NCLT Mumbai Denies Tata Capital Bid To Enforce Security After Participating In Jans Copper Liquidation

The National Company Law Tribunal, Mumbai Bench, has dismissed a plea by Tata Capital Financial Services Ltd. in the liquidation of Jans Copper Pvt. Ltd.

It held that the creditor cannot later seek to enforce its security after participating in the liquidation process and failing to clearly state its position.

The bench of Judicial Member K.R. Saji Kumar and Technical Member Anil Raj Chellan held that the creditor failed to comply with the requirement of clearly communicating its decision regarding its security interest.

“Under Section 52 of the Code, the Applicant being the secured creditor had the option to either relinquish its security interest to the liquidation estate and receive proceeds from the sale by the Liquidator of the assets or to realise its security interest. Under Regulation 21A of the Liquidation Process Regulations, the Applicant had to inform the Liquidator of its decision, inter alia, to realise its security interest. However, the Applicant has not duly discharged its obligation in Form D.”

Tata Capital had sought exclusion of certain hypothecated machinery from the liquidation estate and their handover for independent realisation, claiming it had not relinquished its security.

The corporate debtor entered liquidation on August 13, 2024, after failure of the resolution process, and Tata Capital submitted its claim in Form D on October 1, 2024.

The tribunal found ambiguity in the claim form, noting that while the creditor stated it had not relinquished its security, it declared “NIL” under details of security.

“In the present case, it is observed that in Form D at serial number 8, the Applicant has stated the details of security held, the value of security, and the date it was given, as “NIL”. However, at serial number 8A, where the Form asks whether the security interest is being relinquished, the Applicant has answered 'No'. In our view, serial numbers 8 and 8A are complementary and, when read together, give the impression that the Applicant has not indicated any security it proposed to relinquish.”

The tribunal also noted that the creditor actively participated in Stakeholders' Consultation Committee meetings and exercised voting rights, which was inconsistent with its claim of standing outside the liquidation process.

“It is an admitted fact that the Applicant actively participated in SCC meetings and exercised voting rights. As per the first proviso to Regulation 31A(2), a secured creditor who has not relinquished its security interest under Section 52 of the IBC is not eligible to be a member of the SCC ”

It further found that the creditor sought to enforce its security only after rejection of a compromise scheme, about six months after liquidation commenced, and had not complied with the requirements under the regulations.

“There is nothing on record to show that the Applicant has complied with the requirements set out in Regulation 21A(2) in the present matter.”

Holding that the creditor's delayed assertion of rights and inconsistent conduct disentitled it from exercising the option at such a stage, the tribunal dismissed the application.