China Development Bank v. Doha Bank Q.P.S.C. & Ors.
vidhipandit.com/case/sc-2024-12-2043-2074
Issue for consideration
Whether the appellants can be classified as ‘Financial Creditors’ within the meaning of s.5(7) of the Insolvency and Bankruptcy Code, 2016.
Held
Not sustainable – When clause (i) of s.5(8) is applicable, it is not necessary that the Financial Creditor actually tenders any amount to the Corporate Debtor – DoH is a Document creating hypothecation – Only the title of a document cannot be a decisive factor in deciding the nature of the document or the transactions affected by the document – Only because the title of the document contains the word hypothecation, it cannot be concluded that guarantee is not a part of this document – Appellants are Secured Lenders within the meaning of the Master Security Trustee Agreement-MSTA – Two RCom entities-RCom and RTL, are the obligors being the borrowers of the appellants – Parties to DoH are Security Trustees acting on behalf of the appellants, the Corporate Debtor who is not the borrower of the appellants and the other three Reliance entities – Corporate Debtor undertook to discharge the liability of the RCom and RTL, the borrowers of the appellants – RCom and RTL are third parties as far as Corporate Debtor is concerned – Furthermore, s.7(1) provides that Financial Creditor can initiate CIRP against the Corporate Debtor when there is a default on the part of the Corporate Debtor – Moment it is established that the financial debt is owed to any person, he/she becomes a Financial Creditor – On facts, the appellant has a claim – No requirement incorporated in the definition of ‘financial debt’ u/s.5(8) that a debt becomes financial debt only when default occurs – U/s.5(7) any person to whom financial debt is owed becomes a Financial Creditor even if there is no default in payment of debt – Thus, for submitting the claim by a Financial Creditor, no requirement of actual default – Impugned order of the NCLAT quashed and set aside and that of the NCLT restored. [Paras 48, 49, 52, 53, 55, 56, 59, 61, 62, 66, 68]
(Civil Appeal No. 7298 of 2022)
Headnotes† Insolvency and Bankruptcy Code, 2016 – ss.5(7), 5(8) – ‘Financial creditors’ – Classification of the appellant as ‘financial creditors’ – Guarantee as financial debt – Requirement of occurrence of default – 1st respondent-bank claims to be a direct lender and secured financial creditor of reliance RITL- Corporate debtor – Corporate Insolvency Resolution Process initiated by National Company Law Tribunal in respect of RITL – Claims invited from the creditors – Appellants submitted their claims and Resolution Professional classified them as financial creditors, and were included in the Committee of Creditors- CoC – 1st respondent challenged the admission of the claims of the appellants before NCLT that the appellants were not direct lenders of the corporate debtor, and it was impermissible to admit them as financial creditors on the basis of various terms of the deeds of hypothecation-DoH – Meanwhile, the NCLT approved the resolution plan – In appeal, the NCLAT directed the NCLT to decide the application – NCLT dismissed the application, upholding the status of the appellants as financial creditors – In appeal, the NCLAT holding that the DoH is not a deed of guarantee and the only parties to the DoH were the Chargors and Security Trustee, and Chargors cannot be treated as guarantors, set aside the order passed by the NCLT and remanded the case for taking consequential actions resulting from de-recognising the first four appellants as financial creditors – Sustainability:
*Author
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Case Law Cited C.C., C.E. and S.T. Bangalore (Adjudication) & Ors. v. Northern Operating Systems Pvt. Ltd, 2022 INSC 598 : [2022] 18 SCR 901 : AIR 2022 SC 2450; Phoenix ARC Pvt. Ltd. v. Ketulbhai Ramubhai Patel, 2021 INSC 59 : [2021] 1 SCR 1043 : (2021) 2 SCC 799; Kotak Mahindra Bank Limited v. A. Balakrishnan, 2022 INSC 630 : [2022] 5 SCR 1072 : (2022) 9 SCC 186; Orator Marketing Pvt. Ltd. v. Samtex Desinz Pvt. Ltd, 2021 INSC 359 : [2021] 6 SCR 742 : (2023) 3 SCC 753; Maitreya Doshi v. Anand Rathi Global Finance Ltd. & Ors, 2022 INSC 1004 : [2022] 15 SCR 536 : AIR 2022 SC 4595; M.C. Chacko v. State Bank of Travancore, 1969
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INSC 151: [1970] 1 SCR 658 : (1969) 2 SCC 343; Vistra ITCL (India) Ltd. & Ors. v. Dinkar Venkatasubramanian, 2023 INSC 500 [2023] 6 SCR 806 : (2023) 7 SCC 324; B.K. Muniraju v. State of Karnataka & Ors., 2008 INSC 208 : [2008] 2 SCR 992 : (2008) 4 SCC 451; Union of India v. D.N. Revri & Co. and Ors., 1976 INSC 208 : [1977] 1 SCR 483 : (1976) 4 SCC 147; Maharashtra State Electricity Distribution Company Limited v. Maharashtra Electricity Regulatory Commission & Ors., 2021 INSC 644 : [2021] 5 SCR 1056 : (2022) 4 SCC 657; Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta & Ors, 2019 INSC 1256 : [2019] 16 SCR 275 : (2020) 8 SCC 531; Anuj Jain, Interim Resolution Professional for Jaypee Infratech Limited v. Axis Bank Limited & Ors, 2020 INSC 227 : [2020] 8 SCR 291 : (2020) 8 SCC 401 – referred to. Essar Steel Ltd. v. Gramercy Emerging Market Fund, 2002 SCC OnLine Guj 319; Western Coalfields Limited & Anr. v. Rajesh s/o Nandlal Biyani, 2011 SCC OnLine Bom 1217 : (2012) 2 Mah LJ 394 – referred to.
List of Acts Contract Act, 1872; Insolvency and Bankruptcy Code, 2016.
List of Keywords Financial creditors; Secured creditors; Corporate Insolvency Resolution Process; Committee of creditors; Deeds of hypothecation; NCLT; NCLAT; Master Security Trustee Agreement; Guarantee as financial debt; Security Trustee; Chargors; Resolution plan; Guarantor; Direct lender; Corporate debtor; Nomenclature of documents; Promise to discharge liability of third party; Occurence of default; Moratorium; Requirement of occurrence of default; Financial debt.
Case Arising From CIVIL APPELLATE JURISDICTION: Civil Appeal No. 7298 of 2022 From the Judgment and Order dated 09.09.2022 of the National Company Law Appellate Tribunal in CAAT (I) No. 414 of 2021 With Civil Appeal No(s). 7407, 7615 and 7328 of 2022 and Civil Appeal No. 7434 of 2023
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Appearances for Parties Neeraj Kishan Kaul, Chetan Kapadia, Darius Khambata, Sr. Advs., Syed Jafar Alam, Siddharth Ranade, Nishi Bhankharia, Ms. Kaazvin Kapadia, Deepak Joshi, Raghav Agrawal, Rohan Rajadhyaksha, Rajendra Barot, Ms. Liz Mathew, Nilang Desai, Ms. Saloni Thakkar, Ms. Nafisa Khandeparkar, Abhinjan Jha, Bharat Makkar, Harshil Goda, Madhur Arora, Ms. Mallika Agarwal, Nisarg Bhardwaj, Advs. for the Appellant. Gopal Jain, P. Chidambaram, Sr. Advs., S.S. Shroff, Saurav Panda, Vaijayant Paliwal, Ms. Charu Bansal, Ms. Mohana Nijhawan, Ms. Mehak Nayak, Ms. Payal Dubey, M/s. Juris Corp., Dhruv Malik, Ms. Palak Nenwani, Abhijnan Jha, Sanjay Kapur, Ms. Megha Karnwal, Surya Prakash, Advs. for the Respondents.
Judgment / Order of the Supreme Court
Judgment
Abhay S. Oka, J.
FACTUAL ASPECTS
1. These appeals take exception to the judgment dated 9th September 2022 of the National Company Law Appellate Tribunal, Principal Bench, New Delhi (for short, ‘the NCLAT’). The appellants in this batch of appeals (for short, ‘appellants’), except the appellant in Civil Appeal No.7434 of 2023, were parties to the appeals preferred by 1st to 4th respondents in Civil Appeal No. 7298 of 2022.
2. The issue involved in these appeals is whether the appellants can be classified as ‘Financial Creditors’ within the meaning of sub-section (7) of Section 5 of the Insolvency and Bankruptcy Code, 2016 (for short, ‘the IBC’). Another issue may arise in the event it is held that the appellants are not ‘Financial Creditors’. The issue will be whether the appellants can be classified as ‘Secured Creditors’ and paid commensurate to their security interest.
3. 1st respondent-Doha Bank claims to be a direct lender and secured Financial Creditor of Reliance Infratel Limited (for short, ‘RITL’ or ‘the Corporate Debtor’). A Corporate Insolvency Resolution Process (CIRP) was initiated by the adjudicating authority (NCLT) in respect of RITL-Corporate Debtor at the instance of Ericsson India Private
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Limited, and the Interim Resolution Professional (IRP) was appointed. We are concerned in this case with Reliance Communications Infrastructure Ltd. (for short, ‘RCIL’), Reliance Communications Ltd. (for short, ‘RCom’), Reliance Telecom Ltd. (for short, ‘RTL’) and RITL. These companies are hereinafter collectively referred to as “RCom entities”.
4. Public announcements were made under Section 15 of the IBC inviting claims from creditors. The appellants submitted their claims as Financial Creditors of the Corporate Debtor. While admitting the claim
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