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TMI Blog2012 (8) TMI 659X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act would be that so much of charge which is not registered in accordance with provision under Section 125 of the Act will not acquire status of, and will not be treated as, "secured charge" for the purpose of Section 529-A and Section 529 of the Act and the creditor holding such unregistered charge will not be treated and considered, to that extent, a "secured creditor" in respect of the said charge - It is also evident the Section 125 applies to every charge created by the company on or after the Ist day of April, 1914 but where the charge is by operation of law or is created by an order or decree of the court, Section 125 has no application. In present case even if it is assumed that charge was created against immovable properties (as claimed by the applicant) then also mere creation of charge (assuming it was created) against immovable properties will not suffice because for present case the important requirement is the one prescribed under Section 125 viz. the charge must be registered within 30 days with the Registrar of Companies - present application is disposed of with the clarification that OL will consider and decide the claim of the applicant and other creditors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in OLR No. 115 of 2008 vide order dated 30.7.2009 passed in Company Application No. 297 of 2009, OL was permitted to invite claims from the creditors and the workers. ( b ) In response to the advertisement published on 21.8.2009 OL received claims from the applicant and other creditors and workers, the details whereof are mentioned by OL in his report dated 20.3.2011. In his report OL also declared that after deducting the expenses incurred by office of OL, as on 28.2.2010 sum of Rs.1,74,65,840/- remain available for disbursement." 4. The said report of OL was followed by another report dated 24.8.2010 wherein the OL having regard to the amount available for disbursement vis a vis the amount claimed by the applicant and other creditors and the workers as well as the disbursement ratio recommended by Chartered Accountant, OL suggested below mentioned pattern for disbursement of the available amount of Rs. 1,75,00,000/-:- Sr.No. Name of the Secured Creditor Ratio in (%) Amount to be paid (Rs.) 1. IFCI 54.25% 94,93,750/- 2. ICICI 21.34% 37,36,250/- 3. IDBI 1.46% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 1,05,27,945/- only, as on 1.3.2000 and that therefore on 20.1.2000 i.e. date of winding up it could not be Rs. 4,65,24,121/- as considered by the Chartered Accountant. Accordingly, the report of the Chartered Accountant came to be assailed. 6.1 In the wake of said objection by the opponent No. 2 the OL filed further report dated 24.12.2010 wherein OL stated, inter alia, that:- "2. That, M/s. Kirti J. Nayak and Associates, Charted Accountant vide letter dated 24.11.2010 have submitted the supplementary report in the office of the official liquidator regarding verification of claims of the secured creditors and workers and also a report regarding ratio of disbursement amongst the secured creditors and workers. A copy of the supplementary report dated 24.11.2010 received from the chartered accountant, M/s. Kirti J. Nayak and Associates is annexed and marked as Annexure-B 3. It is most respectfully submitted that on perusal of the supplementary report of the chartered accountant, it is observed that the claims of the secured creditors and workers have been quantified by the chartered accountant and the revised ratio of distribution has been worked out by them as under:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00% 1,36,80,000 Sub Total (A) 116.87 97.95 1,86,10,500 Movable Properties Sub Total (B) 2.25 1.89% 3,59,100 Movable Property (Misc. Items) 5. Stores - - - 6. Electrical 0.11 0.10% 19,000 7. Furniture/Equipments 0.05 0.05% 9,500 8. Misc. Items 0.01 0.01% 1,900 Sub Total (C) 0.17 0.16 30,400 Grant Total (A) + (B) + (C) 119.29 100.00 1,90,00,000 6.4 In the interregnum OL had called for fresh report of the Chartered Accountant in light of the objection raised by the creditors. The Chartered Accountant submitted his fresh report dated 21.9.2011 and on that basis OL filed his report dated 12.10.2011. 7. After the above referred report dated 21.9.2011, the applicant filed an affidavit dated 21.11.2011 raising objections against the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the other creditors and in that view of the fact - situation, the Chartered Accountant has reported that the said financial institutions cannot claim status of "secured creditors". 8.1 In this context, it is pertinent to note that in reply to Court's query during hearing of present application, even learned Counsel Mr. Parmar for the applicant has not disputed the fact that the applicant did not get the charge against immovable properties (which the applicant is presently claiming against immovable properties of the company) registered within 30 days with the Registrar of Companies in accordance with section 125 of the Act and that it does not hold "registered charge" against the immovable properties. 8.2 The applicant/creditor(s) upon being confronted by the Chartered Accountant's report that the creditors cannot claim status of secured creditor, have now contended that they hold order dated 12.3.2004 passed by learned Debts Recovery Tribunal and their claim is supported by the said order passed by the learned tribunal and that therefore their claims are secured claim and status of secured creditor cannot be denied to them. 8.3 Thus the applicant and other creditor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion neither the applicant can claim status of secured creditor on the strength of the order by the learned tribunal nor their claim made on the basis of such order can be considered as secured claim and that therefore, such claim cannot be entertained under Section 529A read with Section 529 of the Act and such claim cannot be included or taken into account for determining the total eligible claim of all secured creditors and for determining the disbursement ratio for preferential and priority disbursement on pari-pasu basis amongst the secured creditors and the workmen. The learned counsel for the workmen contended that the claim made by the applicants on the basis of the said order is rightly excluded by the Chartered Accountant on the ground that the applicant does not have status of secured creditor and the claim is not secured claim so far as the amounts realized from sale of immovable properties is concerned. Learned counsel for the workmen relied on the decision in case of Rajasthan Financial Corpn. v. Jaipur Spg. Wvg. Mills Ltd. [2006] 71 SCL 505 (SC). 10. At the outset, couple of clarifications would not be out of place. ( a ) It is necessary to mention that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditor/s - applicant/s that the charge of the applicant is not registered in accordance with Section 125 of the Act. So as to come out of the said difficulty, reliance is placed on the order dated 12.3.2004 passed by the learned tribunal. ( l ) In the application No. 293 of 2000 (wherein the said order dated 12.3.2009 is passed) present applicant - IFCI as well as IDBI and ICICI Bank Ltd. were party applicants and Official Liquidator of the company was impleded as one of the defendants along with the Directors of the company. 11. In light of the facts of present case and in view of rival submissions, as well as the report of Chartered Accountant and the said order dated 12.3.2004, it is appropriate to take into account relevant observations in the order and also the relevant provisions i.e. the provisions under Section 125, Section 529 and Section 529-A of the Act. 11.1 So far as the order dated 12.3.2004 is concerned, learned tribunal has observed inter alia, that:- "( b ) The applicant bank in proof of debts filed affidavit vide Exh. A/7, which is sworn by the DGM (Law) of the applicant No. 1 Bank and on behalf of the applicants No. 1, 2 and 3 has stated on oath that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is section applies shall, so far as any security on the company's property or undertaking is conferred thereby, be void against the liquidator and any creditor of the company, unless the prescribed particulars of the charge, together with the instrument, if any, by which the charge is created or evidenced, or a copy thereof verified in the prescribed manner, are filed with the registrar for registration in the manner required by this Act within [thirty] days after the date of its creation: Provided that the Registrar may allow the particulars and instrument or copy as aforesaid to be filed within thirty days next following the expiry of the said period of thirty days on payment of such additional fee not exceeding ten times the amount of fee specified in Schedule X as the Registrar may determine, if the company satisfies the Registrar that it had sufficient cause for not filing the particulars and instrument or copy within that period. (2) Nothing in sub-section (1) shall prejudice any contract or obligation for the repayment of the money secured by the charge. (3) When a charge becomes void under this section, the money secured thereby shall immediately become payable. (4) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all be deemed to be subject to a pari passu charge in favour of the workmen to the extent of the workmen's portion therein, and, where a secured creditor, instead of relinquishing his security and proving his debt, opts to realise his security,- ( a ) the liquidator shall be entitled to represent the workmen and enforce such charge; ( b ) any amount realised by the liquidator by way of enforcement of such charge shall be applied ratably for the discharge of workmen's dues; and ( c ) so much of the debt due to such secured creditor as could not be realised by him by virtue of the foregoing provisions of this proviso or the amount of the workmen's portion in his security, whichever is less, shall rank pari passu with the workmen's dues for the purposes of section 529A. (2) All persons who in any such case would be entitled to prove for and receive dividends out of the assets of the company, may come in under the winding up, and make such claims against the company as they respectively are entitled to make by virtue of this section: Provided that if a secured creditor instead of relinquishing his security and proving for his debt proceeds to realise his security, he shal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same proportion as the amount of the workmen's dues bears to the aggregate of- ( i ) the amount of workmen's dues; and ( ii ) the amounts of the debts due to the secured creditors. Illustration The value of the security of a secured creditor of a company is Rs. 1,00,000. The total amount of the workmen's dues is Rs. 1,00,000. The amount of the debts due from the company to its secured creditors is Rs. 3,00,000. The aggregate of the amount of workmen's dues and of the amounts of debts due to secured creditors is Rs. 4,00,000. The workmen's portion of the security is, therefore, one-fourth of the value of the security that is Rs. 25,000. 529A. Overriding preferential payment. - Notwithstanding anything contained in any other provision of this Act or any other law for the time being in force in the winding up of a company- ( a ) workmen's dues; and ( b ) debts due to secured creditors to the extent such debts rank under clause (c) of the proviso to sub-section (1) of section 529 pari passu with such dues, shall be paid in priority to all other debts. (2) The debts payable under clause (a) and clause (b) of sub-section (1) shall be paid in full, unless the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y; and all the provisions hereinbefore contained [which apply to a simple mortgage shall, so far as may be, apply to such charge]. Nothing in this section applies to the charge of a trustee on the trust-property for expenses properly incurred in the execution of his trust, [and, save as otherwise expressly provided by any law for the time being in force, no charge shall be enforced against any property in the hands of a person to whom such property has been transferred for consideration and without notice of the charge]." Thus, according to Section 100 charge can be created against immovable property either by act of parties or by operation of law. 12.3 So far as the provision under Section 529-A is concerned, it confers right of overriding preferential payment in favour of the dues of the workmen and debts due to the secured creditors. Section 529-A of the Act confers preference and priority to dues and claims of (a) workmen; and (b) secured creditors. In view of the provision under Section 529-A the "secured creditors" and the workmen are entitled for preferential and priority disbursement out of realization from company's assets. In the decision in the case of Rajasthan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cluded. 12.7 When the facts of present case are examined in light of the above mentioned provisions it emerges from the record that in present case the dispute is with reference to the immovable properties because the applicant and other two creditors claim that by virtue of order of learned tribunal they are secured creditors in respect of immovable properties as well. Whereas the chartered accountant has mentioned in his report that any creditor has not got registered with the Registrar any charge against any immovable property - assets of the company. 12.8 In present case even if it is assumed that charge was created against immovable properties (as claimed by the applicant) then also mere creation of charge (assuming it was created) against immovable properties will not suffice because for present case the important requirement is the one prescribed under Section 125 viz. the charge must be registered within 30 days with the Registrar of Companies. 12.9 Therefore, so as to cross the hurdle of the condition prescribed under section 125 of the Act the applicant - creditor has claimed that the learned tribunal has passed order dated 12.3.2004 in its favour whereby decl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht, title or interest in immovable property of the value of Rs. 100/-; are required to be registered; and according to clause (c) the non-testamentary instruments under which payment of consideration on account of creation, declaration, assignment, limitation or extinction of any right, title or interest is acknowledged or the non-testamentary instrument which acknowledge the receipt of any consideration on account of creation, declaration, assignment, limitation or extinction of any right or interest, are required to be registered and according to clause (e) non- testamentary instruments transferring or assigning any decree or award or order of a Court which create, declares assigns, limits, or extinguishes right, title or interest, are required to be registered. In present case there is no transfer or assignment of Court's order or decree. 14.1 So far as the provision under clause (b) and clause (c) are concerned it is also necessary to take into account sub-section (2) of Section 17 and particularly clause (vi) of said sub-section (2).The said sub-section (2) of Section 17 and clause (vi) thereof read thus:- "(2) Nothing in clauses (b) and (c) of sub-section (1) applies to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ank that the documents of title of four immovable properties (bearing survey number 23, 25/1, 24/2 and 30/2) were deposited with it and that they were deposited by one of the Directors of the company. 15.1 However it does not become clear from the order as to whether the said four immovable properties are properties of the company or not and as to whether the said Director (viz. Mr. Mankodi) was duly authorized by appropriate resolution passed by the company to deposit the title deeds of the said four properties with the bank, or not. 15.2 So far as the issue regarding authority of said Mr. Mankodi is concerned, the company Court at this stage, cannot go behind the learned tribunal's order and examine the said issue afresh. More so when OL, despite being party to the proceeding, neither opposed the said details nor took care to examine the record and/or to place on record any other material from which correct and complete factual position may emerge. 15.3 Therefore, at this stage Court will have to proceed on the basis of the said order dated 12.3.2004 passed by the learned tribunal and notwithstanding the said limitation, it will have to be examined, as to whether the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nk may proceed to sell the movable assets and mortgaged and other immovable properties of the respondents and that period of one month will not bar the Recovery Officer to issue demand Notice. Learned Tribunal also directed to issue Recovery Certificate. The relevant part of the said order read thus:- "(A) The applicant bank is entitled to recover from the respondents 1 to 3, jointly and severally, a sum of Rs. 1,79,00,000=00 p. with cost and further interest at the rate of 12% per annum, from the date of filing of the application till realization. (B) Respondent are given one month's time to settle the claim of the applicant bank; failing which, the bank may proceed to sell the movable assets and mortgaged and other immovable properties of the said respondents and adjust the sale proceeds towards the amount due . This period of one month will not bar the Recovery Officer to issue demand notice. (C) Issue recovery certificate accordingly and parties be informed. (D) Bill for the cost of the suit be drawn in accordance with the Form No. 2 of the Appendix D to the Code of Civil Procedure 1908 read with relevant rules and regulations applicable under the Act." [Emphasis s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h, the bank may proceed to sell the movable assets and mortgaged and other immovable properties of the said respondents and adjust the sale proceeds towards the amount due............ (C) and (D)**" ** ** 18.5 Thus the said observations and directions in the said order has extinguished the unregistered charge and the said unregistered charge, upon expiry of period of one month after the date of the order merged in the order of the Court. Accordingly as a result of and in view of the above noted observations and directions, the bank became entitled to realise its dues by sale of the immovable properties in question. The charge created by act or conduct of the parties/by a contract was kept alive for one month. During the said period the charge continued to be matter of contract but after one month the charge travelled into the realm of order of Court and merged into the order. 18.6 Section 125 of the Act will be applicable in cases where property of company in liquidation is offered as security and "charge" is created. However charge created by conduct or act of a person/company and/or by contract cannot be equited with or cannot be put on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment of money secured by the charge. Sub-section (2) provides that the provision of sub-section (1) shall not prejudice the contract or obligation for repayment of money secured by the charge and sub-section (3) says that when a charge becomes void under the section, the money secured shall become payable immediately. Though as a consequence of non-registration of charge under Part-V of the Act, a creditor may not be able to enforce the charge against the properties of the company as a secured creditor in the event of liquidation of the company as the charge becomes void against the liquidator and the creditor, yet he will be entitled to recover the debt due by the company on par with other unsecured creditors. It is also evident the Section 125 applies to every charge created by the company on or after the Ist day of April, 1914. But where the charge is by operation of law or is created by an order or decree of the court, Section 125 has no application. 18. In Suryakant Natvarlal Surati Ors. v. Kamani Bros Pvt. Ltd. [1985 (58) Company Cases 121], the company created a charge under a mortgage in favour of the trustees of the Employees' Gratuity Fund. The creditors by a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtgaged property for realisation of decree amount. The preliminary decree cannot therefore be said to be void and inoperative." 18.8 The Apex Court observed that according to sub-section (1) of Section 125 of the Act if a company creates a charge on its properties and fails to have the charge together with instrument, if any, by which the charge is created, registered with the Registrar of Companies within 30 days, it shall be void against liquidator and any creditor of the company, subject to provision of part-(v) of the Act. However what is important for the issue on hand is that the Apex Court has observed in the said decision that:- "But where the charge is by operation of law or is created by an order of decree of the Court, Section 125 has no application" 18.9 Having held so, the Apex Court made reference of the decision in case of Overseas Aviation Engg. (G.B.) Ltd., In re [1963] 33 Comp. Cas. 315 (CA) in which case the Court of Appeal held that the order passed by the Court giving effect to the charge unregistered under Section 95 of the Companies Act (which is pari materia with Section 125 of the Act) would not be void against liquidator of the company. 18.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es in question. The charge created by act or conduct of the parties/by a contract was kept alive for one month. During the said period the charge continued to be matter of contract but after one month the charge travelled into the realm of order of Court and merged into the order. Thus, as held by the Apex Court, the non-registration of charge against the immovable properties of the company is not hit by the requirement under Section 125 of the Act and is not rendered void. 20. In this view of the matter, OL shall have to re-examine the claim and/or the objections of the applicant and other creditors as well as by workers, in light of the legal position declared by the decision in case of Indian Bank ( supra ). 21. The OL will also have to ascertain as to whether the four properties of which reference has been made in the order passed by the learned tribunal are personal properties of the directors/guarantors or they were properties of the company. 22. The OL will also have to ascertain as to whether any other properties i.e. any properties other than the properties mentioned in the order of the learned tribunal have been auction sold. If any other properties not co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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