Non-registration of mortgage, mortgage of security created under DRT judgment cannot be classified as an unsecured creditor: NCLAT

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NCLAT - Non-registration of mortgage - DRT judgment - taxscan

The Delhi Bench of National Company Law Appellate Tribunal (NCLAT) held that failure to register a mortgage, pledging a security created under the judgment of the Debt Recovery Tribunal cannot be classified as an unsecured creditor.

The debtor company ABG Shipyard Limited had obtained financial assistance from the Appellant empty sanction letter. A medium-term loan was granted by the appellant to the debtor company. The loan agreement was entered into between the debtor company and the appellant. Security was provided by the debtor company for the loan by mortgage and pledge.

Mr. Arun Kathpalia argued that the contracting authority erred in rejecting the appellant’s claim filed under section 60, subsection (5) of the IB Code and not under section 42, so the limitation on filing an appeal was not applicable. The Appellant was prejudiced as to his categorization of “unsecured creditor”, fully covered by Article 60 paragraph (5), relating to the question of priorities. It is further argued that section 77 of the Companies Act 2013 was not applicable in the present case in view of the fact that there was an order in favor of the appellant by the Costs Recovery Tribunal. debts. The Appellant’s claim relating to maritime transport subsidies stems from and arises from the DRT judgment.

The definition of “security interest” under section 3(31) of the Code is broad enough to include the appellant’s claim. Section 77(3) of the Companies Act 2013 applies only to a charge created by a ‘company’ and not to a charge created on an asset of a company under the judgment of the DRT. It is further argued that the liquidator, who was previously a resolution professional, had classified the appellant’s claim as a “secured creditor” and the liquidator, after the commencement of the liquidation proceedings, changed the categorization from “secured creditor” to “unsecured creditor” based on a legal opinion, which was inappropriate.

On the other hand, Nakul Dewan, the Respondent’s lead counsel, refuting the Appellant’s conclusions, maintains that verification of security is mandatory during the liquidation process. In view of the fact that the appellant’s charge was not registered under section 77, subsection (3) of the Companies Act 2013, it was not binding on the liquidator. The Appellant has failed to prove his security pursuant to Rule 21 of the Liquidation Rules. The Application filed by the Appellant before the Trial Authority was time-barred within the meaning of Article 42 of the IB Code for having been filed after a period of 551 days. The recovery certificate issued by the Debt Recovery Tribunal is not a decree. Section 77(3) of the Companies Act has been fully relied upon in this case and the Appellant’s charge not having been filed, no illegality has been committed by the Adjudicatory Authority. by dismissing the Appellant’s claim as “secured creditor”.

The coram of presiding judge Ashok Bhushan and technical member Dr Alok Srivastava found that the contracting authority erred in rejecting the appellant’s claim to be a “secured creditor”. Pursuant to a judgment and order of the Debt Recovery Tribunal, the Appellants were entitled to recover their claims on the secured property and they had released the security in accordance with section 52 of the IB Code, as the The Liquidator had asked, in the liquidation proceedings, they must be treated as “secured creditors”. Accordingly, we grant leave to appeal and rescind the Order dated April 28, 2021 of the Contracting Authority and grant leave to IA Petition No. 33 of 2021 filed by the Appellant and order the Respondent/Liquidator to correct the classification of the Appellant’s claim as “safe”.

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