NCLAT affirms inclusion of OBC and India Bulls claims as financial debts, upholding COC voting rights.

The NCLAT upheld the Adjudicating Authority's decision to include the claims of OBC and India Bulls as financial debts, determining their voting rights in the COC. The appeal was dismissed with no costs awarded.

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Issues Involved:
1. Validity of the claim by Oriental Bank of Commerce (OBC) (now Punjab National Bank [PNB]) as a financial debt.
2. Validity of the claim by India Bulls Housing Finance Ltd. as a financial debt.
3. Determination of voting rights in the Committee of Creditors (COC) based on the claims of OBC and India Bulls.

Detailed Analysis:

1. Validity of the Claim by OBC as a Financial Debt
The Appellant contested the inclusion of Rs. 32.54 Crores of OBC’s claim, arguing that it was based on corporate guarantees for third-party debts, which should not qualify as financial debt. The Appellant relied on the Supreme Court's judgment in "Anuj Jain Vs. Axis Bank Limited and Ors." to assert that such guarantees do not fall under the definition of financial debt as per Section 5(8) of the Insolvency and Bankruptcy Code (IBC).

The Adjudicating Authority, however, found that the guarantees had been invoked prior to the initiation of the Corporate Insolvency Resolution Process (CIRP) on 26.09.2018, making OBC a financial creditor. It reasoned that once a guarantee is invoked, the guarantor steps into the shoes of the principal borrower, converting the debt into a financial debt. This interpretation was supported by the Hon’ble Supreme Court’s discussion in "State Bank of India vs. Kusum Vallabhdas Thakkar," which held that any benefit to the principal debtor is sufficient consideration for the surety under Section 127 of the Indian Contract Act.

The National Company Law Appellate Tribunal (NCLAT) agreed with the Adjudicating Authority’s reasoning, emphasizing that the guarantees issued by the Corporate Debtor were valid financial debts under Section 5(8) of IBC. The Tribunal noted that the essential element of disbursal against consideration for the time value of money was present, as the Corporate Debtor had guaranteed repayment of the loans disbursed to third parties.

2. Validity of the Claim by India Bulls Housing Finance Ltd. as a Financial Debt
The Appellant also challenged the inclusion of India Bulls Housing Finance Ltd. as a financial creditor, arguing that the debt claimed was based on a corporate guarantee for third-party debts. The Resolution Professional (RP) and the Adjudicating Authority found that the Corporate Debtor was a co-borrower and had mortgaged its property to secure the loan from India Bulls, making it a financial debt.

The NCLAT upheld this finding, noting that the Corporate Debtor was a co-borrower and had created a mortgage on its property to secure the loan, thus qualifying the debt as a financial debt under IBC.

3. Determination of Voting Rights in the COC
The Appellant argued that the voting rights of OBC should be reduced, as a significant portion of its claim was based on corporate guarantees for third-party debts, which should not be considered financial debt. The Adjudicating Authority rejected this argument, finding that the entire claim of OBC, including the portion based on corporate guarantees, was valid as financial debt.

The NCLAT concurred with the Adjudicating Authority, affirming that the inclusion of the entire claim of OBC and India Bulls for determining the voting percentage in the COC was legal and proper. The Tribunal dismissed the appeal, concluding that there was no substance in the Appellant’s arguments.

Conclusion
The NCLAT upheld the Adjudicating Authority’s decision to include the entire claims of OBC and India Bulls as financial debts, thereby determining their voting rights in the COC accordingly. The appeal was dismissed, and no orders as to costs were made.

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