Secured Creditors Cannot Keep Asset Realisation Deadline Open-Ended During Liquidation Citing Recovery Proceedings: NCLT Hyderabad

The National Company Law Tribunal (NCLT), Hyderabad, has held that the statutory 180-day deadline for a secured creditor to realise its security interest during liquidation cannot be kept open-ended merely because recovery proceedings have been initiated.

“The IBC is a time-bound legislation and the statutory period prescribed under Regulation 21A of the IBBI (Liquidation Process) Regulations, 2016 cannot be kept open-ended merely on the basis of an assertion that recovery proceedings have been initiated,” the bench of Judicial Member Rajeev Bhardwaj and Technical Member Sanjay Puri observed.

The tribunal allowed an application filed by Gonugunta Murali, liquidator of Butta Infrastructure Private Limited, against LIC Housing Finance Limited. It found that the lender had neither relinquished its security interest in the Madhapur property nor established that it had realised the property within the prescribed period.

LIC Housing Finance had advanced a loan of ₹310 crore to Butta Infrastructure under a rental discounting scheme. The loan was secured by mortgages over the company's properties in Banjara Hills and Madhapur.

The corporate debtor entered liquidation on February 24, 2022. LIC Housing Finance relinquished its security interest in the Banjara Hills property but chose to recover its dues through the Madhapur property under Section 52 of the IBC.

The liquidator argued that the lender had neither relinquished its interest in Madhapur nor realised the property within the prescribed 180 days.

LIC cited proceedings under the SARFAESI Act to recover the asset. The Telangana High Court had stayed the proceedings following a challenge by lessee Meridian Educational Society. The stay was lifted on November 14, 2022.

The NCLT noted that the lender had not produced a copy of the alleged application, any order passed on it, a sale notice, auction proceedings or other documents establishing steps taken to realise the property.

The tribunal observed that even if the 180-day period were calculated from November 14, 2022, when the stay was vacated, it expired on May 13, 2023. LIC Housing Finance had failed to establish that it had realised its security interest within that period.

Holding that the lender had failed to comply with Regulation 21A, the NCLT directed that the non-relinquished secured assets not realised within the prescribed period form part of the corporate debtor's liquidation estate.