2022 (9) TMI 750 - AT - Insolvency and Bankruptcy

Tribunal rejects claim, deems party related, affirms assignment not bona fide.

Citi Securities & Financial Services Pvt. Ltd. Versus Sudip Bhatacharya Resolution Professional of Reliance Naval & Engineering Limited, Committee of Creditors Through IDBI Bank Ltd.

The Tribunal upheld the Adjudicating Authority's decision, rejecting the Appellant's claim as a Financial Creditor. The Assignment Deed was found to ... CIRP - Financial Creditor - Assignment of debt - Requirement of registration of assignment deed - requirement of proper stamping of the assignment deed - Appellant is related party to the Corporate Debtor or not - HELD THAT:- It is relevant to notice the transactions entered between the Reliance Infrastructure Ltd. and the Corporate Debtor according to which the Inter-Corporate Deposit of Rs.2500 Crores was given to the Corporate Debtor by Reliance Infrastructure Ltd. The Hypothecation Deed dated 07.03.2018 was executed between the Corporate Debtor and the Reliance Infrastructure Ltd. Borrower has availed from the Lender various financial assistance with regard to Master Restructuring Agreement which was entered earlier. At request of the Borrower, the Lender has agreed to give financial assistance in the form of Inter-Corporate Deposits of an aggregate amount not exceeding Rs.2500 Crores. The assignment of debt was alongwith the relevant rights and liabilities of the Assignor with the consent of the Confirming Party (Corporate Debtor). The Assignment Deed which contains all rights and liabilities indicates that the assignment was not of only actionable claim. Whether Registration of Assignment Deed was necessary? - HELD THAT:- The assignment by the Assignor to the Appellant was alongwith relevant rights and liabilities. We have noticed above that for securing the repayment of Inter-Corporate Deposit, Corporate Debtor and Reliance Infrastructure Ltd. entered into Hypothecation Deed as well as an Indenture of Mortgage dated 11.07.2018. The assignment in favour of the Appellant by the Assignor of entire debt was with relevant rights and liabilities of the Assignor, which has now been assigned to the Appellant - the Adjudicating Authority did not commit any error by coming to the conclusion that the Assignment Deed dated 01.03.2019 required registration. Whether Assignment Deed was insufficiently stamped? - HELD THAT:- Reliance Infrastructure Ltd. had given Inter-Corporate Deposit for which Deed of Hypothecation and Indenture of Mortgage was entered on 07.03.2018. Application under Section 7 by the IDBI Bank against the Corporate Debtor was filed in September, 2018 and after filing of the application within six months Assignment Deed dated 01.03.2019 was executed by the Assignor in favour of the Assignee. The purpose and object was obvious that Reliance Infrastructure Ltd. being related party could not have participated in the CoC of the Corporate Debtor, hence, Assignee has been brought into for the sole purpose of participating in the CoC which Assignee as per the case of the Appellant is not a related party. Further, the debt of Rs.2538 Crore has been assigned for amount of Rs.114.93 Crores speaks for itself. Further, the Reliance Infrastructure Ltd. had Hypothecation Deed and Mortgage. The time and manner in which assignment has been made clearly indicate that Assignment is not bonafide and was made only to put the Appellant in the CoC with ulterior motive to watch the interest of the related party. There are no infirmity in the opinion of the Adjudicating Authority where it has held that the Assignment Deed dated 01.03.2019 was not in good faith and rather shows that the arrangement was made with a view to get backdoor entry into the COC through the Applicant assignee to have a control over the process of the CIRP as the Reliance Infrastructure Ltd. being the related party to the Corporate Debtor could not be the member of the CoC. The Adjudicating Authority further held that an act of this kind done with malafide intention cannot give an equivalent right with that of the unrelated financial creditors. There are no error in the order of the Adjudicating Authority rejecting the application of the Appellant as a Financial Creditor. The submission of learned counsel for the Appellant that even if it may not participate in the CoC, claim of the Appellant should be admitted as Financial Creditor, also could not be accepted - appeal dismissed. Issues Involved:1. Rejection of the Intervention Application by the Adjudicating Authority.2. Whether the Appellant qualifies as a Financial Creditor.3. Requirement of registration and stamping of the Assignment Deed.4. Applicability of Section 21(2) of the Insolvency and Bankruptcy Code (I&B Code) regarding related parties.5. Bona fide nature of the Assignment Deed.Detailed Analysis:Issue 1: Rejection of the Intervention Application by the Adjudicating AuthorityThe Appellant challenged the order dated 22.02.2022 by the Adjudicating Authority (National Company Law Tribunal), Ahmedabad Bench, which rejected the Intervention Application I.A. No. 02 of 2021. The Appellant sought directions for the Resolution Professional to admit its claim as a Financial Creditor, which was denied.Issue 2: Whether the Appellant qualifies as a Financial CreditorThe Appellant claimed to have obtained an assignment of debt from Reliance Infrastructure Limited and filed a claim as a Financial Creditor. The Adjudicating Authority rejected this claim, stating that the Appellant is disqualified as a Financial Creditor under the first proviso to Section 21(2) of the I&B Code due to being a related party.Issue 3: Requirement of registration and stamping of the Assignment DeedThe Adjudicating Authority held that the Assignment Deed dated 01.03.2019 required registration under Section 17 of the Registration Act, 1908, and was insufficiently stamped under the Maharashtra Stamp Act. The Appellant argued that the deed was an actionable claim and did not require registration, and that insufficient stamping was a curable defect. However, the Tribunal found that the debt was secured by mortgage and hypothecation, thus necessitating registration and proper stamping.Issue 4: Applicability of Section 21(2) of the I&B Code regarding related partiesThe Tribunal referred to the Supreme Court judgment in 'Phoenix ARC Private Limited vs. Spade Financial Services Limited & Ors., (2021) 3 SCC 475' to interpret Section 21(2) of the I&B Code. It was established that a related party financial creditor divesting its shareholding to participate in the Committee of Creditors (CoC) with the sole intention of influencing the Corporate Insolvency Resolution Process (CIRP) should be debarred. The Tribunal concluded that the assignment to the Appellant was a strategy to circumvent the related party exclusion.Issue 5: Bona fide nature of the Assignment DeedThe Tribunal scrutinized the timing and manner of the assignment, noting that the debt of Rs. 2538 Crore was assigned for Rs. 114.93 Crores during the pendency of the Section 7 application. This indicated an ulterior motive to influence the CIRP. The Tribunal agreed with the Adjudicating Authority's opinion that the assignment was not bona fide and was intended to provide a backdoor entry into the CoC for the related party.Conclusion:The Tribunal upheld the Adjudicating Authority's decision, rejecting the Appellant's claim as a Financial Creditor. The Assignment Deed was found to require registration and proper stamping, and the Appellant was deemed a related party attempting to influence the CIRP. The appeal was dismissed, affirming that the assignment was not bona fide and aimed at circumventing the I&B Code provisions.