NCLAT Delhi Rejects STCI Challenge In IMP Powers Liquidation, Upholds NCLT Jurisdiction On Section 53

The New Delhi Bench of the National Company Law Appellate Tribunal (NCLAT) on 27 April, dismissed STCI Finance Limited's appeals challenging the liquidation process of IMP Powers Ltd., holding that while the Liquidator's inclusion of STCI's assets in the liquidation estate was valid, STCI failed to establish any illegality warranting interference with the process.

A Bench comprising Chairperson Justice Ashok Bhushan and Technical Member Indevar Pandey further held that disputes over the distribution of sale proceeds under Section 53 of the Insolvency and Bankruptcy Code (IBC) must first be adjudicated by the National Company Law Tribunal (NCLT) before the appellate forum can examine them. It observed:

“We are of the view that the scheme of the Insolvency and Bankruptcy Code, 2016 clearly envisages that matters relating to determination of claims, classification of creditors, and distribution of proceeds under Section 53 are to be adjudicated by the Adjudicating Authority in the first instance.”

The appellant filed three appeals arising out of the liquidation proceedings of IMP Powers Ltd., challenging three separate orders passed by the Ahmedabad Bench of the NCLT.

STCI, a Non-Banking Financial Company registered with the Reserve Bank of India, extended a term loan of Rs 25 crore to IMP Powers in 2017–18. It secured the loan through a purported first pari passu charge over fixed assets along with State Bank of India, Respondent No. 5.

After the borrower defaulted, STCI initiated proceedings under Section 7 of the Insolvency and Bankruptcy Code, which led to the admission of the Corporate Debtor into CIRP in March 2022. After the resolution process failed, the NCLT ordered liquidation in December 2023 and appointed Mr. Ravindra Kumar Goyal as Liquidator.

STCI filed its claim of Rs 39.55 crore in January 2024 and stated that it would not relinquish its security interest. However, the Liquidator treated the assets as part of the liquidation estate and issued an e-auction notice in March 2024 for the sale of the Corporate Debtor as a going concern. STCI challenged these actions before the NCLT and then before the NCLAT.

In the first appeal, STCI challenged the NCLT order dated 22 April 2024, which rejected its request to enforce security independently. The NCLAT examined whether the Liquidator lawfully included STCI's secured assets in the liquidation estate.

The Tribunal held that STCI failed to perfect its pari passu charge, since it did not execute inter-se agreements or obtain the necessary NOCs from consortium lenders. It further held that STCI did not comply with Regulation 21A of the Liquidation Regulations, including the requirement to deposit CIRP costs and workmen dues within 90 days if it chose to stand outside liquidation. It observed:

“In light of the above, we hold that the Appellant, despite asserting its intention not to relinquish its security interest, failed to comply with the mandatory statutory requirements necessary to give effect to such intention. Its failure to initiate enforcement proceedings; failure to pay CIRP and liquidation costs within the prescribed period; failure to intimate realization value; and non-participation in the liquidation process collectively establish that the Appellant did not validly exercise its rights under Section 52.”

Accordingly, the Bench dismissed the first appeal.

In the second appeal, STCI challenged the NCLT order dated 20 August 2024, which directed issuance of a sale certificate to the successful auction purchaser. STCI argued that the authorities should have first determined the distribution of sale proceeds.

The NCLAT noted that the auction attained finality and the purchaser deposited the full consideration of Rs 78 crore. It held that issuance of the sale certificate followed as a consequential step. However, it clarified that the NCLT still needed to decide distribution under Section 53 of the IBC and that the appellate tribunal could not decide that issue at this stage. The Bench observed:

“However, since the issue of distribution is already pending adjudication before the Adjudicating Authority, we find that it would not be appropriate for us to undertake such determination at this stage.”

Accordingly, while it upheld the sale certificate, the Tribunal remanded the matter to the NCLT to decide distribution within four weeks.

In the third appeal, STCI challenged the NCLT order dated 5 November 2024, which granted Section 32A immunity and concessions to the successful purchaser without hearing financial creditors. STCI filed the appeal with a delay of 171 days.

The Tribunal held that Section 61 of the IBC prescribes a limitation period of 30 days, extendable by 15 days, and that it lacked jurisdiction to condone delay beyond the statutory limit. It further held:

“The contention that the impugned order forms part of a continuing cause of action or that its consequences were realized subsequently cannot be accepted to extend the statutory limitation period. Each order passed by the Adjudicating Authority gives rise to an independent cause of action, and limitation is to be computed from the date of such order”

Accordingly, the NCLAT dismissed the third appeal as barred by limitation.

For Appellants: Senior Advocate Arun Kathpalia with Advocates Surekha Raman, Sidharth Nair, Diksha

For Respondents: Senior Advocate Krishnendu Dutta, Samaksh Goyal, Alin Merin Mathew, Senior Advocate Abhijeet Sinha with Advocates Malavika, Harshit Khare, Prafful Saini, Ayuj Agarwal, Brijesh Gupta for SBI