Failure to prove Security Interest created in Assets of Corporate Debtor in Favor of PMC Bank: NCLAT upholds approval of Resolution Plan [Read Order]

The Delhi bench of the National Company Law Appellate Tribunal ( NCLAT ) while upholding the resolution plan passed  by the adjudicating authority observed that there was a failure to prove security interest created in assets of the corporate debtor in favor of PMC Bank .

The present appeal was filed by the  Financial Creditor of the Corporate Debtor – Privilege Industries Limited has been filed. In this matter the Punjab & Maharashtra Co-operative Bank Ltd. sanctioned mortgage overdraft facility to the Corporate Debtor vide Sanction letter dated 04.11.2011 and 17.01.2013. Various documents creating security interest in favor of the PMC Bank were executed including mortgage of immovable property.

The Corporate Debtor being unable to repay the overdraft amount, the account was declared as Non-Performing Asset .Thereafter the PMC amalgamated with the appellant Unity Small Finance Bank Ltd.

The Adjudicating Authority initiated the Corporate Insolvency Resolution Process against the Corporate Debtor. In pursuance to the publication made by the Resolution Professional (“RP”), Appellant field its claim.  The List of Creditors published by IRP, the Appellant’s claim only to the extent of Rs.2.53 crores was admitted as a secured claim. Accordingly appellant revised the list and On 13.07.2023, final list of creditors was uploaded the RP, where claim of the Appellant for Rs.139,57,65,086/- was admitted as unsecured claim.

Thereafter the Appellant filed an application  seeking quashing of the RP decision and seeking direction to declare the Appellant as secured creditor.

Accordingly the  Adjudicating Authority approved the Resolution Plan of the Corporate Debtor. Aggrieved by the order the appellant filed appeal before the tribunal.

Alok Dhir, Senior Counsel appearing for the Appellant argued that Appellant being secured creditor, approval of the Resolution Plan is in contravention of Section 30, sub-section (2) of the Insolvency and Bankruptcy Code, 2016

Further argued that the  Appellant was entitled to be declared as secured Financial Creditor on the basis of sanctioned mortgage overdraft facility to the Corporate Debtor by letter dated 04.11.2011 and 17.01.2013 as well as letter dated 04.11.2011 of the Corporate Debtor of Lien and Set-off.

Arun Kathpalia, Counsel appearing for the respondent argued that  the Appellant has failed to prove creation of security interest on the assets of the Corporate Debtor by any document. The mortgage of the immovable property was created by Guarantor of the Corporate Debtor, Shri Rakesh Kumar Wadhawan of its immovable assets including non-agricultural land, which does not make the Appellant a secured creditor

It was observed by the tribunal that “the Appellant has not filed any documents proving to create charge on the assets of the Corporate Debtor, except for Sanction letters as noted above as well as letter dated 04.11.2011 referred to as letter of Lien and Set-off”.

After analyzing the submission of both parties the bench comprising  Justice Ashok Bhushan  (Chairperson),   Barun Mitra (Technical Member) observed that there was a failure to prove security interest created in assets of the corporate debtor in favor of   PMC Bank.

Thus the bench upheld the resolution plan passed by the adjudicating authority.

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