TaxTMI 
TaxTMI 
2026 (4) TMI 1676
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.... are connected with each other and having regard to the fact that common question of fact and law is involved in these appeals, the aforesaid appeals are being disposed of by passing this common judgment. Factual matrix of CA (AT) (Ins) No. 67 of 2024 2. The instant appeal has been filed against the impugned order dated 21.11.2023 passed by the Ld. National Company Law Tribunal, Mumbai (Ld. Adjudicating Authority) with regard to Interlocutory application being IA No. 852 of 2021 in CP IB No. 2889/MB/2019 whereby Ld. Adjudicating Authority allowed the application moved by the Respondent No. 1/IDBI Bank Ltd. and hold that classification of the claim of the appellant as a secured creditor by the liquidator of the CD was not correct as it does not create fresh security. 3. The appellant of this appeal namely Kotak Mahindra Bank Ltd. is a Banking Company and is a Secured Financial Creditor of Gupta Synthetics Ltd. (CD) who is under liquidation. 4. It is reflected that financial facilities were extended to the CD in 2004 by VYSYA Bank Ltd. (now merged with the appellant), Bank of Baroda (BoB) and Oriental Bank of Commerce (OBC). Subsequently, Standard Chartered Bank (SCB), ID....
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....o. 1 issued notice dated 10.04.2014 under Section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) for enforcement of securities and thereafter Respondent No. 1 filed original application being OA No. 469 of 2016 before the DRT and a Company Petition No. 184 of 2016 was also filed by the appellant before the Hon'ble High Court of Bombay under the Companies Act, 1956 against the CD. 11. In October, 2017 default is stated to have been committed by the CD in payment of the amounts under the consent terms to the appellant pertaining to which application was filed for issuance of a Recovery Certificate before the DRT and before the Hon'ble High Court Bombay and DRT allowed the said application and granted recovery certificate. 12. The Company Petition No. 184/2016 filed before the Hon'ble Bombay High Court was transferred to Ld. Adjudicating Authority vide order dated 06.06.2019 and was admitted vide order dated 17.09.2019 and Ms. Jovita Reema Mathias was appointed as IRP and the Resolution Process resulted in the initiation of liquidation vide order dated 14.07.2022 and Ms. Jovita Reema Mathias was ap....
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....anctioned by the lenders. Thereafter certain concession by way of restructuring were granted by these lenders however no security was created in respect of the restructured /additional facilities sanctioned by these lenders and it was pleaded that these restructured/additional facilities remained unsecured in absence of any security/loan documentation. 18. It was further contended that the Principal for security creation has been ignored by the RP while reassessing claims of the banks and the security documents dated 26.03.2008 creating charge on the assets of the company in favour of the lenders have been completely disregarded and unsecured claim of the appellant for Rs. 712,916,236.05/- has been reclassified as secured based on a legal undated opinion of an Advocate and consent terms dated 10.01.2017 filed before the DRT while none of the aforesaid documents constitute creation of charge or security as the DRT decree only entitles a lender to recover its dues and may have residual charge on the assets of the borrower below the charge of the existing charge holder. 19. It is also reflected that Respondent-IDBI Bank Ltd. in his application has also contended that liquidator ....
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....ng ING VYSYA Bank Ltd. (now Kotak Mahindra Bank, SBI and Oriental Bank of Commerce) and the facilities were subsequently enhanced to Rs. 38.90 crores. The State Bank of Saurashtra (SBS) merged with the SBI in 2008 and also provided Rs. 7.45 crores to the CD under the consortium and this facility, after the merger of SBS with the SBI was transferred to the SBI and the facilities were secured by charge over current assets and immovable assets of the CD. The SBI restructured the facilities in 2010 by way of sanction letter dated 21.04.2010. 24. It is further reflected that on the failure of the liquidator to treat the whole claim of the SBI amounting to Rs. 196 crores as secured the SBI moved IA No. 2228 of 2020 which was disposed of by the Ld. Adjudicating Authority by passing the impugned order and aggrieved by the same the instant appeal is filed by the appellant- Kotak Mahindra Bank. Factual matrix of CA (AT) (Ins) No. 198 of 2024 25. The appellant in this appeal had preferred an IA No. 1111 of 2023 before Ld. Adjudicating Authority requesting to direct the liquidator to distribute the sale proceeds received from the sale of the assets of the CD amongst the creditors cons....
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.... duly registered and in respect of which a certificate of registration of such charge has not been issued by the Registrar under Sub-Section 2 of Section 77 and while, in case of non-registration of charge there is no impediment in enforcement of such contract or obligation for repayment of money but such charge could not be taken into account by the liquidator. 30. It is also submitted that Section 238 of the Code, could not be of any aid to the Respondents as the amendment under Section 77(3) of the Companies Act has been made specifically under Section 255 of the Code which consciously incorporates that the liquidator appointed under the Code is bound to ignore the charge not registered as per the Companies Act. Reliance in this regard has been placed on Raghunath Rai Bareja and Anr. Vs. Punjab National Bank and Ors., (2007) 2 SCC 230. 31. It is further highlighted that under Section 23 of the SARFAESI, Act registration of Security Interest with the Central Registrar is mandatory and Section 24 of the same Act requires that any modification to the security interest should also be registered failing which the security, as per Section 26 D, could not be enforced, however, Ld....
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....f documents and record made available. 38. So far as CA (AT) (Ins) No. 68 of 2024 is concerned Ld. Counsel for the liquidator submits that the liquidator was having a very limited role in the instant dispute and she has acted strictly in accordance with the statutory framework of the Code and has acted on the basis of the record and provisions of the Code and applicable Regulations and further the liquidator has complied with all the directions issued by the Ld. Adjudicating Authority and did not proceed with the distribution pending adjudication of IA No. 2228 of 2020. 39. It is further submitted that instant appeal is pertaining to the challenge to the proposed distribution of sale proceeds and the continuation of the interim restraint on such distribution and it is for this Hon'ble Tribunal to adjudicate the same in accordance with law and the liquidator being an independent person is not siding with any party. 40. With regard to CA (AT) (Ins) No. 198 of 2024 Ld. Counsel for the liquidator submits that liquidator has undertaken the process of verification and classification of claims strictly in accordance with the provisions of the Code and applicable Regulations after....
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....egistered with the ROC and mere non-registration of the modification of charge would not take away the original registered charge. Reliance in this regard has been placed on State of Punjab vs. Grind lays Bank and Anr., decided by Hon'ble Delhi High Court, 1980 SCC Online Del 25. 46. It is also submitted that in the instant case the IDBI's charge over the DT and D-Tax unit of the CD was exclusively registered and the same is subsisting as on date and even otherwise the restructuring of the outstanding loan of CD vide letter dated 09.04.2009 was revoked by the IDBI on 01.04.2011 and the original terms were restored. 47. It is also submitted that the reliance of the appellant on the DRT decree in order to establish that the same will amount to registration of modification of charge is untenable as the registration of modification of charge is completely estranged to Section 77 and 79 of the Companies Act and moreover the DRT decree is the consent decree and it records that IDBI shall have exclusive charge over the DT and D-Tax unit of the CD. 48. Ld. Counsel for the Respondent No. 1 SBI in CA (AT) (Ins) No. 68 of 2024 submits that IA No. 2228 of 2020 was filed by the SBI bef....
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....eration of security. 55. It is also submitted that the registration of Form CHG-1 by Edelweiss Asset Reconstruction Company was filed after the restructuring in 2010 wherein the SBI has been recorded as a joint charge holder and thus the reliance of the appellant on clause 17 of the sanction letter of 2010 is misplaced. 56. It is further submitted that Regulation 21 of the liquidation Regulations, 2016 expressly provides three ways of proving the security interest and the SBI has proved security interest on the basis of the registration of charge with CERSAI and the same is sufficient to establish the security interest. Reliance in this regard has been laid on Bizloan Pvt. Ltd. vs. Investor Amit Chandrashekhar Poddar, CA (AT) (Ins) No. 210 of 2024 and 718 of 2024 and Brihan Mumbai Electricity Supply and Transport Undertaking vs. Ashok Kumar Golecha, (2025) SCC Online, NCLAT 808. 57. It is lastly submitted that even if the later charge is deemed void due to non-registration of it the earlier charge would automatically revive and the liquidator has acknowledged that the charge created in 2008 was duly registered and there is no dispute with regard to the same and thus even i....
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....at this section shall not apply to such charges as may be prescribed in consultation with the Reserve Bank of India.] (2) Where a charge is registered with the Registrar under sub-section (1), he shall issue a certificate of registration of such charge in such form and in such manner as may be prescribed to the company and, as the case may be, to the person in whose favour the charge is created. (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 3[appointed under this Act or the Insolvency and Bankruptcy Code, 2016 (31 of 2016), as the case may be,] 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). (4) Nothing in sub-section (3) shall prejudice any contract or obligation for the repayment of the money secured by a charge. Section 79 Section 77 to apply in certain matters. The provisions of section 77 relating to registration of charges shall, so far as may be, apply to-- (a) a company acquiring any pr....
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....sis of- (a) the records available in an information utility, if any; (b) certificate of registration of charge issued by the Registrar of Companies; or (c) proof of registration of charge with the Central Registry of Securitisation Asset Reconstruction and Security Interest of India. [21A. Presumption of security interest. (1) A secured creditor shall inform the liquidator of its decision to relinquish its security interest to the liquidation estate or realise its security interest, as the case may be, in Form C or Form D of Schedule II: Provided that, where a secured creditor does not intimate its decision within thirty days from the liquidation commencement date, the assets covered under the security interest shall be presumed to be part of the liquidation estate. (2) Where a secured creditor proceeds to realise its security interest, it shall pay - (a) as much towards the amount payable under clause (a) and sub-clause (i) of clause (b) of sub-section (1) of section 53, as it would have shared in case it had relinquished the security interest, to the liquidator within ninety days from the liquidation commencement date....
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....ction letter dated 21.07.2009. The term loan-III was carved out of earlier sanctioned short term loan liability, cash credit liability and the unpaid interest on all existing credit facilities and the primary security being first Pari-Pasu charge on entire fixed assets of the CD excluding the assets specifically charged to SBI in respect of the FDY Project and to IDBI in respect of the draw twisting project (DT and D-Tax), which were sanctioned outside the consortium. 62. It is further the case of the appellant that the appellant entered into a settlement with the CD and its guarantors and the consent terms dated 22.12.2016 were executed between the parties and were also taken on record by the DRT in its order dated 10.01.2017 and the application was disposed of in terms of the said consent terms. 63. In pursuance of the public notice dated 17.07.2020, issued by the liquidator of the CD the appellant lodged an aggregate claim of Rs. 1,420,488,025.41/-. 64. In the meantime, the liquidator received a sum of Rs. 64,240,000/-towards the insurance claim filed by the CD prior to the liquidation in respect of damage caused due to fire at the factory premises and as all the lender....
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....rmed that only Rs. 47 Crore pertaining to the cash credit facility can be considered as secured and for claim of Rs. 148 Crore was classified as unsecured. The liquidator also informed the Bank that under sanction letter dated 21.04.2010 the Bank was required to modify its charge with ROC for the restructured facilities but no evidence of such modification was produced. 70. The State Bank filed an IA No. 2228 of 2020 before the Ld. Adjudicating Authority and vide impugned order the application was allowed holding that restructuring of the facilities, in strict sense, may not be deemed to be a modification of charge and thus the registration of it was not required and secondly, that under Regulation 21 of the Liquidation Process Regulations, 2016, three options have been given to prove the security interest and since the applicant has filed a CERSAI search report dated 08.01.2021, to the liquidator to established its security interest the same could be proved by the document and thus directed the liquidator to verify the extent of charge registered in favour of the SBI with CERSAI and thereafter considered the security interest of the applicant on that basis and further hold that....
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.... in respect of working capital facilities was registered with ROC Mumbai on 12.01.2007 and also with the Central Registry of Securitization Asset Reconstruction and Security Interest of India ( CERSAI). 75. It is also the case of the Bank that later on the consortium Banks have enhanced the facilities to the borrower to the extent of Rs. 180.94 Crores however the facilities granted by the Bank remained as it is and in March 2009 the IDBI Bank Ltd. has restructured the repayment schedule of due loan account on the request of the borrower and thereafter a demand notice dated 01.04.2014 was issued under Section 13(2) of the SARFAESI Act, 2002 and thereafter the original application was filed before the DRT and in the meantime, in September, 2019 the CIRP initiated against the CD and the claim submitted by the Bank was classified by the liquidator as secured debt however the application no. 852 of 2021 was filed by the IDBI Bank with a direction to treat and classify the claim of member of consortium i.e. SBI, Kotak Mahindra Bank and Edelweiss Reconstruction Company Ltd. in accordance with their security documents and release the proceeds amounting to Rs. 39,067,706/- received from ....
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....structured facility also covers. 82. The appellant- Kotak Mahindra Bank is claiming his secured interest on the basis of the consent terms acknowledged by the Ld. DRT in its order and its claim under various facilities secured in terms of registration of charge was followed by a decree of Ld. DRT and therefore request was made to classify whole of its claim as secured. 83. The Ld. Adjudicating Authority in the impugned order has found that in strict sense the restructuring of the credit facilities may require registration with ROC in view of Section 79(b) of the Companies Act however after discussing at length the nature of the restructuring done by the lender Banks came to a conclusion that the term modification should be liberally construed in favour of lenders in a manner that such construction does not prejudice the security interest of existing lenders where security interest has been acquired by other lenders with prior knowledge of existence of such security interest. 84. We do not find any illegality in the approach adopted by the Ld. Adjudicating Authority. The Banks had earlier granted term loan and working capital/cash credit facility to the CD and thereafter be....
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....all the lender Banks, we are in agreement with the approach adopted by the Ld. Adjudicating Authority in construing the term modification liberally as the same will not prejudice the security interest of existing lenders and the restructuring of the facilities done by the lender Banks may not amount to modification of charge in strict sense, more so when the securities have remained the same and the secured amount has also not been disturbed. 89. Here, Regulation 21 of the Liquidation Process Regulations, 2016 reproduced earlier in this judgment) is also important which govern the liquidation of the companies and provides three options by which the security interest can be proved by a creditor in liquidation proceedings. 90. We notice that the Ld. Adjudicating Authority also in impugned judgments has observed that the Regulation 21 of the Liquidation Process Regulations, 2016 provides three modes of proving the security interest and the same may be proved by either of the said mode or manner and keeping in view the Section 238 of the Code, Regulation 21 would override the provision of Section 77(3) of the Companies Act, 2013 and thus hold that apart from the certificate of re....
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....anies Act, 2013 mandates the registration of charges created by companies with the RoC and Section 77(3) stipulate that, "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 a liquidator or any other creditor unless it is duly registered under sub-section (1) and a certificate of registration is issued by the Registrar." 45. We note that the purpose of SARFAESI Act, 2002 is to allow secured creditors (banks/financial institutions) to enforce their security interests without court intervention. The SARFAESI Act, 2002 also has Section 35 (Non-Obstante) which state "The provisions of this Act shall have effect, notwithstanding anything inconsistent therewith contained in any other law...". Similarly, Section 26D of SARFAESI Act, 2002, mandates registration of security interests with CERSAI to make them enforceable against third parties. However, it also explicitly states this is "notwithstanding anything contained in any other law for the time being in force relating to registration of charges." 46. Thus, the complexity arises because all these laws have their own "non-obstante....
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.... registered with RoC under Section 77 of the Companies Act, 2013". 92. Thus keeping in view the aforesaid law propounded by the Co-ordinate bench of this Appellate tribunal we do not find any defect in the approach adopted by Ld. Adjudicating Authority in concluding that the security interest could be proved by any of the mode provided under Regulation 21, of the Liquidation Process Regulations, 2016. 93. Similarly, we also concur with the finding of Ld. Adjudicating Authority, that the DRT order based on the consent terms is not sufficient to create fresh security interest and even if such security interest is presumed to have been created the same will remain subordinate to already created security interest. It is also for the reason that in the instant case the DRT order is based on consent terms filed before it in OA No. 114 of 2012 instituted by the appellant and consent terms were filed by appellant and corporate debtor and its guarantors. Secondly the basis of the claim has been shown in para no. 4 of the consent term (filed with the appeal) as the 4th supplemental joint deed of hypothecation dated 26.03.2008 and second supplemental memorandum of deposit of title deeds....