Punjab National Bank directed to pay Rs.3.25 lakh balance after failing to fully contribute toward CIRP and liquidation expenses linked to Mercedes Benz car security
The National Company Law Tribunal (NCLT), Chennai Bench, has ruled that a secured creditor opting to realise its security interest under Section 52 of the Insolvency and Bankruptcy Code, 2016, cannot avoid its statutory obligation to contribute toward insolvency resolution and liquidation costs under Regulation 21A of the IBBI (Liquidation Process) Regulations, 2016.
In an order passed in IA (IBC) 1906/(CHE)/2025 in CP (IBC) 252/(CHE)/2022, the Tribunal directed Punjab National Bank (PNB) to pay Rs.3,25,368/- as the balance liquidation cost, after giving credit for Rs.50,158/- already paid. The application was filed by M/s. SPP Insolvency Professional LLP, acting as the liquidator.
The dispute arose after the corporate debtor was admitted into CIRP on June 15, 2023, and later ordered to be liquidated on January 19, 2024. During liquidation, PNB, a secured financial creditor, chose not to relinquish its security interest over a Mercedes Benz car belonging to the corporate debtor and instead sought to realise the asset under Section 52 of the IBC.
The liquidator demanded contribution toward CIRP and liquidation expenses, stating that the amount payable by PNB under Regulation 21A was Rs.3,75,526/-. Though the bank made a partial payment, it refused to pay the full amount, arguing that its liability should be computed only in proportion to its admitted financial debt under Regulation 2A of the Liquidation Regulations. PNB contended that, based on its 1.59% share in the total admitted debt, only Rs.69,742.75 remained payable.
Rejecting this argument, the Tribunal held that Regulation 21A is a specific provision governing secured creditors who elect to realise their security interest, while Regulation 2A is a general provision dealing with liquidation costs in a different context. The Bench observed that a secured creditor cannot invoke Section 52 to retain security and at the same time avoid the corresponding obligations under Regulation 21A.
The Tribunal also noted that the proviso to Regulation 21A(2)(a) permits the liquidator to estimate the amount payable where the actual amount is not ascertainable at the relevant stage. Therefore, the bank could not refuse payment merely because the liquidation expenses were not finally crystallised.
The order further held that non-compliance with Regulation 21A(2) triggers Regulation 21A(3), under which the secured asset becomes part of the liquidation estate. The Bench upheld the liquidator’s action in including the Mercedes Benz car in the liquidation estate after repeated demands went unanswered.
Relying on earlier rulings including Ganga Foundations Private Limited (In Liquidation) v. IFCI Limited and Suraksha Asset Reconstruction Ltd. v. Varsha Bagri, the Tribunal reiterated that Regulation 21A is mandatory in nature.
Accordingly, the NCLT allowed the application and directed PNB to pay the remaining Rs.3,25,368/- towards CIRP and liquidation costs, while granting liberty to the liquidator to seek any further amount payable in accordance with law.
Bottom Line :
Insolvency and Bankruptcy Code, 2016 - Secured creditor opting to realise security interest under Section 52 cannot avoid statutory obligation under Regulation 21A of the IBBI (Liquidation Process) Regulations, 2016 - Regulation 21A being a specific provision prevails over general contribution mechanism under Regulation 2A - Failure to pay estimated CIRP and liquidation costs as demanded by Liquidator results in secured asset becoming part of liquidation estate - Secured creditor directed to pay balance liquidation costs.
Statutory provision(s): Insolvency and Bankruptcy Code, 2016 Section 52, IBBI (Liquidation Process) Regulations, 2016 Regulation 21A, IBBI (Liquidation Process) Regulations, 2016 Regulation 2A
