Secured Creditor Cannot Enforce Security After Statutory Timeline Under Regulation 21A: NCLT Mumbai

The Mumbai Bench of the National Company Law Tribunal (NCLT) on 10 June held that compliance with the timelines prescribed under Regulation 21A of the IBBI (Liquidation Process) Regulations is mandatory and that a secured creditor cannot be permitted to realise its security interest after failing to exercise its option within the stipulated period.

Judicial Member Lakshmi Gurung and Technical Member Hariharan Neelakanta Iyer dismissed an application filed by Vishweshwar Sahakari Bank Ltd, which had sought permission to realise its security interest over the assets of Pratibha Krushi Prakriya Ltd under Section 52 of the Insolvency and Bankruptcy Code. The Bench held:

“The scheme and objective of the Code is to conclude various activities within time-bound process. The compliance of the timelines in Regulation 21A of the Liquidation Regulations being mandatory in nature, the Applicant cannot now be permitted to realise its security interest and accordingly, the assets which are subject to the security interest become part of the liquidation estate.”

The dispute arose after Pratibha Krushi Prakriya Ltd entered liquidation on 2 February 2023. A public announcement inviting claims was issued on 8 February 2023. The liquidation order was later stayed by the NCLAT on 23 February 2023, and the stay continued until 12 December 2023. During this period, the liquidator resigned on 27 October 2023, leaving the office vacant.

A new liquidator, Prashant Jain, was appointed on 9 April 2025. The bank communicated its decision to realise its security interest only on 19 May 2025.

The Tribunal noted that although the liquidation process had remained stalled due to the vacancy in the liquidator's office, the bank failed to act within the available statutory window after the appointment of the new liquidator. It observed:

“Thus, the Applicant was very well aware of the appointment of the Liquidator on 09.04.2025. Despite that, the Applicant took no prompt action to intimate about its decision to realise its security interest or took any further step in this regard. The decision of the Applicant to realise its security interest was intimated to the Liquidator only on 19.05.2025, much after the expiry of the prescribed timeline under Regulation 21A of the Liquidation Regulations.”

The Bench also observed that the bank had not placed any material on record to show initiation of proceedings under the SARFAESI Act or the DRT Act for enforcement of its security interest. It noted:

“However, neither the Applicant has placed on record any material/document to show that any steps have been taken by the Applicant under the SARFAESI Act or DRT Act to recover/realise its security interest nor has made any submissions regarding SARFAESI proceedings.”

Accordingly, the NCLT dismissed the application and ruled that the secured assets would form part of the liquidation estate.