2019 (6) TMI 219 - HC - Companies Law

Court reclassifies creditor as unsecured due to lack of charge registration pre-winding up.

City Co-op Credit & Capital Ltd. Versus Official Liquidator of M/s. Satwik Electric Controls Pvt Ltd.,

The court determined that the applicant, City Co-operative Credit & Capital Limited, was incorrectly categorized as a secured creditor. The Recovery ... Secured credit or not - properties of the petitioner attached before the order of liquidation - Whether Applicant is an unsecured creditor or a secured creditor? - HELD THAT:- It is only if a creditor has realized the proceeds of sale of an asset of the Company prior to the winding-­up order can such creditor claim to have prior rights over such asset/its sale proceeds. In the present case, the mere fact that the Company’s properties have been attached, not even sold, prior to the winding-­up order dated 19th July 2007 does not have any consequence on its status as an unsecured creditor at all. In the absence of a charge having been registered by applicant prior to the winding up order dated 19th July 2007, applicant cannot be considered as a secured creditor - application disposed off. Issues Involved:1. Whether the applicant is an unsecured creditor or a secured creditor.Detailed Analysis:1. Applicant's Claim as a Secured Creditor:- The applicant, City Co-operative Credit & Capital Limited, claimed to be a secured creditor based on a decree/order from the Co-operative Court directing the attachment, possession, and sale of an immovable property of Satwik Electric Controls Private Limited.- The applicant argued that the decree/order created a charge on the company’s assets by operation of law, thus making them a secured creditor.2. Official Liquidator's Stand:- The Official Liquidator contended that the decree/order did not create a charge on the company's assets and that the applicant could not claim to be a secured creditor as no charge was registered under Section 125 of the Companies Act, 1956.3. Mortgage and Recovery Proceedings:- The applicant was the mortgagee of an immovable leasehold property of the company, under a Deed of Mortgage dated 23rd January 2004.- The applicant obtained a Recovery Certificate under Section 101 of the Maharashtra Co-operative Societies Act, 1960, which stipulated that the amount was recoverable as arrears of land revenue and authorized the sale of the property.4. Legal Provisions and Precedents:- The applicant relied on Section 101 and Section 156 of the Maharashtra Co-operative Societies Act, 1960, and Rule 107 of the Maharashtra Co-operative Societies Rules, 1961, to argue that a charge was created by operation of law.- The applicant cited judgments from Indian Bank vs. Official Liquidator and Praga Tools Limited vs. Official Liquidator to support their claim that a charge created by a decree/order does not require registration under Section 125 of the Companies Act, 1956.5. Counterarguments by the Official Liquidator:- The Official Liquidator argued that the charge created by the Mortgage Deed dated 23rd January 2004 was registered after the winding-up order, making it void.- The Official Liquidator also contended that Sections 47 and 48 of the Maharashtra Co-operative Societies Act were inapplicable and did not create a charge on the company’s property.- It was argued that the Recovery Certificate and the subsequent steps did not create a charge but were merely procedural for recovery.6. Court's Analysis and Conclusion:- The court noted that the Recovery Certificate did not specify that the applicant was a secured creditor or that it had a charge on the company's assets.- The court held that the Recovery Certificate under Section 101, read with Section 156 and Rule 107, did not create a charge on the company's properties.- The court emphasized that an attachment does not create a charge, as established in the judgments of Kerala State Financial Enterprises Limited and Board for Industrial and Financial Reconstruction vs. Coromandel Garments.- The court concluded that the applicant could not be considered a secured creditor as the charge was not registered before the winding-up order and the Recovery Certificate did not create a charge by operation of law.7. Final Decision:- The court ordered that the mistaken categorization of the applicant as a secured creditor be corrected to an unsecured creditor.- The Official Liquidator’s report and the company application were disposed of accordingly.Conclusion:The court ruled that the applicant, City Co-operative Credit & Capital Limited, is an unsecured creditor as the Recovery Certificate and subsequent steps did not create a charge on the company's assets by operation of law, and the charge was not registered before the winding-up order.