This article addresses the question of whether a financier can claim the status of 'financial creditor' under the Insolvency and Bankruptcy Code (IB Code) if the hypothecation charge in respect of a vehicle is not registered as per Section 77 of the Companies Act, 2013 ("the Companies Act"). The NCLAT, in the case of Volkswagen Finance Pvt. Ltd. v. Sree Balaji Printopack Pvt. Ltd.1 (Volkswagen Finance) addressed the issue of whether the Liquidator was correct to deny the Appellant's application on the grounds that the Appellant was not a "Secured Financial Creditor" since the "Charge" had not been registered with the ROC in accordance with Section 77 (1) of the Companies Act. That if the "Charge" was not registered under the Companies Act, 1956/2013, the Registration of Hypothecation by Way of "Charge" under Section 51 of the Motor Vehicles Act, 1988, would be void.

In this case, the Appellant, Shree Balaji Printopack Pvt. Ltd, had signed a loan and hypothecation agreement for a sum of Rs. 36,000,000/- for the acquisition of an AUDI Q3 TDI 2.0 vehicle, according to the case's circumstances. However, the agreement was invalidated when the appellant failed to make the agreed payment in a timely manner. For the consideration of the liquidator, the applicant, Volkswagen Finance Pvt., Ltd, submitted its claim together with documents of the loan agreement, the hypothecation deed, and the registration certificate of the vehicle.

According to Section 51 of the Motor Vehicles Act of 1988, the Applicant had notified the liquidator that the "Charge" was properly registered through hypothecation registration with the Regional Transport Office (RTO) (M.V Act). The problem occurred when the liquidator denied the applicant's claim, claiming that it was necessary to register the "Charge" with the Registrar of Companies (ROC).

Section 3(4) of the IB Code defines the term "charge" as 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.

The NCLAT, in support of the adjudicating authority's decision in this matter, held the charge was not filed under section 77 of the Companies Act. The NCLAT's position was founded on a clear interpretation of section 77 of the Companies Act. Section 77(3) of the Companies Act, states:

"(3) Not with standing anything contained in any other law for the time being in force, no charge created by a company shall be taken into account by the liquidator [appointed under this Act or the Insolvency and Bankruptcy Code, 2016, as the case may be,or any other creditor unless it is duly registered under sub-section (1) and a certificate of registration of such charge is given by the Registrar under sub-section (2).

Moreover, The NCLAT held that the liquidator rightly rejected the claim as Regulation 21 of Liquidation Regulations was not complied with. Regulation 21 of the Liquidation Regulations stipulates that the existence of a security interest may be proved by a secured creditor based on:

  1. the records available in an information utility, if any;
  2. certificate of registration of charge issued by the Registrar of Companies; or
  3. proof of registration of charge with the Central Registry of Securitisation Asset Reconstruction and Security Interest of India.

Noting that neither the charge was registered with the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI), nor with the ROC or the information utility (IU), the NCLAT rejected the claim. As a result, it was held that the appellant could not be termed as a secured creditor. Therefore, the claim made by the car financier that it has a security interest (charge by way of hypothecation) under section 51 of the MVA is insufficient.

The NCLAT also relied on the decision of the Hon'ble Supreme Court in Prabhudas Damodar v. Manhabala Jeram Damodar2 stating that "It is trite law that if the words of a Statute are themselves precise and unambiguous, then 25 Company Appeal (AT) (Insolvency) No. 02 of 2020 no more can be necessary than to expound those words in their natural and ordinary sense." Referring to the Supreme Court's decision in Kerala State Financial Enterprises Ltd. v. Official Liquidator, High Court of Kerala,3 the NCLAT had held that "if charges are not registered under, the then section 125 of Companies Act, the same would be void against the liquidator or creditors."

Further, NCLAT also cited India Bulls Finance Ltd. V/s. Samir Kumar Bhattacharya4, and referred to Oil and Natural Gas Corporation Ltd. v. Official Liquidator of Ambica Mills Co. Ltd.5, wherein it was held that "in absence of Charge being registered, the Appellant could not be treated as Secured Financial Creditor."

However, the same issue is yet to be determined in the appeal to the NCLAT's decision by a constitutional bench led by the Chief Justice of India in the Supreme Court.


The NCLAT in Indiabulls Housing Finance Ltd. v. Samir Kumar Bhattacharya22 (Indiabulls) had also declined the claim of a creditor to be a secured creditor on account of the contractual charge is not registered in terms of Section 77 of the Companies Act, 2013. The appellant staked their claim on account of having given loan to the corporate debtor in 2012 and against which they received the title deed of premises belonging to the corporate debtor and thereby creating a right of an equitable mortgage.

Section 77(1) speaks of the duty of the company on which the charge is created to get the same registered with the ROC. Section 77(2) entails that a copy of the registered charge will be given to the person in whose favour the charge is created. 77(3) stipulates that the liquidator or any creditor shall consider no charge if the same is not registered. Section 125 of the Companies Act, 1956 also stipulated that a charge will be void against a liquidator and any creditor of the company unless registered in terms of the Act.

Since there was no charge registered in terms of the Companies Act, 2013, the NCLAT held that the creditor could not claim to be a secured creditor. Furthermore, the NCLAT held that since the charge was registered to post the approval of a resolution plan, the same would not allow the appellant creditor to stake a claim of being a secured creditor.24


The NCLT determined that there is a requirement of "creation" of charge in the case of Bharat Heavy Electricals Ltd v. Anil Goel6 after studying the terms "security interest" and "secured creditor" and it also observes that these provisions appear to stipulate a specific mechanism with regards to what a security interest is and how such security interest can be created and/or provided for by the parties. A security interest is described as follows in Section 3(31):

"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.

While the definition has a clear first component, its second element, which states that a security interest may include a "charge" and "any obligation of any person," also has an inclusive definition.

The NCLT's emphasis on "creation" does not, however, address why a statutory creation is not the establishment of a genuine right. Additionally, it should be emphasized that the NCLT explicitly held that the definition of the phrase "security interest" in the IB Code supersedes that in the Transfer of Property Act. In upholding the decision of the NCLT in Bharat Heavy Electricals Ltd v. Anil Goel7 (BHEL - NCLT), the NCLAT refrained from concluding that there is any conflict between the IB Code and the Transfer of Property Act or Sale of Goods Act and added that only a security interest that is "created" as such is a valid security interest.

The word "may" used in Regulation 21 of the Liquidation Regulations was also a topic of dispute in the BHEL-NCLT ruling. While the NCLAT judgement is silent on this matter, the NCLT decided on it stating that the Regulation 21 clause is directory and discretionary because it only covers the several ways to demonstrate a security interest. The NCLT while arguing that a claimant could depend on additional methods of establishing its security interest (methods not stated in Regulation 21 also stated that the stage of establishing a security interest only occurs after the creditor's status had previously been established as that of a secured creditor. It also stated that even if the meaning of "charge" is the same in both the Companies Act of 2013 and the IB Code, no requirement for mandatory registration under the IB Code, in contrast to Section 77 of the Companies Act of 2013 is envisaged.

The liquidator asserted that until a charge is lodged under Section 77 of the Companies Act, 2013, the liquidator will not take such a claim into consideration. The NCLT rejected this position and held that the IB Code attains precedence over the Companies Act, 2013. It also held that and even if a charge could be proved by other modes (other than a certificate of registration of charge issued by the Registrar of Companies), the liquidator could still adjudicate on the issue of security interest.

On the contrary, it may be noteworthy that the application of a Mandatory Notification dated 03.05.2019, issued by the Government of India under Section 20A (2) of the SARFEASI Act, implies that Proof of registration with CERSAI covers the charges registered with the RTO under VAHAN, i.e., the registration authority under the Motor Vehicle Act. According to the announcement, CERSAI and VAHAN are both integrated for all charges that have been registered. In this regard, the RBI also released a clarification letter dated 04.10.2019 which discusses that since both CERSAI and VAHAN are interconnected, financial institutions are only required to record a hypothecation charge over a vehicle with VAHAN. Thus, it can be argued from these announcements that a legitimate hypothecation charge holder who has registered their interest under the Motor Vehicle Act may be recognised as a secured creditor for purposes of the IB Code. This will also prevent duplication of information and allow use of already-existing records as evidence of security.


In numerous other cases, including Indiabulls and Volkswagen Finance, the NCLAT itself has consistently ruled that a contractual charge would not be a genuine security interest for the purposes of Sections 52 and 53 of the IB Code if it was not statutorily registered. The same is in contrast with its position in BHEL-NCLT, which merely requires that a charge be "created" consciously and/or explicitly by the parties. Hence, the conundrum can be resolved by the much anticipated judgement of the Supreme Court if it covers all aspects of the issue and sets out a clear precedent to avoid uncertainty.


1. CA (AT) (Ins.) No. 02 of 2020

2. (2013) 15 SCC 358

3. (2006) 10 SCC 709

4. 2019 SCC OnLine NCLAT 1307

5. (2015) 5 SCC 300

6. 2019 SCC OnLine NCLT 35415

7. 2020 SCC OnLine NCLAT 618.

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