Creditor cannot be treated as a 'Secured Creditor' If 'Charge' is not registered

 Creditor cannot be treated as a 'Secured Creditor' If 'Charge' is not registered 

The National Company Law Appellate Tribunal (NCLAT) New Delhi dismissed an appeal under Section 61 of the Insolvency and Bankruptcy Code, 2016, (IBC) in the case of Volkswagen Finance Private Limited & Ors. vs. Shree Balaji Printopack Pvt. Ltd. (Corporate Debtor/Respondent).

The Company (under Liquidation) Shree Balaji Printopack Pvt. Ltd. executed a Loan and Hypothecation Agreement on 25th November 2013, for an amount of Rs. 36,00,000 payable in 84 monthly installments of Rs. 61,964 each from 15th December 2013 to 15th November 2020, for the purchase of an AUDI vehicle.

It was stated by the Appellant that they have security of the vehicle in terms of Sections 52 and 53 of the Insolvency and Bankruptcy Code, 2016. It was averred that a demand of Rs. 21,83,819.18/- was made which was not paid and hence there was a 'default' and the amount became 'due and payable.'

The main issue which fell for consideration in this Appeal was, first 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.

Second, whether the Appellant was not a Secured Creditor entitled to realize the security interest in accordance with Section 52(1)(b) of the IBC. Third whether the Registration of Hypothecation by way of 'Charge' under Section 51 of Motor Vehicles Act, 1988 would stand nullified, if the 'Charge' was not registered under the Companies Act, 1956/2013.

The tribunal found that "it is not in dispute that the Appellant and the Corporate Debtor executed a Loan and Hypothecation Agreement on 25.11.2013, for an amount of Rs. 36,00,000/- payable in 84 monthly instalments for purchase of AUDI Q3 TDI 2.0. It is also not in dispute that the Subject Property has been hypothecated by the Corporate Debtor and under Section 51 of the 'MV Act', 1988, entry of the agreement is made in the Certificate of Registration with the RTO."

The NCLAT noted that hypothecation deed would not have any relevance as the material issue is whether there is legally enforceable 'Charge' so as to claim that the Appellant is a 'Secured Creditor'.

The Tribunal made it clear that from Section 52(3)(a) of the Code that before any security interest is sought to be realized by the Secured Creditor under this Section, the Liquidator shall verify such security interest and permit the Secured Creditors to realize 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.

Further, from the documentary evidence on record it was clear that no 'Charge' was being registered under the Section 77(1) of the Companies Act 2013, in relation to the Subject Property.

According to the NCLAT, the Liquidator had 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.

Moreover, the 'Charge' was not registered under Central Registry of Securitization Asset Reconstruction and Security Interest of India. With this contention the 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'. For all the aforementioned reasons, the Appeal was finally quashed accordingly.