While dismissing an appeal filed by Volkswagen Finance Pvt. Ltd. against an order of the National Company Law Tribunal (NCLT), the National Company Law Appellate Tribunal (NCLAT) said holding that registration of a vehicle with Motor Vehicle Authority under Section 51 of the Motor Vehicles Act, 1988 does not qualify as registered ‘charge’ for a valid claim before a liquidator. Thus, NCLT order had refused to set aside the order of the liquidator passed against Volkswagen.
Briefly, the facts of the case is read before NCLAT bench of Justice AIS Cheema (Member-Judicial) comprising with Ms. Shreesha Merla (Member-Technical).
1. The company under liquidation i.e., Shree Balaji Printopack Pvt. Ltd. had executed a loan and Hypothecation Agreement on 25-11-2013 for an amount of Rs. 36,00,000/- payable in 84 monthly instalments of Rs. 61,964/- each from 15-12-2013 to 15-11-2020, for the purchase of an AUDI Q3 TDI 2.0 vehicle.
2. Then, the Volkswagen Finance claimed that it had security of the vehicle in terms of section 52 & 53 of the Insolvency & Bankruptcy Code, 2016 and a demand of Rs. 21,83,819.18/- was made which was not paid by Shree Balaji Printopack. Hence, there was a ‘default’, giving rise to a legitimate claim.
3. On April 3, 2019, a liquidator was appointed against Shree Balaji and on July 27, 2019, the Volkswagen filed its claim with copies of the Loan Agreement, the Hypothecation Deed, the Demand Letter, the Registration Certificate of the vehicle and submitted that the charge was duly registered through the hypothecation registration with the Regional Transport Office (RTO) in terms of Section 51 of the Motor Vehicles Act, 1988 (M.V. Act), and that there was no requirement of registration of ‘Charge’ with the Registrar of Companies (ROC).
4. Citing the judgements passed by Kerala High Court and the Bombay High Court, NCLT held that as no charge had been registered under Companies Act, 2013 and IBBI (Liquidation Process) Regulation, 2016, the company was liable to be treated as an unsecured creditor and its claim was rightfully rejected by the liquidator.
NCLAT Order :
The NCLAT noted the NCLT’s decision stated that “section 77 of the Companies Act 2013, specially Sub-Section 3 is very clear to us. This section read with provisions under IBC referred has no ambiguity.”
The NCLAT also relied on the decision of Hon’ble Supreme Court in Prabhudas Damodar V/s. Manhabala Jeram Damodar (2013) 15 SCC 358 saying that “It is trite law that if the words of a Statute are themselves precise and unambiguous, then 25 Company Appeal (AT) (Insolvency) No. 02 of 2020 no more can be necessary than to expound those words in their natural and ordinary sense.”
Referring the Supreme Court statement in Kerala State Financial Enterprises Ltd. vs. Official Liquidator, High Court of Kerala (2006) 10 SCC 709, the NCLAT had held that “if charges are not registered under, the then section 125 of Companies Act, the same would be void against the liquidator or creditors.”
Further, NCLAT also cited India Bulls Finance Ltd. V/s. Samir Kumar Bhattacharta and Ors. Company Appeal (AT) (Insolvency) No. 830 of 2019, referred to Oil and Natural Gas Corporation Ltd. V/s. Official Liquidator of Ambica Mills Co. Ltd. and Ors., (2015) 5 SCC 300, wherein it was held that “in absence of Charge being registered, the Appellant could not be treated as Secured Financial Creditor.”
Therefore, the NCLAT said that referred to Section 77 & 78 of Companies Act, 2013, there was no evidence on record to show that on Shree Balaji Printopack’s failure to register the charge under Section 77, and Volkswagen has registered the charge under Section 78 by its choice.
Thus, NCLAT ordered that “this Appeal fails and is accordingly dismissed.”
