Principal Bench affirms that secured creditors must timely and clearly exercise their rights under IBC Section 52 and Regulation 21A; participation in liquidation process inconsistent with later claim to stand outside liquidation estate.
In a significant ruling dated October 6, 2026, the National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, dismissed Tata Capital Limited's appeal seeking to exclude hypothecated assets from the liquidation estate of a corporate debtor and realize them independently. The appellant, Tata Capital Limited, a secured financial creditor, had contended that it held valid hypothecation over specific equipment of the corporate debtor and had not relinquished its security interest. It argued that it was entitled to realize its secured assets outside the liquidation estate under Section 52 of the Insolvency and Bankruptcy Code (IBC), 2016.
The corporate debtor had undergone liquidation after the rejection of a resolution plan, and the liquidation process was underway under the supervision of the liquidator, Mr. Sanjay Mahajan. Tata Capital had filed its claim in Form D but had mentioned "NIL" in the details of security held (Serial No. 8) and "No" against relinquishment of security interest (Serial No. 8A). The liquidator included the assets in the liquidation estate and initiated the sale process. Tata Capital's delayed written communication asserting its rights came more than six months after the liquidation commencement date and after the failure of a compromise scheme under Section 230 of the Companies Act, 2013.
The NCLAT upheld the National Company Law Tribunal's (NCLT) order refusing to exclude the assets from the liquidation estate. The Tribunal reasoned that the existence of security interest and the exercise of the statutory option under Section 52 to realize that security outside the liquidation estate are distinct. Timely and unequivocal communication of the option is mandatory, and Tata Capital's entries in Form D did not amount to a clear election within the prescribed thirty-day period.
Further, Tata Capital's active participation in the Stakeholders' Consultation Committee (SCC), exercising voting rights and involvement in deliberations on the compromise scheme, was held to be inconsistent with a claim to stand outside the liquidation estate. The Tribunal clarified that participation in the SCC is relevant conduct demonstrating the creditor's engagement with the liquidation process, and one cannot simultaneously participate and preserve an option to withdraw secured assets later depending on the outcome of a scheme.
The Tribunal also rejected Tata Capital's submission that the pendency of the Section 230 compromise scheme extended the time for election under Regulation 21A, holding that statutory timelines under the IBC and regulations are mandatory and not suspended by other proceedings.
The judgment reaffirmed that the secured creditor's failure to make a clear election within the prescribed time results in the assets being deemed relinquished to the liquidation estate, and the liquidator is entitled to treat and realize those assets as part of the estate.
In conclusion, the NCLAT dismissed the appeal, affirming the NCLT's order dated April 13, 2026, and held that Tata Capital is not entitled to exclusion of the hypothecated assets from the liquidation estate or to realize the assets outside the liquidation process based on belated communication.
This ruling underscores the importance of strict compliance with procedural requirements under the IBC and its regulations for secured creditors wishing to exercise rights under Section 52, reinforcing the liquidation process's integrity and timeline.
Bottom Line:
Insolvency and Bankruptcy Code, 2016 - Secured creditor must clearly and timely exercise option under Section 52 read with Regulation 21A to realize security interest outside liquidation estate - Mere existence of security documents or belated email after failure of compromise scheme does not suffice - Participation in Stakeholders' Consultation Committee and liquidation process is relevant conduct inconsistent with later claim to stand outside liquidation estate.
Statutory provision(s):
Insolvency and Bankruptcy Code, 2016 Section 52; IBBI (Liquidation Process) Regulations, 2016 Regulations 21A, 31A(2), 39BA; Companies Act, 2013 Section 230
