Volkswagen Finance Private Ltd. Vs Shree Balaji Printopack Pvt. Ltd. (NCLAT Delhi)
From the documentary evidence on record it is clear that no ‘Charge’ has been registered under the provisions of Section 77(1) of the Companies Act 2013, in relation to the Subject Property. The Liquidator has rightly referred to Regulation 21 of IBBI (Liquidation Process) Regulation, 2016 and observed that the Appellants ‘Claim’ was not supported by any evidence as prescribed under the said Regulation.
It is also an admitted fact that the ‘Charge’ was not registered under Central Registry of Securitization Asset Reconstruction and Security Interest of India. We are keeping the ratio of the aforenoted Judgements of the Hon’ble Supreme Court and Section 52(3) of the Code read with Regulation 21(c) of the (Liquidation Process), Regulations, 2016, in view.
We are of the considered opinion that the contentions of the Learned Counsel appearing for the Appellant that Registration with Motor Vehicle Authority under Section 51 of the Motor Vehicles Act, 1988 would suffice, cannot be sustained. Section 51(1) of the MV Act, 1988 only provides for “entry” in the Certificate of Registration regarding the agreement.
The Section provides how to deal with the entry. 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’.
FULL TEXT OF ORDER OF NATIONAL COMPANY LAW APPELLATE TRIBUNAL, DELHI
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 Company Appeal (AT) (Insolvency) No. 02 of 2020 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. Further, as per submission of the Liquidator, the Applicant is to be treated as Unsecured Financial Creditor. For the sake of convenience, Regulation 21 is extracted below:
“The existence of a security interest may be proved by a secured creditor on the basis of:
(a) the records available in an information utility, if any;
(b) certificate of registration of charge issued by the Registrar of Companies;
(c) proof of registration of charge with the Central Registry of Securitisation Asset Reconstruction and Security Interest of India.”
13. As per the record placed on the file, the claim of the Applicant is not fulfilling any of the requirements under Regulation 21, as noted above. Further, the Liquidator has referred to the provisions of Section 77(3) of the CA, 2013 and submitted that no charge has been registered under Section 77(1) in relation to the Subject Property. Therefore, no other charge created by the CD can be taken into account by the Liquidator. For the sake of convenience, Sub-Section (3) of Section 77 of the CA, 2013 is extracted below:
Section 77. Duty to register charges, etc:
“(3) Notwithstanding anything contained in any other law for the time being in force, no charge created by a company shall be taken into account by the Liquidator or any other creditor unless it is duly registered under sub-Section (1) and a certificate of registration of such charge is given by the Registrar under sub-Section (2).”
14. In connection with the above, it is relevant to refer to the judgement passed by the Hon’ble High Court of Kerala in Kerala State Financial Enterprises V/s. Official Liquidator, reported in (2006) 133 Company Case 912 (Kerala), wherein it has been held that if, ‘the charge had not been registered under Section 125 of the Companies Act 1956, then, undisputedly the Appellant has to be considered as an Unsecured Creditor and has to be in que with other creditors to receive its dues as and when assets of the company are collected by the Official Liquidator for distribution in accordance with law’. The said judgement was upheld by the Hon’ble Apex Court on the Appeal filed as reported in (2006) 133 Company Case 915 (SC). A similar view was taken by the Hon’ble High Court of Bombay in Antifraction bearings Corporation Ltd & Anr. V/s. State of Maharashtra & Ors., reported in AIR 1999 Bom 37.
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.
(Emphasis Supplied)
5. Learned Counsel appearing for the Appellant contended that the Learned Adjudicating Authority failed to take into consideration that the ‘Charge’ of the Appellant was duly registered by way of hypothecation under Registration Certificate with the RTO in terms of Section 51 of the Motor Vehicles Act, 1988; that the Hypothecation Deed, Loan Agreement, CIBIL Record, Admission of the ‘Debt and Default’ was not considered; that Hypothecation is a method of creation of security of movable property and the goods so hypothecated continued to be in possession of the owner, i.e. the Borrower and hence it is a way of creating security without delivery of possession and as in the literal sense of term, the lender is ‘hypothetically’ in control of the property; that the definition of ‘Hypothecation’, ‘Charge’, ‘Secured Asset’, ‘Financial Asset’, ‘Financial Creditor’, ‘Secured Creditor’, clearly explains the position of Law on the subject more particularly Sections 3 (4), 3 (31), 3 (37) of IBC and Sections 2(1)(b) and 2 (16) of the Companies Act 2013; that the hypothecated vehicle of the Applicant is the ‘Security’ as recognised under Law and, therefore, the Appellant has every right under Sections 52 and 53 read with Section 36(4)(b) of the IBC to proceed independently. The Learned Appellant Counsel strenuously contended that Hypothecation is merely an extended form of ‘Pledge’ which allows a lender to retain possession in trust for himself and, therefore, Hypothecation is a subset of ‘Pledge’.
6. He placed reliance on the Judgement of the Hon’ble Apex Court in Brilliant Alloys Pvt. Ltd. V/s. Mr. S. Rajgopal and Ors., 2018 SCC Online SC 3154, in support of his submission that the Regulation 21 starts with the word ‘may’ and that the Regulation has to be read with the main provisions of IBC, which the Learned Adjudicating Authority had failed to do so by not making any attempt to harmonise the two provisions of the Regulations and the Code on one hand and the Motor Vehicles Act, 1988 on the other.
7.0 He further contended that Section 77 (1), 77 (2) require that ‘Charge’ is to be registered, but nowhere categorises on what items the ‘Charge’ is to be registered by a Company or a Financial Institution. Section 77 (3) states that unless ‘Charge’ is registered, the claim would not be considered and read with Section 77 (4) and Section 79, it is made clear that non-Registration of ‘Charge’ does not impact the original contract and ‘Security’ so created. He submitted that the Learned Adjudicating Authority failed to adopt a Harmonious Construction of the ‘MV Act’ and the IBC Code. He placed reliance on the decision of the Constitution Bench of the Hon’ble Supreme Court in Sri Venkataramana Devaru and Ors. V/s. The State of Mysore & Ors., AIR 1958 SC 255, wherein the Hon’ble Apex Court has observed that, where there are, in an enactment, two provisions which cannot be reconciled with each other, they should be so interpreted that if possible, effect should be given to both. He argued that the rule of ‘Beneficial construction’ was not adhered to by the Learned Adjudicating Authority which took a hypothetical view by not taking into consideration that a ‘Charge’ registered under ‘MV Act’, 1988 also satisfies the requirement under Law. The status of the Appellant in terms of Section 53 being a Secured Financial Creditor could not have been degraded to an Unsecured Creditor as was done by the Liquidator under the garb of Regulation 21 read with Section 77 of the Companies Act, 2013. He, further, placed reliance on the Judgement of the Hon’ble Apex Court in Pegasus Assets Reconstruction Pvt. Ltd. V/s. M/s. Haryana Concast Ltd. and Anr., (2016) 4 SCC 47, in which the Hon’ble Supreme Court has observed that ‘if the defaulter is the Company under winding up, the said Financial Corporation can at best be a Secured Creditor who may opt to remain out of winding up but nonetheless it will be subject to Orders passed in accordance with Law under the Companies Act. It is also the clear intention of the Parliament expressed in Section 13 of the SARFAESI Act, that a Secured Creditor has a right to enforce its security interest without the intervention of the Court and Tribunal’. The Learned Counsel contended that a similar view was taken by the Hon’ble Supreme Court in Laxmi Fibre Ltd. V/s. Andhra Pradesh Industrial Development Corporation Ltd. and Ors., (2015) SCC 464, in which it was held that the Liquidator has no right to ascertain the claims and rights of the Secured Creditors who chose to stand outside the (Liquidation Process) in respect of the securities.
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’.
9. Learned Counsel for the Respondent relied on the Judgment of the Hon’ble Supreme Court in Kerala State Financial Enterprises Ltd. V/s. Official Liquidator, High Court of Kerala, (2006) 10 SCC 709, in which the Hon’ble Apex Court, while confirming the Order of the Hon’ble High Court of Kerala observed that ‘ordinarily a ‘Charge’ should be registered in terms of Section 125 of the Act and if the charges are not registered the same would be void against the Liquidator or Creditors’. He also drew our attention to the Judgement of the Hon’ble Supreme Court in Oil and Natural Gas Corporation Ltd. V/s. Official Liquidator of Ambica Mills Co. Ltd. and Ors., (2015) 5 SCC 300 in which the Hon’ble Apex Court while placing reliance on Indian Bank V/s. Official Liquidator, Chemmeens Exports (P) Ltd. and Ors., (1998) 5 SCC 401 in which the Hon’ble Apex Court has observed that ‘Section 125 applies to every ‘Charge’ created by the Company on or after 01.04.1914. But where the ‘Charge is by Operation of Law or is created by order or decree of the Court, Section 125 has no Application’.
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
