2020 (6) TMI 793 - Tri - Insolvency and Bankruptcy

Tribunal Validates Financial Creditor Status in Insolvency; Rejects Challenges

The Tribunal upheld the legality of including claims by Oriental Bank of Commerce and IndiaBulls Housing Finance Ltd. as Financial Creditors in a ... Validity of inclusion of the entire claim of the financial creditors/ Oriental Bank of Commerce, and R3, by the RP - proposition laid down by the Hon’ble Supreme Court of India in the case of Anuj Jain [2020 (2) TMI 1259 - SUPREME COURT] - HELD THAT:- It is on the strength of the pleading and proof of default in repayment of the Loan availed by the CD from the OBC, the section 7 application was admitted vide order dated 28.9.2019. Whether the OBC invoked the corporate guarantee or whether the said portion of debt availed by the third party from the OBC falls out of the definition of financial debt was not at all an issue raised or answered by the NCLT, Kolkata Bench. So admittedly the CD has defaulted in repayment of ₹ 7,54,68,438/- out of the term loan admittedly availed by it. ₹ 19,04,12,812.21p evidently not due from the CD as the borrower but found due from the five third parties referred that they were also committed default in repayment to OBC. In Anuj Jain case, the IRP had rejected the claims to be recognized as financial creditors of the Corporate Debtor JIL on account of the securities provided by Jaypee Infratech Limited (JIL) for the facilities granted to Jaiprakash Associates Limited (JAL). The NCLT rejected the applications filed against the decision of the IRP while concluding that on the strength of the mortgages created by the corporate debtor JIL, as collateral security of the debts of its holding company JAL, the applicants cannot be treated as financial creditors of the corporate debtor JIL - In the present case the debt due to the OBC appears to me falls under the definition of financial debt and the lender is therefore a financial creditor. Because the lender/OBC had invoked the corporate guarantee even before the CIRP (i.e. on 26.09.2018). The concepts of financial debt as discussed in the above cited judgment is different from the debt claimed by the OBC in the case in hand. Thus, inclusion of the entire claim of the financial creditor/ Oriental Bank of Commerce, by the RP is not illegal, as their claims falls under the definition of the financial debt 5(8) (i) and not contrary to the proposition laid down by the Hon’ble Supreme Court of India in the case of Anuj Jain - the corporate Debtor herein is the Co-borrower of the loan and thus the said corporate Debtor is the Principal Borrower of R-3 and has created the mortgage to secure the said loan. Hence, the debt herein is a financial debt within the meaning of Section 5(8) of the I & B Code and therefore I do not find any illegality in admiring R3’s claim by the RP and also found that admission of the claim not at all contrary to the proposition laid down in the Anuj Jain’s case. It appears that the said judgement of the Hon'ble Supreme Court is not applicable to the present facts and circumstances highlighted on the side of R-3. Thus, inclusion of the entire claim of Oriental Bank of Commerce and R3 and the determination of the voting percentage of the members of the CoC considering the respective admitted claims of the financial creditors are found legal and proper - application dismissed. Issues Involved:1. Legality of inclusion of claims by Oriental Bank of Commerce and IndiaBulls Housing Finance Ltd. as Financial Creditors based on corporate guarantees.2. Reconstitution of the Committee of Creditors (CoC) excluding the aforementioned claims.3. Validity of CoC meetings and voting percentages.4. Injunctions against the Resolution Professional (RP) from proceeding with the CIRP.Detailed Analysis:1. Legality of Inclusion of Claims by Oriental Bank of Commerce and IndiaBulls Housing Finance Ltd.:The applicant challenged the inclusion of claims by Oriental Bank of Commerce (OBC) and IndiaBulls Housing Finance Ltd. (R3) as Financial Creditors, arguing that these claims, based on corporate guarantees provided by the Corporate Debtor (CD) for third-party debts, do not qualify as financial debts per the Supreme Court's ruling in Anuj Jain IRP for JP Infratech Limited vs. Axis Bank Limited. The RP, however, included these claims after obtaining legal opinions and deliberations within the CoC.The Tribunal noted that OBC's claim included Rs. 7.54 crores due from the CD as a term loan and Rs. 33 crores due from third parties for which the CD had provided corporate guarantees. The Tribunal found that the corporate guarantee had been invoked on 26/09/2018, making the CD liable as a guarantor. The Tribunal held that once a guarantee is invoked, the guarantor steps into the shoes of the principal borrower, transforming the debt into a financial debt under Section 5(8) of the I&B Code.Regarding IndiaBulls Housing Finance Ltd., the Tribunal found that the CD was a co-borrower and had mortgaged its property to secure the loan, thus qualifying the debt as a financial debt. The Tribunal concluded that the Supreme Court's ruling in Anuj Jain was not applicable in this case because the CD was a co-borrower, not merely a guarantor.2. Reconstitution of the Committee of Creditors (CoC):The applicant requested the reconstitution of the CoC by excluding the claims of OBC and IndiaBulls Housing Finance Ltd. The Tribunal rejected this request, affirming that the inclusion of these claims as financial debts was legal and proper. The Tribunal emphasized that the invoked guarantees and the co-borrower status of the CD justified the inclusion of these claims in the CoC.3. Validity of CoC Meetings and Voting Percentages:The applicant sought to set aside all CoC meetings and determine the voting percentages of Financial Creditors in light of the Supreme Court's judgment. The Tribunal found that the RP had acted within legal bounds by including the claims of OBC and IndiaBulls Housing Finance Ltd. and determining the voting percentages accordingly. Therefore, the Tribunal upheld the validity of the CoC meetings and the voting percentages.4. Injunctions Against the Resolution Professional (RP):The applicant sought injunctions to restrain the RP from proceeding with the CIRP and from allowing OBC and IndiaBulls Housing Finance Ltd. to participate as Financial Creditors. The Tribunal dismissed these requests, reiterating that the inclusion of these claims was legal and proper, and there was no basis for granting the injunctions.Conclusion:The Tribunal concluded that the inclusion of the entire claims of OBC and IndiaBulls Housing Finance Ltd. by the RP was legal and not contrary to the Supreme Court's ruling in Anuj Jain. The application was dismissed, and the CoC's composition and voting rights were upheld as legal and proper. The Tribunal directed the Registry to send e-mail copies of the order to all parties and their counsel.