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NCLAT applies SARFAESI Act to break deadlock in Insolvency Process

In Liquidator of Surana Power Limited vs Bharat Heavy Electricals Limited, a deadlock was created by the refusal of the Respondent to release its charge of secured assets so that the Liquidator can sale the assets.

The Respondent won an arbitration award allowing lien on assets on which several other creditors were already holding charge. The Liquidator asked for direction from the NCLAT to break the deadlock.

The NCLAT observed that the Learned Adjudicating Authority has rejected the Application mainly on the ground that BHEL is a Secured Creditors, entitle to proceed under Section 52 to realize its Security Interest. The Appellant Liquidator cannot cause the sale of asset filing under Section 52 in the manner as specified under Section 53 of the Code unless the charge holder relinquishes the Security Interest. The Adjudicating Authority has held that the Respondent's lien has a preference over the charge created in favour of the remaining Secured Financial Creditors.

It is essential to point out that the Adjudicating Authority has failed to appreciate that all the Secured Creditors are on the same footing regardless of the mode of creation of charge.

t is pertinent to mention that the Respondent is also a Secured Creditor at par with the remaining ten other Secured Creditors. Enforcement of security interest is governed by the SEC 13 of the SARFAESI Act. As per terms of Section 13(9) of the SARFAESI Act, 2002 any steps about the realization of assets by the Secured Creditors requires confirmation from the Creditors having at least 60% of the value of total debt.

In the present case, the Secured Creditors which 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 above provision of SARFAESI Act will be applicable in this case to end this deadlock, and the decision of 73.76% of majority Secured Creditors, who have relinquished the Security Interest shall also be binding on the dissenting secured creditors, i.e. Respondent.

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