11 December 2019

Insolvency - Secured creditor opting out of liquidation process cannot sell assets to persons ineligible to be resolution applicant

NCLAT has held that a secured financial creditor while opting out of liquidation process is barred from selling secured assets to promoters or its related party or persons who are ineligible in terms of Section 29A of I&B Code.

Tribunal in SBI v. Anuj Bajpai observed that even if Section 52(4) is silent on sale of secured assets to one or other persons, the explanation in Section 35(1)(f) makes it clear that assets cannot be sold to those who are ineligible under Section 29A.

Observing that during the liquidation process assets cannot be sold to a person who is ineligible under Section 29A, it was held that the said provision will also apply to ‘secured creditor’, who opts out of Section 53.

It was observed that Liquidator is required to verify before permitting secured creditor to realize security interest and that he can always reject an application under Section 52(1)(b) read with Section 52(2) and (3) of I&B Code if it comes to his notice that secured creditor intends to sell the assets to persons ineligible under Section 29A.