2020 (10) TMI 912 - AT - Insolvency and Bankruptcy

Appellant's Unregistered Charge Deemed Unsecured; Appeal Dismissed

The Adjudicating Authority upheld the Liquidator's decision, ruling that the Appellant's 'Charge' was not registered as required by Section 77(1) of the ... Direction to set aside the Order of the Liquidator rejecting the ‘Claim’ of the Appellant - 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. HELD THAT:- 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 - Section 52 (3) read with the aforenoted Regulation 21 stipulates that the proof of security interest is ascertained from records available with the ‘Information Utility’ as per the Code; through the Certificate of Registration of ‘Charge’ issued by the ROC under Section 77 of the Companies Act 2013/Section 125 of the Companies Act 1956, or, if there is any proof of Registration of ‘Charge’ with Central Registry of Securitization Asset Reconstruction and Security Interest of India. The Appellant does not claim & has not shown that Security Interest claimed by the Appellant is covered under any of the above clauses of Regulation 21 - 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. Apart from the fact that the words of the statute are themselves precise and unambiguous and not in conflict with any other provisions of the Code or any other Act, (keeping in view the facts and circumstances of the instant case) read together with the objective of the statute and the ‘Plain’ and ‘unambiguous words’ of the relevant provisions, we are of the considered opinion that the Learned Adjudicating Authority has correctly applied the law - 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. 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 - 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’. Appeal dismissed. Issues Involved:1. 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.2. Whether the Appellant was not a Secured Creditor entitled to realize the security interest in accordance with Section 52(1)(b) of the Insolvency and Bankruptcy Code (IBC), 2016.3. Whether the Registration of Hypothecation by way of 'Charge' under Section 51 of the Motor Vehicles Act, 1988 would stand nullified if the 'Charge' was not registered under the Companies Act, 1956/2013.Issue-Wise Detailed Analysis:1. Registration of Charge with Registrar of Companies:The Liquidator rejected the Appellant's claim on the grounds that the 'Charge' was not registered with the Registrar of Companies (ROC) under Section 77(1) of the Companies Act, 2013. The Liquidator referred to Regulation 21 of the IBBI (Liquidation Process) Regulations, 2016, which requires the existence of a security interest to be proved by records available in an information utility, a certificate of registration of charge issued by the ROC, or proof of registration with the Central Registry of Securitisation Asset Reconstruction and Security Interest of India. The Appellant failed to fulfill these requirements, and hence, the Liquidator treated the Appellant as an Unsecured Financial Creditor.2. Entitlement to Realize Security Interest:The Appellant contended that the 'Charge' was duly registered by way of hypothecation under the Registration Certificate with the RTO in terms of Section 51 of the Motor Vehicles Act, 1988. The Appellant argued that hypothecation is a method of creating security of movable property and that the vehicle should be considered as 'Security' under Sections 52 and 53 of the IBC. However, the Adjudicating Authority held that the material issue is whether there is a legally enforceable 'Charge' so as to claim that the Appellant is a 'Secured Creditor'. The Authority concluded that no 'Charge' had been registered under Section 77(1) of the Companies Act, 2013, and therefore, the Appellant cannot be treated as a Secured Financial Creditor.3. Registration under Motor Vehicles Act vs. Companies Act:The Appellant argued that the 'Charge' registered under Section 51 of the Motor Vehicles Act, 1988, should suffice. However, the Adjudicating Authority noted that Section 77 of the Companies Act, 2013, requires the 'Charge' to be registered with the ROC. The Authority referred to judgments from the Hon'ble Supreme Court and other High Courts, which held that if the 'Charge' is not registered under the Companies Act, it would be void against the Liquidator and other creditors. The Authority emphasized that the registration under the Motor Vehicles Act does not substitute the requirement of registration under the Companies Act.Conclusion:The Adjudicating Authority upheld the Liquidator's decision, stating that the Appellant's 'Charge' was not registered as per the provisions of Section 77(1) of the Companies Act, 2013, and the requirements under the IBC and the Liquidation Process Regulations were not complied with. Consequently, the Appellant cannot be treated as a 'Secured Creditor' and must stand in queue with other Unsecured Financial Creditors for the disbursement of claims. The Appeal was dismissed with no order as to costs.