2022 (9) TMI 1012 - SC - Insolvency and Bankruptcy

Supreme Court affirms Loan-cum-Pledge Agreement decision, deems petition maintainable under IBC

MAITREYA DOSHI Versus ANAND RATHI GLOBAL FINANCE LTD. AND ANR.

The Supreme Court upheld the Appellate Authority's decision in a case involving Loan-cum-Pledge Agreements, ruling that Doshi Holdings was considered a ... Initiation of CIRP against two corporate debtors - Joint Liability - co-borrower/guarantor under the Loan-cum-Pledge Agreement - existence of two borrowers or two corporate bodies - scope of Financial Debt - existence of debt and dispute or not - HELD THAT:- It is not in dispute that the Financial Creditor disbursed loan to the tune of Rs.6,00,00,000/- to Premier pursuant to the Loan-cum-Pledge Agreements, executed both by Premier and by Doshi Holdings. Doshi Holdings has been referred to in the agreement as borrower and pledgor. Prima facie, it appears that Doshi Holdings was a party to the Loan-cum-Pledge Agreement in its dual capacity of borrower and pledgor of shares. The Appellate Authority has arrived at the factual finding that Doshi Holdings is also a borrower under the Loan-cum-Pledge Agreement. The factual finding of the Appellate Authority which was the final fact finding authority ought not to be interfered in this appeal. The finding of the Appellate Authority that Doshi Holdings is a borrower, is based on its interpretation of the Loan-cum-Pledge Agreements and supporting documents. The interpretation given by the Appellate Authority is definitely a possible interpretation. The interpretation is a plausible interpretation which cannot be interfered with in an appeal under Section 62 of the IBC. If there are two borrowers or if two corporate bodies fall within the ambit of corporate debtors, there is no reason why proceedings under Section 7 of the IBC cannot be initiated against both the Corporate Debtors. Needless to mention, the same amount cannot be realised from both the Corporate Debtors. If the dues are realised in part from one Corporate Debtor, the balance may be realised from the other Corporate Debtor being the co-borrower. However, once the claim of the Financial Creditor is discharged, there can be no question of recovery of the claim twice over. Appeal dismissed. Issues Involved:1. Whether the Loan-cum-Pledge Agreements created a financial debt owed by Doshi Holdings to the Financial Creditor under Section 5(8) of the Insolvency and Bankruptcy Code (IBC).2. Whether Doshi Holdings can be considered a borrower under the Loan-cum-Pledge Agreements.3. Whether the petition under Section 7 of the IBC against Doshi Holdings was maintainable.4. Whether the Adjudicating Authority and Appellate Authority erred in their interpretation of the Loan-cum-Pledge Agreements and related documents.Issue-wise Detailed Analysis:1. Financial Debt under Section 5(8) of IBC:The Appellant argued that no amount under the Loan-cum-Pledge Agreements was disbursed to Doshi Holdings, thus, there was no financial debt owed by Doshi Holdings to the Financial Creditor under Section 5(8) of the IBC. The Financial Creditor had granted loans to Premier, and Doshi Holdings only pledged shares as security. The Appellant cited the case of Anuj Jain, where the Court held that the essential element of disbursal against the consideration for the time value of money needs to be found in the genesis of any debt before it may be treated as 'financial debt.' The Appellate Authority, however, found that Doshi Holdings was a borrower under the Loan-cum-Pledge Agreements, thus creating a financial debt.2. Doshi Holdings as a Borrower:The Appellant contended that Doshi Holdings was not a borrower but merely a pledgor. The Loan-cum-Pledge Agreements referred to Premier as the borrower and Doshi Holdings as the pledgor. The Appellant executed the agreements on behalf of both entities, which are separate. The Financial Creditor argued that Doshi Holdings was party to the agreements in a dual capacity as co-borrower and pledgor. The Appellate Authority found that Doshi Holdings was indeed a borrower, based on the interpretation of the agreements and supporting documents, which included loan receipts and demand promissory notes executed by Doshi Holdings.3. Maintainability of Petition under Section 7 of IBC:The Appellant argued that since Doshi Holdings did not receive any disbursement, the petition under Section 7 of the IBC was not maintainable against it. The Financial Creditor argued that the definition of financial debt includes disbursal against consideration for time value of money, and not necessarily to the Corporate Debtor. The Appellate Authority upheld the petition, finding Doshi Holdings to be a borrower and thus liable under the IBC. The Supreme Court agreed, stating that the interpretation by the Appellate Authority was plausible and should not be interfered with.4. Interpretation of Loan-cum-Pledge Agreements:The Appellant argued that the Adjudicating Authority and Appellate Authority misconstrued the expression 'financial debt' and failed to appreciate the scope and ambit of the expression. The Financial Creditor emphasized that Doshi Holdings had acknowledged receipt of the loan amounts and executed promissory notes. The Appellate Authority's interpretation that Doshi Holdings was a borrower was found to be a possible and plausible interpretation by the Supreme Court, which upheld the factual findings of the Appellate Authority.Conclusion:The Supreme Court dismissed the appeal, finding no grounds to interfere with the judgment and order of the Appellate Authority. The Court held that Doshi Holdings was a borrower under the Loan-cum-Pledge Agreements, creating a financial debt owed to the Financial Creditor. The petition under Section 7 of the IBC was maintainable against Doshi Holdings, and the interpretation of the agreements by the Appellate Authority was upheld as plausible. The approval of a resolution plan in respect of one borrower does not discharge a co-borrower, and proceedings under Section 7 of the IBC can be initiated against both Corporate Debtors, provided that the same amount is not realized from both.