2022 (1) TMI 214 - AT - Insolvency and Bankruptcy

CIRP - Rejection of claim as secured creditor - Non-registration of charge - security interest - failure to to furnish any document pertaining to ROC charge/ registration certificate in support of its security interest as required by Section 77 of Companies Act, 2013 - HELD THAT - The Application filed by the Appellant under Section 60 sub-section (5) was fully entertainable and it could not have been rejected on the ground that it has not been filed within 14 days as provided under Section 42. Section 42 was clearly inapplicable, since no Appeal was filed by the Appellant. The Adjudicating Authority thus, committed error in rejecting the Application as barred by time. Non-registration of charge under Section 77 of the Companies Act, 2013 - HELD THAT - The order passed by the Debt Recovery Tribunal dated 26th April, 2017 is an order adjudicating the dispute between the Appellant and the Corporate Debtor and after adjudication, the order passed by the Tribunal is akin to a Decree. The order dated 26th April, 2017 indicates that 30 days time was allowed to the defendants (one of which was Corporate Debtor) to make the payment, failing which the amount was to be recovered from the sale of mortgaged and hypothecated properties - When the sale of mortgaged and hypothecated was directed as per judgment of the Debt Recovery Tribunal, the mortgage and hypothecation no longer remained the matter of contract, rather it was the part of the judgment of the Tribunal and the non-registration of charge as required by Section 77 of Companies Act, 2013 does not in any manner affect enforceability of the order dated 26th April, 2017. There being adjudicatory order of the Debt Recovery Tribunal in favour of the Appellant, the mortgage and hypothecation was created in favour of the Appellant by the Corporate Debtor, hence, non-registration of mortgage and hypothecation under Section 77 of the Companies Act cannot be a ground to held that Appellant was not a secured creditor - Under the order of the Debt Recovery Tribunal, the Corporate Debtor having not deposited the amount within 30 days time period, the Appellant was at liberty to realise the amount from mortagaged and hypothecated assets. Adjudicating Authority committed error in rejecting the claim of the Appellant to be of secured creditor - the Appellants were entitled to recover their dues from the secured assets and they having relinquished the security interest according to Section 52 of the IB Code, as was requested by the Liquidator, in the liquidation proceedings - Appeal allowed.

Summary

Issues Involved:
1. Timeliness of the Application under Section 60(5) of the IB Code.
2. Applicability of Section 77 of the Companies Act, 2013 regarding the registration of charge.

Issue-wise Detailed Analysis:

1. Timeliness of the Application under Section 60(5) of the IB Code:

The Adjudicating Authority rejected the Appellant's application on the ground that it was filed after a delay of 551 days, beyond the 14-day period stipulated by Section 42 of the IB Code. However, the Appellant argued that their application was filed under Section 60(5) of the IB Code, which deals with questions of priorities and claims, and not under Section 42, which pertains to appeals against the Liquidator's decisions.

The Tribunal noted that the Appellant was categorized as a 'secured creditor' during the CIRP but was later reclassified as 'unsecured creditor' by the Liquidator. The Appellant's application under Section 60(5) was to address this reclassification. Section 60(5) allows the Adjudicating Authority to entertain applications related to claims and priorities in liquidation proceedings. The Tribunal concluded that the application was maintainable under Section 60(5) and should not be subject to the 14-day limitation of Section 42. Therefore, the rejection based on timeliness was erroneous.

2. Applicability of Section 77 of the Companies Act, 2013 regarding the registration of charge:

The Adjudicating Authority also rejected the application on the ground that the Appellant's charge was not registered under Section 77 of the Companies Act, 2013, which mandates registration of charges to be considered by the Liquidator. The Appellant contended that the charge was supported by a Decree from the Debt Recovery Tribunal (DRT), which should suffice as proof of security interest.

The Tribunal examined various judgments and legal provisions, including Section 3(31) of the IB Code, which defines 'security interest', and Regulation 21 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016, which outlines how security interest can be proved. The Tribunal noted that the DRT's order dated 26th April 2017, which directed the recovery of dues from mortgaged and hypothecated properties, was akin to a Decree and thus created a security interest.

The Tribunal referred to precedents where courts held that charges arising from judicial orders or decrees do not require registration under Section 77. The Tribunal concluded that the DRT's order provided sufficient basis for the Appellant's claim as a 'secured creditor' and that non-registration under Section 77 did not invalidate this status.

Conclusion:

The Tribunal found that the Adjudicating Authority erred in rejecting the Appellant's application on both grounds. The application under Section 60(5) was timely and maintainable, and the DRT's order validated the Appellant's status as a 'secured creditor' despite the lack of registration under Section 77. Consequently, the Tribunal allowed the appeal, set aside the Adjudicating Authority's order, and directed the Liquidator to correct the classification of the Appellant's claim as 'secured'.