2023 (2) TMI 899 - AT - Insolvency and Bankruptcy

Tribunal Upholds Decision on Financial Creditor Status and Resolution Plan

Jal Engineers Private Limited Versus Mr. Dinesh Kumar Aggarwal Resolution Professional of Dolphin Offshore Enterprises (India) Limited.

The Tribunal upheld the Adjudicating Authority's decision to reject the appellant's claim as a financial creditor, classifying it as operational debt. The ... Validity of approval of Resolution Plan - rejecting the claim as financial debt. - HELD THAT:- The amount of Rs.50 Lakhs which was given by the Appellant for submitting Bid Bond Bank Guarantee was the share of the Appellant, a member of the consortium. - The Adjudicating Authority has rightly in its conclusion observed that the disbursement was not for time value of money and the ingredient of Section 5(8) of the I&B Code has not been made out - there are no error in the order of the Adjudicating Authority holding the claim of the Appellant as not a financial debt. Submission of the counsel for the Appellant that the amount was given in trust since it was for specific purpose, hence, it should be kept out of the assets of the Corporate Debtor - HELD THAT:- It is relevant to notice that before the Adjudicating Authority no such pleading or argument was raised. However, in the appeal ground has been taken that amount of Rs.50 Lakhs was held in trust by the Corporate Debtor for the Appellant - The Explanation to Section 18 (1) clearly provides that assets shall not include assets owned by a third party in possession of the corporate debtor held under trust. First judgment relied by the Appellant is GANESH EXPORT & IMPORT CO VERSUS MAHADEOLAL NATHMAL [1955 (1) TMI 17 - HIGH COURT OF CALCUTTA] where it was held that The party who put the Property in the hands of the company can claim it back in a winding up as his property, while the creditors cannot claim that it should be brought into the distribution. The next judgment relied by learned counsel for the Appellant is RESERVE BANK OF INDIA VERSUS BANK OF CREDIT & COMMERCE INTERNATIONAL (OVERSEAS) LTD. [1992 (3) TMI 276 - HIGH COURT OF BOMBAY] where it was held that In an annual general meeting of RR. Ltd. on July 2, 1964, payment of dividend was approved. R.R. Ltd. had an overdraft with the Bank which exceeded the limit. The Bank refused to make funds available to RR. Ltd. for the purpose of implementation of resolution declaring dividends. The third judgment on which learned counsel for the Appellant placed reliance is CANBANK FINANCIAL SERVICES LTD. VERSUS CUSTODIAN [2004 (9) TMI 383 - SUPREME COURT], where Hon’ble Supreme Court held that We are concerned with a right of a party to possess the property over which it has a lawful title. In such a situation, Benami Transactions Act will have no application in allocation of shares as the same would not come within the purview of transaction relating to a transfer of property. Transfer of CANCIGO in favour of the Appellant was, thus, valid and legal as by reason of the transfer of possession of the CANCIGOs by respondent No. 2 in favour of the Appellant, a valid right has been created therein, the same could not have been attached in terms of section 3(3) of the said Act. There can be no dispute to the preposition that any amount given in trust to a Corporate Debtor cannot be treated as asset of the Corporate Debtor as per Section 18(1)(f) - There can be no quarrel to the law laid down by the Hon’ble Calcutta High Court, Hon’ble Bombay High Court and Hon’ble Supreme Court as noticed above but question which needs to be answered is as to whether the amount which was given by the Appellant to the Corporate Debtor was an amount given in trust. The agreement entered between the parties on 24.10.2018, as noticed above clearly indicate that the amount was the share of the Appellant for submitting Bid Bond Bank Guarantee by the consortium, Appellant being one of the member of the consortium. The agreement dated 24.10.2018 which was basis of the claim of the Appellant in no manner indicate that the amount was given in trust to the Corporate Debtor. Amount was given by the Appellant as his share to submit Bid Bond Bank Guarantee. Thus, the submission of the learned counsel for the Appellant that the amount given by the Appellant was the amount given in trust to the Corporate Debtor is wholly unfounded and cannot be accepted. Thus, no ground has been urged which may warrant any interference by this Tribunal in the order approving the Resolution Plan - appeal dismissed. Issues Involved:1. Whether the appellant's claim should be admitted as a financial creditor.2. Whether the amount given by the appellant was held in trust and should be excluded from the assets of the Corporate Debtor.3. Approval of the Resolution Plan by the Adjudicating Authority.Issue-wise Detailed Analysis:1. Admission of Appellant's Claim as Financial Creditor:The Corporate Insolvency Resolution Process (CIRP) commenced against the Corporate Debtor on 16.07.2020. The appellant submitted a claim of Rs. 50 Lakhs as financial debt on 31.07.2020. The Resolution Professional (RP) informed the appellant that the debt could not be termed as financial debt and suggested filing it as operational debt. The appellant filed I.A. No. 2247/2021 seeking direction to admit the claim as a financial creditor and to reconstitute the Committee of Creditors (CoC). However, the Adjudicating Authority rejected this application. The agreement dated 24.10.2018 between the appellant and the Corporate Debtor indicated that the amount was the appellant's share for submitting a Bid Bond Bank Guarantee. The Adjudicating Authority concluded that the disbursement was not for the time value of money, thus not meeting the criteria under Section 5(8) of the Insolvency and Bankruptcy Code (I&B Code). The Tribunal upheld this conclusion, finding no error in the Adjudicating Authority's order.2. Amount Held in Trust:The appellant argued that the Rs. 50 Lakhs given to the Corporate Debtor was held in trust and should be excluded from the corporate debtor's assets. However, no such argument or pleading was raised before the Adjudicating Authority. The Tribunal examined this claim under Section 18(1)(f) of the I&B Code, which excludes assets held under trust from the corporate debtor's assets. The appellant cited several judgments to support the trust claim, including Ganesh Export & Import Co. vs. Mahadeolal Nathmal, Reserve Bank of India vs. Bank of Credit and Commerce International (Overseas) Ltd., and Canbank Financial Services Ltd. vs. Custodian & Ors. The Tribunal acknowledged the legal principles but found no indication in the agreement that the amount was given in trust. The agreement specified that the amount was the appellant's share for the Bid Bond Bank Guarantee, not an amount held in trust.3. Approval of the Resolution Plan:The CoC approved the Resolution Plan on 17.02.2022, and the RP filed I.A. No. 665/2022 for its approval. The Adjudicating Authority approved the Resolution Plan on 29.09.2022. The appellant did not raise any substantial grounds to challenge this approval. The Tribunal found no reason to interfere with the Adjudicating Authority's order approving the Resolution Plan.Conclusion:The Tribunal dismissed both appeals, finding no merit in the appellant's submissions. The appellant's claim was correctly classified as operational debt, not financial debt. The amount given by the appellant was not held in trust and was part of the corporate debtor's assets. The approval of the Resolution Plan by the Adjudicating Authority was upheld.