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Sale Proceeds ought to be distributed as provided under Sec. 53 of the Insolvency & Bankruptcy Code


The National Company Law Appellate Tribunal (NCLAT), New Delhi Bench comprising Justice Anant Bijay Singh, Judicial Member and Ms. Shreesha Merla, Technical Member was hearing an Appeal on Thursday and held that the Adjudicating Authority had rightly observed the Sale Proceeds ought to be distributed as provided for under Section 53 of the Insolvency and Bankruptcy Code and the Appellant was estopped from claiming any part over the asset which had already been sold.


In the present Appeal, the Appellant Bank challenged the order of the Adjudicating Authority (AA), wherein the Adjudicating Authority dismissed the application of the Appellant Bank to release the money realized from the sale of the vehicle which was stated to be hypothecated to the Appellant Bank. The Appellant was seeking the direction of the Appellate Authority to the Liquidator.


The Appellate Authority found force in the contention of the Counsel for the Liquidator that in the Books of Account of the ‘Corporate Debtor’ there was no clarity regarding the particulars of each vehicle and the details of its financing and at any given point of time, there would be finance facilities being utilized from different Financial Institutions and the same was being repaid when the receipts came from the actual buyer of the vehicles and hence the Secured Financial Creditors was construed to have a joint charge over the Sale Proceeds as they have collectively relinquished the Security Interest as there was no discernible way to determine the specific inventory financed by them individually.


The Appellate Authority noted that having categorically mentioned ‘No’ in Form ‘D’, the Sale Proceeds could not become part of the Liquidation Estate. It was seen from the record that the proof of Claim in Form-‘D’ was dated 24.07.2020, whereas the Order of Liquidation was passed, much prior to that on 26.06.2020 and there were no vehicles in existence as on 26.06.2020.


It was observed that the Corporate Debtor had given its unequivocal assent in the CoC Meetings with respect to the sale of vehicles during the CIRP Process without any objection, and had not chosen to realize the Security Interest in accordance with Section 52 of the Code, either through the records of Information Utility or RoC and specifically keeping in view that the subject vehicles were already sold. The proceeds from the sale of the vehicles had already been distributed between the Secured Financial Creditors in proportion to their ‘debt’. The Appellant has already received its share of the proceeds on 01.03.2021.


The Appellate Authority were of the earnest view that the Adjudicating Authority had rightly observed the Sale Proceeds ought to be distributed as provided for under Section 53 of the Code and the Appellant was estopped from claiming any part over the asset which had already been sold.


For all the aforenoted reasons, the Appeal was dismissed.


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