Assets Care and Reconstruction Enterprise Ltd. Vs. Domus Greens Pvt. Ltd. and Ors. – Delhi High Court
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Section 3(31) of IBC does not refer to any registration of charge under Section 77 of the Companies Act, 2013 – Unity Small Finance Bank Ltd. Vs. Sripatham Venkatasubramanian Ramkumar RP for Privilege Industries Ltd. – NCLAT New Delhi
Hon’ble NCLAT held that it is true that Section 3(31) does not refer to any registration of charge under Section 77. I n Paschimanchal Vidyut Vitran Nigam Ltd. vs. Raman Ispat Pvt. Ltd. (2023) ibclaw.in 81 SC, Hon’ble Supreme Court did not consider it appropriate to rule on the submissions of the Liquidator, vis-à-vis the fact of non-registration of charges under Section 77 of the Companies Act. The question was thus left open.
Pure & Cure Healthcare Pvt. Ltd. Vs. HPSEBL – Himachal Pradesh High Court
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Can Liquidator classify a Creditor as Unsecured Creditor based on the reasons that charge created on mortgage property was not registered before Registrar of Companies (RoC) under Section 77 of Companies Act, 2013 – Canara Bank Vs. Mr. S. Rajendran, Liquidator of Cape Engineers Pvt. Ltd. – NCLAT Chennai
In this important judgment, Hon’ble NCLAT held that:
(i) A First Charge Holder, will have priority in realising its security interest if it elects to realise its security interest and does not relinquish the same.
(ii) Clubbing of debts where the charges might be different does not give a right to an assignee, to seek substitution, in place of the First Charge Holder assignor Bank
(iii) The general Rule is that the claims are to be valued as on the date of commencement of winding up, is designed to ensure that one is comparing like with like so that the Assets are distributed pari passu.
(iv) A Liquidator is not to ask the Secured Creditor to relinquish the Secured Interest over the assets of the Corporate Debtor.
(v) Since the Code, 2016 overrides the SARFAESI Act, 2002, the Liquidator ought not to prefer a petition, based on the SARFAESI Act, 2002.
(v) The non-registration of the Mortgage as per Section 77 of the Companies Act, 2013 is not a sufficient / enough ground to come to an opinion that the Appellant is not a Secured Creditor. In reality, the rights of a Mortgagee under the Transfer of Property Act, 1882 and the SARFAESI Act are not to be diluted, in terms of Regulation 21 of IBBI (Liquidation process) Regulations, 2016.
(vi) The Appellant’s rights in holding a valid mortgage right over the Secured Assets is to be protected by any means whatsoever.
Citizens Whistle Blower Forum Vs. Union of India and Ors. – Delhi High Court
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Regulation 21 of Liquidation Process Regulations, 2016 provides three documents to prove security interest are alternate in nature, and such security interest can be proved by either of said evidence, and if proved by either of said evidence, would it over-ride the provisions of Section 77(3) of the Companies Act, 2013 – IDBI Bank Ltd. – NCLT Mumbai Bench
NCLT Mumbai Bench held that:
(i) Though on the strict interpretation of provisions of section 77(b) of the Companies Act, 2013, registration of modification was mandatory, the term ‘modification’ should be liberally construed in favor of lenders in a manner that such construction does not prejudice the security interest of existing lenders where security interest came to be acquired by other lenders with knowledge of existence of such security interest.
(ii) The legislature has consciously provided for three evidences for proving the security interest, as against the only evidence provided whether the provisions of Regulation 21 of the Liquidation Process Regulations, 2016 providing for three documents to prove security interest are alternate in nature, and such security interest can be proved by either of said evidence, and if proved by either of said evidence, would it over-ride the provisions of Section 77(3) of the Companies Act, 2013.
(iii) All the three clauses contain evidence with different authorities in relation to lending by the Institutions/Banks. The clause (b) and (c) are disjoined by the word ‘or’, implying that clause (a) and clause (b) are also to be read in alternate to one another.
The registration of a charge is for the purpose to prove the existence of such a charge, but where the charge is found to have been created by virtue of law, its existence cannot be denied – Greater Noida Industrial Development Authority Vs. Mr. Anil Mata RP For Primrose Infratech Pvt. Ltd. – NCLT New Delhi Bench Court-II
NCLT New Delhi Bench Court-II concluded that:
(a) the Greater Noida Industrial Development Authority (GNIDA) is “a secured creditor” in terms of Section 3(30) of IBC 2016;
(b) the “charge” of GNIDA in the instant case has been created by virtue of law i.e., in terms of Sections 13 and 13A of the Uttar Pradesh Industrial Area Development (UPIAD) Act 1976 well before the Moratorium period and Section 14 (1) of IBC 2016 will not create an escape route for the Corporate Debtor to get an exemption from the charge created by virtue of law under Section 13A of the UPIAD Act, 1976;
(c) there is no inconsistency between the provision of Sections 13 and 13A of the UPIAD Act, 1976 and IBC 2016, hence the provisions of Section 238 of IBC, 2016 do not get attracted to.
Not all dues owed under statute are treated as ‘government dues’ under Section 53 of IBC, Rainbow Papers judgment did not notice the waterfall mechanism – Paschimanchal Vidyut Vitran Nigam Ltd. Vs. Raman Ispat Pvt. Ltd. & Ors. – Supreme Court
Hon’ble Supreme Court held that:
(i) On occurrence of any eventuality specified under Section 33, the liquidation process has to begin, as a matter of course – there is no choice in the matter.
(ii) The expression “government dues” is not defined in the IBC – it finds place only in the preamble. The repeated reference of lowering of priority of debts to the government, on account of statutory tax, or other dues payable to the Central Government or State Government, or amounts payable into the Consolidated Fund on account of either government, in the various reports which preceded the enactment of the IBC, as well as its Preamble, means that these dues are distinct and have to be treated as separate from those owed to secured creditors.
(iii) The specific mention of other class of creditors whose dues are statutory, such as dues payable to workmen or employees, “the provident fund, the pension fund, the gratuity fund” under Section 36(4), which excludes these enumerated amounts from the liquidation, especially clarifies that not all dues owed under statute are treated as ‘government’ dues. In other words, dues payable to statutory corporations which do not fall within the description “amounts due to the central or state government” such as for instance amounts payable to corporations created by statutes which have distinct juristic entity but whose dues do not constitute government dues payable or those payable into the respective Consolidated Funds stand on a different footing.
(iv) On the other hand, dues payable or requiring to be credited to the Treasury, such as tax, tariffs, etc. which broadly fall within the ambit of Article 265 of the Constitution are ‘government dues’ and therefore covered by Section 53(1)(f) of the IBC.
(v) Rainbow Papers judgment did not notice the ‘waterfall mechanism’ under Section 53 – the provision had not been adverted to or extracted in the judgment. The dues payable to the government are placed much below those of secured creditors and even unsecured and operational creditors. This design was either not brought to the notice of the court in Rainbow Papers (supra) or was missed altogether. In any event, the judgment has not taken note of the provisions of the IBC which treat the dues payable to secured creditors at a higher footing than dues payable to Central or State Government.
Aditya Birla Finance Ltd. Vs. Siti Networks Ltd. & Ors. – Delhi High Court
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Non-registration of mortgage and hypothecation under Section 77(3) of the Companies Act, 2013, of security interest was created by virtue of the judgment of Debt Recovery Tribunal cannot be classified as Unsecured Creditor – SICOM Ltd. Vs. Mr. Sundaresh Bhat, The Liquidator of ABG Shipyard Ltd. – NCLAT New Delhi
In this case, the Adjudicating Authority has rejected the I.A. filed by the Appellant substantially on two grounds:(i) The Application was barred by time since as per Section 42 of the Code, a creditor may appeal before the Adjudicating Authority against the decision of Liquidator within 14 days on receipt of such decision, whereas the Application was filed after 551 days. (ii) The charge being not duly registered under Section 77 sub-section (3) of the Companies Act, 2013, the Liquidator did not commit any error in not taking into consideration and classifying the Appellant as ‘unsecured creditor’.
NCLAT held that the present was not a case where the claim of the Appellant of dues was rejected by the Liquidator altogether. The claim of the Appellant claiming an amount was accepted, but the Appellant was classified as unsecured creditor. Section 60(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. It is not the finding of the Adjudicating Authority that the I.A. filed by the Appellant was not entertainable under Section 60 sub- section (5). When the Application was maintainable and entertainable under Section 60(5), there is no occasion to treat the Application as an Appeal under Section 42 of the Code and reject the Application on the ground that it is not filed within 14 days as is provided by Section 42 of the Code.
Further, it held that In the present, 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.
