Strict Compliance with Regulation 21A May Be Relaxed if Liquidator Delays Communication: NCLAT Clarifies Secured Creditor's Right under Section 52 IBC
- REEDLAW
- Aug 7
- 4 min read
Updated: Aug 12
REEDLAW Legal News Network reports that the NCLAT has clarified that a secured creditor’s rights under Section 52 of the IBC may be preserved even when the strict 90-day compliance under Regulation 21A(2)(a) is missed, if the delay is due to the liquidator’s failure to timely communicate asset identification.
The National Company Law Appellate Tribunal (NCLAT), New Delhi Bench, comprising Justice Mohd. Faiz Alam Khan (Judicial Member) and Mr. Arun Baroka (Technical Member), while adjudicating a Company Appeal, held that the 90-day timeline under Regulation 21A(2)(a) of the IBBI (Liquidation Process) Regulations, 2016, is mandatory in nature. However, if the liquidator fails to communicate the identification of secured assets within a reasonable time, such a delay may justify a relaxation of the timeline, thereby permitting a secured creditor to deposit its dues under Section 53 of the IBC after realisation of the security interest.
The National Company Law Appellate Tribunal (NCLAT), while adjudicating an appeal under Section 61 of the Insolvency and Bankruptcy Code, 2016, set aside the order passed by the NCLT, New Delhi Bench, which had rejected a secured creditor’s plea to deposit liquidation dues after realising its security interest. The appellant bank, having submitted a claim of over ₹87 crore, had opted to enforce its security under Section 52 of the IBC. The core issue pertained to the interpretation and application of Regulation 21A(2)(a) of the IBBI (Liquidation Process) Regulations, 2016, which mandates that secured creditors must deposit dues as per Section 53 within 90 days of the liquidation commencement date.
The Tribunal critically examined the sequence of events, observing that although the liquidator claimed to have approved the identification of secured assets on 30.07.2022, this decision was only communicated to the appellant via email on 09.08.2022—just six days before the 90-day statutory deadline of 15.08.2022. The NCLAT held that the appellant could not be penalised for this delay, which arose due to the liquidator’s failure to communicate in time. The Tribunal concluded that this short notice window was insufficient for effective realisation of security or timely contribution of dues, thereby justifying interference with the NCLT's order.
In the backdrop of this delay, the appellant had filed IA No. 4610 of 2022 seeking various reliefs, including permission to proceed with the sale of secured assets and defer payment of ₹1.07 crore towards liquidation costs and workmen dues until the security was realised. It also challenged the liquidator’s communications as null and void and denied liability to pay gratuity and provident fund dues, contending that such dues do not fall within the liquidation estate. However, the Tribunal found that the appellant’s intent was to delay compliance with Regulation 21A and that it had not sought any formal extension of time either before the NCLT or the NCLAT.
The NCLAT reiterated the principle that compliance with Regulation 21A is mandatory, and payment obligations under Section 53 must be discharged within 90 days from the liquidation commencement date, irrespective of whether security is realised. The Tribunal held that Regulation 21A(2) creates an independent statutory obligation, and the failure to comply results in automatic vesting of the secured assets in the liquidation estate. It rejected the appellant’s claim that the 90-day period should begin from the date of receipt of the cost estimate, stating that the liquidation commencement date remains the only relevant trigger point.
While assessing earlier jurisprudence, the Tribunal relied on precedents such as State Bank of India v. Navjit Singh, SIDBI v. Vijender Sharma, and Phoenix ARC v. Kuldeep Verma, which consistently upheld the requirement for upfront payment of liquidation dues even when secured creditors choose to enforce security outside the liquidation estate. The NCLAT also referred to its previous decision in Shikshak Sahakari Bank Limited v. Jagdish Kumar Parulkar, Liquidator Narendra Solvex Private Limited, REEDLAW 2024 NCLAT Del 12533, confirming that a delay in making payment results in forfeiture of the security into the common liquidation pool.
Ultimately, the Appellate Tribunal found merit in the appellant’s argument that the delay was not attributable to it but to the liquidator’s delayed communication. Accordingly, the NCLAT allowed the appeal, set aside the impugned NCLT order dated 04.02.2025, and directed that the appellant may fulfil its Section 53 obligations after realising the security interest. However, the Tribunal maintained that Regulation 21A remains mandatory in nature and that exceptions may be considered only when a genuine case of communication failure or procedural lapse is established, as in the present case.
Mr. Krishnendu Dutta Sr. Advocate, with Ms. Niti Jain, Ms. Niharika and Ms. Mahima, Advocates, represented the Appellant.
Mr. Vishal Ganda, Advocate, appeared for the Liquidator.
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