Failure to elect realization within 30 days deems security relinquished to the liquidation estate.

Tata Capital claimed a security interest over the Corporate Debtor’s assets and filed Form D on 1 October 2024, after liquidation commenced on 13 August 2024.

In Form D, it stated “NIL” for details of security held at Serial No. 8 and answered “No” to whether the security had been relinquished at Serial No. 8A.

Tata Capital participated in Stakeholders’ Consultation Committee (SCC) meetings, including consideration of a compromise scheme, but first clearly requested exclusion and delivery of the assets by email dated 19 February 2025, after the scheme was rejected.

The NCLT dismissed its application to exclude the assets; Tata Capital appealed.

Whether Tata Capital validly and within the prescribed period exercised its option under Section 52 of the Insolvency and Bankruptcy Code, 2016 to realise its security outside the liquidation estate.

Whether its Form D entries, participation in the SCC, or subsequent email could establish or cure a timely election to realise the secured assets outside the liquidation estate.

Section 52(1) of the IBC permits a secured creditor either to relinquish its security interest to the liquidation estate and receive sale proceeds under Section 53, or to realise the security separately; under Section 52(2), a creditor choosing separate realisation must inform the liquidator of the security interest and identify the asset.

Regulation 21A of the IBBI (Liquidation Process) Regulations, 2016 requires the creditor to communicate its decision in Form C or Form D and provides that, absent intimation within 30 days of the liquidation commencement date, the secured assets are deemed relinquished.

Regulation 31A(2) addresses SCC membership, including the ineligibility of a secured creditor that has not relinquished its security interest; Regulation 39BA concerns consideration of compromise or arrangement.

The Court held that the existence of security and timely exercise of the option to realise it are distinct requirements, and that the revival objective reflected in Action Ispat, Y. Shivram Prasad and Swiss Ribbons does not displace the specific requirements governing the Section 52 election.

Although the hypothecation documents established the existence of a security interest, Form D did not clearly communicate an election to realise the assets outside the liquidation estate: “NIL” at Serial No. 8, read with “No” at Serial No. 8A, was insufficient.

Tata Capital made no clear written request for exclusion within the prescribed 30-day period; its first such request was the 19 February 2025 email, sent after rejection of the scheme, and could not retrospectively cure the omission.

The Court also considered Tata Capital’s SCC participation and its awareness of the custody and valuation of the assets as relevant conduct inconsistent with a timely election to stand outside the liquidation.

The pending compromise scheme did not suspend the regulatory timeline, and the absence of competing claims did not excuse non-compliance.

Its belated email did not entitle it to remove the hypothecated assets from the liquidation estate or realise them separately.

The appeal was dismissed, the NCLT order affirmed, and no order as to costs was made.