Registration Of Security Interest With CERSAI Is Sufficient To Claim Status Of Secured Financial Creditor: NCLAT

Brief Facts:

The present appeal has been filed by Bizloan Private Limited (Financial Creditor) for providing credit facilities in form of sales bill discounting (SBD) and purchase bill discounting (PBD) of Rs. 1 Crore in aggregate to the Autocop (India) Private Limited (Corporate Debtor) against the Impugned Order dated 19.12.2023 by which the Appellant was classified as Unsecured Creditors instead of Secured Financial Creditor.

Corporate Insolvency Resolution Process ('CIRP') was initiated against the Corporate Debtor by the Adjudicating Authority vide order dated 16.03.2022

When the Appellant came to know that he has been classified as Unsecured Creditor instead of Secured Financial Creditor. Aggrieved by the same, the Appellant filed an IA but by the time, the Corporate Debtor had moved into liquidation proceeding vide order dated 19.05.2023 passed by the Adjudicating Authority.

The Appellant subsequently filed an IA before the Adjudicating Authority seeking direction that the Appellant be treated as Secured Financial Creditor. The Impugned Order, however, rejected the IA No. 2620/2023 of the Appellant holding that the Appellant cannot be treated as Secured Financial Creditor.

Against the above order, the present appeal has been filed.

The Appellant submitted that the charge is duly registered with CERSAI records which is (publicly accessible). Thus, the Appellant ought to have been classified as a secured financial creditor. The Adjudicating Authority failed to appreciate Section 52(3) of the Code r/w Regulation 21 of the IBBI (Liquidation Process) Regulations, 2016 which recognizes other modes of registration of charge/ proving security interest including registration of charge with CERSAI.

It was further submitted that the Respondent is relying on Section 52 (1) of the Code, that itself states the word 'Secured Creditor', in that capacity the position of either relinquishing or realising is with a Secured Creditor, hence, in his own submissions of the Respondent, the Respondent has accepted the stand of the Appellant as a secured creditor.

Per contra, the Respondent submitted that Section 77 (3) of the Companies Act, 2013 starts with non-obstante clause which reads “notwithstanding anything contained in any other law for the time being in force”, as such the Companies Act, 2013 prevailed over the Code and its regulations.

It was further submitted that Other sub-Sections of Section 52 are not applicable to a Secured Creditor who chooses to relinquish its security interest to the liquidation estate. Therefore, Regulation 21 of the IBBI (Liquidation Process) Regulations, 2016, which is an outcome of sub Section (3) to Section 52, does not come into picture at all in such a case and so also in the present case.

Lastly, it was submitted that provisions relating to CERSAI, incorporated in Section 20 (4) of the SARFAESI Act, 2002 is only in addition to and not in derogation to the provisions of the Companies Act, 2013 and any other law, and it shall not affect the priority of charges or validity thereof under those Acts or laws.

Observations:

The Tribunal noted that the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI) is a centralised platform that was established by the Reserve Bank of India to maintain records of security interest created over movable and immovable properties. It serves as a comprehensive database as far as the securitisation, asset reconstruction and security interests registered by the Banks and financial institutions are concerned.

It further observed that Section 77 of the Companies Act, 2013 mandates every company creating a charge on its property or assets (whether in India or outside) to register the particulars of the charge and the instrument creating it with the RoC. Section 77(3) of Companies Act, 2013 states that no charge created by a company shall be taken into account by a liquidator or any other creditor unless it is duly registered under sub-section (1) of Section 77 of Companies Act, 2013 and a certificate of registration is issued by the RoC.

It held that while CERSAI registration is important for creditors to enforce their rights under the SAFAESI Act but does not mean that companies are exempted from registering their charges under section 77 of the Companies Act with RoC. The Registration of the charge with the RoC is indispensable in order to claim benefit as a Secured Financial Creditor in the CIRP or liquidation.

The Tribunal observed that it is a settled principle of law that when two laws conflict, the law enacted later will prevail. The IBC came into force on 1.12.2016 that is after the date of enforcement of section 77 of the Companies Act which came into effect on 15.11.2016. Furthermore, section 238 of the Code with the non-obstnate clause therefore giving overriding effect over any other law for the time being in force.

The Supreme Court in M.V. Polaris Galaxy v. Banque Cantonale De Geneva held that when two statutes contain non-obstante clauses, the clause in the latter enactment shall prevail. Section 77(3) of the companies Act merely mandates the charges to be taken into consideration by the Liquidator or by any other creditor whereas the IBC governs the insolvency process and deals with the prioritisation of the creditors.

It held that the main issue before the Tribunal was whether section 77(3) of the Companies Act which mandates the registration of charges with RoC overrides Regulation 21 of the Liquidation Regulations, 2016. Section 77 serves altogether a different purpose, the non compliance of which leads to consequences to the concerned stakeholders whereas the purpose of the CERSAI registration is to enforce security interest created over assets in favor of the Banks and alert others financial institutions not to lend money over assets already mortgaged or hypothecated.

It further added that Regulation 21 allows proof of security through records with the information utility, RoC registration or CERSAI registration. The use of the word 'or' in the Regulation 21 clearly establishes that the proof of security interest can either be established through RoC registration or CERSAI registration.

In light of the above discussion, the Tribunal held that “security interest by the Creditors can also be proved if the same is available in CERSAI and is not completely and exclusively dependent on charge registered with RoC under Section 77 of the Companies Act, 2013.”

It concluded that in the present appeal, although the charge was not registered with the RoC under section 77(3) of the Companies Act, the same was registered with the CERSAI. Regulation 21 states that the charge registration with the CERSAI is sufficient to prove security interest therefore the Appellant should have been treated as a Secured Financial Creditor.

Accordingly, the present appeal was allowed and the impugned order was set aside.

Case Title: Bizloan Private Limited Versus Mr. Amit Chandrashekhar Poddar [Liquidator For Autocop (India) Private Limited]

Case Number: Comp. App. (AT) (Ins) No. 210 of 2024 & I.A. No. 718 of 2024

Judgment Date: 03/07/2025

For Appellants: Mr. Mohit Choudhary, Mr. Jayesh Gupta, Mr. Arjun Arora & Mr. Mohit Gulia, Adv.

For Respondents: Mr. Bharat Gupta, Mr. Varun Tyagi, Mr. Saurabh Khanijon & Mr. Ishan Srivastava, Adv.

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