2021 (5) TMI 318 - Tri - Insolvency and Bankruptcy

Classification of applicant - unsecured creditors or not - Direction to opponent to rectify the erroneous classification of claim of Applicant as 'Unsecure' and categorize the same as 'Secured' - time limitation - HELD THAT - On perusal of the record, it is found that on 5th July 2019, the liquidator classified the Applicant as Unsecured Financial Creditor in the liquidation process of the Corporate Debtor and in view of Section 42 of the Insolvency and Bankruptcy Code, the creditor may appeal before the Adjudicating Authority against the decision of the liquidator within 14 days on receipt of such decision. However, the present application is filed after around 551 days - The instant application is admittedly filed in much belated stage. In view of such express provisions of section 77(3) of the companies Act, 2013 and Regulation 21 of the Liquidation Regulation, the Liquidator, acting in accordance with the provisions of Section 77(3) of the Companies Act and Regulation 21 of the Liquidation Regulations, is bound to reject the claim submitted by the Applicant as a secured claim - While filing the instant application, the Applicant has miserably failed to explain the reason of delay in filing the instant application and also not prayed for any condonation of delay for the same. Time Limitation - HELD THAT - That apart, it is also admitted fact that Applicant is always attending the CoC meeting being the member of the CoC constituted in the liquidation process of the Corporate Debtor and the liquidator in all its meeting reported all the developments in the liquidation process of the Corporate Debtor and also inviting suggestions from the members of the CoC on various aspects of the liquidation process of the Corporate Debtor, however the Applicant did not raise any objection. Thus, the Applicant cannot take to plea that he is not aware of the fact that he is classified as unsecured creditor. Instead of going into further detail of the matter, the fact remains that even after having the knowledge with regard to the classification as unsecured creditor, the Applicant has not taken any steps and filed instant application almost after 551 days, when Code provide that an appeal has to be filed within 14 days after rejection of the claim by Liquidator. Therefore, the application is barred by limitation. Under such circumstances, if the application of the Applicant will be allowed ignoring the specific Rules and Regulations of the Liquidation. In that event, the very sanctity of those provisions will be diluted and in that event there is every likelihood that number of application will come before this Adjudicating Authority for the same - application dismissed.

Summary

Issues Involved:
1. Classification of the Applicant's claim as 'Unsecured' instead of 'Secured.'
2. Timeliness of the application filed by the Applicant.
3. Compliance with Section 77(3) of the Companies Act, 2013 and Regulation 21 of the Liquidation Regulations.

Detailed Analysis:

1. Classification of the Applicant's Claim as 'Unsecured' Instead of 'Secured':
The Applicant filed an application under Section 60(5) of the IB Code to rectify the classification of its claim as 'Unsecured' and categorize it as 'Secured.' The Applicant argued that the Corporate Debtor had provided securities, including a Deed of Hypothecation, Indenture of Collateral Security, and a Deed of Guarantee, to secure a Medium Terms Loan of ?90 Crores. Additionally, an Escrow Account was established to secure the Shipbuilding Subsidy Scheme receivables.

The Applicant contended that the Corporate Debtor's security interest was acknowledged during the CIRP as 'Secured' and should be maintained during the liquidation process. The Applicant further argued that the Liquidator's classification of the claim as 'Unsecured' was arbitrary and lacked justification.

2. Timeliness of the Application Filed by the Applicant:
The Respondent/Liquidator argued that the application was time-barred, as it was filed 551 days after the Liquidator's decision on July 5, 2019, classifying the Applicant as an unsecured financial creditor. According to Section 42 of the IB Code, a creditor must appeal the Liquidator's decision within 14 days of receipt. The Respondent emphasized that the Applicant failed to object to the classification within the stipulated period and raised concerns only after an undue delay.

The Tribunal noted that the application was indeed filed after a significant delay of 551 days, and the Applicant did not provide any justification or seek condonation of the delay.

3. Compliance with Section 77(3) of the Companies Act, 2013 and Regulation 21 of the Liquidation Regulations:
The Liquidator argued that the Applicant failed to furnish documents such as the ROC charge registration certificate or CERSAI search reports to substantiate its security interest. Section 77(3) of the Companies Act, 2013, mandates that no charge created by a company shall be taken into account by the Liquidator unless it is duly registered. The Liquidator emphasized that the Applicant did not comply with this requirement, and therefore, the claim could not be recognized as 'Secured.'

The Tribunal upheld the Liquidator's stance, citing the express provisions of Section 77(3) of the Companies Act, 2013, and Regulation 21 of the Liquidation Regulations. The Tribunal referenced various case laws, including the Hon'ble Supreme Court's judgment in Kerala State Financial Enterprises Ltd. Vs. Official Liquidator, which held that unregistered charges are void against the Liquidator or creditors.

Conclusion:
The Tribunal concluded that the Applicant's claim was rightly classified as 'Unsecured' due to the failure to register the charge as required by law. The application was also deemed time-barred, as it was filed well beyond the 14-day period stipulated under Section 42 of the IB Code. Consequently, the Tribunal rejected the application, emphasizing the importance of adhering to specific rules and regulations to maintain the sanctity of the liquidation process.