NCLAT Rules, Registration Of Security Interest With CERSAI Is Sufficient To Claim Status Of Secured Financial Creditor
Pranav B Prem
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, comprising Justice Rakesh Kumar Jain, Justice Mohammad Faiz Alam Khan, and Mr. Naresh Salecha, has held that registration of a security interest with the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI) is sufficient to establish the status of a secured financial creditor in liquidation proceedings under the Insolvency and Bankruptcy Code, 2016 (IBC). The Tribunal clarified that such registration under CERSAI is recognized under Regulation 21 of the IBBI (Liquidation Process) Regulations, 2016, and does not require mandatory registration under Section 77 of the Companies Act, 2013, to claim secured status.
Background
The appeal was filed by Bizloan Private Limited, which had extended credit facilities worth ₹1 crore in the form of sales bill discounting (SBD) and purchase bill discounting (PBD) to Autocop (India) Private Limited (the Corporate Debtor). CIRP against the Corporate Debtor was initiated on 16.03.2022, and the appellant's claim was admitted in full by the Resolution Professional. However, upon receipt of the final Resolution Plan in December 2022, the appellant discovered that it had been classified as an unsecured creditor instead of a secured financial creditor.
Subsequently, liquidation proceedings were initiated by the Adjudicating Authority on 19.05.2023. The appellant filed an application (IA No. 2620/2023) before the NCLT, Mumbai Bench, seeking reclassification as a secured financial creditor. This application was rejected by the Adjudicating Authority via an order dated 19.12.2023, which led to the present appeal before the NCLAT.
Contentions of the Appellant
The appellant contended that the security interest had been duly registered with CERSAI, which is a centralized platform created to record security interests. They argued that under Section 52(3) of the IBC read with Regulation 21 of the Liquidation Regulations, 2016, proof of security interest may be established either through registration with the Information Utility, the RoC, or with CERSAI. The use of the disjunctive "or" in the Regulation clearly indicates that CERSAI registration alone is adequate.
It was further submitted that Section 238 of the IBC contains a non-obstante clause, giving it overriding effect over other laws, including Section 77(3) of the Companies Act, 2013. Additionally, the legal opinion sought by the Respondent had also recognized the appellant as a secured financial creditor, but this was ignored during classification.
Arguments of the Respondent
The Respondent argued that the appellant could not be considered a secured financial creditor as the charge was not registered with the RoC in accordance with Section 77 of the Companies Act, 2013. Emphasis was placed on the non-obstante clause in Section 77(3), which mandates that charges not registered with the RoC cannot be considered by the liquidator.
It was further submitted that Regulation 21 is based on Section 52(3) of the Code, which, according to the Respondent, applies only when a secured creditor chooses to realize, not relinquish, its security interest. Since the appellant had relinquished its security interest, Regulation 21 was said to be inapplicable.
Additionally, the Respondent distinguished between CERSAI and RoC, arguing that while RoC registration includes the instrument creating the charge and results in a formal certificate, CERSAI only records basic details. CERSAI registration, they contended, is only supplemental and cannot replace the mandatory requirement of RoC registration.
Findings of the Tribunal
The NCLAT considered the interplay between the Companies Act, the IBC, and the SARFAESI Act. It noted that Regulation 21 of the IBBI (Liquidation Process) Regulations, 2016—framed under the IBC—explicitly provides three means to prove the existence of a security interest:
(a) records with the information utility,
(b) certificate of registration of charge from the RoC, or
(c) proof of registration with CERSAI.
The Tribunal held that the use of the word "or" in Regulation 21 makes it clear that any one of these three methods is sufficient. The Tribunal emphasized that the IBC, being a later and special legislation, prevails over conflicting provisions of earlier general laws, including the Companies Act. Section 238 of the Code also gives the IBC overriding effect over any other inconsistent law.
The Tribunal referred to the Supreme Court’s decision in M.V. Polaris Galaxy v. Banque Cantonale De Geneva [Appeal Nos. 6897-6898 of 2022 (Arising out of SLP (C) Nos. 19314-19315 of 2021)], to reiterate that in case of conflict between non-obstante clauses in two statutes, the latter statute prevails.
It concluded that Section 77(3) of the Companies Act serves a different purpose and its non-compliance may lead to consequences for the company or its officers, but it does not override the specific procedural framework of the IBC when it comes to determining secured status in insolvency or liquidation.
The NCLAT held that Bizloan Private Limited had rightfully registered its security interest with CERSAI and therefore qualified as a secured financial creditor under Regulation 21(c) of the Liquidation Regulations, 2016. The appeal was allowed, the impugned order dated 19.12.2023 was set aside, and IA No. 2620/2023 was restored for further proceedings. Both parties were directed to appear before the Adjudicating Authority on the next scheduled date.
Appearance
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.
Cause Title: Bizloan Private Limited Versus Mr. Amit Chandrashekhar Poddar [Liquidator For Autocop (India) Private Limited]
Case No: Comp. App. (AT) (Ins) No. 210 of 2024 & I.A. No. 718 of 2024
Coram: Justice Rakesh Kumar Jain [Judicial Member], Justice Mohammad Faiz Alam Khan, Mr. Naresh Salecha [Technical Member]
