TaxTMI 
TaxTMI 
2026 (4) TMI 1673
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....d order, the Adjudicating Authority has dismissed I.A No. 2397 of 2025. Aggrieved by the impugned order, the present appeal has been preferred by the Appellant. 2. Coming to the brief factual matrix of the case which are relevant to be noticed for consideration of the matter at hand, we find that the Corporate Debtor-Mirage Ceramics Pvt. Ltd. was admitted into Corporate Insolvency Resolution Process (in short 'CIRP') on 14.02.2020. The resolution process having failed, the Corporate Debtor went into liquidation on 15.06.2023. The Corporate Debtor prior to the initiation into CIRP had availed credit facilities from Abhyudaya Co-operative Bank ('Abhyudaya' in short) and had created mortgage and hypothecation over its movable and immovable assets including land at Pune besides plant and machinery, stocks and receivables which led to the signing of a Hypothecation of Stock and Book-Debts Agreement on 17.09.2018 (hereinafter referred to as 'Hypothecation Agreement'). Subsequently, Abhyudaya as the assignor executed an Assignment Deed dated 26.08.2020 with the Appellant as assignee. Abhyudaya had assigned its loan exposure alongwith all underlying security interest of the Corporate De....
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....mmercial Arbitration Petition on 04.10.2018 nor the Deed of Charge dated 20.02.2019 in pursuant thereof created any security interest in the eyes of law. It was submitted that merely because an undertaking had been given by the Corporate Debtor before the Bombay High Court to create a second charge, the same cannot be construed to be a judicial direction to create security interest. Moreover, no legally enforceable security interest could have been created by the Deed of Charge in the absence of prior consent of the Appellant to the creation of second charge in view of the express contractual covenant contained in the 2018 Hypothecation Agreement which prohibited creation of further charge without consent of the first charge holder. However, in the present case, it was submitted that second charge was created behind the back of the first charge-holder and hence the second charge was a defective charge. It was further asserted that the Respondent No. 1-Liquidator had failed to perform his duties in accordance with Regulation 7(2)(h) of the IBBI (Insolvency Professionals) Regulations, 2016 for having suo motu classified the Respondent No. 2 as a secured financial creditor without ade....
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.... towards the dues of the Appellant and thereafter the remaining surplus amount was to be released to the Respondent No. 2, the Appellant as first charge holder not having suffered any legal injury or legal prejudice had no locus to question the status of Respondent No.2 as secured financial creditor. It was therefore contended that the Adjudicating Authority had taken a well- reasoned decision in upholding the treatment of the Respondent No. 2 as a secured financial creditor by the Liquidator. 5. The Ld. Counsel for the Respondent No. 1-Liquidator Mr. Nausher also supported the arguments which had been canvassed on behalf of Respondent No. 2. It was asserted that when the Deed of Charge had been formally and legally executed on 20.02.2019 between the Corporate Debtor and Respondent No. 2 in pursuance of the binding consent decree of the High Court of Bombay, the Deed of Charge formally created and perfected the second charge over the moveable and immovable assets of the Corporate Debtor and therefore, the Respondent No. 2 had been rightly admitted and recognised by the Respondent No. 1 as a secured financial creditor. It was emphatically asserted that the Respondent No. 1 had ac....
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....utory waterfall mechanism under Section 53 of the IBC. 8. Per contra, it is the contention of both the Respondents that the order of the High Court of Bombay dated 04.10.2018 was in the nature of a Consent Decree which had acquired finality. This undertaking given before the Court was further firmed up and crystallized by a Deed of Charge executed between the Corporate Debtor and the Respondent No. 2 for creation of a second charge. The Liquidator had taken note of the fact that the Deed of Charge had been executed in furtherance of and in compliance with the order of the High Court of Bombay and therefore accorded the status of secured financial creditor on the Respondent No. 2 which has been rightly affirmed by the Adjudicating Authority in the impugned order. It was also asserted that the Bombay High Court while passing the Consent Decree was fully aware that the Appellant was the first charge holder as this factum had been brought to the notice of the Bombay High Court. Further the undertaking given was to the effect that only after the Appellant recoups his entire security interest that the Respondent No. 2 would receive its dues from the residual balance proceeds. Thus, wh....
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....is supplied) 10. When we look at the above order of the Bombay High Court at para 1(iii), it is clear that the High Court of Bombay had the clear knowledge of the status of the Appellant as first charge holder and that Abhyudaya as the predecessor in interest of the Appellant was to have first charge over the properties to the extent of Rs. 19.69 Cr. over the properties of the Corporate Debtor. The order had clearly recorded that in the event of liquidation, the first charge over the properties of the Corporate Debtor would devolve upon the Appellant. When we look at the above order of the Bombay High Court at para 1(ii), it is clear that Respondent No.2 was to have second charge over the property of the Corporate Debtor. It follows therefrom that the Respondent No. 2 would only enjoy the benefit of second charge over the property of the Corporate Debtor after the first charge has been discharged. 11. In this backdrop, we are of the considered view that it has been rightly held by the Adjudicating Authority at para 16 of the impugned order that the Bombay High Court had passed the consent decree in the Commercial Arbitration Petition whereby the second charge on the propertie....
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....ything which prejudice the security hereby created. The security shall be operative and remain in full force till all the dues together with interest of the Borrower are fully paid to the Bank. (Emphasis supplied) 14. When we read the above clause, it fortifies the position that the second charge-holder was to get his claims from any surplus balance that was left after discharge of the security interest of the first charge-holder. When the Bombay High Court had passed the Consent Decree that Respondent No. 2 was to be the second charge-holder after duly safeguarding the interests of the Appellant as first charge-holder and the said order was never challenged, the Liquidator was bound by the said order. The decision of the Liquidator to treat Respondent No. 2 as secured financial creditor in compliance of Consent Decree of the Bombay High Court read with the consequential Deed of Charge thus cannot be said to have suffered from legal infirmities. Moreover, when the charge created for Respondent No. 2 was undisputedly subservient and secondary to the charge of the Appellant, the Appellant cannot claim to have suffered any injury or prejudice on this count. We therefore do not f....
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....for recognition of any party as a secured creditor under the IBC and that it is settled law that the right of a mortgagee under Transfer of Property Act, 1882 cannot be taken away merely because of non-registration of charge under Section 77 of the Companies Act, 2013. In the present case, it was vehemently contended that the Liquidator having exercised his judicial discretion in deciding the status of the Respondent No. 2 as secured financial creditor on the basis of documentary evidence placed before him in terms of the Deed of Charge which had been registered before the Sub-Registrar, Pune Gramin, this was sufficient notwithstanding non-registration under Section 77 of the Companies Act, 2013. 17. When we look at the impugned order, we find that the Adjudicating Authority has dwelled on this aspect at length. It has noticed the sequence of events leading to the creation of second charge on the property of the Corporate Debtor following the order of Bombay High Court in Commercial Arbitration Petition and registration of charge before Sub-Registrar, Pune Gramin. The factual narrative contained in the impugned order which is undisputed is as reproduced below: "7. Durin....
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....roduced below: "19. It is noted that, in case of Home Kraft Avenues (Supra), the Hon'ble NCLAT held that "18. This is in consonance with Section 77 of the Companies Act 2013. Section 78(3) of the Companies Act, 2013 states no charge shall be created by the Company shall be taken in account by the "Liquidator" unless it is registered under sub-section 1 and 2. Section 77 (4) of the Companies Act, 2013 clarifies nothing in sub-section (c) shall prejudice any contract or obligation for repayment of money secured by charge. The obligation is only on the Liquidator. In fact, Section 3(4) of IBC defines charge and Section 3(31) of IBC states secured interest means and includes "Charge". Thus, combine reading of all the section clarifies only a Liquidator will not consider a claim without registration, however, the RP is bound to consider a "Charge" and a Creditor having charge is a Secured Creditor". It is also pertinent to note that Hon'ble NCLAT also took note of NCLAT's Chennai Bench decision in case of S. Rajendran (Supra) at Para 17 reproducing para 53 thereof which reads as "53. In addition, the `non-registration of the Mortgage', as per Section 77 of the Companies Act, 20....