Asrec India Limited vs Divyesh Desai

ASREC (India) Ltd. ...Appellant(s) Versus

Divyesh Desai, (Liquidator of Precision Fasteners Ltd.) ...Respondent(s) Present:

For Appellant(s) : Mr. Amit Mahaliyan, Advocate for Appellant.

For Respondent(s) : Mr. Tishampati Sen, Ms. Riddhi Sancheti, Mr. Ashish Parwani, Mr. Anurag Anand Ms. Gitika Makhija & Mr. Mukul Kulhari, Advocates for Respondent. ORDER

(HYBRID MODE)

08.07.2025: This Appeal is preferred challenging the order of the

Adjudicating Authority passed in MA 520 of 2019 in CP (IB) No. 1339 of 2017.

The controversy involved in this appeal pertains to the distribution of the

liquidated assets of the Corporate Debtor under Section 53 of IBC.

2. The Appellant herein had advanced working capital to the Corporate

Debtor and holds a second charge over its fixed assets and a first charge over

the moveable assets. Apart from the appellant, there is also a term lender,

another Financial Creditor, who holds the first charge over the fixed assets of

the Corporate Debtor.

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3. CIRP under Section 7 of the IBC was initiated on 17.11.2017 against the

Corporate Debtor. However, the resolution process ended as a flop show, and

the matter accordingly proceeded to liquidation. The liquidator, who is the sole

respondent in this appeal, has since liquidated the assets of the company and

the funds thus raised has since been distributes among the creditors.

4. Before the process of distribution of funds commenced, the appellant

proposed that the sale proceeds be shared in the ratio of 70:30 as between the

first and second charge holders. However, this proposal did not find

acceptance. Subsequently, a Joint Lenders' Meeting (JLM) was held on

07.07.2017, wherein the participating lenders agreed to share the proceeds in

the ratio of 80:20 between the first and second charge holders. This

arrangement was not agreed to by the appellant. Effectively, no consensus was

reached among the same class of lenders for distribution of the sale proceeds.

Given the positions with respect to distribution, the Adjudicating Authority,

vide its order dated 12.02.2019, had directed the Respondent/Liquidator to

distribute the funds strictly in accordance with the provisions of the IBC.

5. This order was challenged by the present appellant in Company Appeal No.

303 of 2020, and this Tribunal remanded the matter back to the Adjudicating

Authority. It was observed by this Tribunal that it was not clear whether there 3

had been any agreement between different classes of Financial Creditors

regarding the sharing of the funds. However, this order underscored that the

appellant was entitled to know what it would be entitled to receive.

6. On Remand, the Adjudicating Authority, vide the impugned order,

categorically recorded that there had never been any agreement between the

first and second charge holders regarding the ratio in which funds were to be

shared. It, therefore, directed that the distribution be made in accordance with

Section 53 of the IBC. However, the Adjudicating Authority added a further

qualification in the last paragraph and it reads as below:

"In view of the above, it is clearly discernable that the first charge holder had not agreed to the distribution in terms of ratio as submitted by the Applicant and that the proposition only remained a proposal. Hence, in the absence of any terms agreed upon by the lenders amongst themselves to distribute the proceeds in any other manner, the proceeds has to be distributed in terms of Section 53 of the Code after taking into account the inter se priorities as held in the proceeding paras. proceeding paragraphs"

The phrase is said to have created a problem in the sense that it only re-

opens the issue "after taking into account the inter se priorities as held in the

preceding paragraphs." as to the ratio in which funds has to be shared,

whether it should be in the ratio of 70:30 or 80:20. This added sentence has

led to the filing of the present appeal.

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7. The learned counsel for the Liquidator submitted that as per his

instruction the liquidator has fully disbursed the funds. There appears to be a

lack of clarity as to when exactly the disbursement of funds are made by the

liquidator since according to the liquidator such disbursement has taken place

in 2020-2021, whereas the learned counsel for the appellant would submit that

it was so done during the pendency of the present appeal after the impugned

order passed was by the Adjudicating Authority. This issue however, is not very

germane for deciding the present appeal.

8. Reverting back to the submissions of the counsel for the liquidator he

submitted that distribution followed the principal stated in Jammu &

Kashmir Bank Limited Vs. Jitendra Kumar Jain, Liquidator of Roofit

Industries Limited IA No. 2674 of 2021 in CP(IB) No. 1055 of 2017 more

particularly paragraph 25 thereof. He however submitted that subsequently

this Appellate Tribunal had taken a contrary view in State Bank of India Vs.

IDBI and Anr. in Comp. App (AT) (Ins) 321 of 2024 but the judgment in

State Bank of India case has been stayed by the Hon'ble Supreme Court. He

submits that the liquidator has done his job as per the water fall mechanism

provided under Sec 53 IBC and also as per the governing principles ruling the

field.

9. The issue before this Appellate Tribunal is not how the liquidator has

distributed the assets or how Section 53 IBC must be understood in the

context of distribution of funds between the first charge holder and the second

charge holder. The point is whether there is a need for the last line of 5

paragraph 23 of the impugned order "as held in the proceeding paras.

Proceeding paragraphs" is required.

10. The Order of the Adjudicating Authority is in order when it directed that

the distribution be made in accordance with Sec 53 of the Code. However, the

phrase "after taking into account the inter se priorities as held in the preceding

paras" raises a concern, as it may be construed as reopening the issue

regarding the distribution of funds in the ratio of 70:30 or 80:20. We are of the

view that the Order would remain intact and consistent with the provisions of

the IBC even without that last sentence.

11. We accordingly confirm the order of the Adjudicating Authority dated

16.01.2025, subject to the modification of deleting the following phrase in the

last sentence of paragraph 23, which will now read:

"Hence, in the absence of any terms agreed upon by the lenders amongst themselves to distribute the proceeds in any other manner, the proceeds has to be distributed in terms of Section 53 of the Code."

12. This appeal is hereby disposed of accordingly.

[Justice N. Seshasayee] Member (Judicial)

[Arun Baroka] Member (Technical) Shweta/AB