2026 Supreme(Online)(NCLT) 3222

NATIONAL COMPANY LAW TRIBUNAL
Vinay Goel, Judicial Member, Ravichandran Ramasamy, Technical Member
Meenachil East Urban Co-operative Bank Limited – Appellant
Versus
Mahalingam Suresh Kumar – Respondent
IA(IBC)/1/KOB/2025|IBA/240/KOB/2019

Distribution of liquidation proceeds among secured creditors who have relinquished their security interest must be determined by the value of the specific security interest held, rather than the total admitted debt. Clarificatory amendments regarding this methodology apply retrospectively to pending liquidation proceedings.

Headnote:(A) Insolvency and Bankruptcy Code, 2016 - Sections 52 and 53 - Liquidation process - Distribution of proceeds - Secured creditors who have relinquished security interest under Section 52(1) are entitled to distribution under Section 53(1)(b) based on the value of their respective relinquished security interests and not merely on the basis of admitted debt or proportionate voting share. (Paras 18, 21, 23)

(B) Statutory Interpretation - Clarificatory amendment - The explanation inserted to Section 53(1)(b) clarifying that distribution shall be with reference to the value of the security interest relinquished is retrospective in nature as it is intended to remove doubts and clarify the true import of the provision. (Paras 22, 23)

(C) Liquidation - Professional conduct - Allegations of fraud, misconduct, and irregularities against a liquidator require cogent material evidence; mere suspicion, conjectures, or dissatisfaction with the distribution outcome are insufficient to warrant disciplinary proceedings or enquiry. (Paras 24, 25)

Facts of the case:
The Applicant, a secured financial creditor, challenged the liquidator’s distribution of proceeds from the sale of assets of the corporate debtor. The applicant contended that the distribution was contrary to the statutory waterfall mechanism, arguing that proceeds should have been shared pro-rata based on admitted debt rather than the value of the underlying security interest. The applicant also alleged that the liquidator’s expenses and fees were excessive and unjustified, seeking a probe into the liquidator's conduct.

Findings of Court:
The Court held that the distribution methodology adopted by the liquidator, which relied on the value of the specific security interest held by each creditor, was in compliance with the statutory framework. The Court further observed that the amendment to the relevant provision was clarificatory, thus applying to the instant case. The allegations of misconduct were deemed unsubstantiated, and the challenge to the valuation reports was rejected as the applicant had acquiesced to the process during the stakeholder committee meetings.

Issues: (1) Whether the distribution of liquidation proceeds for creditors who have relinquished security must be based on the admitted claim amount or the value of the relinquished security interest. (2) Whether the amendment clarifying the distribution mechanism applies retrospectively. (3) Whether the liquidator’s fees and expenses were excessive and if the applicant established a case for disciplinary intervention.

Ratio Decidendi: The court clarified that under the statutory scheme, the value of the security interest relinquished is the material factor for distribution among secured creditors. Since the amendment clarifying this was declaratory and intended to remove doubts, it applies to pending proceedings. Furthermore, lacking concrete evidence of fraud or mala fides, a liquidator's actions in conducting the process and calculating costs cannot be challenged based purely on subjective dissatisfaction.

Result: Application dismissed.