NCLT Rejects Bid Of BEST To Be Classified As Secured Creditor In Spark Green Energy Case

NCLT Rejects Bid Of BEST To Be Classified As Secured Creditor In Spark Green Energy Case

The ruling highlights the importance of registration and clear contract terms for creditor claims in insolvency matters

The Mumbai bench of the National Company Law Tribunal (NCLT) has rejected the application of Brihanmumbai Electric Supply and Transport (BEST), which sought to direct the liquidator of Spark Green Energy Satara Ltd to categorize it as a secured financial creditor and admit Rs.156 crore claim.

The city-based public utility undertaking had approached the tribunal after the liquidator of Spark Green rejected the company's claim to admit the amount.

In its order, the division bench of Kuldip Kumar Kareer (Judicial Member) and Anil Raj Chellan (Technical Member) stated, "The respondent (liquidator) was justified in categorizing the appellant as an unsecured financial creditor, as the charge was not registered with the registrar of companies.”

It added, "There’s no fault with the impugned order passed by the respondent. Consequently, we reject the appellant's prayer to be considered and classified as a secured financial creditor of the corporate debtor."

To meet its renewable purchase obligation, in 2007, BEST had issued an Expression of Interest (EOI) for supplying 300 million units per annum.

Initially, the project cost was estimated at Rs.110 crore. This was to be funded by the promoters through Rs.15 crore equity and Rs.30 crore by the appellant on interest-free security deposit and the balance of Rs.65 crore by financial lenders as project loans.

However, in July 2023, the company was admitted for liquidation in the absence of any viable revival plan.

BEST submitted its claim of Rs.156 crore including interest to the liquidator. However, the liquidator admitted Rs.30 crore as an unsecured financial claim.

The company’s liquidator argued that BEST could not claim interest due to a lack of interest clause in their agreement and the charge in the Registrar of Companies (RoC).

Speaking on the matter, Himanshu Vidhani, a partner at Chandhiok & Mahajan said, "The order serves as a precedent emphasizing the criticality of registration and precise contractual terms for creditor claims in insolvency scenarios. It provides clarity for companies and creditors in structuring and documenting financial transactions to ensure the desired protections in case of insolvency."

Similarly, Pallavi Pratap, the managing partner of Pratap & Co reiterated that non-registration of charge should not be fatal to the claim of a secured financial creditor because a look at Rules 3 and 4 of the Companies (Registration of Charges) Rules, 2014, the onus of registration of charge is on the company/corporate debtor.