Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2026 Supreme(Online)(NCLT) 1975

NATIONAL COMPANY LAW TRIBUNAL
Mohan Prasad Tiwari, Member (Judicial), Charanjeet Singh Gulati, Member (Technical)
State Bank of India – Appellant
Versus
Ram Singh Setia – Respondent
IA/5535/2024 | C.P. (IB)/1023(MB)/2021 | CP (IB) NO. 1023 of 2021

Advocates:
For the Appellants/Petitioners: Subir Kumar, Vaishnavi Pawar, Ashita Aggarwal

Secured creditors relinquishing security under Section 52 rank equally under Section 53(1)(b)(ii) for pro rata distribution of liquidation proceeds, without inter se priority based on prior charges.

Headnote:(A) Insolvency and Bankruptcy Code, 2016 - Sections 52, 53, 60(5) - Transfer of Property Act, 1882 - Section 48 - Liquidation - Distribution of proceeds - Secured creditors relinquishing security interest under Section 52(1)(a) rank equally under Section 53(1)(b)(ii) without inter se priority or ranking based on pre-existing charges - Section 53 contains non-obstante clause overriding prior arrangements; pro rata distribution in proportion to admitted claims mandatory upon relinquishment - Insolvency Law Committee Reports recommendatory only, not binding absent statutory amendment. (Paras 23-26, 31, 36)

(B) Interpretation of statutes - Non-obstante clause in Section 53(1) prevails over Section 48 of Transfer of Property Act and pre-Code agreements - Upon relinquishment, secured creditors form single class for pari passu distribution from common pool, extinguishing individual enforcement rights over specific assets. (Paras 25, 33)

Facts of the case:
Interlocutory application by secured financial creditor seeking directions to liquidator for distribution of liquidation proceeds per inter se charge priorities (first over specific assets), challenging liquidator's proposal for pro rata distribution among secured creditors based on admitted claims. All secured creditors had relinquished security interests to liquidation estate; working capital agreement evidenced charge rankings.

Findings of Court:
Liquidator's decision to distribute proceeds pro rata among secured financial creditors in proportion to admitted claims upheld as per Section 53(1); inter se priorities inapplicable post-relinquishment.

Issues: Whether Section 53 preserves inter se priorities among secured creditors who relinquished security interests; effect of relinquishment under Section 52 on pre-existing charge rankings; binding nature of inter-creditor agreements in liquidation waterfall.

Ratio Decidendi: Section 53(1)(b)(ii) mandates equal ranking for secured creditors relinquishing under Section 52, without sub-classification; overrides prior charges per non-obstante clause and statutory scheme promoting collective pari passu distribution; recommendations in Insolvency Law Committee Reports not incorporated into Code hence non-binding. (Paras 25-26, 36)

Result: Interlocutory application dismissed.

Table of Content
1. background of cirp, liquidation, and creditor claims. (Para 1 , 2 , 3 , 4 , 5 , 6)
2. liquidator's sale and proposed pro-rata distribution. (Para 7 , 8 , 9 , 10)
3. applicant's argument for inter-se priority. (Para 11 , 12 , 13 , 14)
4. liquidator's argument for pari-passu under section 53. (Para 15 , 16 , 17 , 18 , 19)
5. summary of parties' contentions. (Para 20 , 21 , 22)
6. relinquishment under section 52 ends inter-se priority. (Para 23 , 24 , 25 , 26)
7. judicial precedents support pro-rata distribution. (Para 27 , 28 , 29)
8. ilc reports advisory, not binding. (Para 30 , 31)
9. section 53 overrides pre-ibc priority laws. (Para 32 , 33 , 34 , 35)
10. pro-rata distribution upheld; ia dismissed. (Para 36)

ORDER

IA NO. 5535 of 2024

1. This Interlocutory Application has been filed on 20.09.2024 by State Bank of India (“the Applicant”) under Section 60(5) of the Insolvency and Bankruptcy Code, 2016 (“the Code”), seeking directions to the Liquidator to distribute the liquidation proceeds of the Corporate Debtor in accordance with the inter-se priorities of the secured creditors, duly recognizing the exclusive first charge created in favour of the Applicant. The Applicant further prays for setting aside the decision of the Liquidator with respect to distribution of liquidation proceeds as placed before the Stakeholders’ Consultation Committee in its 18th meeting, and for an order directing maintenance of status quo with regard to distribution of the liquidation proceeds during the pendency of the present application.

Brief Facts of the case:

2. State Bank of India (‘the Applicant) is a secured Financial Creditor of the Gajanan Solvex Ltd, having extended an aggregate sum of Rs. 44.39 Crores towards Cash Credit and Term Loan facilities (Cash Credit facility of Rs. 34.99 Crore and a Term Loan facility of Rs. 9.40 Crore). The Applicant holds a first pari passu charge over the land, building, plant and machinery situated at Village Sujatpur, along with a second pari passu charge over the fixed assets of the Gajanan Solvex Ltd including the Buldhana unit, and in respect of the Cash Credit facility, a first charge over the current assets of the Gajanan Solvex Ltd. Janata Sahakari Bank (‘JSB’) and Indian Bank (previously ‘Allahabad Bank’) are other secured creditors holding a second pari passu charge over the fixed assets and a first charge over the current assets, but no charge over the Sujatpur Property.

3. The Adjudicating Authority vide order dated 20.07.2022 in CP (IB) NO. 1023 of 2021, admitted the Company Petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 (‘the Code’) filed by the Applicant for initiation of corporate insolvency resolution process (‘CIRP’) of Gajanan Solvex Ltd. (‘Corporate Debtor’) which culminated in the passing of liquidation order dated 01.03.2023 in IA No. 301/2023 and appointed Mr. Ram Singh Setia (‘the Respondent’) as the liquidator of Corporate Debtor.

4. The Applicant filed its claim of Rs. 81.44 crores (inclusive of Interest and other charges) in Form D dated 29.03.2023 and is a member of the Stakeholder’s Consultation Committee (‘SCC’) of the Corporate Debtor, holding 35.49% of voting share.

5. The Respondent proposed to distribute the liquidation proceeds among the secured financial creditors, namely the Applicant, Janata Sahakari Bank and Indian Bank, in proportion to their admitted claims, disregarding the inter se priority among them.

6. The present Interlocutory Application dated 20.09.2024 has been filed under Section 60(5) of the Insolvency and Bankruptcy Code, 2016 by the Applicant seeking directions to the Respondent/Liquidator to distribute the liquidation proceeds of the Corporate Debtor in accordance with the inter se priorities among the secured creditors.

Submission of the Applicant, in Brief:

7. The Applicant submits that, pursuant to the order dated 01.03.2023 passed by the Adjudicating Authority, it duly filed its claim for an amount of Rs.81.44 crores before the Liq

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2026 Supreme(Online)(NCLT) 1975

NATIONAL COMPANY LAW TRIBUNALMohan Prasad Tiwari, Member (Judicial), Charanjeet Singh Gulati, Member (Technical)State Bank of India – AppellantVersusRam Singh Setia – RespondentIA/5535/2024 | C.P. (IB)/1023(MB)/2021 | CP (IB) NO. 1023 of 2021

Secured creditors relinquishing security under Section 52 rank equally under Section 53(1)(b)(ii) for pro rata distribution of liquidation proceeds, without inter se priority based on prior charges.

Cases Referred (1)

NATIONAL COMPANY LAW TRIBUNAL
Mohan Prasad Tiwari, Member (Judicial), Charanjeet Singh Gulati, Member (Technical)
State Bank of India – Appellant
Versus
Ram Singh Setia – Respondent
IA/5535/2024 | C.P. (IB)/1023(MB)/2021 | CP (IB) NO. 1023 of 2021