NCLAT Rules, Secured Creditor's Security Interest Becomes Part Of Liquidation Estate If Amount As Stipulated Under Regulation 21A(2) Is Not Deposited Within 90 days
Pranav B Prem
In a significant ruling, the National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, comprising Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member), held that if a secured creditor who has chosen to realize its security interest under Section 52 of the Insolvency and Bankruptcy Code, 2016 (IBC) fails to deposit the amount as required under Regulation 21A(2) of the IBBI (Liquidation Process) Regulations, 2016 within 90 days from the liquidation commencement date, the security shall become part of the liquidation estate.
Background of the Case
The case arose from an appeal filed by Phoenix ARC Pvt. Ltd. ("Appellant") challenging the order dated 16.02.2024 passed by the National Company Law Tribunal ("NCLT"), Indore Special Bench. The NCLT rejected the Appellant's plea objecting to the decision of the Liquidator to include the Haldia Unit, measuring 12.87 acres, as part of the liquidation estate of KS Oils Ltd. ("Corporate Debtor"). The liquidation process against KS Oils Ltd. commenced on 16.03.2021 through an NCLAT order. The Appellant, in Form-D, did not relinquish its security interest in the Haldia Unit but did so for all other securities. On 21.01.2023, the Liquidator handed over symbolic possession of 12.87 acres to the Appellant, while clarifying that 8.02 acres had already become part of the liquidation estate. Subsequently, on 14.07.2023, the Liquidator notified the Appellant that, due to non-compliance with Regulation 21A(2), the Haldia Unit had become part of the liquidation estate.
After multiple unsuccessful attempts to auction the Corporate Debtor as a going concern, the Liquidator issued a sale notice for the Haldia Unit on 19.07.2023. Halder Venture Ltd. emerged as the successful bidder in the Stakeholder Consultation Committee (SCC) meeting held on 03.02.2024, and a Letter of Intent (LoI) was issued.
Arguments of the Parties
The Appellant contended that it had lawfully exercised its right not to relinquish the Haldia Unit under Section 52 of the IBC and Regulation 21A. It further argued that the Liquidator failed to provide any estimate of the amount required under Regulation 21A(2), which the Appellant claimed was a prerequisite for any payment obligation. Additionally, the Appellant asserted that there was no default on its part to pay the required amount under Section 53(1)(a) and 53(1)(b)(i). The Appellant maintained that it had consistently communicated its position to the Liquidator and that its actions were in full compliance with the applicable legal framework.
On the other hand, the Respondents, including the Liquidator, argued that the Appellant failed to pay the required amount under Regulation 21A(2) within 90 days from the liquidation commencement date. They emphasized that under Regulation 37, it was the Appellant's duty to inform the Liquidator of the price at which it intended to realize its security interest, a step the Appellant failed to take. The Respondents maintained that the Appellant's non-compliance with these regulations resulted in the Haldia Unit rightfully becoming part of the liquidation estate.
NCLAT's Observations and Findings
The NCLAT emphasized the mandatory obligation on secured creditors under Regulation 21A(2) to deposit the required amount within 90 days from the liquidation commencement date. It clarified that the secured creditor cannot avoid this responsibility by claiming the Liquidator did not estimate the amount.
The Tribunal specifically held that:
"The first step which secured creditor has to take is to intimate the Liquidator of the price at which he proposes to realize its secured asset" (Regulation 37(1)).
"When obligation is linked with the time period, the Appellant cannot fall back on the argument that the Liquidator has not communicated the estimated amount to the secured creditor."
"When secured creditor at no point of time even asked for estimated amount from the Liquidator and no steps were taken under Regulation 37 by the Appellant, it is not open for the Appellant to contend that Regulation 21A, sub-regulation (2) shall not apply, since he was not communicated the estimated amount by the Liquidator."
The Tribunal further highlighted that Regulation 21A(3) explicitly states that failure to comply with sub-regulation (2) results in the secured asset becoming part of the liquidation estate. The NCLAT also referenced the second proviso to Regulation 21A(2), which protects secured creditors by allowing any difference in payment to be settled later. However, the Tribunal made it clear that this protection does not exempt the secured creditor from the initial obligation to pay within 90 days.
Decision of the NCLAT
The NCLAT upheld the Liquidator's decision and concluded that due to the Appellant's failure to fulfill its obligation under Regulation 21A(2), the Haldia Unit had validly become part of the liquidation estate. The Tribunal observed: "In any view of the matter, due to non-fulfillment of obligation under Regulation 21A (2), the Haldia Unit has become part of the Liquidation Estate and the Liquidator has rightly proceeded to issue Sale Notice with the concurrence of SCC.". Accordingly, the appeal by Phoenix ARC Pvt. Ltd. was dismissed.
Key Takeaways from the Judgment
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Secured creditors choosing to realize their security under Section 52 of IBC must deposit the required amount within 90 days from the liquidation commencement date.
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The secured creditor cannot rely on the argument that the Liquidator did not estimate the amount if the creditor itself failed to request such an estimate or make the necessary deposit.
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Failure to deposit the amount within the stipulated period results in the secured asset automatically becoming part of the liquidation estate under Regulation 21A(3).
Advocates Representing The Parties
For Appellant: Mr. Amit Singh Chadha, Sr. Advocate with Mr. Suresh Dutt Dobhal, Mr. Shikhar and Mr. Abhinav Sharma, Advocates.
For Applicant: Mr. Krishnendu Dutta, Sr. Advocate with Mr. Sidhartha Sharma, Mr. Arjun Asthana and Ms. Shalini Basu, Advocates in I.A. No. 1166/2025 & I.A. No. 3167/2024.
For Respondents: Mr. Vivek Sibal, Sr. Advocate with Mr. Aditya J. Pandya, Advocates for Liquidator. Mr. Siddharth Sangal and Ms. Richa Mishra, Advocates for R-2 to R-9.
Cause Title: Phoenix ARC Pvt. Ltd. Versus Kuldeep Verma Liquidator of KS Oils Ltd. & Ors.
Case No: Company Appeal (AT) (Insolvency) No. 592 of 2024 & I.A. No. 3167 of 2024 & 1166 of 2025
Coram: Justice Ashok Bhushan [Chairperson], Barun Mitra [Member (Technical)]
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