Kotak Mahindra Bank Limited vs Ashok Oswal & Ors - Locus to challenge admission of claim - The Adjudicating Authority may proceed to decide I.A No. 368 of 2020 on merits after hearing the Learned Counsel for the parties at the earliest..

NCLAT (2022.04.04)  in Kotak Mahindra Bank Limited vs Ashok Oswal & Ors. [Company Appeal (AT) (Insolvency) No. 575 of 2021] held that;-

• We may also notice that in the Application I.A. No. 368 of 2020, the Respondent No.1 has challenged the acceptance of the claim of the Appellant by the Liquidator. On the other hand, the Respondent No.1 has refuted the locus of the Appellant to challenge the decision of the Liquidator accepting the claim.

• The Adjudicating Authority may proceed to decide I.A No. 368 of 2020 on merits after hearing the Learned Counsel for the parties at the earliest..

Blogger’s Comments; Here the following provision of the IBC is worth noting;

• Section 70. Punishment for misconduct in course of corporate insolvency resolution  rocess. -

• (1) On or after the insolvency commencement date, where an officer of the corporate debtor —

• XXXX

• (d) fails to inform their resolution professional the information in his knowledge that a debt has been falsely proved by any person during the corporate insolvency  resolution process; or . . .

Excerpts of the order;

# 1. This Appeal has been filed by ‘Kotak Mahindra Bank Limited’, a Financial Creditor of Corporate Debtor- ‘Oswal Spinning & Weaving Mills Limited’ seeking direction to the Adjudicating Authority to adjudicate and dispose of the Applications I.A No. 368 of 2020 and I.A No. 555 of 2020. We need to notice certain facts and events prior to filing of the Appeal and subsequent to the filing of the Appeal which are necessary to be noticed for deciding this Appeal.

# 2. The Corporate Insolvency Resolution Process (CIRP) was initiated by order dated 30.10.2018 passed by the Adjudicating Authority (National Company Law Tribunal), Chandigarh Bench, Chandigarh, in CP (IB) No. 136/Chd/Pb/2017. No Resolution Plan could be obtained. An Application under Section 33(1)(a) of the Insolvency and Bankruptcy Code, 2016 (“Code” for short) was filed by the Resolution Professional praying for an order of liquidation. The Adjudicating Authority vide its order dated 13.12.2019 allowed the Application of the Resolution Professional and directed for liquidation of the Corporate Debtor. The liquidation process started after the order dated 13.12.2019. In the liquidation, the Liquidator invited claims from the Financial Creditors. The Appellant i.e. ‘Kotak Mahindra Bank Ltd.’ as well as Respondent Nos.2 to 5, other Financial Creditors filed their claim. Liquidator partly admitted the claim of the Appellant. During the Liquidation Proceedings, I.A No. 368 of 2020 was filed by the Respondent No.1- Suspended Director of the Corporate Debtor. On the Application I.A No. 368 of 2020, the Adjudicating Authority passed an ex-parte interim order on 09.09.2020 directing the Liquidator to maintain status quo with regard to distribution of funds to the Respondent Nos.2 to 5 to the application. After the aforesaid ex-parte interim order, the Appellant- ‘Kotak Mahindra Bank Ltd.’ filed an I.A No. 555 of 2020 under Section 60(5) of the Code r/w Rule 49 of the NCLT Rules, 2016 for recall of the order dated 09.09.2020. On 21.10.2020, the Adjudicating Authority issued notice in I.A No. 555 of 2020. I.A No. 368 of 2020 and I.A No. 555 of 2020 were listed before the Adjudicating Authority on several occasions but could not be decided. The Appellant filed Company Appeal (AT) (Ins.) No.21 of 2021 seeking direction to the Adjudicating Authority to dispose of the I.A No. 368 of 2020 and I.A No. 555 of 2020 in a time bound manner which Appeal was disposed of by this Appellate Tribunal by order dated 19.01.2021 requesting the Adjudicating Authority, Chandigarh Bench to expedite the process and dispose of the same within three months. The order dated 19.01.2021 of this Tribunal was placed before the Adjudicating Authority which also took note of the order and fixed a date for hearing in February, 2021. Both the Applications I.A No. 368 of 2020 and I.A No. 555 of 2020, in spite of more than eight dates fixed before the Adjudicating Authority, remained pending. The Appellant thereafter filed present Company Appeal (AT) (Ins.) No. 575 of 2021 again seeking for direction to the Adjudicating Authority to decide the Applications I.A No. 368 of 2020 and I.A No. 555 of 2020. This Appeal was initially heard by this Appellate Tribunal and by judgment and order dated 10.08.2021 the Appeal was finally disposed of.

# 3. The Appellant aggrieved by judgment of this Tribunal dated 10.08.2021, filed an Appeal before the Hon’ble Supreme Court in Civil Appeal No. 6944 of 2021. The Hon’ble Supreme Court after hearing the Appellant took the view that this Appellate Tribunal ought not to have finally disposed of the Appeal and Appellate Tribunal could have kept the Appeal pending, while awaiting compliance from the Adjudicating Authority. The Hon’ble Supreme Court further vide its order dated 26.11.2021 restored the Company Appeal (AT) (Ins.) No. 575 of 2021 for further consideration. The Hon’ble Supreme Court observed that the Chandigarh Bench of the Tribunal is unable to hear the matter on the next date i.e. 12.01.2022 and decide the same within 15 days thereof, the Appellant Tribunal would be free to pass such other order/s as may be required, including that of modifying the ex parte interim order of the Tribunal or of withdrawing the matter from the file of Chandigarh Bench of the Tribunal and to decide itself or to assign the same to any other Bench of the Tribunal.

# 4. After judgment of the Hon’ble Supreme Court in Civil Appeal No. 6944 of 2021 dated 26.11.2021, this Appeal was restored and was taken by this Tribunal on 13.12.2021 where the Appeal was adjourned to 28.01.2022 awaiting the order of the Tribunal which was to be passed within 15 days from 12.01.2022. When the matter was again taken up by this Tribunal on 28.01.2022, Learned Counsel for the Respondent No.1 submitted that it has filed an Application to recall the order dated 26.11.2021 as per liberty given by the Hon’ble Supreme Court. Hence, the order of the Hon’ble Supreme Court be awaited. The Adjudicating Authority having fixed the matter on 24.02.2022, this Tribunal observed that the Adjudicating Authority may consider the Application for vacation of the ex parte interim order, if no order is obtained from the Hon’ble Supreme Court by the Respondent No.1.

# 5. On 14.02.2022, the Hon’ble Supreme Court dismissed the Miscellaneous Application No. 252 of 2022 filed by the Respondent No.1 in Civil Appeal No. 6944 of 2021. By order dated 14.02.2022, the Hon’ble Supreme Court again requested this Appellate Tribunal to take up the Appeal for consideration and pass such orders as may deem fit and necessary, keeping in view of the observations and expectations in the order passed by the Hon’ble Supreme Court on 26.11.2021.

# 6. After the order of the Hon’ble Supreme Court on 14.02.2022, this Appeal was again taken on 28.02.2022, when the Counsel for the parties informed that the Adjudicating Authority has started hearing the matter and next date fixed for hearing is 08.03.2022. We adjourned the Appeal to 25.03.2022 awaiting the orders of the Adjudicating Authority.

# 7. On 25.03.2022, when this Appeal was taken, we were informed that the Applications were not still decided. We observed that we need to decide the Applications I.A No. 368 of 2020 and I.A No. 555 of 2020 as per the orders of the Hon’ble Supreme Court since the Adjudicating Authority has been unable to decide the matter. On 25.03.2022, Learned Counsel for the Respondent No.1 sought liberty to file certain documents which was granted and matter was posted for hearing on 28.03.2022. When matter was taken up on 28.03.2022, this Tribunal was informed that the Adjudicating Authority is still hearing the matter and the next date fixed is 07.04.2022. We proceeded to hear the Applications I.A No. 368 of 2020 and I.A No. 555 of 2020 on 28.03.2022.

# 8. We have heard Shri Manish Jain, Learned Counsel for the Appellant and Shri Ankur Mittal, Learned Counsel for Respondents.

# 9. Few facts and sequences of the events regarding two Applications i.e. I.A No. 368 of 2020 and I.A No. 555 of 2020 need to be noticed, before we proceed to consider the submissions of the Learned Counsel for the Appellant. As noted in the liquidation proceedings, Respondent No.1- Suspended Director of the Corporate Debtor filed an Application I.A No. 368 of 2020 where following prayers have been made:-

• “RELIEF

• 1. Quash the acceptance of the claim of Respondent Nos. 2 to 5 by the Respondent No.1; and direct Respondent No.1 to await the final adjudication of the claims pending before the Hon’ble Debt Recovery Tribunal or the Hon’ble Punjab and Haryana High Court, or any other authority/Court/Tribunal as the case may be, before any claim for payment of financial dues on behalf of Respondent Nos. 2 to 5 can be accepted and monies accordingly disbursed.

• 2. Direct the Respondent No.1, to effectively contest the claims made by the corporate debtor before various Courts/Tribunals, in order to discharge his legal obligations under the IB Code 2016.

• 3. Pass such other orders as may be deemed fit and proper by this Hon’ble Tribunal in the facts and circumstances of the case.

• INTERIM RELIEF

• 1. Pending consideration of the reliefs as aforesaid, restrain the Respondent No.1 from disbursing any funds to Respondent Nos. 2 to 5;

• 2. Direct the Respondent No.1, to effectively contest the claims made by the Corporate Debtor before various Hon’ble Courts/Tribunals, in order to discharge his legal obligations under the IB Code 2016;

• 3. Pass such other orders as may be deemed fit and proper by this Hon’ble Tribunal in the facts and circumstances of the present case.”

# 10. Application I.A No. 368 of 2020 was taken by the Adjudicating Authority on 09.09.2020 and following order was passed:-

• “IA No.368/2020

• This IA has been filed by the Suspended Managing Director of M/s. Oswal Spinning and Weaving Mills Ltd. which is undergoing liquidation proceedings against the Liquidator and certain other claimants under Section 60(5) of the Code read with Section 42 of the Insolvency and Bankruptcy Code, 2016 aggrieved with the decision of the Liquidator in admitting the claims of respondent Nos. 2 to 5. Heard the learned Senior Counsel for the applicant. Issue notice to the respondents and the applicant counsel shall collect the same from the Registry and send along with copy of the application and the entire paper book to the respondents by Speed Post immediately as well as at the e-mail address available and file affidavit of service along with postal receipt, tracking report and copy of e-mail within 10 days.

• 2. Opportunity is given to the respondents to file reply/objections, if any, within two weeks from the receipt of the notices and rejoinder thereto, if any, may be filed within one week thereafter with copy in advance to the counsel opposite. List the matter on 21.10.2020.

• 3. In the meanwhile, the respondent No.1 Liquidator shall maintain status quo with regard to the distribution of funds to respondent Nos. 2 to 5.”

# 11. After the order dated 09.09.2020 was passed restraining Respondent Nos. 2 to 5 i.e. Financial Creditors which included the Appellant before us, an Application I.A No. 555 of 2020 was filed by the Appellant for recall of the ex parte order dated 09.09.2020 on 14.10.2020. Both the Applications I.A No. 368 of 2020 and I.A No. 555 of 2020 were taken up on 21.10.2020 and following order was passed by the Adjudicating Authority:-

• “IA No.368/2020

• 10. Heard Ms. Salina Chalana, the learned counsel for the applicant. Though notices were directed to be served on 09.09.2020 but the applicant failed to serve the notices to the respondents. At the request of the applicant’s counsel issue fresh notices to the respondents in the IA for 10.11.2020 and applicant shall collect the notices from the Registry and send the same by speed post immediately to the respondents at their registered addresses attaching therewith copy of the application and the entire paper book and the copy of this order.

• 11. The applicant shall file affidavit of service supported by acknowledgment of receipt of notices within one week from today failing which they are liable to pay cost of Rs.25,000/- in favour of “The Prime Minister’s National Relief Fund”.

• 12. Reply be filed within one week after receipt of notice with a copy in advance to the counsel opposite.

• 13. The interim order granted on 09.09.2020 is extended till the next date of hearing of the IA and if the applicant failed to serve the notice on the respondents within one week from today, as observed above, the interim order shall stands vacated.

• 14. List on 10.11.2020.

• IA No. 555/2020

• 17. This IA has been filed by Kotak Mahindra Bank Limited seeking to set-aside the ex-parte order dated 09.09.2020 passed in IA No. 368/2020. Heard Mr. Manish Jain, the learned counsel for the applicant.

• 18. Issue notice of this application to the respondents for 10.11.2020 and the applicant shall collect the notices from the Registry and send the same by speed post immediately to the respondents at their registered addresses attaching therewith copy of the application and the entire paper book and the copy of this order.

• 19. The applicant shall file affidavit of service supported by acknowledgment of receipt of notices within one week.

• 20. Reply be filed within one week after receipt of notice with a copy in advance to the counsel opposite.

• 21. List this IA alongwith IA No. 368/2020 on 10.11.2020.”

# 12. There has been several dates fixed before the Adjudicating Authority after 21.10.2020 but the Applications could not be disposed by the Adjudicating Authority. Hence, Company Appeal (AT) (Ins.) No. 21 of 2021 was filed by the Appellant asking this Appellate Tribunal to issue direction to the Adjudicating Authority for adjudication of the Applications I.A No. 368 of 2020 and I.A No. 555 of 2020. This Appellate Tribunal on 19.01.2021 passed following orders:-

• “19.01.2021: The impugned order is not an order adjudicating upon the rights of the parties. It merely says that due to paucity of time, the matter stands adjourned to 18th January, 2021, which date has already elapsed. Mr. Manish Jain, Advocate representing the Appellant submits that even yesterday i.e. on 18th January, 2021, the matter could not be taken up and it has again been adjourned. Corporate Insolvency Resolution Process arising out of an admission of an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 is stated to have culminated in passing of an order of liquidation a year before and liquidator is stated to have sold some of the assets.

• We share the concern of learned counsel for the Appellant who being a Financial Creditor, is concerned about further depletion in the value of the assets affecting its claim. We accordingly dispose off this appeal by requesting the Adjudicating Authority (National Company Law Tribunal), Chandigarh Bench, Chandigarh to expedite the process and dispose off the same within three months.”

# 13. This Tribunal in the aforesaid order requested the Adjudicating Authority to expedite the process and dispose of the matter which obviously meant Applications I.A No. 368 of 2020 and I.A No. 555 of 2020 on which I.As orders were under challenge.

# 14. When even after order dated 19.01.2021, the Adjudicating Authority could not dispose of both the Applications I.A No. 368 of 2020 and I.A No. 555 of 2020, again Company Appeal (AT) (Ins.) No. 575 of 2021 was filed which was initially disposed of by this Tribunal on 10.08.2021 where in para 5, this Tribunal observed:-

• “5. Considering the above and keeping in view our order dated 19th January, 2021 which could not be complied as three months are already over, we do express anguish with regard to the delay. We do realise the difficulties of the litigants as well as difficulties being faced by the Tribunal. In the circumstances, we dispose of the present Appeal with only a request to the Adjudicating Authority to take out time and decide the present IAs at the earliest.”

# 15. Against the order dated 10.08.2021, the Appeal was filed by the Appellant before the Hon’ble Supreme Court. The Hon’ble Supreme Court noticing the proceedings taken on I.A No. 368 of 2020 and I.A No. 555 of 2020 and the orders of this Tribunal passed on 19.01.2021 and 10.08.2021, by order dated 26.11.2021 disposed of the Appeal and made following observations:-

• “The only aspect relevant in the present case is that the IAs pending before the Adjudicating Authority need to be decided without further loss of time. For that matter, the Adjudicating Authority is definitely expected to keep in view the requirement of expeditious proceeding under the Insolvency and Bankruptcy Code, 2016 as also the directions issued by the Appellate Tribunal, even if expressed in soft terms.

• We are informed that the said order dated 10.08.2021 was passed by the Appellate Tribunal without notice to the opposite party. We are further informed that even after the said order dated 10.08.2021, the Adjudicating Authority adjourned the matter on 11.10.2021 and again on 02.11.2021; and the matter is now fixed by the Adjudicating Authority for consideration on 12.01.2022.

• We are clearly of the view that in the given set of circumstances, the Appellate Tribunal, while reiterating its request to the Adjudicating Authority to decide the pending IAs at the earliest, ought not to have disposed of the appeal. Rather, the Appellate Tribunal could have kept the appeal pending, while awaiting compliance from the Adjudicating Authority and, if necessary compliance was not yet forthcoming, to withdraw the matter from the National Company Law Tribunal, Chandigarh Bench, Chandigarh and either to dispose of itself or transfer it to some other Bench of the Tribunal for necessary steps.

• In the aforesaid view of the matter, without notice to the other side, we set aside the last paragraph (No.6) of the order impugned, whereby the appeal has been disposed of by the Appellate Tribunal.

• Instead, the said appeal bearing No. 575 of 2021 is restored for further consideration of the Appellate Tribunal. If Chandigarh Bench of the Tribunal is still unable to final hear the matter on the next date, i.e., 12.01.2022 and to decide the same within 15 days thereof, the Appellate Tribunal would be free to pass such other order/s as may be required, including that of modifying the ex parte interim order of the Tribunal or of withdrawing the matter from the file of Chandigarh Bench of the Tribunal and to decide itself or to assign the same to any other Bench of the Tribunal.

• We are constrained to pass this order when it appears that Adjudicating Authority has not been able to adhere to the timelines as per the requirements of law as also the orders passed by the Appellate Tribunal. As at present, we say no more.

• However, we deem it appropriate to observe that this order is passed without notice to the other side particularly after noticing that the appeal was disposed of by the Appellate Tribunal without notice to the opposite party. Yet, in the interest of justice, we leave it open that in case any opposite party seeks modification of this order or proposes to make any other submission, it shall be permissible for it to move appropriate application for consideration. It goes without saying that we have not made any comments on merits of the case either way. The present appeal stands disposed of accordingly.”

# 16. The Hon’ble Supreme Court in the above order clearly observed that if the Chandigarh Bench of the Tribunal is unable to finally hear the matter on 12.01.2022 and to decide the same within 15 days thereof, the Appellate Tribunal would be free to pass such other order/s as may be required. After the judgment of the Hon’ble Supreme Court dated 26.11.2021, when the matter was again taken by this Tribunal, the Respondent No.1 has informed about filing of the Application for recall of the order dated 26.11.2021 which Application stood dismissed on 14.02.2022. It will be relevant to notice the following observations made by the Hon’ble Supreme Court:-

• “It is rather disturbing to note that despite specific orders of the Appellate Tribunal as also of this Court, the Adjudicating Authority has not been able to decide the pending applications and now, the submissions before us on behalf of the respondent No.1 (applicant) are to the effect that there ought not to be “tearing hurry” in deciding those applications. Such a proposition on the part of the applicant cannot be countenanced, particularly looking to the previous orders passed in the matter, as noticed hereinabove.

• It is also noticed from the record that though we had restored the said appeal before the Appellate Tribunal so that appropriate and necessary orders could be passed, the Appellate Tribunal has chosen not to pass any other order in the matter, for the reason that the present application was said to be pending in this Court.

• Taking the totality of facts and circumstances into account, the application so moved by respondent No.1 of the appeal is specifically rejected. We would request the Appellate Tribunal to immediately take up the appeal for consideration and to pass such orders as may be deemed fit and necessary, keeping in view the observations and expectations in the order passed by this Court on 26.11.2021.

# 17. In view of the orders passed by the Hon’ble Supreme Court, we indicated to the Learned Counsel for the parties that I.A No. 368 of 2020 and I.A No. 555 of 2020 need to be heard by this Tribunal and we proceeded to hear the parties.

# 18. Learned Counsel for the Appellant submits that the ex parte order dated 09.09.2020 passed in I.A No. 368 of 2020 was obtained by the Respondent No.1 without serving him copy of the Application. It is submitted that under National Company Law Tribunal Rules, 2016 by virtue of Rule 23 sub-rule (5), it was incumbent on the Respondent No.1 to serve a copy of the Application by which he was seeking to stay the disbursement to the Financial Creditors. It is further submitted that the ground taken in the Application that since counter claim of the Corporate Debtor is pending before the DRT, Chandigarh, no disbursement could be made to the Financial Creditors in the liquidation proceedings till the counter claim is decided was wholly irrelevant. It is submitted that the liquidation proceedings in the IBC cannot be held to be dependent on any proceeding pending in the DRT. It is submitted that the counter claim filed by the Corporate Debtor against one of the Banks i.e. UCO Bank has already been dismissed which has also been noticed by this Appellate Tribunal in Company Appeal (AT) (Ins.) No. 763 of 2018- 

• “Mr. Ashok Oswal vs. UCO Bank & Anr.” which was filed by the Respondent No.1 himself. It is submitted that the Respondent No.1- Suspended Director has no locus to challenge the admission of the claim of the Appellant by the Liquidator. Under Section 42 of the Code, it is only the Creditor who have given right to challenge the order of the Liquidator. There was no locus of the Respondent No.1 to file Application I.A No. 368 of 2020.

# 19. Shri Ankur Mittal, Learned Counsel appearing for the Respondent No.1 refuting the submissions of the Learned Counsel for the Appellant submits that Respondent No.1 has every right to challenge the decision of the Liquidator erroneously accepting the claim of the Appellant. It is submitted that there are no dues which are owed by the Corporate Debtor to the Appellant. Liquidator has wrongly accepted the partial claim of the Appellant with regard to which Respondent No.1 being aggrieved filed the Application. It is submitted that in the Insolvency Resolution Process itself, the Respondent No.1 has filed an Application challenging the admission of the claim by Resolution Professional which Application could not be decided on merits. It is further submitted that the counter claim filed by the Corporate Debtor before the DRT is necessary to be decided which will prove that no debt is due to the Appellant. The counter claim has been filed by the Corporate Debtor against the Appellant also. It is further submitted that the Liquidator has not taken any step to prosecute the counter claim before the DRT. It is submitted that it is the duty of the Liquidator to prosecute the claim of the Corporate Debtor before the DRT. The counter claim was filed by the Corporate Debtor even before initiation of CIRP. It is submitted that the Counsel is not aware that the Application I.A No. 368 of 2020 was filed after serving copy on the Appellant or not.

# 20. Shri Abhishek Anand, Learned Counsel for the Liquidator submits that the claims were invited by the Liquidator in accordance with the Liquidation Process, 2016 and above process cannot be subject to any other proceeding. The Liquidator cannot keep the proceeding pending awaiting decision of the DRT. The Application filed by the Respondent No.1- Suspended Director was not maintainable as the Respondent No.1 is asking something which he cannot do directly. If the lender received more amount, they are liable to refund the same as per Regulation 43 and there was no occasion for the Adjudicating Authority to pass any interim order on 09.09.2020.

# 21. We have considered the submissions of the parties and perused the record.

# 22. We have noticed the prayer made in the Application I.A No. 368 of 2020. There are two main grounds taken in the Application for seeking reliefs as prayed in the Application. In the Application, the acceptance of the claim of Respondent Nos.2 to 5 was sought to be quashed and further to direct the Liquidator to await the final adjudication of the claim pending before the DRT or the Hon’ble Punjab & Haryana High Court. The first submission of the counsel for the Appellant is that I.A No. 368 of 2020 was filed by the Respondent No.1 without serving an advance copy of the Application to the Appellant. Rule 25 deals with “presentation of petition or appeal”. Sub-rule (5) of Rule 25 provides as follows:-

• “25. Presentation of petition or appeal .- …………..(5) In the pending matters, all applications shall be presented after serving copies thereof in advance on the opposite side or his authorised representative.”

# 23. The Application I.A No. 368 of 2020 was filed in a pending matter where relief was sought against the Respondent Nos. 2 to 5- Financial Creditors to the Application which included the Appellant. Respondent No.1 wanted interim order against the Financial Creditors but the Application was not served. The contention of the Learned Counsel for the Respondent No.1 is not that the Application I.A No. 368 of 2020 was filed after service of the copy rather it has submitted he does not have any instructions as on date. The fact that copy of the Application I.A No. 368 of 2020 was not served is fully proved by subsequent order dated 21.10.2020 where the Adjudicating Authority has noted that Learned Counsel for the Applicant (Counsel for Respondent No.1) has not served the notice to the Respondents. We have already extracted the order dated 21.10.2020 in foregoing discussion.

# 24. We, thus, are fully satisfied that Application I.A No. 368 of 2020 was filed without serving copy on Appellant who was to be affected by the interim order. Furthermore, it is relevant to notice Application I.A No. 368 of 2020 was filed on 28.07.2020 and it came for consideration on 09.09.2020 hence more than one month’s time was available to Respondent No.1 to serve copy on the Appellant. The order dated 09.09.2020 was ex parte which is clear from the order itself. In the present case, interim order affecting the claim of the Financial Creditors for distribution of funds by Liquidator has been estopped.

# 25. The Appellant has immediately filed an Application I.A. No. 555 of 2020 before the Adjudicating Authority for recall of the ex parte order dated 09.09.2020. The main plea of the Respondent No.1 in I.A No. 368 of 2020 is that if the DRT decides the counter claim of the Corporate Debtor no distribution be permitted in the liquidation process. The pendency of the

counter claim of the Corporate Debtor before the DRT cannot be ground to stay the distribution to the Financial Creditors as per the claim admitted by the Liquidator. Proceedings under the IBC are time bound proceedings which has an overriding effect by virtue of Section 238. In the facts of the present case, we are of the view that I.A No. 555 of 2020 filed by the Corporate Debtor for recall of the ex parte order ought to have been allowed by the Adjudicating Authority. The Adjudicating Authority has not decided the said I.A for more than period of one year and five months. In spite of two orders passed by this Tribunal and judgment of the Hon’ble Supreme Court dated 26.11.2021 and 14.02.2022, we see no justification in continuing the interim order dated 09.09.2020 staying the distribution to the Financial Creditor in the liquidation process. By order of the Adjudicating Authority, the claim of the Financial Creditor to receive the disbursement has adversely affected and they are not able to receive the disbursement as per their claim.

# 26. Learned Counsel for the Liquidator has referred to Regulation 43 of the Insolvency And Bankruptcy Board Of India (Liquidation Process) Regulations, 2016 which provides following:-

• “43. Return of money. A stakeholder shall forthwith return any monies received by him in distribution, which he was not entitled to at the time of distribution, or subsequently became not entitled to.”

# 27. Regulation 43 amply take care of any excess amount to any stakeholders. We may also notice that in the Application I.A. No. 368 of 2020, the Respondent No.1 has challenged the acceptance of the claim of the Appellant by the Liquidator. On the other hand, the Respondent No.1 has refuted the locus of the Appellant to challenge the decision of the Liquidator accepting the claim. It has been submitted before us that hearing in Application I.A. No. 368 of 2020 has already been commenced before the Adjudicating Authority in which next date is 07.04.2022. We, thus, are of the view that in this Appeal the only Application I.A No. 555 of 2020 needs to be finally decided by modifying interim order dated 09.09.2020 by deleting the following part of the order dated 09.09.2020:

• “In the meantime, the Respondent No.1 Liquidator shall maintain status quo with regard to the distribution of funds to respondent Nos.2 to 5”

# 28. Thus, the order dated 09.09.2020 is modified to the above extent and the interim order is recalled/ vacated. It shall be open for the Adjudicating Authority to proceed with the Application I.A No. 368 of 2020 and pass final order on the said Application. In view of the fact that hearing has already been commenced by the Adjudicating Authority on merits of the Application I.A No. 368 of 2020, we make it clear that our observations in this judgment are confined only to extent of only allowing the Application I.A No. 555 of 2020 and modifying the interim order dated 09.09.2020 and we may not be understood to express any final opinion on the contention which are still to be decided in I.A No. 368 of 2020. In view of the above, we dispose of the Appeal with following directions:-

• (i) I.A No. 555 of 2020 is allowed. Interim order dated 09.09.2020 directing the Liquidator to maintain status quo with regard to distribution of funds to Respondent Nos. 2 to 5 are recalled/ vacated. Application I.A No. 555 of 2020 is disposed of.

• (ii) The Adjudicating Authority may proceed to decide I.A No. 368 of 2020 on merits after hearing the Learned Counsel for the parties at the earliest..

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Akme Sarvodaya Dreamventures LLP and Ors. Vs. Megha Agrawal - A conjoint reading of section 55(6)(b) of Transfer of Property Act, 1882 and section 3(31) of the Code, a ‘statutory charge’ is created in favour of the buyer of the property of corporate debtor and such buyer is entitled to be treated as secured creditor of the corporate debtor for the amount paid by it towards purchase of the property.

  NCLT (2026.04.20)  in Akme Sarvodaya Dreamventures LLP and Ors. Vs. Megha Agrawal [(2026) ibclaw.in 1129 NCLT, Company Appeal 10/2024 in C.P. No. (IB) 3683/2018] held that;-

• The provisions of section 55(6)(b) as quoted above makes it abundantly clear that buyer of a property is entitled to charge on the property, for the purchase money paid by it in anticipation of delivery of the property. Further all provisions which apply to a simple mortgage shall also apply to a charge.

• It is plain from the above provision that, in absence of a contract to the contrary, the buyer will have a charge on the seller’s interest in the property which is subject- matter of the sale agreement in so far as the purchase money and interest on such amount are concerned, unless the buyer has improperly declined to accept delivery. The charge is available against the seller and all persons claiming under him. This charge in favour of the buyer is the converse of the seller’s charge under Section 55(4) (b). The buyer’s charge under this section is a statutory charge and differs from a contractual charge which a buyer may be entitled to claim under a separate contract. No charge is available unless the agreement is genuine.

• This charge is a statutory charge in favour of a buyer and is different from contractual charge to which the buyer may become entitled to under the terms of the contact, and in substance a converse to the charge created in favour of the seller under Section 55(4)(b). Consequently, the buyer is entitled to enforce the said charge against the property and for that purpose trace the property even in the hands of third parties

• The said statutory charge gets attracted and attaches to the property for the benefit of the buyer the moment he pays any part of the purchase money and is only lost in case of the purchaser’s own default or his improper refusal to accept delivery.

•  From, the reading of section 55(6) of Transfer of Property Act,1882 as interpreted by the Hon’ble Supreme Court in the case of Delhi Development Authority (supra), there is no iota of doubt that the buyer is entitled to have a statutory charge over the sellers interest in the property and the same principle which is applicable to mortgages shall apply to statutory charge under 55(6)(b).

• Thus, it is settled proposition of law that by virtue of provisions of section 55(6)(b) of Transfer of Property Act, 1882 buyer who has paid purchase money to the seller shall have statutory charge over the property of the seller to the extent of the purchase money paid by it.

• Plain reading of section 3(31) of the Code, security interest includes charge and same principle shall apply as mortgage. In the wake of discussion and clear law laid down by the Hon’ble Supreme Court as captured in the case of Kolkata Municipal Corporation (supra) the Appellants shall be treated as secured creditors.

• A conjoint reading of section 55(6)(b) of Transfer of Property Act, 1882 and section 3(31) of the Code, a ‘statutory charge’ is created in favour of the buyer of the property of corporate debtor and such buyer is entitled to be treated as secured creditor of the corporate debtor for the amount paid by it towards purchase of the property.

Excerpts of the order;

# 1. This appeal has been filed by Akme Sarvodaya Dream ventures LLP (‘Appellant No.1’), Hiraman Developers Private Limited (‘HDPL’/ Appellant No.2’), HDL Housing Development Company (‘Appellant No.3’) hereinafter (Collectively referred as ‘the Appellants’) under Section 42 of the Insolvency and Bankruptcy Code, 2016 (‘the Code’), seeking following reliefs: –

• a) This Tribunal may be pleased to condone the delay in filing the present appeal.

• b) This Tribunal may be pleased to allow the present Appeal under Section 42 of the Code.

• c) This Tribunal may be pleased to set aside and reverse the decision of the Liquidator dated 24.07.2023 and 04.12.2023 in so far as she has:

• i. not admitted the Appellants claim to be considered as secured creditors, only admitted their claim as unsecured creditors.

• ii. Rejected the Appellants claim for interest.

• d) This Tribunal may be pleased to allow the Appellants claim in its entirety i.e.

• i. Declare and hold the Appellants are secured financial creditors.

• ii. Declare and hold that the Appellants are entitle to admission of their claim for interest at 18% p.a. or such other rate of interest as this Tribunal deems fit.

• e) This Tribunal may be pleased to direct the Respondent, Liquidator to amend and publish an updated list of stakeholders to reflect the Appellants’ claim as a secured creditor, along with interest and take all such consequential steps including updating /reconstituting the Stakeholders’ Consultation Committee.

• f) Pending the hearing and final disposal of this Appeal, this Tribunal may be pleased to:

• i. Restrain the Liquidator from taking any steps towards the sale of the Subject Property (described in Ex. A herein).

• ii. Restrain the Liquidator from taking any material decision in the liquidation process of the Corporate Debtor.

• g) For such other reliefs as this Tribunal may deem fit in the facts and circumstances of this case.

Brief Facts

# 2. Following are the relevant facts set out in the application and required to be noticed for the adjudication of the present application.

2.1. M/s Brajesh Construction Pvt Ltd (‘Corporate Debtor’) owns piece of land described as Plot No. 1-A, situated at Revenue Village Tithardi, Tahasil Girva, District Udaipur (Rajasthan) under Khasra No. 2507 to 2509, 2510 M, 2475, 2476, 3556/2510. The total area of the said plot No. 1A is 4,22,150 sq. ft. (approx. 42,000 sq. meters) by the name of AVL Tivona City (‘Subject Property’).

2.2. The Corporate Debtor had mortgaged the subject property in favour of Dewan Housing Finance Limited (‘DHFL’). Due to default in repayment of loan by the Corporate Debtor, in 2018, DHFL initiated proceedings under the SARFAESI Act to take possession and to sell the subject property.

2.3. On 01.05.2018, the Corporate Debtor, sent a letter to DHFL seeking one-time settlement (‘OTS’) and stating that HDPL had agreed to purchase the subject property and pay Rs. 22 crores as OTS. Some of relevant excerpts from the said letter are reproduced below:

“As you are aware that real estate sector is passing through a very bad phase and we are not in the position to raise fund for completing the Project “Trivona City on our own and hence we have negotiated with a very reputed Developer M/s Hiraman Developer Private Limited,2, Dhanawat Tower, Shastri Circle, Udaipur, Rajasthan-313001 for outright purchase of the project. They have agreed to buy the project on “As is where is basis” at Rs.22.00 Crores (Rupees Twenty-Two Crores Only) and have agreed to pay the bank directly OTS amount of Rs. 22.00 Crores. To show their intention a demand draft no. 620891 of Rs. 2.00 Crores dated 01.05.2018 of Kotak Mahindra Bank, Trimurti Heights, 8-3 Bank Street, Udaipur 313004, drawn on DHFL will be handed over to your office. Further, they also enclose post-dated cheques of Kotak Mahindra Bank drawn in DHFL name as follows:

Cheques No.	Date	Amount (Rs.)
000113	14/05/2018	1,00,00,000/-
000114	15/05/2018	1,00,00,000/-
000115	16/05/2018	1,00,00,000/-

The buyer has agreed to deposit balance OTS amount of Rs. 17 crores (Rupees ‘Seventeen Crores only) on or before 14th August 2018. However, as you are aware that the Legal heirs of earlier seller has created frivolous litigation on portion of our project land, M/s Hiraman Developers Pvt. Ltd. Buyer of the project would like to settle all the disputes, legal or otherwise related to title which may take 3 months as we have to follow the due process of law for eviction of illegal encroachment on our project land. We have already filed an FIR with the police station and also taken steps for eviction. The buyer M/s Hiraman Developers are engaged in property developments for many years have completed 2000 flats in Udaipur. Therefore, they seek time of at least 3 months to pay the balance OTS – amount of Rs.17 Cr with the bank.”

2.4. DHFL acknowledged the said OTS letter of the Corporate Debtor with remarks “In principally agreeable for OTS proposal of Rs. 22 crore subject to received (sic) payment of Rs. 5 crores before 16.05.2018. OTS letter with all other terms and conditions will be issued post 16.05.2018.” Copy of the letter dated 01.05.2018 from Corporate Debtor to DHFL acknowledging OTS (and having endorsement of “in principal agreeable” by DHFL) is annexed as Exhibit B.

2.5. On 02.05.2018, HDPL handed over the Demand Draft for Rs. 2 crore to DHFL on behalf of the Corporate Debtor as part payment towards OTS, with covering letter dated 01.05.2018 and also undertook to pay the remaining OTS amount on or before 16.08.2018.

2.6. Contemporaneously, the Corporate Debtor and HDPL also entered into an Agreement dated 03.05.2018, which stated that the Corporate Debtor would sell the Subject Property to HDPL upon satisfaction of the OTS amount to DHFL. Copy of Agreement dated 03.05.2018 along with translated Copy is annexed as Exhibit D-1 and D-2 respectively.

2.7. HDPL sent a letter dated 16.05.2018 to DHFL seeking discount of Rs. 2 crores on account of disputes pending with respect to title of the Subject Property. DHFL, vide its letter dated 22.05.2018, agreed to the OTS of Rs. 21.95 crores and stated that it required receipt of Rs. 16.95 crores on or before 16.08.2018.

2.8. Subsequently, HDPL sent letter dated 04.12.2018 to DHFL informing that OTS commitment was not fulfilled due to stay order granted in favour of one Madhulika Singh pertaining to structures located at AVL Tivona City. It was further stated that now the Hon’ble High Court has vacated the stay and it had arranged for further financing of Rs. 4.5 crores from its group concerns viz. Appellant No. 1 and Appellant No. 3 and requested that the validity period of OTS be extended until 15.03.2019 along with further discount of Rs. 2.95 crores. Copy of letter dated 04.12.2018 is annexed as Exhibit H to the Company Appeal.

2.9. Thereafter, DHFL sent a letter dated 09.01.2019 addressed to the Corporate Debtor and the three appellants herein agreeing to reduce OTS amount to Rs. 19 crores and recorded that:

• i. It had received additional payment of Rs. 4.5 crores. Therefore, the total payment received was Rs. 9.5 crores.

• ii. It required the balance payment of Rs. 9.5 crores for which the Corporate Debtor as well the Purchasers i.e. all three appellants shall be liable to pay on or before 28.02.2019.

• iii. It had no objection to Appellants purchasing the Project is conditional subject to payment of balance OTS amount. Copy of letter dated 09.01.2019 is annexed as Exhibit I to the Company Appeal.

2.10. An agreement for Sale was executed on 24.01.2019 between the Corporate Debtor as Seller on one side and the three appellants as Purchasers on the other side for sale of the subject property for a total consideration of Rs. 19 crores, out of which Rs. 9.5 crore stood paid to DHFL and the balance amount was to be paid by 28.02.2019. The Copy of Sale Agreement dated 24.01.2019, along with the translated copy is annexed as Exhibit K-1 and K-2 respectively.

2.11. Thereafter DHFL issued letter dated 18.02.2019 addressed to the Corporate Debtor and the three appellants stating that the loan account of the corporate debtor was fully settled. Final settlement letter dated 18.02.2019 issued by DHFL is annexed as Exhibit L.

3. Additional Affidavit dated 26.03.2026

3.1. As the details of balance payment of Rs. 9.5 crores, as per the Sale Agreement dated 24.01.2019 could not be found, hence this Tribunal vide order dated 23.02.2026, sought clarification for the same.

3.2. Pursuant thereto, the Applicant has filed Additional Affidavit dated 26.03.2026, relevant extract of which is reproduced as under:

Quote

• 3. It is clarified that the Agreement to Sell dated 24th January 2019 was executed between the Corporate Debtor and the Appellants, recording that the Corporate Debtor would transfer the Subject Property (as defined in the Company Appeal) upon payment of the balance OTS consideration to Dewan Housing Finance Limited (“DHFL”), being the entity in whose favour the Subject Property had been mortgaged by the Corporate Debtor. Under the said arrangement, the OTS consideration was Rs. 19 crores, out of which Rs. 9.5 crores had already been paid, and the balance amount of Rs. 9.5 crores were required to be paid by the Appellants to DHFL.

• 4. Thereafter, it was agreed between the parties, including DHFL that the total OTS consideration would stand reduced from Rs. 19 crores to Rs.17.5 crores. Consequently, the balance amount payable by the Appellants to DHFL stood reduced to Rs. 8 crores. In furtherance thereof, the Appellants made the following payments to DHFL as also reflected in Exhibit J at page 54 of the Company Appeal:

Company	Date	Amount	RTGS Ref No.
Akme Sarvoday Dreamventures LLP	16.02.2019	3,50,00,000	MRGBH 19047715895
Akme Sarvoday Dreamventures LLP	18.02.2019	4,00,00,000	SBINH 19049056844
Hiraman Developers Pvt Ltd	26.02.2019	50,00,000	KBKR 19022600848239

• 5. In furtherance of the aforesaid settlement, DHFL issued a Full and Final Settlement Letter in favour of the Corporate Debtor and the Appellants in respect of the dues of the Corporate Debtor and the charge created over the Subject Property which is at Exhibit L, Page 66 of the Company Appeal.

• 6. Pursuant thereto, the Corporate Debtor and the Appellants addressed a letter dated 1st March 2019 requesting release of all title documents pertaining to the Subject Property in favour of the Appellants, which documents were subsequently released to the Appellants on 14th March 2019. A copy of the 1st March 2019 letter is at Exhibit M, Page 67 of the Company Appeal.

• Unquote

4. CIRP/Liquidation process

4.1. In the meantime, the Corporate Debtor was admitted into Corporate Insolvency Resolution Process (‘CIRP’) vide order dated 31.01.2019. As no resolution plans were received, this Tribunal ordered for liquidation of the Corporate Debtor vide order dated 10.05.2023 and appointed the Respondent as the Liquidator of the Corporate Debtor.

4.2. Pursuant thereto the Liquidator made a public announcement under Form B on 27.05.2023 calling upon the Stakeholders of the Corporate Debtor to submit their claims, Accordingly, the Appellants filed their claim before the Respondent as secured creditors.

4.3. The appellants filed their claims as per following details:

Name of Financial Creditor

Akme Sarvoday Dreamventures LLP AAM-7017

Total amount of claim including any interest as at the Liquidation commencement date and details of nature of claim(Whether term loan, secured, unsecured)

Principal: Rs, 11,00,00,000/- Interest: Rs,19,21,83,054/- Total Claim: 30,21,83,54/- (Amount secured by statutory charge on the property (more particularly described herein below) Xxxxx In order to settle the issue and to get a clear title of the property, we agreed to see to the litigation and work towards finding a way to settle the same. However, the High court had stayed a stay with respect to the property, which was vacated in December 2018. Accordingly, after various discussions we finally settled Shakti and Madhulika Singh. The same was informed to DHFL and accordingly the OTS amount was reduced to Rs.19 crores and thereafter to Rs.17.5 crores. An agreement dated 24.01.2019 was executed between the Corporate Debtor and the sale of property was settled at the revised settlement amount. Details of payments: Date Particular Amount (Rs) 29.11.2018 DHFL 20000000 01.12.2018 DHFL 10000000 16.02.2019 DHFL 35000000 18.02.2019 DHFL 40000000 In addition to aforesaid payments, in order to clear the liability of the company, payment is made to one of the flat buyers of the Company of Rs. 50,00,000/-.

 

Name of Financial Creditor

Hiraman Developers Pvt Ltd CIN: U45201RJ2008PTC025670

Total amount of claim including any interest as at the Liquidation commencement date and details of nature of claim (Whether term loan, secured, unsecured)

Principal: Rs.6,00,00,000/- Interest: Rs.13,08,21,196/- Total Claim: Rs.19,08,21,196/- (Amount secured by statutory charge on the property (more particularly described herein below) Details of payments: Date Particular Amount (Rs) 01.05.2018 DHFL 20000000 15.05.2018 DHFL 30000000 26.02.2019 DHFL 5000000 In addition to aforesaid payments, in order to clear the liability of the company, payment is made to one of the flat buyers of the Company of Rs. 50,00,000/-.

 

Name of Financial Creditor	HDL Housing DevelopmentCompany. PAN NO: AAJFH6415R
Total amount of claim including any interest as at the Liquidation commencement date and details of nature of claim(Whether term loan, secured, unsecured)	Principal: Rs.1,50,00,000/- Interest: Rs.2,83,90,913/- Total Claim: Rs.4,33,90,913/- (Amount secured by statutory charge on the property (more particularly described herein below)

4.4. The Liquidator conveyed to the Appellants vide email dated 24.07.2023 that the Appellants’ claims towards principal amount as unsecured creditors was admitted but the interest amount was provisionally rejected.

4.5. Aggrieved by the communication of the Liquidator, the Appellants requested the Liquidator for a hearing to explain their claims. The hearing was conducted by the Liquidator on 07.11.2023. However, the Liquidator did not admit the appellants as secured creditors nor admitted the interest claims and addressed an e-mail dated 04.12.2023 to the Appellants advising the Appellants to approach the appropriate authority.

# 5. Being aggrieved by the Liquidator’s order dated 04.12.2023 of not admitting appellants claims as secured creditors and also not admitting interest claims, the Appellants have jointly preferred the present Appeal seeking prayers as quoted in para 1 above.

# 6. Grounds of Appeal:

The Appellants had made payments on behalf of the Corporate Debtor to DHFL against sale consideration to sell the Subject Property to the Appellants. Despite completing its obligations under the Sale Agreement and making the entire sale consideration by clearing the OTS amount to DHFL, the Corporate Debtor has not transferred title in the Subject Property to the Appellants. Therefore, the Appellants are entitled to protection of Section 55(6)(b) of the Transfer of Property Act, 1882 by way of a charge on the Subject Property. The Appellants are also entitled to interest on the amount claimed.

# 7. Reply by the Liquidator:

7.1. The Respondent sent a letter dated 24.07.2023 to the Applicants informing them, that their claim had been verified as per Regulation 30 of IBBI (Liquidation Process) Regulations,2016, and on basis of proof submitted the Appellants’ claim was admitted as follows:

Party	Amount of claim admitted (Rs.)
Appellant No.1	11,00,00,000
Appellant No.2	6,00,00,000
Appellant No.3	1,50,00,000
Total	18,50,00,000

7.2. After examining the claims, the Liquidator had provisionally rejected the interest claim amount as no financial contract was made available duly supporting the claim for interest payment and no contractual loan agreement was available that adequately established the debt on account of the interest portion. Therefore, the Liquidator informed the Appellants vide email dated 24.07.2023 that the interest portion was provisionally rejected, however, further opportunity was given to the Appellants to submit supporting documents in event of non-submission of enough proof, the claim would not be admissible.

7.3. It was submitted that despite sending emails, Appellants have not submitted necessary documents to enable evaluation and processing of their claims therefore, it was not possible to admit the whole claims of the Appellants.

7.4. It is submitted that the Liquidator does not have jurisdiction to go into the prayer’s sought by the Appellants. There is no direct privity of contract/documentation to verify and admit the claim pertaining to the interest.

DISCUSSION AND FINDINGS

# 8. Heard Ld. Counsel for the parties and perused the record.

# 9. We note that vide email dated 04.12.2023, the Liquidator after giving hearing to the appellants, finally refused to admit them as secured creditors and also rejected their claim for interest. The limitation for filing the Appeal expired on 18.12.2023. But the present appeal was filed on 19.04.2024. The Appellants have prayed for condonation of delay. The Hon’ble NCLAT in the case of Canara Bank v. Commercial Tax Department, Madhya Pradesh and Anr.; (2023) ibclaw.in 342 NCLAT has held that, delay in filing the Appeal under Section 42 of the Code is condonable while exercising the power under Section 5 of the Limitation Act. Having gone through the appeal and in the interest of delay is condoned.

# 10. By way of the present Appeal, the Appellants are assailing the decision of the Liquidator, wherein the Liquidator has, though admitted their principal claims but did not consider them as secured creditors and also rejected their claim for interest.

# 11. The three Appellants before us had filed three separate claims as per details mentioned in para 4.3 above. After verification of claims, the Liquidator, vide letter dated 24.07.2023, admitted the claims of the Appellants for the principal amounts, as Unsecured Creditors and provisionally rejected the interest claims. The details of claim admitted and rejected are as follows:

(in Rs.)

Party	Amount of claim admitted	Amount of claim rejected
Appellant No.1	11,00,00,000	19,21,83,054
Appellant No.2	6,00,00,000	13,08,21,916
Appellant No.3	1,50,00,000	2,83,90,913
Total	18,50,00,000	35,13,95,883

# 12. At the request of the Appellants, the Liquidator also granted them personal hearing and finally rejected the interest claims and also continued the appellants as Unsecured creditors vide email dated 04.12.2023, which has led to filing of the present appeal under section 42 of the Code.

# 13. It is the case of the Appellants that the Corporate Debtor and the Appellants have executed a Sale Agreement dated 24.01.2019 for sale of immovable property of the corporate debtor consisting of 42,000 sq. meters of land near Udaipur, Rajasthan by the name of AVL Tivona City (‘Subject Property’) for a total consideration of Rs. 17.5 crores. The entire sale consideration was to be paid to DHFL who had security over the said property. Substantial amount of Rs.9.5 crores stood paid by 24.01.2019 when the Agreement to Sell was executed.

# 14. However, before the sale deed could be executed and registered in favour of the appellants, the Corporate Debtor was admitted into insolvency proceedings on 31.01.2019.

# 15. It is submitted that though the entire sale consideration under the Sale Agreement has been paid to DHFL, no proceedings could be initiated against the Corporate Debtor for specific performance of the sale agreement as the Corporate Debtor is under insolvency process. However, by virtue of Section 55(6)(b) of the Transfer of Property Act (‘TOPA’), the appellants are provided protection as a charge holder for the subject property and they should be treated as secured creditors.

# 16. As noticed from the additional affidavit, the Appellants made balance payment to DHFL, as per the OTS, aggregating to Rs. 8.00 crores during the period from 16.02.2019 to 26.02.2019. The appellants had already paid Rs. 9.5 crores towards purchase of the said property. Thus, a total sum of Rs. 17.5 crores was paid by the Appellants towards purchase of the subject property. It is further submitted that on payment of the entire OTS amount by the appellants, on behalf of the Corporate Debtor, DHFL has released the property documents.

# 17. The Appellants have placed reliance on the following judgments:

• i. Delhi Development Authority versus Skipper Constructions Co. and Others (2000) 10 SCC 130.

• ii. Videocon Properties Ltd versus Dr. Bhalchandra Laboratories and Others (2004) 3 SCC 711.

• iii. Kolkata Municipal Corporation versus Gajesh Labhchand Jain, Liquidator of Talwalkars Better Value Fitness Ltd. (2025 SCC Online NCLAT 1565).

# 18. The Liquidator has submitted that as per Regulation 30 of IBBI (Liquidation Process) Regulations 2016, and on the basis of proof submitted, records available with the Liquidator and other relevant documents including but not limited to books of accounts of the corporate debtor, debt could be established for the principal amount only.

# 19. As regard to the category of the Appellants as Secured Creditors the liquidator has not admitted the Appellants as Secured Creditors and advised them to approach this Tribunal for appropriate orders. The Liquidator has also rejected the claims for interest in the absence of any provision in the contract documents.

# 20. After hearing the submissions advanced by the parties, following questions emerge for determination: –

• i. Whether the Appellants can be treated as secured Creditors, in view of section 55(6)(b) of the Transfer of Property Act? If yes, to what extent?

• ii. Whether the appellants are entitled for interest?

# 21. While section 55 of the Transfer of Properties Act deals with the rights and liabilities of the buyers and sellers subsection 6 deals with the entitlement of the buyer to a charge on the properties, IBC deals with ‘security interest’. Therefore, we would proceed to examine the interplay between these provisions.

# 22. Provisions under the Transfer of Property Act, 1882:

• a) Section 55. Rights and liabilities of buyer and seller

• In the absence of contract to the contrary, the buyer and the seller of immovable property respectively are subject to the liabilities, and have the rights, mentioned in the rules next following or such of them as are applicable to the property sold: –

• (1) The seller is bound-

• (a) to disclose to the buyer any material defect in the property or in the seller’s title thereto] of which the seller is, and the buyer is not, aware, and which the buyer could not with ordinary care discover;

• (b) to produce to the buyer on his request for examination all documents of title relating to the property which are in the seller’s possession or power;

• (c) to answer to the best of his information all relevant questions put to him by the buyer in respect to the property or the title thereto;

• (d) on payment or tender of the amount due in respect of the price, to execute a proper conveyance of the property when the buyer tenders it to him for execution at a proper time and place;

• (e) between the date of the contract of sale and the delivery of the property, to take as much care of the property and all documents of title relating thereto which are in his possession as an owner of ordinary prudence would take of such property and documents;

• (f) to give, on being so required, the buyer, or such person as he directs, such possession of the property as its nature admits;

• (g) to pay all public charges and rent accrued due in respect of the property up to the date of the sale, the interest on all incumbrances on such property due on such date, and, except where the property is sold subject to incumbrances, to discharge all incumbrances on the property then existing.

• (2) The seller shall be deemed to contract with the buyer that the interest which the seller professes to transfer to the buyer subsists and that he has power to transfer the same:

• Provided that, where the sale is made by a person in a fiduciary character, he shall be deemed to contract with the buyer that the seller has done no act whereby the property is incumbered or whereby he is hindered from transferring it.

• The benefit of the contract mentioned in this rule shall be annexed to, and shall go with, the interest of the transferee as such, and may be enforced by every person in whom that interest is for the whole or any part thereof from time to time vested.

• (3) Where the whole of the purchase-money has been paid to the seller, he is also bound to deliver to the buyer all documents of title relating to the property which are in the seller’s possession or power:

• Provided that, (a) where the seller retains any part of the property comprised in such documents, he is entitled to retain them all, and, (b) where the whole of such property is sold to different buyers the buyers, of the lot of greatest value is entitled to such documents. But in case (a) the seller, and in case (b) the buyer, of the lot of greatest value, is bound, upon every reasonable request by the buyer, or by any of the other buyers, as the case may be, and at the cost of the person making the request, to produce the said documents and furnish such true copies thereof or extracts therefrom as he may require; and in the meantime, the seller, or the buyer of the lot of greatest value, as the case may be, shall keep the said documents safe, uncancelled and undefaced, unless prevented from so doing by fire or other inevitable accident.

• (4) The seller is entitled—

• a) to the rents and profits of the property till the ownership thereof passes to the buyer;

• b) where the ownership of the property has passed to the buyer before payment of the whole of the purchase-money, to a charge upon the property in the hands of the buyer, 1 [any transferee without consideration or any transferee with notice of the non-payment, for the amount of the purchase-money, or any part thereof remaining unpaid, and for interest on such amount or part 1 from the date on which possession has been delivered.

• (5) The buyer is bound—

• a) to disclose to the seller any fact as to the nature or extent of the seller’s interest in the property of which the buyer is aware, but of which he has reason to believe that the seller is not aware, and which materially increases the value of such interest;

• b) to pay or tender, at the time and place of completing the sale, the purchase-money to the seller or such person, as he directs: provided that, where the property is sold free from incumbrances, the buyer may retain out of the purchase-money the amount of any incumbrances on the property existing at the date of the sale, and shall pay the amount so retained to the persons entitled thereto;

• c) where the ownership of the property has passed to the buyer, to bear any loss arising from the destruction, injury or decrease in value of the property not caused by the seller;

• d) where the ownership of the property has passed to the buyer, as between himself and the seller, to pay all public charges and rent which may become payable in respect of the property, the principal moneys due on any incumbrances subject to which the property is sold, and the interest thereon afterwards accruing due.

• (6) The buyer is entitled–

• a) where the ownership of the property has passed to him, to the benefit of any improvement in or increase in value of the property and to the rents and profits thereof;

• b) unless he has improperly declined to accept delivery of the property, to a charge on the property, as against the seller and all persons claiming under him to the extent of the seller’s interest in the property, for the amount of any purchase-money properly paid by the buyer in anticipation of the delivery and for interest on such amount; and, when he properly declines to accept the delivery, also for the earnest (if any) and for the costs (if any) awarded to him of a suit to compel specific performance of the contract or to obtain a decree for its rescission.

• b) Section 100 of the Transfer of Property Act 1882

• Charges. —Where immoveable property of one person is by act of parties or operation of law made security for the payment of money to another, and the transaction does not amount to a mortgage, the latter person is said to have a charge on the property; and all the provisions hereinbefore contained which apply to a simple mortgage shall, so far as may be, apply to such charge.

# 23. The provisions of section 55(6)(b) as quoted above makes it abundantly clear that buyer of a property is entitled to charge on the property, for the purchase money paid by it in anticipation of delivery of the property. Further all provisions which apply to a simple mortgage shall also apply to a charge.

# 24. Now, coming to the provisions relating to security interest under the IBC/Code.

i. Section 3(30):

• “Secured creditor” means a creditor in favour of whom security interest is created”.

ii. Section 3(31):

• “Security interest” means right, title or interest or a claim to property, created in favour of, or provided for a secured creditor by a transaction which secures payment or performance of an obligation and includes mortgage, charge, hypothecation, assignment and encumbrance or any other agreement or arrangement securing payment or performance of any obligation of any person”.

iii. Under Section 52, existence of Security interest can be proved either

• a) by the records of such security interest maintained by an information utility; or

• b) By such other means as may be specified by the Board.

iv. The Board has prescribed Regulation 21 for proving security interest.

• Regulation 21: Proving security interest

• The existence of a security interest may be proved by a secured creditor on the basis of –

• a) The records available in an information utility, if any;

• b) Certificate of registration of charge issued by the Registrar of companies; or

• c) Proof of registration of charge with the Central Registry of Securitisation Asset Reconstruction and Security Interest of India.

# 25. As per definition of ‘security interest’ under Section 3(31) of IBC, a charge or mortgage is covered as security interest. This charge can be proved on the basis of the records prescribed under Regulation 21. Though the charge created on the property by virtue of Section 55 (6) of Transfer of Property Act 1882, the same is not covered under Regulation 21 of the Liquidation Regulations. The Liquidator has therefore, not taken cognizance of the charge of the appellants over the subject property of the Corporate Debtor as the Liquidator could not find the creation of security interest over the subject property (i) there is no record with Information Utility, (ii) there is no registration of charge with RoC, and (iii) there is no registration of charge with CERSAI to expressly create security interest.

# 26. The Hon’ble Supreme Court had occasion to deal with section 55 of Transfer of Property Act, 1882 in the case of Delhi Development Authority vs. Skipper Constructions Co.(P) Ltd and others, (2000) 10 Supreme Court Cases 130 and observed that in absence of a contract to the contrary, the buyer is entitled to have a charge over the seller’s interest in the property for the purchase money paid to the seller, unless buyer has improperly declined to accept delivery. The Hon’ble Supreme Court has held that buyer’s charge under section 56(6)(b) of TPA is a statutory charge and is enforceable not only against the seller but against all persons claiming under him. The Hon’ble Supreme Court further held that the same principle, which is applicable to mortgages, also applies to cases of statutory charge under Section 55(6)(b) of the Transfer of Property Act 1882. The relevant extract is reproduced below:

• “29. These points depend upon the effect of the provisions in sub-section (6) of Section 55 of the Transfer of Property Act. That section starts with the words: “In the absence of a contract to the contrary”, and reads thus (in so far as it is material for our purpose).

• “55 (6) (b) The buyer is entitled –

• (a) *

• (b) unless he has improperly declined to accept delivery of the property, as against the seller and all persons claiming under him, to the extent of the seller’s interest in the property, for the amount of any purchase -money property paid by the buyer in anticipation of delivery and for interest on such amount; and , when he properly declines to accept the delivery, also for the earnest (if any) and for the cost (if any) awarded to him of a suit to compel specific performance of the contract or to obtain a decree for its recession.”

• It is plain from the above provision that, in absence of a contract to the contrary, the buyer will have a charge on the seller’s interest in the property which is subject- matter of the sale agreement in so far as the purchase money and interest on such amount are concerned, unless the buyer has improperly declined to accept delivery. The charge is available against the seller and all persons claiming under him. This charge in favour of the buyer is the converse of the seller’s charge under Section 55(4) (b). The buyer’s charge under this section is a statutory charge and differs from a contractual charge which a buyer may be entitled to claim under a separate contract. No charge is available unless the agreement is genuine.

• 30. When the property upon which the charge is created gets converted into another form, the buyer will be entitled to proceed against the substituted security. This is a general principle of law and section 73 of the Transfer of Property Act is only an example of the said principle. The above principle has been applied to enforce mortgage on substituted securities (see Barhamdeo Prasad v. Tara Chand and Surapali Munipaa vs Nookala Seshayaa Gari Subbaiah). The same principle which is applicable to mortgages applies to cases of statutory charge under Section 55(6)(b). If immovable property is charged and is converted into another property or money, then the charge will fasten on the property or money into which the subject of the agreement is converted.

• (Emphasis provided)

# 27. Following the above principle, in the case of Videocon Properties Ltd vs Dr. Bhalchandra Laboratories and others, (2004) 3 Supreme Court Cases 711, the Hon’ble Supreme Court again observed that the buyer’s charge as engrafted in Section 55(6)(b) of Transfer of Property Act is a statutory charge in favour of a buyer and is different from contractual charge. The relevant extract is given below:

• 13. The buyer’s charge engrafted in clause (b) of the sub-section (6) of Section 55 of the Transfer of Property Act would extend and ensure to the purchase money or earnest money paid before the title passes and property has been delivered by the seller to the purchaser, on the seller’s interest in the property unless the purchaser has improperly declined to accept deliver of the property or when he properly declines to accept delivery of property or when he properly declines to accept delivery-including for the interest on purchase money and cost awarded to the purchaser of a suit to compel specific performance of the contract or to obtain a decree for its recession. The principle underlying the above provision is a trite principle of justice, equity and good conscience. The charge would last until the conveyance is executed by the seller and possession is also given to the purchaser and ceases only thereafter. The charge will not be lost by merely accepting delivery of possession alone. This charge is a statutory charge in favour of a buyer and is different from contractual charge to which the buyer may become entitled to under the terms of the contact, and in substance a converse to the charge created in favour of the seller under Section 55(4)(b). Consequently, the buyer is entitled to enforce the said charge against the property and for that purpose trace the property even in the hands of third parties and even when the property is converted into another form by proceeding against the substituted security, since none claiming under the seller including a third-party purchaser can take advantage of any plea based even on want of notice of the charge. The said statutory charge gets attracted and attaches to the property for the benefit of the buyer the moment he pays any part of the purchase money and is only lost in case of the purchaser’s own default or his improper refusal to accept delivery. So far as payment of interest is concerned, the section specifically envisages payment of interest upon the purchase money/price prepaid, though not so specifically on the earnest money deposit, apparently for the reason that an amount paid as earnest money simpliciter, as mere security for due performance does not become repayable till the contract or agreement gets terminated and it is shown that the purchaser has not failed to carry out his part of the contract, and the termination was brought about not due to his fault, the claim of the purchaser for refund of earnest money deposit will not arise for being asserted. (Emphasis provided)

# 28. From, the reading of section 55(6) of Transfer of Property Act,1882 as interpreted by the Hon’ble Supreme Court in the case of Delhi Development Authority (supra), there is no iota of doubt that the buyer is entitled to have a statutory charge over the sellers interest in the property and the same principle which is applicable to mortgages shall apply to statutory charge under 55(6)(b).

# 29. In Videocon Properties (supra), the Hon’ble Supreme Court held that the statutory charge under Section 55(6)(b) gets attracted and attaches to the property for the benefit of the buyer for any part of the purchase money paid by him.

# 30. Thus, it is settled proposition of law that by virtue of provisions of section 55(6)(b) of Transfer of Property Act, 1882 buyer who has paid purchase money to the seller shall have statutory charge over the property of the seller to the extent of the purchase money paid by it.

# 31. In Greater Noida Industrial Development Authority v. Prabhjit Singh Soni in Civil Appeal No. 7590-7591 of 2023, the Hon’ble Supreme court has recognized statutory charge of Greater Noida and has held Greater Noida to be a secured Creditor by virtue of Section 13A of U.P. Industrial Development Act 1976.

# 32. In Kolkata Municipal Corporation vs Gajesh Labhchand Jain, Liquidator of Talwalkars Better Value Fitness Ltd, 2025 SCC Online NCLAT 1565, the question before the Hon’ble Appellate Tribunal was whether the Kolkata Municipal Corporation is a secured creditor by virtue of Section 232 of the Kolkata Municipal Corporation Act, 1980. After discussing various judgments of Hon’ble Supreme Court including Sales Tax officer vs Rainbow Papers, 2023 9 SCC 545, K.C. Ninan vs. Kerala State Electricity Board & Ors. (2023) 14 SCC 84 and Greater Noida Industrial Development Authority v. Prabhjit Singh Soni Company Appeal (AT) (Insolvency) No. 1042 of 2022, in para 21, the Hon’ble Appellate Tribunal has held that by virtue of Section 2(32) of the Kolkata Municipal Corporate Act, Kolkata Municipal Corporation has a statutory charge over the properties of the Corporate Debtor and is therefore a secured creditor of the corporate debtor. The relevant extract of para 21 is reproduced below:

• “21. We feel ourselves bound by the judgment of the Hon’ble Supreme Court in ‘Pashchimanchal Vidyut Vitran Nigam’ (supra), and ‘State Tax Officer’ (supra) as well as the judgment of the Hon’ble Supreme Court in ‘Greater Noida Industrial Development Authority’ (supra). In view of the law laid down by the Hon’ble Supreme Court in above cases, appellant has a statutory charge by virtue of Section 2(32) of the Kolkata Municipal Corporation Act, and the appellant is a secured creditor. Adjudicating authority committed error in rejecting the claim of the appellant as secured creditors.”

# 33. Plain reading of section 3(31) of the Code, security interest includes charge and same principle shall apply as mortgage. In the wake of discussion and clear law laid down by the Hon’ble Supreme Court as captured in the case of Kolkata Municipal Corporation (supra) the Appellants shall be treated as secured creditors.

# 34. The next consideration is to what extent Appellants be treated as Secured Creditors. It is noticed that the claim of the appellants is Rs. 18.5 crores in aggregate. However, they have paid only Rs. 17.50 crores towards purchase of the subject property supported by the “Agreement of Sale” and “Full and Final Settlement” Certificate issued by DHFL to the Corporate Debtor and the Appellants. Hence, the appellants shall be treated as secured creditors to the extent of Rs. 17.5 crores only. First Question is answered accordingly.

# 35. The next question pertains to the claims of the appellants for interest on the principal amount on the ground that since liability of the Corporate Debtor towards DHFL was paid by the appellants, they are now entitled to enter into the shoes of DHFL and have charged interest at the rate on which DHFL was charging i.e. 24%.

# 36. During the course of the hearing the appellants were asked to demonstrate the contract to show their entitlement for interest. However, it was candidly accepted that the contract document did not provide for interest. Hence, we hold that the appellants are not entitled for interest. Accordingly, question (ii) is answered in negative.

CONCLUSION

# 37. A conjoint reading of section 55(6)(b) of Transfer of Property Act, 1882 and section 3(31) of the Code, a ‘statutory charge’ is created in favour of the buyer of the property of corporate debtor and such buyer is entitled to be treated as secured creditor of the corporate debtor for the amount paid by it towards purchase of the property.

# 38. Consequently, the Liquidator shall amend and publish an updated list of stakeholders to reflect the Appellants’ claim as a secured creditor to the extent allowed here and take all such consequential steps including updating/reconstituting the Stakeholders’ Consultation Committee.

# 39. Accordingly, Company Appeal 10 of 2024 is partly allowed and stands disposed of.

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