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, the National Company Law Appellate Tribunal (NCLAT) has dismissed an appeal filed by Volkswagen Finance Pvt Ltd against an order of the National Company Law Tribunal (NCLT).
The order by the NCLT had refused to set aside the order of the liquidator passed against Volkswagen.
The facts of the case were that 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. Volkswagen Finance claimed that it had security of the vehicle in terms of Sections 52 and 53 of the Insolvency and Bankruptcy Code, 2016, and a demand of Rs. 21,83,819.18/- was made which was not paid by Shree Balaji Printopack and hence there was a 'default', giving rise to a legitimate claim.
A liquidator was appointed against Shree Balaji on Apr 3, 2019, and Volkswagen filed its claim on Jul 27, 2019 with copies of the Loan Agreement, the Hypothecation Deed, the Demand Letter and 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).
Referring to the judgement passed by the High Court of Kerala in Kerala State Financial Enterprises V/s. Official Liquidator (2006) 133 Company Case 912 (Kerala) and the Bombay High Court in Anti-fraction bearings Corporation Ltd & Anr. V/s. State of Maharashtra & Ors., AIR 1999 Bom 37, NCLT held that as no charge had been registered by Volkswagen Finance as required under Companies Act, 2013 and the 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.
Upholding NCLT's decision, the NCLAT said 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," and relied on the decision of the Supreme Court in Prabhudas Damodar V/s. Manhabala Jeram Damodar (2013) 15 SCC 358 wherein it was stated 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 to Sections 77 and 78 of the Companies Act, 2013, the NCLAT also said that there was no evidence on record in the present case to show that on Shree Balaji Printopack's failure to register the charge under Section 77, Volkwagen exercised its choice of registering the charge under Section 78.
NCLAT then referred to the Supreme Court's decision in Kerala State Financial Enterprises Ltd. V/s. Official Liquidator, High Court of Kerala, (2006) 10 SCC 709, wherein it has been 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."
NCLAT further cited the case of Oil and Natural Gas Corporation Ltd. V/s. Official Liquidator of Ambica Mills Co. Ltd. and Ors., (2015) 5 SCC 300, referred to in India Bulls Finance Ltd. V/s. Samir Kumar Bhattacharta and Ors. Company Appeal (AT) (Insolvency) No. 830 of 2019, and held that "in the absence of 'charge' being registered, the Appellant could not be treated as Secured Financial Creditor."
Title : Volkswagen Finance Private Ltd vs Shree Balaki Printopack Pvt Ltd (Company Appeal (AT)(Insolvency) No.02 of 2002
Coram : Justice AIS Cheema (Member-Judicial) and Ms.Shreesha Merla(Member- Technical)
For Appellant: Mr. Sanjeev Sagar & Ms. Nazia Parveen, Advocates.
For Respondents: Mr. Nazim Khan, Advocate.
Mr. Nilotpal Shyam, Advocate for Respondent/Liquidator.
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