2011 (3) TMI 1460 - HC - Companies Law

Court Dismisses Appeal for Lack of Secured Creditor Status

The court dismissed the appeal under section 460(6) of the Companies Act, 1956, as the appellant's recovery decree did not establish them as a secured ... Whether a money decree passed by a Court of law entitle an unsecured creditor to be treated as a secured creditor - Appellant had advanced a loan to company-in-liquidation for allotment of Non-Convertible Debentures (NCD) – Held that:- merely because appellant is in possession of a decree for recovery, does not mean that appellant becomes a secured creditor. In fact, every decree holder is entitled to seek sale of assets of the defendant, in the event the decree is not satisfied. every sundry/unsecured creditor after obtaining a decree from the Civil Court would have to be treated as a secured creditor-which is untenable in law. no charge in favour of the appellant, the appellant cannot be considered as a secured creditor. appeal being bereft of merits, is dismissed Issues:- Appeal under section 460(6) of the Companies Act, 1956 for Official Liquidator to consider IDBI as a secured creditor.Analysis:1. The appellant advanced a loan to the company in liquidation but did not receive the Non-Convertible Debentures (NCDs) or payments as per the agreement, leading to a recovery application under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993.2. The Debts Recovery Tribunal, Chandigarh, issued a decree for recovery against the company, but the Official Liquidator rejected the appellant's claim as a secured creditor due to lack of charge registration under section 125 of the Companies Act, 1956.3. The appellant argued that the decree created a charge in their favor under section 100 of the Transfer of Property Act, 1882, citing relevant case laws to support their claim.4. However, the court found that no charge was registered under section 125 of the Companies Act, 1956, and a mere money decree does not entitle an unsecured creditor to be treated as a secured creditor, as per precedents like Textile Labour Association v. Official Liquidator.5. The court emphasized that for secured creditor status, a charge must be created by parties, operation of law, or court decree, none of which applied in this case, as per the DRT order and the absence of NCD issuance or security creation by the company.6. Rejecting the appellant's claim, the court concluded that possession of a recovery decree does not automatically confer secured creditor status, as it would lead to all decree holders being treated as secured creditors, which is legally untenable.7. Consequently, the appeal was dismissed for lacking merit, with no costs awarded.