Calcutta High Court Sets Aside Order Treating WBIDC As Unsecured Creditor In Eastern Explosives Liquidation

The Court held that once charge documents were submitted prior to adjudication of claims, the official liquidator was bound to consider WBIDC as a secured creditor.

“A creditor, of a company (in liquidation) is classified on the basis of the charge that existed in respect of the assets put up for sale. In the facts and circumstances of the present case, therefore, the Official Liquidator is required to treat the appellant as a secured creditor, in view of the documents submitted by the appellant with it.”, the bench observed.

A division bench of Justices Debangsu Basak and Md. Shabbar Rashidi heard the appeal arising from a single judge's order dated September 18, 2019.

Eastern Explosive and Chemicals had been directed to be wound up on July 29, 1997 following a reference before the Board for Industrial and Financial Reconstruction (BIFR). Pursuant to the winding up, the official liquidator invited claims from creditors. WBIDC lodged its claim asserting that a charge had been created over the company's movable and immovable properties as early as March 3, 1983.

By a letter dated January 17, 2015, the liquidator informed WBIDC that its claim was not accompanied by charge documents. WBIDC forwarded the charge documents on February 2, 2015 and followed it up on February 11, 2015.

However, when claims were adjudicated on November 3, 2016, the official liquidator treated WBIDC as an unsecured creditor and admitted only Rs 1.82 lakhs.

The high court found that the charge documents had been submitted prior to adjudication of claims. In such circumstances, the court said, the official liquidator erred in ignoring them and in classifying WBIDC as unsecured. It further noted that expenses incurred towards safeguarding assets in liquidation are to be treated as priority claims.

Accordingly, the division bench set aside the impugned order and the official liquidator was directed to re-adjudicate WBIDC's claim after granting opportunity of hearing. The court made it clear if any excess amounts were disbursed to other creditors, the liquidator would be at liberty to seek refund and take appropriate steps in accordance with law.

For Appellant: Senior Advocate Jaydip Kar with Advocates Debdeep Sinha, Dibanath Dey

For Official Liquidator: Advocate Tanushree Dasgupta

For P.F. Authorities: Advocate Shiv Chandra Prasad

For LICI: Advocate Sanjukta Ray

For Asset Reconstruction Company India: Advocates Rohit Das, Kishwar Rahman, Divya Tekriwal