NCLT Upholds Axis Bank And NKGSB Bank's Claims As Secured Debt, Rules Absence Of NOC Does Not Automatically Invalidate Security Documents
NCLT Upholds Axis Bank and NKGSB Bank's Claims as Secured Debt, Rules Absence of NOC Does Not Automatically Invalidate Security Documents
The National Company Law Tribunal (NCLT) has ruled in favor of Axis Bank and NKGSB Bank, affirming their classification as secured financial creditors in the ongoing insolvency proceedings of Omkar Speciality Chemicals Limited. The decision was made in response to an application filed by Bank of Baroda under Section 60(5) of the Insolvency and Bankruptcy Code, 2016 (IBC), challenging the admission of claims by the two banks.
The NCLT bench, comprising Technical Member Anil Raj Chellan and Judicial Member Kuldip Kumar Kareer, noted that although Bank of Baroda held the first charge over the corporate debtor's assets, the absence of a No Objection Certificate (NOC) did not invalidate the claims of Axis Bank and NKGSB Bank as secured creditors. Omkar Speciality Chemicals Limited had availed credit facilities from Bank of Baroda in 2009 and 2015, which were secured by multiple assets. Subsequently, Axis Bank and NKGSB Bank extended financial assistance in 2016 and 2017, respectively, and registered their charges with the Registrar of Companies (RoC). The NCLT had initiated the Corporate Insolvency Resolution Process (CIRP) against the corporate debtor on December 5, 2022, and appointed an Interim Resolution Professional (IRP).
During the CIRP, the IRP accepted Bank of Baroda's claim of ₹290.05 crore as a secured creditor but also admitted claims from Axis Bank and NKGSB Bank as secured creditors. Bank of Baroda argued that the charges claimed by Axis Bank and NKGSB Bank were exclusively secured in its favor and that no NOC had been obtained for creating security interests in favor of the other banks. It contended that any agreements made without valid consent are void under the Contract Act. Conversely, Axis Bank and NKGSB Bank maintained that their claims were validly secured as their charges were registered under the Companies Act, 2013. They argued that the absence of an NOC merely created a subservient charge, which did not affect their secured status. Axis Bank further claimed that the deed of hypothecation and personal guarantees from the corporate debtor constituted a valid security interest under the IBC. NKGSB Bank pointed out that their registered charge remained valid under the Transfer of Property Act, 1882, despite prior claims.
The NCLT evaluated the arguments and acknowledged that Bank of Baroda's charge was created earlier than those of Axis Bank and NKGSB Bank. The Tribunal emphasized that registration of a charge under the Companies Act is sufficient to classify a creditor as secured, even without an NOC from an earlier charge-holder. It concluded that while the claims of Axis Bank and NKGSB Bank were validly admitted as secured creditors, their security interest would be subordinate to Bank of Baroda’s prior charge.
The NCLT stressed that the Resolution Professional does not have the power to adjudicate the validity of charges beyond the documentation provided and registrations made with the RoC. Consequently, the absence of an NOC does not invalidate the claims of Axis Bank and NKGSB Bank as secured creditors, though their interests are subject to the prior rights of Bank of Baroda.
