 36 of the IBC, it is argued, the Liquidator is supposed to act in fiduciary capacity vis-à-vis the stakeholders, due to which the petitioner remained under the misconception that its interest would be sufficiently protected and did not apply for being impleaded in the proceeding. 16. By the impugned order, it is argued, the interest of the stakeholders and other secured creditors, including the petitioner, was directly affected. 17. It is argued that Alliance is supposed to return the shares under Section 25 of the IBC or under Regulation 21-A of the 2016 Regulations, as a Secured Creditor is entitled to be placed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder dated February 14, 2023, the NCLT directed that e-auction sale of the assets of Manthan be proceeded with; however, consequential action in the sale was to be conducted only with liberty of the NCLT. 24. Learned senior counsel appearing for respondent no. 3-Alliance submits that under Regulation 21-A, any unenforced security interest would automatically become part of the liquidation estate of the CD. Thus, since Alliance failed to exercise any security interest over the equity shares within 30 days from liquidation commencement date, the shares became part of the liquidation estate. Hence, the NCLT rightly relied on Regulation 21-A on the submission of the Liquidator. 25. The petitioner, it is argued, shall not be prejudiced in any manner by the impugned order, since Alliance is admittedly a Secured Creditor and filed its claim with the Liquidator in Form-D for Rs. 14,47,32,521/-, also indicating that it shall not relinquish the security interest held in respect of 77,500 equity shares and land at Tajpur. The financial claim together with security interest is confirmed by the Record of Default/Debt issued by NeSL. 26. In its recall application, the petitioner had admitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tition is not maintainable. 30. It is argued that the judgments relied on by the petitioner are not relevant. 31. Learned counsel for the respondent no. 2/Liquidator argues that the dispute pertaining to security interest of respondent no. 3 in connection with the company in liquidation relates to 77,500 equity shares of respondent no. 3, having been subscribed and owned by respondent no. 2 which were pledged in favour of respondent no. 3 against a loan advanced by respondent no. 3 to the company in liquidation to the tune of Rs. 10.20 Cr. 32. The Liquidator argues in relation to the said security interest that the loan has been repaid in full to the respondent no. 3 whereas respondent no. 3 contends that a sum of Rs. 26 Lakh remained due and payable on account of the loan. During the interregnum, respondent no. 3 contends to have advanced a further loan of Rs. 10Cr. to the company (in liquidation) for which the purported pledge of 77,500 shares is still subsisting. Alliance had instituted a suit for declaration of such pledge, which is pending. Subsequently, the company went into liquidation upon failure of the Corporate Insolvency Resolution Process. The Liquidator is contesti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is no non-compliance of the principle of natural justice. 41. It is relevant to mention here that on the issue of maintainability, the petitioner cites M/s Godrej Sara Lee Ltd. Vs. The Excise and Taxation Officer-cum-Assessing Authority & Ors., reported at 2023 INSC 92. 42. On the absence of reason, the petitioner cites Kranti Associates Pvt. Ltd. and Ors. Vs. Masood Ahmed Khan and Ors., reported at (2010) 9 SCC 496 and Excel Powmen Ltd. Vs. Union of India and Ors., reported at (2020) 210 AIR 798 and U.P.S.R.T.C Vs. Jagdish Prasad Gupta, reported at AIR 2009 SC 2328. 43. Before going into the merits of the matter, the issue of maintainability is taken up for hearing. It is well-settled, as also borne out by the judgments cited by the petitioner, that availability of an appeal is not an absolute bar in the event fundamental rights of a person are affected by the action or decision of a public authority and in cases where there is an arbitrariness, mala fides or palpably illegality or assumption of jurisdiction of any authority. In the present case, the petitioner alleges that there was palpable violation of law and natural justice insofar as no reasons were attributed for h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... im of Alliance to the pledged shares being sub judice in a separate suit, the fact remains that the effect of the order under Regulation 21-A is that the assets covered under the security interest that is the said shares, are presumed to be part of the liquidation estate. 52. Hence, it is Alliance which could be aggrieved by the said order, as Alliance had initially expressed its decision to relinquish its security interest which did not fructify in view of the assets being presumed to be part of the liquidation estate. 53. There is no quarrel with the fact that Alliance has been treated as a Secured Creditor for the purpose the CIRP as well as the liquidation process. The question is only regarding its interest in the pledged shares of the CD, which are 77,500 in number. 54. By virtue of the order passed under Regulation 21-A treating the assets covered under the alleged security interest of Alliance (the shares-in-question) to be part of the liquidation estate, the interest of the secured creditors, be it the petitioner or others, cannot be adversely affected in any manner; rather, such order can only enure to the benefit of the secured creditors. The effect of the order is th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the liquidation asset and directing sale thereof, there cannot arise any question of such adjudication, since, in any event, the shares become a part of the liquidation estate, sufficiently subserving the interest of all secured creditors, including the petitioner (who claims to be a secured creditor), who would be getting their dues in order of priority under Section 53 of the IBC. 57. Thus, the petitioner cannot claim to have been aggrieved in any manner, as the order passed under Regulation 21-A did not adjudicate on the rights of Alliance in respect of security interest to the disputed shares. Rather, the Liquidator has rightly submitted that the said shares would be shown in the auction sale to be subject to the pending suit. 58. In the light of the above observations, there is no scope of interference by the writ court with the order impugned herein. 59. In fact, the limited window of interference under Article 226 has not been substantiated by the petitioner for the writ court to interfere, since there is no arbitrariness, mala fides and/or palpably illegality in the impugned order. 60. The argument of the petitioner that the order is devoid of reasons is entirely mispla ..... X X X X Extracts X X X X X X X X Extracts X X X X
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