A.P. State Financial Corporation vs Guruvayuran Appan Swamy Oils, Foods and Facts Ltd.

B. Seshasayana Reddy, J.—This appeal is directed against the order passed by the Official Liquidator on 8-3-2010 rejecting the claim of the Appellant to treat a sum of Rs. 33,12,717/- as secured debt.

The brief facts of the case leading to filing of this appeal by the Andhra Pradesh State Financial Corporation are:

Andhra Pradesh State Financial Corporation advanced Rs. 30,00,000/- and Rs. 20,00,000/- towards term loan and additional term loan respectively to M/s Guruvayurappan Swamy Oils, Foods and Fats Limited. The company executed a deed of hypothecation. The company failed to pay the amount within the stipulated time and consequently loans came to be rescheduled. In the process of rescheduling, the interest due on the two loans came to be transferred to the funded interest account and accordingly, repayment schedule came to be revised.

By an order dated 8-10-2001 made in RCC No. 8 of 2001, M/s Guruvayurappan Swamy Oils, Foods and Fats Limited was directed to be wounded by this Court and the Official Liquidator attached to this Court came to be appointed as Liquidator of the Company. The Official Liquidator called for the claims from the creditors of the company as per order dated 28-3-2005 in CA. No. 236 of 2005. Pursuant to the said order, notice in Form No. 63 came to be published in newspapers fixing the last date for receipt of claims on 3-6-2005. The Appellant filed its claim on 25-10-2007 claiming an amount of Rs. 4,59,42,377/- which consists of principal amount of Rs. 28,67,661/- and interest of Rs. 4,30,74,116/- & Rs. 600/- towards other expenses as on 31-3-2007. Delay in filing the claim came to be condoned on an application moved by the Appellant under Rule 177 of the Companies Court Rules, 1959 vide C.A. Nos. 1539 & 1401 of 2008. The Official Liquidator adjudicated the claim of the Appellant and passed an order on 8-3-2010 treating the Appellant as secured creditor in respect of Rs. 71,10,969/- and as an un-secured creditor in respect of Rs. 33,12,717/-. Aggrieved by the order passed by the Official Liquidator, the Appellant has filed this appeal.

Heard the learned Counsel appearing on behalf of the Appellant and the learned Counsel appearing on behalf of the Official Liquidator.

Learned Counsel appearing on behalf of the Appellant submits that funded interest account is not a separate loan and it is only an accrued interest on two term loans, which had already been registered with the Registrar of Companies by way of filing Form No. 8. It is also contended by the learned Counsel for the Appellant that what is claimed by the Appellant under the funded interest account is only the interest due on the principal amounts till the date of passing of winding up order i.e., 8-10-2001. Learned Counsel took me to the statement of account filed along with Memo dated 15.11.2010.

Learned Counsel appearing on behalf of the Official Liquidator submits that once accrued interest on the outstanding amounts has been transferred to the funded interest account, it is to be treated as fresh loan and that unless it is registered with the Registrar of Companies as provided u/s 125 of the Companies Act by filing a charge in Form No. 8, it cannot be treated as a secured debt. It is also contended by him that transferring the interest amount due on the two outstanding loans to funded interest account amounts to modification of the terms of the charge which is required to be informed to the Registrar as provided u/s 135 of the Companies Act, 1956 (for short ''the Act'').

There being no such information furnished to the Registrar of Companies with regard to transfer of the accrued interest on the loan accounts to the funded interest account, the amount of Rs. 33,12,717/- cannot be treated as unsecured debt and therefore, the order passed by the Official Liquidator does not suffer from any illegality warranting interference of this Court in exercise of powers under Rule 164 of the Companies Court Rules, 1959.

The only issue that calls for adjudication is:

Whether funded interest account can be treated as separate loan account necessitating the Appellant to inform the Registrar of Companies as provided u/s 135 of the Act?

Indisputably, the Appellant-company placed on record their charge over the properties of the company in liquidation in respect of two loans i.e., Rs. 30 & 20 lakhs. Extract from the charge register has been placed on record at page 13 and 17 of the material papers. Interest due on these two loans have been transferred to the funded interest account. u/s 135 of the Act, whenever the terms or conditions of any charge registered under this part are modified, it shall be the duty of the company to send the particulars of such modification to the Registrar. For better appreciation, I may refer Section 135 of the Act, which reads as hereunder:

Whenever the terms or conditions, or the extent or operation, of any charge registered under this part are or is modified, it shall be the duty of the company to sent to the Registrar the particulars of such modification, and the provisions of this part as to registration of charge shall apply to such modification of the charge.

I have gone through the extract from the charge register. The Appellant company registered a charge with regard to two term loans of Rs. 30 and 20 lakhs with interest thereon at 18% p.a. Particulars of the property charged find place at serial No. 6 of the extract of the charge register, which read as hereunder:

Mortgage of land situated in Bavayapalem Village, Bhimavaram Tq; and buildings to be constructed thereon and hypothecation of all plant and machinery etc., interest @ 18% p.a.

A reading of this extract from the charge register does not give any room for doubt that the charge has been created over the properties of the company in liquidation in respect of the principal amount advanced as well as the interest. The funded interest account is nothing but interest accrued on two loans. The interest accrued on two loans have been shown as a separate account called "The Funded Interest Account". No amount has been advanced afresh to the company in liquidation. Therefore, there is no modification of the charge which is required to be informed to the Registrar as provided u/s 135 of the Act. Since "The Funded Interest Account" is nothing but interest due on two term loans for which charge has already been created and placed on record, no further charge is required to be placed on record with the Registrar of Companies. Therefore, the funded interest account of Rs. 33,12,717/- is to be treated as secured debt. Therefore, the order passed by the Official Liquidator rejecting the claim of the Appellant with regard to Rs. 33,12,717/- as secured debt cannot be sustained.

Accordingly, the company appeal is allowed setting aside the order dated 8-3-2010 and consequently, the funded interest of Rs. 33,12,717/- is to be treated as secured debt in respect of funded interest loan account.