VECHILE LOAN NOT REGISTERED WITH ROC , THEN IT WILL NOT ENTITLE TO FALL ...

Many are of the view that vehicle loan is need not to be registered as charge under Companies Act . As it is registered by way of hypothecation registration with the Regional Transport Office (RTO) in terms of Section 51 of the Motor Vehicles Act, 1988.

If you do not register the charge with ROC , then , you will not be considered as secured creditor when company is under winding up and you will be treated as unsecured creditor.

This was decided in

Volkswagen Finance Private Limited  vs. Shree Balaji Printopack Pvt. Ltd  as decided by NCALT on October 19, 2020.

 

Charge’ was not registered as per the provisions of Section 77 (1) of the Companies Act 2013 and as envisaged under the Insolvency and Bankruptcy Code, 2016, hence the Creditor cannot be treated as a ‘Secured Creditor’

 

Fact of the Case

The Respondent Company (under Liquidation) namely Shree Balaji Printopack Pvt. Ltd. executed a Loan and Hypothecation Agreement on November 25, 2013, for an amount of Rs. 36,00,000/- payable in 84 monthly instalments of Rs. 61,964/-, for the purchase of an AUDI Q3 TDI 2.0 vehicle.

The Appellant claimed that they have 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 Respondent and hence there was a ‘default’ giving rise to a legitimate claim.

The Appellant filed its claim on 22.07.2019 with the Liquidator and had informed the Liquidator that the ‘Charge’ was duly registered by way of hypothecation registration with the Regional Transport Office (RTO) in terms of Section 51 of the Motor Vehicles Act, 1988 and there was no requirement of registration of ‘Charge’ with the ROC. The Liquidator, dismissed the Claim made by the Appellant.

Being aggrieved with the decision the Appellant approached the NCLT, New Delhi Bench, but the appeal was further rejected by NCLT and they upheld the order of Liquidator.

The main issue which falls for consideration in this Appeal is:

whether the Liquidator was justified in rejecting the Application filed by the Appellant on the ground that the Appellant was not a ‘Secured Financial Creditor’ in the absence of the ‘Charge’ being registered with the ROC under Section 77 (1) of the Companies Act 2013. that the Registration of Hypothecation by way of ‘Charge’ under Section 51 of Motor Vehicles Act, 1988 would stand nullified, if the ‘Charge’ was not registered under the Companies Act, 1956/2013.

 NCLAT observed from the documentary evidence on record that no ‘Charge’ has been registered under Section 77(1) of the Companies Act 2013 and Appellant ‘Claim’ was not supported by the provisions under Regulation 21 of IBBI (Liquidation Process) Regulation, 2016. Further, the contentions of the Appellant that Registration with Motor Vehicle Authority under Section 51 of the Motor Vehicles Act, 1988 would suffice, cannot be sustained.

 

Judgment

Hence, it is held that when ‘Charge’ was not registered as per the provisions of Section 77 (1) of the Companies Act 2013 and as envisaged under the Insolvency and Bankruptcy Code, 2016, the Creditor cannot be treated as a ‘Secured Creditor’. Thus, this Appeal is accordingly dismissed.

 

What We Learned from the case ?

·       Charge’ was not registered as per the provisions of Section 77 (1) of the Companies Act 2013 and as envisaged under the Insolvency and Bankruptcy Code, 2016, hence the Creditor cannot be treated as a ‘Secured Creditor’

·       No ‘Charge’ has been registered under Section 77(1) of the Companies Act 2013 and Just Registration with Motor Vehicle Authority under Section 51 of the Motor Vehicles Act, 1988 would not suffice

·       Many banks and lenders are under impression that they need not register a charge with ROC which is a misconception.