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TMI Blog2025 (4) TMI 1119X X X X Extracts X X X X X X X X Extracts X X X X ..... 018 initiated Corporate Insolvency Resolution Process ('CIRP') against the Corporate Debtor and subsequently based on the Resolution Professional's application, the Adjudicating Authority passed an order for liquidation of the Corporate Debtor under Section 33 of the Code vide order dated 25.06.2019. 4. The Appellant issued a public announcement as per Regulation 12 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 ("Liquidation Regulations") in several newspapers and received claim of Rs. 30,89,42,646/- from the Respondent on 26.11.2019. It has been brought out that Corporate Debtor has availed certain credit facilities from Tata Capital Financial Service Limited ("TCFSL") against the movable assets which were exclusively charged in favour of the TCFSL. The Appellant submitted that the credit facilities were duly paid by the Corporate Debtor and TCFSL by way of closure letter dated 24.03.2017 confirmed that the financial facilities stood repaid in the books of TCFSL. 5. The Appellant submitted that the Corporate Debtor has availed financial assistance from a consortium led by UCO Bank Consortium comprising of various banks and financial inst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt vide an email dated 31.12.2019 rejected the claim of the Respondent to realise the movable assets. 11. The Appellant stated that the Respondent, aggrieved by the decision of the Appellant in rejecting the respondent's claim, filed an Interlocutory Application bearing IA No. 699 of 2021 under Section 42 r/w 16(5) of the Code before the Adjudicating Authority and the Adjudicating Authority vide Impugned Order dated 19.12.2023 allowed the IA No. 699 of 2021 of the Respondent and hence the present appeal before us has been filed by the Appellant. 12. The Appellant explained that one of the pre conditions for availing the financial facilities from the UCO Bank consortium was that the Corporate Debtor will create security interest by way of Hypothecation in favour of UCO Bank consortium. The Corporate Debtor executed various hypothecation agreement with the UCO Bank consortium creating the first pari-pasu charge overall the assets including the movable assets of the Corporate Debtor. Accordingly, both the parties entered into Joint Deed of Hypothecation on 04.12.2006 (as amended from time to time), whereby the Corporate Debtor created charge on assets of the Corporate Debtor in favo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... UCO Bank Consortium will only be limited to the new assets purchased by the Corporate Debtor through a fresh credit facility. However, this relevant clause does not refer to the existing assets which are re-financed by a financer as these existing assets are already part of the estate of the Corporate Debtor and these assets are not being introduced to the estate of the Corporate Debtor because of such refinancing. The Appellant stated that the Adjudicating Authority wrongly interpreted the said clause in allowing the claims of the Respondent. 17. The Appellant submitted that at the time of creating exclusive charge over the Movable Assets, the Respondent was duty bound to obtain no-objection certificate from the UCO Bank Consortium, however, the Respondent failed to provide no-objection certificate from the UCO Bank Consortium. 18. The Appellant submitted that in absence of a no-objection certificate for creating an exclusive charge, the charge of the Respondent became a subservient charge holder and in view of the decision of the UCO Bank Consortium to relinquish their rights in favour of the liquidation estate, the Movable Assets formed part of the liquidation estate of the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the present appeal. 24. The Respondent submitted that between 19.03.2015 to 30.11.2017, the Respondent provided financial assistance and refinanced the movable assets of the Corporate Debtor aggregating Rs. 38,96,50,000/- against the specific movable assets under the said refinance scheme and the assets against which the loan was availed were exclusively charged to the Applicant. 25. The Respondent further submitted that the UCO Bank Consortium never had charge on the said movable assets. The Respondent elaborated that the said movable assets of the Corporate Debtor were originally financed by TCFSL and refinanced by the Respondent. TCFSL, and now Respondent has exclusive charge over the said movable assets of Schedule 'K' of his agreement. The Respondent submitted that the said movable assets which were financed by TCFSL were mortgaged/Charged by the Corporate Debtor exclusively in favour of TCFSL, in favour of the Respondent. 26. Explaining the background of his financial assistance to the Corporate Debtor, the Respondent stated that the Corporate Debtor was in need of additional funds and to get better terms on existing charge, therefore the Corporate Debtor appro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng pari passu charge over the said movable assets getting crystallized, as alleged by Appellant. This Respondent stated that the Respondent has exclusive charge over the said movable assets. 33. Concluding his arguments, the Respondent submitted that the Appeal is liable to be dismissed with costs. Findings 34. We note that from 17.06.2014 to 30.06.2014, the Corporate Debtor availed financial facilities from TCFSL and financed certain movable assets (around Rs. 20 Crores) which were exclusively charged in favour of TCFSL. The Corporate Debtor repaid the said loan, after which TCFSL issued a closure letter dated 24.03.2017 confirming that the facilities were repaid. 35. We take into consideration the fact that on 05.12.2006, the corporate debtor entered into an Original Working Capital Consortium Agreement with UCO Bank as the lead bank along with 13 other banks (the "UCO Bank Consortium"). The working capital limit was gradually enhanced to Rs. 1970 Crores. The UCO Bank Consortium's security included hypothecation of the corporate debtor's present and future assets, both movable and immovable assets. 36. We note that on 10.09.2018, CIRP was initiated against the Corporate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Respondent is a subservient charge holder to the UCO Bank Consortium and cannot realise its security interest under Section 52 of the Code. The Adjudicating Authority while passing the Impugned Order dated 19.12.2023, despite noting that no NOC was taken from the UCO Bank Consortium, concluded that the assets re-financed by Respondent were outside the UCO Bank Consortium lenders charged assets and the UCO Bank Consortium gad only second charge as collateral security. 39. We will like to go into details of the relevant clause of the Agreement of UCO Bank Consortium, which reads as under :- Clauses 1, 2 3 AND 4 - 3rd Schedule of 8th Supplemental Deed of Working Capital Consortium Agreement on 12.06.2016 :- 1) First Pari-pasu Charge on entire Fixed assets of the Borrower including Plant and Machinary, etc. (Movable and Plant And Machinery) machinery spares, tools and accessories, non-trade receivables and other movables, both present and future, whether in possession or under the control of the borrower or not, whether installed or not and whether now lying loose or in cases or which are now lying or stored in or about or shall hereafter from time to time during the continuance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esaid assets, including but not limited to the Borrower's cash-in-hand, of the Borrower (Both present and Future). 4) First Charge by way of Collateral Security in the entire fixed assets excluding assets financed by availing Term Loan outside the consortium and other bankers having exclusive charge on fixed assets of the Borrower and further Pari- passu 2nd charge over the fixed assets created by availing Term Loan outside the Consortium and other banks having exclusive charge on the fixed assets of the Borrower." (Emphasis Supplied) 40. It is significant to note that the UCO Bank Consortium had the first Pari- passu charge over the movable assets based on third schedule of 8th Supplemental Deed of Working Capital Consortium Agreement after the loan stood repaid to TCFSL by the Corporate Debtor. We note that subsequently after 8 months on 30.11.2017, the Respondent refinanced the movable assets of the Corporate Debtor aggregating to Rs 38,96,50,000/- 41. We have noted that 3rd Schedule of 8th Supplemental Deed of Working Capital Consortium Agreement has four (4) clauses, each creating the first charge in favour of the UCO Bank Consortium. However, paragraph 4.1 of the Imp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers outside the Consortium lenders shall be charged in favor of such financier and the Consortium shall have only second charge as collateral security". 44. We have carefully noted that it is the case of the Respondent's that the first pari-passu charge in terms of Clauses 1 and 4 has a carve-out, i.e., "... excluding assets financed by availing Term Loan outside the consortium and other bankers having exclusive charge on fixed assets of the Borrower in addition to the Property which is mentioned in the Mortgage Deed to cover entire Facilities." At this stage, we recall the pleading that the Respondent could not clarify about the Respondent's purported charge by way of hypothecation and therefore, the corresponding clauses in the agreement with UCO Bank Consortium, expressly create charge by hypothecation, i.e., Clauses 2 and 3 instead of Clauses 1 and 4. 45. We observe that Clauses 1 and 4 provide that in case a bank outside the consortium finances the purchase of new assets to the corporate debtor and creates an exclusive charge over those assets then the first charge of the UCO Bank Consortium would be excluded. We consciously take into consideration that the Respondent did no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... leadings that while conducting due diligence as required under Section 52(3) of the Code and Regulation 21 of the Liquidation Regulations, 2016, the Appellant vide an email dated 18.12.2019 and 31.12.2019 categorically requested the Respondent to prove their charges by furnishing the NoC obtained from the UCO Bank Consortium. The impugned order also records this fact in paragraph 4.3 by stating that it is an admitted fact that no NOC was taken from the UCO Bank Consortium. In the absence of an NOC, the charge purported by the Respondent was not proved in terms of Section 52(3) of the Code read with Regulation 21 of the Liquidation Regulations, 2016. 49. The main bone of contention and which is central point of the present appeal is regarding as to who has first/ primary charge over movable assets and who has second/secondary charge over the said movable assets. Thus, we will also need to look into the issue brought before us i.e., whether the Respondent's registration of a charge under Section 77 of the Companies Act, 2013, or UCO Bank Consortium's non-registration of the charge with the ROC can become the basis for disregarding UCO Bank Consortium first charge based on 8t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said legal position." (Emphasis supplied) 53. Thus, Section 48 of the TP Act, clearly protect the right of first charge holder. Although, Section 48 strictly speaking is w.r.t. immovable properties, in the present case there is common 8th Supplemental Deed of Working Capital Consortium Agreement, where charges were created both on movable and immovable assets of the Corporate Debtor in favour of the UCO Bank Consortium, therefore, interpretation of Section 48 of the TP Act will help the cause of the Appellant for ensuring the charges in favour of UCO Bank Consortium as first charge holder. 54. We note that in paragraph 4.3 of the impugned order, the Adjudicating Authority did not consider the requirement of the NOC from the UCO Bank Consortium solely on the ground that the charge of the Respondent was registered with ROC. On this issue, the Appellant strongly argued that registration of the charge does not improve or play a role when it comes to the question of the priorities of the charge. Registration is only a form of proof under Liquidation Regulation 21. It cannot take away or improve/substantiate a charge created, such as hypothecation or a mortgage, under the TP Act. 55. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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