2022 (10) TMI 588 - AT - Insolvency and Bankruptcy

Appeals Dismissed: Appellants not Financial Creditors. Guarantees Rejected under Bankruptcy Code

The Tribunal dismissed the appeals, ruling that the Appellants were not considered Financial Creditors of the Corporate Debtor. The claims were rejected ... Rejection of claim of the Appellant(s) to be declared as Financial Creditors of the Corporate Debtor - HELD THAT:- The disbursal was made by CDR Lenders to the Corporate Debtor and the Appellant(s) before us were Personal Guarantors/ Corporate Guarantors to guarantee the repayment of Financial Facilities extended to the Corporate Debtor. We fail to see as to how the Guarantors will become a ‘Financial Creditor’ of the Corporate Debtor. The Appellant(s) who were Promoters of the Corporate Debtor had given guarantee for repayment of the debt and the relevant clauses of the Personal Guarantee. Coming back to Section 5(8)(h), which is the sheet anchor of submission of Appellant(s) to be covered under Clause (h), the requirement is “any counter-indemnity obligation in respect of a guarantee, indemnity, bond, documentary letter of credit or any other instrument issued by a bank or financial institution” etc. The financial claim has been filed by the Appellant(s) for invocation of guarantee dated 31.03.2015 and 30.03.2015, which is specifically mentioned in Form-C. Clause 5.10 in the Purchase Agreement dated 04.03.2015 cannot be read to be any counter-indemnity obligation in respect to guarantee dated 31.03.2015 and 30.03.2015. Since the Guarantee was not even existent when Purchase Agreement dated 04.03.2015 was executed. Thus, pre-condition for applicability of Section 5(8)(h) is not fulfilled in the facts of the present case. When the specific case of the Appellant is on the basis of invocation of the guarantee dated 31.03.2015 and 30.03.2015, the Appellant(s) cannot rely on Clause 5.10 to satisfy the condition of existence of any counter-indemnity obligation in respect of a guarantee. One of the clauses in the Personal Guarantee, i.e. Clause 4.6 under which Guarantor waives in favour of the Security Trustee all the suretyship and other rights, which the Guarantors might otherwise be entitled to enforce, including but not limited to those arising under Sections 133, 134, 135, 139 and 141 of the Indian Contract Act, 1872. It was not open for the Appellant(s) to file any claim in view of the specific Clause 4.6. Hence, the claim was liable to be rejected on this ground also. The condition for declaring the Appellant(s) as ‘Financial Creditor’ are not satisfied in the claims submitted by the Appellant(s) and both Resolution Professional and Adjudicating Authority have rightly rejected their claims as ‘Financial Creditor’ for valid reasons - appeal dismissed. Issues Involved:1. Whether the Appellants can be considered as Financial Creditors of the Corporate Debtor.2. Interpretation of Clause 5.10 of the Purchase Agreement dated 04.03.2015.3. Applicability of Section 5(8)(h) of the Insolvency and Bankruptcy Code, 2016.4. Analysis of the claims filed by the Appellants and their rejection by the Resolution Professional.Issue-wise Detailed Analysis:1. Whether the Appellants can be considered as Financial Creditors of the Corporate Debtor:The Appellants, who were Promoters of the Corporate Debtor, had given Personal and Corporate Guarantees to secure financial facilities extended to the Corporate Debtor. The Appellants claimed to be Financial Creditors based on the invocation of these guarantees. However, the Tribunal noted that for a debt to be considered a 'financial debt,' it must be disbursed against the consideration for the time value of money. The Appellants had not disbursed any amount to the Corporate Debtor; thus, their claim did not meet the criteria for being considered Financial Creditors under Section 5(8) of the Code.2. Interpretation of Clause 5.10 of the Purchase Agreement dated 04.03.2015:Clause 5.10 of the Purchase Agreement stated that the Acquirer and the Corporate Debtor agreed to indemnify the Promoter Guarantors for any loss suffered due to the enforcement of guarantees. The Tribunal found that this clause did not constitute a counter-indemnity obligation in respect of the guarantees dated 31.03.2015 and 30.03.2015, as these guarantees were executed after the Purchase Agreement. Furthermore, the Appellants had not suffered any loss since no payments had been made towards the invoked guarantees.3. Applicability of Section 5(8)(h) of the Insolvency and Bankruptcy Code, 2016:Section 5(8)(h) includes any counter-indemnity obligation in respect of a guarantee, indemnity, bond, or other instruments issued by a bank or financial institution as a financial debt. The Tribunal concluded that Clause 5.10 of the Purchase Agreement did not fulfill the conditions of Section 5(8)(h) since it was not a counter-indemnity obligation in respect of the guarantees in question. The Appellants' claim was based on the invocation of the guarantees, and Clause 5.10 could not be relied upon to satisfy the conditions of Section 5(8)(h).4. Analysis of the claims filed by the Appellants and their rejection by the Resolution Professional:The Appellants filed their claims in Form-C, citing the invocation of the guarantees. The Resolution Professional rejected these claims, stating that no payments had been made by the Appellants towards the invoked guarantees, and thus, there was no financial debt owed to them by the Corporate Debtor. The Tribunal upheld this rejection, noting that the Appellants had not provided sufficient evidence to substantiate their claims as Financial Creditors. The Tribunal also considered relevant clauses in the Personal Guarantee, which waived the Appellants' rights to enforce certain claims, further supporting the rejection of their claims.Conclusion:The Tribunal dismissed the appeals, concluding that the Appellants did not meet the criteria to be considered Financial Creditors of the Corporate Debtor. The claims were rightly rejected by the Resolution Professional and the Adjudicating Authority for valid reasons, including the lack of disbursement against the consideration for the time value of money and the absence of any suffered loss by the Appellants.