The existence of security interest in assets of Corporate Debtor does not preclude the assets to be dealt with or sold in the Resolution Plan – Edelweiss Asset Reconstruction Company Ltd. Vs. Mr. Anuj Jain, RP of Ballarpur Industries Ltd. – NCLAT New Delhi

In this important judgment, NCLAT held that: (i) Financial Creditor who is part of the CoC is prohibited from enforcing any security interest. A third-party security holder like Appellant is equally bound by the provision of Section 14(1)(c) and cannot claim any enforcement of security interest in the CIRP. (ii) As per scheme of CIRP Regulation 37, security interest in assets of the Corporate Debtor can be dealt with, modified, satisfied and there is no exclusion to the resolution plan with regard to dealing of the security interest. (iii) Despite Financial Creditor having security interest in the assets of the Corporate Debtor, they can be dealt with in the resolution plan in any manner as per the commercial wisdom of the CoC. (iv) A third-party security interest holder is entitled to retain the security proceeds on the land of security interest under Section 52 of the Code. (v) In the present case, claim was filed by the Appellant and Appellant was part of the CIRP process, hence, their security interest can very well be dealt with in the resolution plan. When security interest of the Appellant has been extinguished by the Resolution Plan it was always open for the Appellant to ask the Principal Borrower to furnish additional security to protect the interest of the Lender.

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