NCLAT held that a secured creditor who realises its security interest under the SARFAESI Act is bound to contribute proportionately towards workmen’s dues, but is not liable to bear liquidation costs under the IBC.
On 8 July 2025, the National Company Law Appellate Tribunal (NCLAT), Principal Bench comprising Justice Ashok Bhushan (Chairperson) and Technical Members Mr. Barun Mitra and Mr. Arun Baroka, while adjudicating a company appeal, held that a secured creditor who realises its security interest outside the liquidation process under the SARFAESI Act, 2002, is statutorily obliged to contribute proportionately towards workmen’s dues under Section 13(9) of the SARFAESI Act read with Section 326 of the Companies Act, 2013. However, such a creditor cannot be directed to contribute towards liquidation costs under Section 52(8) of the IBC, as that provision pertains only to insolvency resolution process costs and not liquidation expenses.
In a recent judgment, the appellate tribunal dealt with an appeal filed by a secured creditor of the corporate debtor, M/s. Pandit Automotive Private Ltd., challenging an order of the adjudicating authority that had directed the appellant to contribute proportionately from the amount realised under Section 52 of the Insolvency and Bankruptcy Code, 2016 (IBC) towards workmen’s dues and liquidation costs. The appellant had enforced its security interest under the SARFAESI Act, 2002, after the commencement of liquidation but before the introduction of Regulation 21A in the IBBI Liquidation Regulations, 2016.
The corporate debtor had mortgaged its immovable properties in favour of the appellant to secure loans availed by its group companies. Following defaults, the appellant initiated proceedings under the SARFAESI Act and later opted to enforce its security outside the liquidation process after liquidation commenced in August 2018. The appellant realised ₹21.35 crores through a private sale and informed the liquidator. The liquidator subsequently filed an application seeking a contribution from the secured creditor toward workmen’s dues and liquidation costs. The adjudicating authority partly allowed this application, invoking Section 52(8) of the IBC and Section 13(9) of the SARFAESI Act, as well as Section 326(1)(b) of the Companies Act, 2013.
On appeal, the tribunal held that Regulation 21A of the Liquidation Regulations could not be applied retrospectively as the liquidation had commenced prior to its enactment on 25.07.2019. However, the tribunal upheld the adjudicating authority’s reliance on Section 13(9) of the SARFAESI Act, noting that since the appellant had realised its security interest under SARFAESI, it was statutorily bound to deposit workmen’s dues as per the proviso to Section 13(9), which corresponds with Section 326 of the Companies Act, 2013.
The tribunal clarified that Section 52(8) of the IBC speaks only of insolvency resolution process costs and not liquidation costs, as defined under Section 5(13) of the Code. Therefore, it concluded that the adjudicating authority had erred in directing the appellant to contribute towards liquidation costs under Section 52(8). The tribunal also distinguished the Supreme Court’s observations in Moser Baer Karamchari Union Thr. President Mahesh Chand Sharma and Others v. Union of India and Others, 2023 SC 05501, clarified that the waterfall under Section 53 of the IBC applies only when secured creditors relinquish their security interests, which was not the case here.
Accordingly, the appeal was partly allowed. While the tribunal upheld the direction requiring contribution towards workmen’s dues, it set aside the direction relating to liquidation costs, noting that such obligation could not be imposed in the absence of applicable legal provisions at the relevant time.