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TMI Blog2022 (1) TMI 214X X X X Extracts X X X X X X X X Extracts X X X X ..... th 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 ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ming Asset (NPA). The Appellant Company Appeal (AT) (Insolvency) No. 470 of 2021 3 issued notices and reminders to pay outstanding money and ultimately filed an O.A. No.274 of 2016 before the Debt Recovery Tribunal, (DRT) Ahmedabad seeking recovery of ₹ 144,46,95,879/- together with interest. The DRT Ahmedabad vide its judgment dated 26th April, 2017 allowed the O.A. and directed the defendants to jointly and severally deposit ₹ 144,46,95,879/- within 30 days, failing which due was to recover from their mortgaged and hypothecated properties. (iv) The ICICI Bank Limited Financial Creditor of the Corporate Debtor filed an Application under Section 7 of the IB Code, which was admitted vide order dated 1st August, 2017. (v) The Appellant filed its proof of claim before the Interim Resolution Professional (IRP) in requisite Form-C for an amount of ₹ 190,70,93,566/-. (vi) On 30th November, 2018, the Resolution Professional circulated the list of Financial Creditors wherein the claim of the Appellant was categorized as Secured Financial Creditor . An order dated 25th April, 2019 was passed directing for liquidation by the Adjudicating Authority. Liquidator is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 3(31) of the Code is wide enough to include the claim of the Appellant. Section 77 sub-section (3) of the Companies Act, 2013 is applicable only to the charge created by a company and not on the encumbrance created over an asset of a company pursuant to DRT judgment. It is further submitted that the Liquidator, who was Resolution Professional earlier had categorized the claim of the Appellant as secured creditor and the Liquidator after the initiation of liquidation proceedings has changed the categorization from secured creditor to unsecured creditor relying on a legal opinion, which was misplaced. 5. Shri Nakul Dewan, learned Senior Counsel for the Respondent refuting the submissions of the Appellant contends that verification of security interest is mandatory during the liquidation process. In view of the fact that charge of the Appellant was not registered under Section 77 sub-section (3) of the Companies Act, 2013, the same was not binding on the Liquidator. The Appellant failed to prove his security interest as per Regulation 21 of the Liquidation Regulations. The Application filed by the Appellant before the Adjudicating Authority was time barred in terms of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, 2013, which is contained in the Chapter VI, Registration of Charges . Section 77, sub-section (1), (3) and (4) read as: 77. Duty to register charges, etc.- (1) It shall be the duty of every company creating a charge within or outside India, on its property or assets or any of its undertakings, whether tangible or otherwise, and situated in or outside India, to register the particulars of the charge signed by the company and the charge-holder together with the instruments, if any, creating such charge in such form, on payment of such fees and in such manner as may be prescribed, with the Registrar within thirty days of its creation: (3) Notwithstanding anything contained in any other law for the time being in force, no charge created by a company shall be taken into account by the liquidator or any other creditor unless it is duly registered under subsection (1) and a certificate of registration of such charge is given by the Registrar under sub-section (2). (4) Nothing in sub-section (3) shall prejudice any contract or obligation for the repayment of the money secured by a charge. 11. The Adjudicating Authority has rejected the I.A. No.33 of 2021 fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant was classified as unsecured creditor . Section 60 sub-section (5) empowers the Adjudicating Authority to entertain or dispose of any Application by or against the corporate debtor or corporate person; any claim made by or against the corporate debtor or corporate person; and any question of proprieties in relation to liquidation proceedings. Section 60 sub-section (5) is as follows: 60(5) Notwithstanding anything to the contrary contained in any other law for the time being in force, the National Company Law Tribunal shall have jurisdiction to entertain or dispose of (a) any application or proceeding by or against the corporate debtor or corporate person; (b) any claim made by or against the corporate debtor or corporate person, including claims by or against any of its subsidiaries situated in India; and (c) any question of priorities or any question of law or facts, arising out of or in relation to the insolvency resolution or liquidation proceedings of the corporate debtor or corporate person under this Code. 16. It is not the finding of the Adjudicating Authority that I.A. No.33 of 2021 filed by the Appellant was not entertainable under Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3) of Section 77 was also present in earlier Companies Act and similar provision came for consideration before different High Courts as well as Hon ble Supreme Court, which we shall notice hereinafter. 21. Section 109 of the Companies Act, 1913 came for consideration before Oudh High Court in AIR 1927 Oudh 55 in Hukmichand v. Pioneer Mills Ltd., the High Court held that Section 109 was not applicable when charge is created by operation of law and not by a contract. The following observation was made at page 59: As regards the argument advanced on the side of the defendants-respondents and based on the provisions of s. 109 of the Indian Companies Act, 1913, much need not be said. Those provisions are only applicable to a mortgage or charge created by a Company. The charge arising in favour of the plaintiffs in the circumstances of this case is a charge by operation of law and not by a contract. 22. We may notice the judgment of the Calcutta High Court reported in 1982 SCC OnLine Cal 290 Praga Tools Ltd. Vs. Official Liquidator of Bengal Engineering CO. (P) Ltd. The provisions of Section 125 of the Companies Act, 1956 came for consideration in the aforesaid case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nefit of the security in so far as the applicant company is concerned is entirely the creature of the order of Roy Chowdhury J. dated August 1, 1978. This can, in my view, by no stretch of imagination, be called a charge created by a company within the meaning of s. 125 of the Companies Act, 1956, requiring registration under the above section. 23. Learned Senior Counsel for the Appellant placed reliance on judgment of the Hon ble Supreme Court in (1998) 5 SCC 401, Indian Bank v. official Liquidator, Chemmeens Exports (P) Ltd. Ors.. In the above case, the provision of Section 125 of the Companies Act, 1956 came for consideration. The Indian Bank had advanced certain amount to M/s Chemmeens Exports Pvt. Ltd., which was secured by an equitable mortgage by deposit of title deeds of the debtor-Company. Winding up proceedings were initiated by the Bank. The Bank sought leave of the Company Court to file a suit for recovery, which was granted. In the suit, Official Liquidator filed written statement taking the plea that the properties of the Company not having been registered under Section 125 of the Act, the charge was void. A preliminary decree was passed against the Official ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Supreme Court also approved the judgment of Bombay High Court in Suryakant natvarlal Surati v. kamani Bros. Ltd. (1985) 58 Comp Cas 121, where Section 125 of the Companies Act was held to be inapplicable. In paragraph 18-19, following was laid down: 18. In Suryakant Natvarlal Surati v. Kamani Bros. Ltd. [(1985) 58 Comp Cas 121 (Bom)] the Company created a charge under a mortgage in favour of the trustees of the Employees' Gratuity Fund. The creditors, by a preliminary decree of 3-12-1977 were entitled to receive the amount secured on the property of the Company; the Court fixed 8-12-1988 as the date for redemption and ordered that in default of payment of the sum due by that date, the property was to be sold by public auction. On an application made on 16-2-1978, the Company was ordered to be wound up by an order dated 3-8-1979. As default in payment of the decreed amount was committed, the mortgagees applied for leave of the Court under Section 446 to execute the decree against the Official Liquidator by application dated 10-7-1981. Three contributories sought injunction against taking any further action on the ground that the charge created by the Company was not regis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owed the O.A. No.274 of 2016 filed by the Appellant under the provisions of Section 19(1) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. The Debt Recovery Tribunal passed the following order on 26th April, 2017 ORDER 1) I hereby allow this O.A. of the Applicant and direct the defendants to pay jointly and severally to the applicant within 30 days from today, a sum of ₹ 144,46,95,879/- (Rs. One Hundred Forty Four Crore Forty Six Lac Ninety Five Thousand Eight Hundred and Seventy Nine Only) along with interest @ 12% p.a. from the date of filing of this O.A. till the date of realization of dues with costs and expenses. 2) In case of failure to deposit the said amount, the same shall be recovered from the sale of mortgaged and hypothecated properties as detailed in Schedule I and Schedule II, annexed with IA. 26. 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 defe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest was neither registered with the Information Utility ; nor under Section 125 of the Companies Act, 1956/Section 77 of the Companies Act, 2013; no Application was preferred under Section 87 of the Companies Act, 2013; Charge was not registered in the Securitisation Asset Reconstruction and Security Interest of India, we are of the opinion that Section 52(3)(b) of the Code and Regulation 21(b) of the (Liquidation Process), Regulation, 2016 are not complied with and the ratio laid down by the Hon'ble Apex Court in Kerala State Financial Enterprises Ltd. (Supra) and this Tribunal in India Bulls Finance Ltd. (Supra) is squarely applicable to the facts of this case. Hence, we hold that when in present matter Charge was not registered as per the provisions of Section 77(1) of the Companies Act, 2013 and as envisaged under the Code, the Creditor cannot be treated as a Secured Creditor . 28. The Volkswagen case (supra) was not a case where there was any Decree or judgment in favour of the Appellant so as to get over the requirement of registration as mandated by Section 77 sub-section (3). The present is a case where the Appellant is relying on judgment and order of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecation 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. The security interest was created by virtue of the judgment of Debt Recovery Tribunal dated 26th April, 2017. 33. We thus, are of the view that Adjudicating Authority committed error in rejecting the claim of the Appellant to be of secured creditor . By virtue of judgment and order of the Debt Recovery Tribunal, 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, they have to be treated as secured creditor . In result, we allow the appeal and set aside the order dated 28th April, 2021 of the Adjudicating Authority and allow the Application being I.A. ..... 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