Non-Obtaining Of NOC From Applicant Does Not Ipso Facto Invalidate Security Documents Executed In Favour Of Respondents: NCLT Mumbai

The National Company Law Tribunal, Mumbai Bench, comprising Anil Raj Chellan Kuldip Kumar Kareer (Member Technical) (Member Judicial), held that non-obtaining of NOC from the Applicant does not ipso facto invalidate the security documents executed in favour of Respondents. Brief Facts An application under section 60(5) of the Insolvency and Bankruptcy Code (IBC) was filed by Bank of Baroda (applicant) in which the CIRP conducted by the resolution professional (respondent no 1)) was challenged. It argued that Axis Bank and NKGSB Co-operative Bank Ltd.(respondent No 2 and 3) were wrongly categorised as secured creditors. The applicant contended that charge over the assets was exclusively of the applicant and a certificate of No Objection was not taken either by the corporate debtor or by other respondents before creating charge over the assets. The BOB wants the respondent to be classified as unsecured creditors on the ground that they had not taken NOC. The applicant advanced loan facilities to Omkar Specialty Chemicals Limited (Corporate Debtor) which were secured by multiple assets. More facilities were extended in 2015 which were also secured in the same manner. The corporate debtor was admitted into insolvency and an Interim resolution professional was appointed. The claims of the applicant was categorised as a secured creditor. Thereafter, the respondent also filed their claims before the RP who classified their claims as secured creditor based on the registered charges demonstrated on the MCA portal. Contentions The applicant contended that the claims of the respondent as secured creditor were erroneous. It was further argued that the applicant had exclusive charge over the assets and the respondents had no charge as no shared security arrangement was provided to substantiate their claims. It was further submitted that the applicant's charge over the property is also reflected in the CERSAI records. It was further contended that the RP had no adjudicatory authority to classify the claims of the respondents as secured creditors. Per contra, the RP submitted that the claims of the respondents as secured creditor were made in accordance with CIRP regulations. Documents like a deed of hypothecation and mortgage deed were provided which indicated that the respondents had also charge over the property. It was further argued that as per section 77 of the companies act, registration of the charge is a mandatory condition before claiming the secured status. The other respondents contended that their status as secured creditors are supported by multiple documents like hypothecation agreements, personal guarantees and other security documents executed by the corporate debtor. It was argued that not taking NOC from the applicant indicates that they had a subservient charge but that does not mean that they had no charge at all over the property. Furthermore, the respondent No 2 argued that its status as a secured creditor can also be established through a personal guarantee. NCLT's Analysis The NCLT observed that charges over the property were created at different times for the applicant in 2012 and for the respondent in 2016 and 2017 respectively. The tribunal further observed that NOC was not provided by the applicant for the subsequent charges created. The Tribunal rejected the argument of the applicant that the charge create in favour of the respondents were invalid under section 23 and 24 of the Indian Contract Act as no NOC had been taken. The court observed that the charges were registered with registrar of companies which constitutes a public notice. Despite this, no challenge was made by the applicant against the creation of charges. The tribunal observed that the charges are registered with RoC way back in the years 2016 and 2017 which is deemed to be public notice. However, the Applicant has not taken any steps to challenge the charge creation in favour of Respondent Nos. 2 and 3 and the alleged breach of contract with the Applicant. At no stretch of the imagination, we can accept that the contract or covenant with the Applicant will automatically invalidate subsequent documents executed by the Corporate Debtor on the basis of Sections 23 and 24 of the Indian Contract Act, 1872. The tribunal further observed that multiple interests could be created over the same property under section 48 of the Transfer of Property Act (TOPA). The tribunal further noted that in such a case doctrine of priority will govern the multiple charges created. The tribunal found no substance in the argument that documents of hypothecation and mortgage were invalid since NOC had not been obtained. The tribunal observed that a plain reading of the above section 48 makes it clear that multiple mortgages can be created on the same immovable property but subject to the doctrine of priority. The tribunal referred to the definitions in the IBC ...

Non-Obtaining Of NOC From Applicant Does Not Ipso Facto Invalidate Security Documents Executed In Favour Of Respondents: NCLT Mumbai

Mohd Malik Chauhan

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