Mumbai, March 9: The Mumbai bench of the National Company Law Tribunal (NCLT) has allowed an appeal filed by Jammu & Kashmir Bank Ltd., holding that it should be treated as a secured financial creditor in the liquidation process of Pan India Infraprojects Pvt. Ltd., and setting aside the liquidator’s earlier decision that classified the bank as an unsecured creditor.
The order was passed by a bench comprising Judicial Member Sushil Mahadeorao Kochey and Technical Member Prabhat Kumar while deciding an appeal filed under Section 42 of the Insolvency and Bankruptcy Code (IBC). The tribunal also dismissed an intervention application filed by an asset reconstruction company challenging the bank’s claim.
Dispute over creditor classification
The dispute arose after the liquidator, through an email dated December 4, 2023, classified Jammu & Kashmir Bank as an unsecured financial creditor in the liquidation proceedings of Pan India Infraprojects Pvt. Ltd. Aggrieved by the decision, the bank approached the tribunal seeking recognition as a secured creditor.
Credit facilities linked to Essel Group companies
The case has its roots in multiple credit facilities sanctioned by the bank to companies associated with the Essel Group. In 2013, the bank granted a secured overdraft credit facility of Rs 200 crore to Pan India Utilities Distribution Company Ltd. (PIUDCL).
The facility was secured by a mortgage over 196.16 acres of land located at Gorai village in Borivali (West), Mumbai, owned at the time by Essel Infraprojects Ltd.
Subsequently, under a scheme of arrangement approved by the Bombay High Court in 2014, the Gorai land and related project were transferred from Essel Infraprojects Ltd. to Essel Urban Infrastructures Pvt. Ltd., which was later merged with Pan India Infraprojects Pvt. Ltd.
Claim filed during insolvency proceedings
During the corporate insolvency resolution process initiated in 2020 against Pan India Infraprojects, the bank filed its claim based on the mortgage and other security documents.
However, the resolution professional, and later the liquidator, treated the claim as unsecured on the ground that the charge was not registered with the Registrar of Companies (RoC) after the corporate restructuring.
Tribunal examines validity of mortgage
The tribunal examined whether the mortgage over the Gorai land continued to bind the corporate debtor after the demerger and subsequent merger and whether the absence of RoC registration was sufficient to deny secured creditor status.
Referring to precedents of the National Company Law Appellate Tribunal (NCLAT), the bench observed that non-registration of a charge with the RoC cannot by itself extinguish the rights of a mortgagee, particularly when the mortgage deed is duly registered with a public authority such as the sub-registrar.
Mortgage recognised despite RoC issue
The tribunal noted that the mortgage deed dated December 27, 2013 had been registered with the Sub-Registrar at Borivali, establishing the bank’s security interest in the property even before the introduction of the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI) framework.
It further held that although the corporate guarantee executed by Essel Infraprojects Ltd. did not automatically bind the corporate debtor after the restructuring, the security interest created through the mortgage over the Gorai land continued to subsist and was enforceable against the corporate debtor.
“In light of the facts and legal position, the claim of the applicant deserves to be admitted as a secured financial creditor,” the tribunal held while allowing the appeal.
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Appeal allowed, intervention dismissed
Accordingly, the NCLT allowed the appeal filed by Jammu & Kashmir Bank and directed that its claim be treated as that of a secured financial creditor in the liquidation of Pan India Infraprojects Pvt. Ltd. The intervention application filed by the asset reconstruction company was dismissed.
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