All NotesCorporate LawInsolvency and Bankruptcy Code, 2016

Insolvency and Bankruptcy Code, 2016

Secured Creditor in Liquidation: Relinquish or Realise

In liquidation, a secured creditor chooses between giving up its security and ranking high in the waterfall, or enforcing it and taking its chances on the shortfall. The 2026 Amendment tightened both paths: a fourteen-day notice to realise, a 66 per cent rule for shared security, statutory deduction of costs and workmen's dues, and a cap on clause (b) priority at the value of the security. Questions test each change with figures.

1. The Law in Brief

Relinquishing and realising compared

Figure 1: Relinquishing and realising compared

  • Election, section 52(1) and (2). Relinquish to the estate, or realise the security; a creditor who intends to realise must notify the liquidator and identify the asset within fourteen days of the liquidation commencement date, failing which the security is deemed relinquished.
  • Shared security. Realisation of an asset charged to several creditors needs the agreement of those holding at least 66 per cent of the value of secured claims over it.
  • Value cap, 2026. A relinquishing creditor ranks under section 53(1)(b)(ii) only up to the value of its security, and as unsecured for the balance.

2. What If a Secured Creditor Misses the 14-Day Notice?

Facts

AB Ltd's liquidation began on 1 August 2026. AB Bank, owed ₹100 crore and holding a charge over a factory valued at ₹70 crore, wrote to the liquidator on 25 August 2026 saying it would realise the factory under SARFAESI. The liquidator treats the security as relinquished. AB Bank argues that it should still rank in clause (b) for its full ₹100 crore. Decide.

  • Issue. The effect of failing to give notice within fourteen days, and the rank of a relinquishing creditor after 2026.
  • Law. Section 52(2), as substituted in 2026, requires a secured creditor intending to realise to notify the liquidator within fourteen days of the liquidation commencement date; otherwise the security is deemed relinquished. The new Explanation to section 53(1)(b)(ii) treats a relinquishing creditor as secured only up to the value of the security, determined as specified, and as unsecured for the balance.
  • Application. AB Bank's notice came on day 24, after the fourteen days. Its security is deemed relinquished. The factory is valued at ₹70 crore against a debt of ₹100 crore.
  • Conclusion. AB Bank ranks under clause (b) for ₹70 crore, equally with workmen's dues, and for the balance of ₹30 crore as an unsecured financial creditor under clause (d). It cannot enforce under SARFAESI.

3. What Does a Realising Secured Creditor Retain?

Facts

CD Bank, owed ₹100 crore, gives notice within fourteen days and sells its secured land for ₹60 crore. The liquidator calculates that its share of the CIRP costs, liquidation costs and workmen's dues attributable to the land is ₹6 crore. CD Bank argues that a realising creditor stands outside the waterfall and owes nothing. What does CD Bank retain, and how is the rest of its debt treated?

  • Issue. Deductions from realisation proceeds and the treatment of the shortfall.
  • Law. Section 52(8), as amended in 2026, requires the insolvency resolution process costs, liquidation costs and workmen's dues falling under section 53(1)(a) and (b)(i) to be deducted from the realisation proceeds and transferred to the liquidator, as specified. Section 52(9) provides that the unpaid part of the debt is paid under section 53(1)(e), equally with two years' government dues.
  • Application. From ₹60 crore, ₹6 crore goes to the liquidator. CD Bank keeps ₹54 crore and ₹46 crore of its debt remains unpaid.
  • Conclusion. CD Bank retains ₹54 crore and ranks for ₹46 crore under section 53(1)(e)(ii). Its argument fails, since the 2026 Amendment ensures that a realising creditor bears its share of costs and workmen's dues.

Worked computation: realisation and shortfall

Figure 2: Worked computation: realisation and shortfall

4. Can a Second Charge Holder Realise Shared Security?

Facts

EF Ltd's plant is charged to GH Bank (first charge, ₹140 crore) and JK Finance (second charge, ₹60 crore). JK Finance gives notice to realise the plant within fourteen days; GH Bank wants to relinquish it to the liquidator, who plans to sell the plant with other assets. Can JK Finance realise the plant?

  • Issue. Whether one of several secured creditors over the same asset may realise it alone.
  • Law. After 2026, where several secured creditors hold security over the same asset, realisation requires the agreement of creditors holding not less than 66 per cent of the value of all secured claims over that asset.
  • Application. Secured claims over the plant total ₹200 crore. JK Finance holds ₹60 crore, or 30 per cent; GH Bank, holding 70 per cent, wants to relinquish.
  • Conclusion. JK Finance cannot realise the plant. Unless it can secure the agreement of 66 per cent by value, the plant goes into the estate, and both creditors rank under section 53 according to the value of their security, with their inter se priority respected (Topic 128)

5. Can a Tax Department Realise a Statutory Charge?

Facts

LM Bank, owed ₹100 crore, gives timely notice and seeks to sell a building worth ₹130 crore. The former promoters, still occupying part of it, refuse to leave. The State tax department, which has a statutory first charge on the same building for ₹20 crore of VAT, also gives notice that it will realise the building. Advise.

  • Issue. How resistance and surplus are dealt with, and whether a statutory charge holder can elect to realise.
  • Law. Section 52(5) allows the secured creditor to apply to the NCLT where the debtor or connected persons resist realisation. A creditor realising more than its debt must account for the surplus to the liquidator. After 2026, a security interest exists only where created by agreement (Explanation to section 3(31)), so a statutory charge does not entitle the State to act as a secured creditor under section 52. Government dues for two years rank under section 53(1)(e)(i) whether or not secured.
  • Application. The promoters' refusal is resistance by connected persons. If the building sells for ₹130 crore, LM Bank's debt is ₹100 crore, subject to the section 52(8) deductions. The tax department's charge arises only by statute.
  • Conclusion. LM Bank may seek an NCLT order to recover possession and complete the sale, and must pay the surplus over its debt, after deductions, to the liquidator. The tax department cannot realise under section 52; it claims in the liquidation, with two years' dues under section 53(1)(e)(i) and the rest under clause (f)

⚠ Exam trap

Fourteen days to notify, or the security is deemed relinquished (s. 52(2), 2026). A relinquishing creditor ranks in clause (b) only up to the value of its security, the rest as unsecured. A realising creditor bears costs and workmen's dues (s. 52(8)) and ranks for the shortfall under clause (e)(ii). Shared security needs 66 per cent by value to realise. Surplus goes to the liquidator. A statutory charge holder is not a secured creditor after 2026. Pre-2026 liquidations follow the old rules.

6. Frequently Asked Questions

Does the fourteen-day rule apply to liquidations begun before the 2026 Amendment?

No. The Explanation to section 52(2) excludes liquidations initiated before it came into force; they followed the earlier thirty-day rule in Regulation 21A.

Must the liquidator verify a security interest before allowing realisation?

Yes. Under section 52(3), realisation is permitted only of a security interest proved by the records of an information utility or other specified means.

Can a secured creditor realise using SARFAESI?

Yes. Section 52(4) allows enforcement under the law applicable to the security interest, which includes SARFAESI.

7. Related Topics

  • Topic 56: Section 52. Secured creditors in liquidation.
  • Topic 126: Liquidation Estate under Section 36. What it includes.
  • Topic 128: Section 53 IBC Waterfall. Section 53 with figures.