Introduction
Background
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An application under Section 7 of the Code made by
Intec Capital Limited ("Applicant"), a non-banking financial company, claimed that the Corporate Debtor had provided a corporate guarantee in favour of the Applicant in relation to the facilities availed byGokul Ceramics Private Limited andUmiya Ceramics Private Limited ("Borrowers").- The Applicant also submitted that the
State Bank of India issued a no objection certificate in favour of the Applicant with respect to the aforesaid charge. - The Corporate Debtor also provided no information relating to any security interest created to secure the guarantee provided by it to the Applicant.
- There was no disclosure regarding contingent liability in the books of the Corporate Debtor as required by Accounting Standards.
- It was also submitted that as per Regulation 21 of Insolvency and Bankruptcy Board of
India (Liquidation Process) Regulations, 2016 ("IB Regulations"), the existence of security interest may be proved on the basis of the records available in an Information Utility, the certificate or registration of charge issued by Registrar of Companies ("ROC") or Central Registry of Securitization Asset Reconstruction and Security Interest ofIndia .
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Although the claim of the Applicant as creditor was originally not considered, ultimately, the Applicant became a part of the
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The Applicant filed this Intervention Application to also be considered as a "secured financial creditor" in view of the undertaking given by the Corporate Debtor confirming the creation of a hypothecation over an inkjet printer as additional collateral.
Contentions
The contentions made on behalf of the Applicant were as follows:
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The Applicant relied on the aforementioned undertaking wherein the Corporate Debtor has confirmed creation of a hypothecation/charge on an inkjet printer as additional collateral.
The contentions made on behalf of the RP were as follows:
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Upon verification of website of
Judgment
The Division Bench of NCLT observed that in accordance with Section 77(1) of the Act, it was the duty of every company to register the particulars of the charge with the ROC within 30 (thirty) days of its creation. No such charge is shown to be registered with the RoC.
In the case of
The Applicant was also unable to prove the existence of the security interest in terms of Regulation 21 of the IB Regulations referred to above.
Thus, the NCLT rejected the prayer of the Applicant to consider its claims as the secured financial creditor and upheld the decision of RP in considering the claim of the Applicant as unsecured financial creditor. Thus, NCLT once again has reiterated that for a lender to be considered as a secured financial creditor, the charge has to be registered in terms of Section 77(1) of the Act and existence of such security interest has to be proved in accordance with Regulation 21 of the IB Regulations.
Takeaways
Typically, lenders insist that the creation of a charge is a condition precedent to disbursement and ensure that requirements of the Registration Act, 1908 wherever applicable, are complied with as a condition precedent. However, filing of forms with the ROC is often only a post-disbursement condition and, in some instances, borrowers do not comply.
As seen in the
Section 78 of the Act allows the charge holder to make an application to the ROC for registration of the charge, in cases where the company fails to register the charge within 30 days of its creation. It is therefore advisable for lenders to strictly monitor compliance with Section 77 and on failure to comply, immediately file an application under Section 78 and get the charge registered themselves.
Footnotes
1. Order dated 13th
2. Company Appeal (AT) (Insolvency) No. 830 of 2019
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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