NCLAT (2020.10.19) in Volkswagen Finance Private Limited vs. Shree Balaji Printopack Pvt. Ltd [Company Appeal (AT) (Insolvency) No. 02 of 2020] held that; when in present matter ‘Charge’ was not registered as per the provisions of Section 77 (1) of the Companies Act 2013 and as envisaged under the Code, the Creditor cannot be treated as a ‘Secured Creditor’.
Excerpts of the order;
# 1. Challenge in this Appeal under Section 61 of the Insolvency and Bankruptcy Code, 2016, (‘IBC’ in short) is to the Order dated 08.11.2019, passed by the Adjudicating Authority (National Company Law Tribunal, New Delhi, Bench-III), in CP (IB) No. 391 /ND /2018, by which Impugned Order, the Adjudicating Authority has dismissed the Application seeking a direction to set aside the Order of the Liquidator rejecting the ‘Claim’ of the Appellant.
# 2. The facts in brief are that the Company (under Liquidation) namely Shree Balaji Printopack Pvt. Ltd. executed a Loan and Hypothecation Agreement on 25.11.2013, for an amount of Rs. 36,00,000/- payable in 84 monthly instalments of Rs. 61,964/-each from 15.12.2013 to 15.11.2020, for the purchase of an AUDI Q3 TDI 2.0 vehicle. It was stated by the Appellant that they have security of the vehicle in terms of Sections 52 and 53 of the Insolvency and Bankruptcy Code, 2016. It was averred that a demand of Rs. 21,83,819.18/- was made which was not paid and hence there was a ‘default’ and the amount became ‘due and payable’.
# 3. The Learned Adjudicating Authority had appointed a Liquidator vide Order dated 03.04.2019 and Claims were invited from the Creditors as per the provisions of the Code. The Applicant namely, M/s. Volkswagen Finance Pvt. Ltd. filed its claim on 22.07.2019 with the copies of the Loan Agreement, the Hypothecation Deed, the Demand Letter and the Registration Certificate of the vehicle together with the invoices concerned for the consideration of the Liquidator. The Applicant had informed the Liquidator that the ‘Charge’ was duly registered by way of hypothecation registration with the Regional Transport Office (RTO) in terms of Section 51 of the Motor Vehicles Act, 1988 (M.V. Act). It is the Applicant’s case that there was no requirement of registration of ‘Charge’ with the R.O.C and that the Liquidator, without examining the Certificate issued by the Registration Authority under the ‘M.V. Act’ dismissed the Claim made by the Applicant. Being aggrieved with the decision dated 26.07.2019 of the Liquidator, the Applicant approached the Adjudicating Authority seeking to set aside the Order of the Liquidator.
# 4. The Learned Adjudicating Authority while dismissing the Application observed as follows;
“12. The Liquidator has referred to Regulation 21 of the IBBI (Liquidation Process) Regulation, 2016 and submitted that the claim of the Applicant is not supported by any documentary evidence as prescribed under the said Regulation and the Applicant cannot be treated as a secured creditor.
15. From the discussion made above, it is concluded that no charge has been registered under the provisions of Section 77(1) of the CA, 2013 in relation to the Subject Property. This is also confirmed from the format as provided under the Rule 3(1) of the Companies (Registration of charges) Rules, 2014 (Form No. CHG-1), which indicated various types of charge i.e. immovable Property, book debts, Motor Vehicle (hypothecation), goodwill etc. indicating that motor vehicle is one of the specific type of charge which is mandatory to be registered with ROC. Therefore, the Applicant cannot be treated as Secured Financial Creditor. Accordingly, the issue framed herein above is decided against the Applicant and in favour of the Liquidator. Consequently, the Subject Property i.e., AUDI Q3 TDI 2.0 bearing registration number DL1CQ4564 shall form part of the assets of the CD and the Applicant has to stand in que of the Unsecured Financial Creditor for the disbursement of the claim, if any, as provided under Section 53 of the IBC, 2016
# 8. It is the case of the Respondent that the Hypothecation Agreement dated 25.11.2013 was unattested; the record of the ‘Charge’ created by the Appellant was not registered with any Authority as mentioned in Section 52 (3) of the Code read with Regulation 21 of the IBBI (Liquidation Process) Regulations, 2016; that the security interest was not registered under Section 77 of the Companies Act 2013 and neither was any Application moved under Section 87 of the Companies Act 2013; that the Appellant had failed to provide any proof through the records available with an ‘Information Utility’ as mandated under Section 52(3)(a) of the Code read with Regulation 21(a) of IBBI (Liquidation Process) Regulation 2016 and submitted that non-Registration of ‘Charge’ under Section 125 of the Companies Act, 1956/Section 77 of the Companies Act, 2013 makes a Creditor an ‘Unsecured Creditor’.
# 10. The Learned Counsel, further, contended that the Liquidator had rejected the Applicant’s claim as time barred in view of delay of more than 70 days from the date of the last date of submissions of claim and that the Appellant has not challenged the ground of the ‘Claim’ being barred by limitation and hence this Appeal ought to be dismissed at the very threshold as not maintainable.
# 11. The main issue which falls for consideration in this Appeal is whether the Liquidator was justified in rejecting the Application filed by the Applicant on the ground that
the Applicant was not a ‘Secured Financial Creditor’ in the absence of the ‘Charge’ being registered with the Registrar of Companies (ROC) under Section 77 (1) of the Companies Act 2013 with respect to the Subject Property.
that the Appellant was not a Secured Creditor entitled to realise the security interest in accordance with Section 52(1)(b) of the Code.
that the Registration of Hypothecation by way of ‘Charge’ under Section 51 of Motor Vehicles Act, 1988 would stand nullified, if the ‘Charge’ was not registered under the Companies Act, 1956/2013.
# 15. It is clear from Section 52(3)(a) of the Code that before any security interest is sought to be realised by the Secured Creditor under this Section, the Liquidator shall verify such security interest and permit the Secured Creditors to realise only such security interest, the existence of which may be proved either by the records of such security interest maintained by an ‘Information Utility’ or by such other means as may be specified by the Board.
# 21. ………. However, the distinction becomes irrelevant considering Section 77 of the Companies Act, 2013. Section 77 of the Companies Act 2013 which came into force on 01.04.2014, changed the wordings & the Company creating ‘Charge’ on its property or assets ‘tangible or otherwise’, is required to register the same. It also provides an additional time of 300 days from the date of creation of ‘Charge’ to register before the ROC on payment of additional fees.
# 22. The material on record does not show evidence that on failure of the Corporate Debtor under Section 77, Appellant had exercised their choice of registering the ‘Charge’ under Section 78.
# 24. The Judgements relied upon by the Appellant Counsel in Pegasus Assets Reconstruction Pvt. Ltd. (Supra) and Laxmi Fibre Ltd. (Supra) are not helpful to the Appellant. Here the Appellant has failed to prove that it is a ‘Secured Creditor’.
# 29. ……….. To reiterate, in the instant case, as the ‘Security Interest’ was neither registered with the ‘Information Utility’; nor under Section 125 of the Companies Act, 1956/Section 77 of the Companies Act, 2013; no Application was preferred under Section 87 of the Companies Act, 2013; ‘Charge’ was not registered in the Securitisation Asset Reconstruction and Security Interest of India, we are of the opinion that Section 52(3)(b) of the Code and Regulation 21(b) of the (Liquidation Process), Regulation, 2016 are not complied with and the ratio laid down by the Hon’ble Apex Court in Kerala State Financial Enterprises Ltd. (Supra) and this Tribunal in India Bulls Finance Ltd. (Supra) is squarely applicable to the facts of this case. Hence, we hold that when in present matter ‘Charge’ was not registered as per the provisions of Section 77 (1) of the Companies Act 2013 and as envisaged under the Code, the Creditor cannot be treated as a ‘Secured Creditor’.
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