NCLAT Chennai: Goods Not In Possession Of The Port, Claim By Port Can't Be Treated As Secured Creditor Under IBC
The National Company Law Appellate Tribunal ('NCLAT'), Chennai Bench, comprising Justice Rakesh Kumar Jain (Judicial Member) and Shreesha Merla (Technical Member) held that there is no actual lien to invoke Section 171 of the Indian Contract Act, 1872 ('ICA') when the goods are not in possession of the Port Authority and the claim of the Port cannot be treated as a Secured Creditor...
The National Company Law Appellate Tribunal ('NCLAT'), Chennai Bench, comprising Justice Rakesh Kumar Jain (Judicial Member) and Shreesha Merla (Technical Member) held that there is no actual lien to invoke Section 171 of the Indian Contract Act, 1872 ('ICA') when the goods are not in possession of the Port Authority and the claim of the Port cannot be treated as a Secured Creditor for distribution of liquidation assets under Sec. 53 of Insolvency and Bankruptcy Code, 2016 ('IBC').
Background Facts:
V O Chidambaranar Port Authority ('Appellant') is a port and submitted a claim of Rs. 27.39 crores before the Liquidator to treat the Appellant as a Secured Creditor under Section 53 of IBC for the distribution of liquidation assets but the Liquidator categorized Appellant's claim as an Operational Creditor claim.
The Appellant had clarified that as per Section 171 of ICA, it to be considered as secured creditor whereas the liquidator vide its email dated 21.06.2023 responded that the Corporate Debtor has been sold as going concern and the sale proceeds have been distributed to the stakeholders per the provisions of Section 53 of the IBC and further stated that he has filed an application before the Adjudicating Authority for closure of the liquidation process, therefore, it is not possible at this stage to reverse the process which has already been completed.
The present appeal has been filed against the order dated 12.10.2023 by which the Adjudicating Authority dismissed an application filed under Section 43 of IBC for setting aside the Liquidator's email dated 21.06.2023 and to direct the Liquidator to treat the Appellant as a secured creditor under Section 53 of IBC for the distribution of liquidation assets.
NCLT Verdict:
The NCLAT Chennai dismissed the appeal and held that there is no actual lien to invoke Section 171 of the ICA when the goods are not in possession of the Port Authority and the claim of the Port cannot be treated as a Secured Creditor for distribution of liquidation assets under Sec. 53 of IBC.
The Appellate Tribunal analysed different provisions of the IBC and ICA.
Section 3(30) of IBC: "secured creditor" means a creditor in favour of whom security interest is created;
Section(31) of IBC: "security interest" means right, title or interest or a claim to property, created in favour of, or provided for a secured creditor by a transaction which secures payment or performance of an obligation and includes mortgage, charge, hypothecation, assignment and encumbrance or any other agreement or arrangement securing payment or performance of any obligation of any person:
Provided that security interest shall not include a performance guarantee;
Section 3(4) of IBC: "charge" means an interest or lien created on the property or assets of any person or any of its undertakings or both, as the case may be, as security and includes a mortgage;
Section 171 of ICA: General lien of bankers, factors, wharfingers, attorneys and policy-brokers.—Bankers, factors, wharfingers, attorneys of a High Court and policy-brokers may, in the absence of a contract to the contrary, retain as a security for a general balance of account, any goods bailed to them; but no other persons have a right to retain, as a security for such balance, goods bailed to them, unless there is an express contract to that effect.1 — Bankers, factors, wharfingers, attorneys of a High Court and policy-brokers may, in the absence of a contract to the contrary, retain as a security for a general balance of account, any goods bailed to them; but no other persons have a right to retain, as a security for such balance, goods bailed to them, unless there is an express contract to that effect.
The Appellate Tribunal observed that on analysis of the above provisions, it can be pointed out that the Appellant is not a secured creditor as it claims itself to be a security for a general balance of account any goods bailed to them since presently, the goods are not in possession of the Appellant as is also admitted by the Appellant during the course of the hearing and thus there was no actual lien to invoke Section 171 of the ICA.
In conclusion, the NCLAT pointed out that the Adjudicating Authority rightfully dismissed an application filed under Section 43 of IBC for setting aside the Liquidator's email dated 21.06.2023 and thus, the claim of Port cannot be treated as a claim of Secured Creditor under IBC.
Case Title: V O Chidambaranar Port Authority vs. Shri Rajesh Chillale, RP of IndBharath Power Gencom Ltd.
Case No.: Company Appeal (AT) (CH) (Ins) No. 412 of 2023
Counsel for the Appellant: Mr. P. Ulaganathan, Adv.