Liquidation process of a company under the IBC holds precedence over outcome of an arbitration proceeding: NCLAT
The National Company Law Appellate Tribunal (NCLAT) gave nod to the liquidation process of Surana Power Limited overruling objections raised by Bharat Heavy Electricals Limited (BHEL).The NCLAT judgment has proved that the liquidation process of a company under the Insolvency and Bankruptcy Code (IBC) shall be prioritised over the outcome of an arbitration proceeding, and therefore process...
The National Company Law Appellate Tribunal (NCLAT) gave nod to the liquidation process of Surana Power Limited overruling objections raised by Bharat Heavy Electricals Limited (BHEL).
The NCLAT judgment has proved that the liquidation process of a company under the Insolvency and Bankruptcy Code (IBC) shall be prioritised over the outcome of an arbitration proceeding, and therefore process under IBC shall not be stopped.
The Chennai Bench of National Company Law Tribunal (NCLT) had ordered liquidation of Surana Power Limited (Corporate Debtor) which was admitted into insolvency in January 2019 as it did not receive any valid resolution plans. BHEL – one of the secured creditors in this case was not willing to relinquish its security interest due to which the Liquidator could not commence with the liquidation process and further the sale of assets.
The Liquidator filed a Miscellaneous Application with the NCLT Chennai Bench (Adjudicating Authority) seeking permission to sell the assets of the Corporate Debtor. However, the said Application was rejected by the Adjudicating Authority. Aggrieved by this Order, this Appeal was preferred with the NCLAT by the Liquidator of Surana Power.
During the liquidation proceedings, BHEL won an ex-parte arbitration award against Surana Power, which gave it lien over all the equipment and goods lying at the latter’s unit.
The NCLAT held that the Secured Creditors with 73.76% in value have already relinquished the Security Interest into the liquidation estate. Thus, it would be prejudicial to stall the liquidation process at the instance of a single creditor having only 26.24% share (in value), in the secured assets. The Respondent does not hold a superior charge from the rest of the Secured financial creditors in the secured Assets.
The SARFAESI Act was applied in this case and the decision of 73.76% of majority Secured Creditors, who have relinquished the Security Interest was held to be binding on the dissenting secured creditors, i.e. BHEL.
The NCLAT further held, “The Respondent – BHEL can realise a Security Interest as per provision Section 13(9) of the SARFAESI Act. Since the Respondent does not have a requisite 60% value in Secured Interest, therefore, the Respondent does not have the right to realize its security interest, because it would be detrimental to the Liquidation process and the interest of the remaining ten Secured Creditors.” The appeal was allowed and the Liquidator was allowed to complete the Liquidation process.
Justice Venugopal M – Member (Judicial); V. P. Singh – Member (Technical) and Shreesha Merla – Member (Technical) presided over the case.