2022 (6) TMI 1317 - Tri - Insolvency and Bankruptcy

Applicants' Claims Dismissed for Not Meeting Financial Creditor Criteria

The Tribunal rejected the Applicants' claims as they did not qualify as financial creditors under the Insolvency and Bankruptcy Code, 2016. Consequently, ... Maintainability of petition - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - enforcement of guarantee by the creditors - Whether the Applicants qualify as a financial creditor in terms of provisions of the Code of the Corporate Debtor? - existence of debt and dispute or not - HELD THAT:- The Corporate Debtor is obliged to reimburse and indemnify the founder promoter (including the Applicants herein) on fulfilment of two conditions, first, enforcement of guarantee and second due to enforcement of such guarantee any loss is suffered by the founder promoters. In an instant matter, Vistra ITCL (India) Ltd. formerly known as IL&FS Trust Company Limited through demand certificate dated 17.03.2018 to the Applicants had demanded to pay an amount of Rs. 9147.88 crore under the Deed of Guarantee/Deed of Personal Guarantee, within 3(three) days. Also, through letter dated 21.03.2018, Vistra ITCL called upon the pledgors of 14,51,04,995 shares (including Applicant in IA 257/2021) to pay an amount of Rs. 9131 crores with interest of Rs. 11.80 crore within 5 days. Neither the Applicants had denied in its rejoinder nor placed any document to establish that the Applicants had made any payment to any of the lenders against whom guarantee has been given under Deed of Guarantee/Deed of personal Guarantee nor the Applicants has placed on record any document showing sale of equity shares pledged with the lenders. Thus, it is established that the Applicants had not suffered any loss due to enforcement of guarantee by the creditors since 2018. It is a settled law that liability of surety is co-extensive with that of the principal debtor. In case the creditor enforces its right against the guarantor and the guarantor disburses due amount to the creditor, such disbursement, amounts to repayment of loan on behalf of the principal debtor and the guarantor steps into the shoes of the creditor - if there is no encashment of debt on account of enforcement of guarantee, it cannot be said that there is disbursement of debt to the Corporate Debtor, which is an essential condition to fall under the definition of financial debt. As in the instant case there is neither encashment nor sale of pledged shares. Thus, there is no disbursement of debt by the Applicants to the Corporate Debtor to fall under the category to have created any financial debt - Applicants do not qualify as financial creditors of the Corporate Debtor in terms of provisions of the Code. The claim of the Applicants do not fall under the definition of financial debt - appeal rejected. Issues Involved:1. Rejection of claim by the Resolution Professional.2. Qualification as a financial creditor under the Insolvency and Bankruptcy Code, 2016.3. Invocation of guarantees and securities.4. Reconstitution of the Committee of Creditors.5. Entitlement to voting share and consequential benefits.6. Prohibition on altering the Articles of Association.7. Restraining further meetings of the Committee of Creditors.Issue-wise Detailed Analysis:1. Rejection of Claim by the Resolution Professional:The Applicants sought to quash the email dated 28th January 2021 issued by the Respondent rejecting their claim of financial debt under Regulation 8 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. The Respondent rejected the claims on the grounds that the Applicants had not made any payments under the guarantees and had not provided financial statements showing disbursement of debt by the Corporate Debtor.2. Qualification as a Financial Creditor:The Tribunal examined whether the Applicants qualify as financial creditors under the Code. The Applicants, being founder promoters, had provided corporate/personal guarantees. The Tribunal noted that the essential condition for a claim to fall under the category of financial debt is that there must be a disbursement of debt against consideration for the time value of money. Since the Applicants had not made any payments under the guarantees, there was no disbursement of debt to the Corporate Debtor. Thus, the Applicants did not qualify as financial creditors.3. Invocation of Guarantees and Securities:The Tribunal noted that the Applicants had provided personal and corporate guarantees, and the security trustee had invoked these guarantees. However, the Applicants had not made any payments pursuant to the invocation. Additionally, the pledged shares had not been sold. Therefore, the Applicants had not suffered any loss due to the enforcement of the guarantees.4. Reconstitution of the Committee of Creditors:The Applicants requested the Tribunal to order the reconstitution of the Committee of Creditors and grant them voting shares proportionate to their claims. Since the Tribunal concluded that the Applicants did not qualify as financial creditors, this prayer was rejected.5. Entitlement to Voting Share and Consequential Benefits:The Applicants sought voting shares and consequential benefits arising from their claims. As the Tribunal rejected their qualification as financial creditors, this request was also denied.6. Prohibition on Altering the Articles of Association:The Applicants requested that Article 137 of the Articles of Association of the Corporate Debtor not be altered until the entire liability under the Applicants' guarantees was satisfied. This prayer was consequential to their claim as financial creditors, which was rejected.7. Restraining Further Meetings of the Committee of Creditors:The Applicants sought to restrain the Respondent from conducting further meetings of the Committee of Creditors. This prayer was also dependent on their claim as financial creditors, and thus, it was rejected.Conclusion:The Tribunal rejected the claims of the Applicants, concluding that they did not qualify as financial creditors under the Insolvency and Bankruptcy Code, 2016. Consequently, all ancillary prayers dependent on their qualification as financial creditors were also rejected.