Section 52 IBC: Secured Creditor in Liquidation Proceedings
Section 52 of the Insolvency and Bankruptcy Code, 2016 gives a secured creditor a choice in liquidation: relinquish its security interest to the liquidation estate and receive distribution under Section 53, or realise its security interest outside the liquidation estate in the manner prescribed by Section 52.
Section 52 - Secured Creditor in Liquidation Proceedings
(1) A secured creditor in the liquidation proceedings may-
(a) relinquish its security interest to the liquidation estate and receive proceeds from the sale of assets by the liquidator in the manner specified in section 53; or
(b) realise its security interest in the manner specified in this section.
(2) Where the secured creditor realises security interest under clause (b) of sub-section (1), he shall inform the liquidator of such security interest and identify the asset subject to such security interest to be realised.
(3) Before any security interest is realised by the secured creditor under this section, the liquidator shall verify such security interest and permit the secured creditor to realise only such security interest, the existence of which may 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.
(4) A secured creditor may enforce, realise, settle, compromise or deal with the secured assets in accordance with such law as applicable to the security interest being realised and to the secured creditor and apply the proceeds to recover the debts due to it.
(5) If in the course of realising a secured asset, any secured creditor faces resistance from the corporate debtor or any person connected therewith in taking possession of, selling or otherwise disposing off the security, the secured creditor may make an application to the Adjudicating Authority to facilitate the secured creditor to realise such security interest in accordance with law for the time being in force.
(6) The Adjudicating Authority, on the receipt of an application from a secured creditor under sub-section (5) may pass such order as may be necessary to permit a secured creditor to realise security interest in accordance with law for the time being in force.
(7) Where the enforcement of the security interest under sub-section (4) yields an amount by way of proceeds which is in excess of the debts due to the secured creditor, the secured creditor shall-
(a) account to the liquidator for such surplus; and
(b) tender to the liquidator any surplus funds received from the enforcement of such secured assets.
(8) The amount of insolvency resolution process costs, due from secured creditors who realise their security interests in the manner provided in this section, shall be deducted from the proceeds of any realisation by such secured creditors, and they shall transfer such amounts to the liquidator to be included in the liquidation estate.
(9) Where the proceeds of the realisation of the secured assets are not adequate to repay debts owed to the secured creditor, the unpaid debts of such secured creditor shall be paid by the liquidator in the manner specified in clause (e) of sub-section (1) of section 53.
Meaning of Secured Creditor and Security Interest
Under Section 3(30) of the IBC, a secured creditor is a creditor in whose favour a security interest is created. Section 3(31) defines security interest broadly as a right, title, interest or claim to property created in favour of, or provided for, a secured creditor by a transaction securing payment or performance of an obligation. It includes a mortgage, charge, hypothecation, assignment, encumbrance or other arrangement securing an obligation, but does not include a performance guarantee.
Two Choices Available to a Secured Creditor
- Relinquish security: the secured creditor may surrender its security interest to the liquidation estate and participate in distribution of liquidation proceeds under Section 53.
- Realise security: the secured creditor may enforce or otherwise realise its security interest under Section 52, subject to verification and the obligations imposed by the Code and applicable regulations.
Verification Before Realisation
Before realisation, the liquidator must verify the security interest. Section 52 expressly recognises records maintained by an information utility as a means of proving its existence and also permits proof by other means specified by the Insolvency and Bankruptcy Board of India.
Enforcement and Assistance from NCLT
After verification, the secured creditor may enforce, realise, settle, compromise or otherwise deal with the secured asset in accordance with the law applicable to the security interest and the creditor. If resistance is encountered in taking possession, selling or otherwise disposing of the security, the creditor may apply to the Adjudicating Authority for assistance. For corporate persons, the Adjudicating Authority is the National Company Law Tribunal under Section 60.
Surplus Proceeds and Insolvency Resolution Process Costs
If enforcement produces more than the debt due, Section 52(7) requires the secured creditor to account to the liquidator for the surplus and tender the surplus funds to the liquidator. Section 52(8) also requires the creditor realising security to bear the insolvency resolution process costs due from it out of the realisation proceeds and transfer that amount to the liquidator for inclusion in the liquidation estate.
Shortfall After Realisation
If the proceeds from the secured asset are insufficient to discharge the debt, Section 52(9) directs that the unpaid portion is to be paid by the liquidator in the manner specified in Section 53(1)(e). The creditor's treatment for the shortfall therefore differs from the treatment available when security is relinquished to the liquidation estate under Section 52(1)(a).
Section 52 and Liquidation Regulations
The statutory provision operates together with the IBBI (Liquidation Process) Regulations, 2016. Those regulations contain procedural requirements concerning verification and realisation of security interests, contributions and other liquidation matters. The current regulations and amendments should be checked for the particular liquidation proceeding.
Official Legal Resources
For the authoritative Code, amendments, regulations, circulars and notifications, refer to the official IBBI Legal Framework and the Government of India's India Code - Insolvency and Bankruptcy Code, 2016.
This article is a general legal reference. The current statutory text, applicable liquidation regulations and binding judicial decisions should be checked for the facts and date relevant to a particular proceeding.