2023 (12) TMI 608 - AT - Insolvency and Bankruptcy

Resolution Professional correctly rejected financial creditor's claim as agreement created additional security, not guarantee under Section 126 Indian Contract Act

Vistra ITCL (India) Limited Versus Bhrugesh Amin, Suraksha Asset Reconstruction Limited, YES Bank Limited

NCLAT Principal Bench dismissed an appeal challenging the Resolution Professional's rejection of a financial creditor's claim. The appellant argued that ... Rejection of claim by the Resolution Professional - true nature and content of Agreement dated 29.03.2019 - Agreement is a contract of guarantee under Section 126 of the Indian Contract Act, 1872 or not - Submission of the Appellant is that mere fact that the document dated 29.03.2019 is containing heading ‘Agreement’ is not decisive and its nomenclature is not decisive - HELD THAT:- There can be no dispute to the preposition that nomenclature is not decisive. To find out the nature of the document, it requires to be noted that the Agreement dated 29.03.2019 in light of Debenture Trust Deed which is the genesis of Agreement dated 29.03.2019 - the Debenture Trust Deed defines the Corporate Guarantee which was to mean that the Deed of Guarantee was to be executed by the Developer in favour of the Debenture Trustee in a form and manner acceptable to the Debenture Trustee - Security Provider can also be any other person apart from Obligors and Security Document include Corporate Guarantee and such other documents for creating such other Security as may be required by the Debenture Trustee from the Obligors. Security Documents, thus, both includes Corporate Guarantee, which has already been defined and other document for creating such other security as may be required. There is no averment in the entire agreement that RIHPL is undertaking to guarantee to repayment of secured obligations by the Company. It is to be noted that Corporate Guarantee was already executed on 03.08.2018 on which date the Debenture Trust Deed was executed and in event the RIHPL was taking on its folds the entire lability of Principal Borrower as a Guarantor there ought to have been some indication in the Agreement. The Resolution Professional having not admitted the claim of the Appellant and communicated its rejection, it is not necessary for us to enter into the submission of the Appellant that Committee of Creditor’s decision prima facie not accepting the claim of the Appellant was without jurisdiction. In any event, an application has already been filed by the Appellant before Adjudicating Authority questioning the decision - There can be no doubt that it is the Adjudicating Authority who is entrusted with jurisdiction to adjudicate all issues which arise out of the resolution process of a Corporate Debtor. On reading the Agreement dated 29.03.2019 and look into the Clauses, it is clear that said Agreement was executed in reference to Clause 7.5(b) of the Debenture Trust Deed and the Agreement was only of for the purpose of creating additional security. The RIHPL being party to the Agreement dated 29.03.2019, the additional security as given under the Agreement can be enforced as per Clause 6 of the Agreement. Giving of additional security by Agreement dated 29.03.2019 cannot be read to mean that the Corporate Debtor has given any guarantee in reference to the secured obligations of the Obligors under the Debenture Trust Deed. The Agreement dated 29.03.2019 cannot be read as guarantee within the meaning of Section 126 of the Contract Act. The claim filed by the Financial Creditor was not limited to the extent of RIHPL security but entire amount under the Debenture Trust Deed was sought to be claimed in the claim form submitted by the Appellant. The Resolution Professional did not commit any error in refusing to admit the claim of the Appellant - there are no good ground to interfere with the order of the Adjudicating Authority - appeal dismissed. Issues Involved:1. Whether the Agreement dated 29.03.2019 can be considered a Deed of Guarantee.2. Whether the Appellant should be admitted as a 'Secured Financial Creditor' and included in the Committee of Creditors (CoC).3. Whether the Committee of Creditors has jurisdiction to adjudicate the claim.Issue 1: Nature of Agreement dated 29.03.2019The primary issue was to determine if the Agreement dated 29.03.2019 could be read as a Deed of Guarantee. The Appellant argued that the Agreement constituted a contract of guarantee under Section 126 of the Indian Contract Act, 1872, citing Clause 4 which stated that the Corporate Debtor provided an expressed, unqualified, and unconditional undertaking to pay the secured obligations. However, the Tribunal found that the Agreement was executed as part of additional security under Clause 7.5(b) of the Debenture Trust Deed and was not a Deed of Guarantee. The Tribunal emphasized that the Agreement was meant for additional security and not for guaranteeing the repayment of the secured obligations by the Corporate Debtor. Therefore, the Agreement dated 29.03.2019 could not be read as a guarantee within the meaning of Section 126 of the Contract Act.Issue 2: Admission as a 'Secured Financial Creditor'The Appellant sought to be declared as a 'Secured Financial Creditor' and included in the CoC. The Tribunal noted that the Resolution Professional had rejected the Appellant's claim, which was communicated via email on 22.06.2022 and reaffirmed on 20.01.2023. The Tribunal held that the Resolution Professional did not err in refusing to admit the Appellant's claim, as the Agreement dated 29.03.2019 was not a Deed of Guarantee but an agreement for additional security. Consequently, the Appellant could not be admitted as a 'Secured Financial Creditor' and included in the CoC.Issue 3: Jurisdiction of the Committee of CreditorsThe Appellant contended that the CoC had no jurisdiction to adjudicate the claim. The Tribunal noted that the Resolution Professional had already rejected the claim and that the CoC's decision was not the primary issue. The Tribunal emphasized that it is the Adjudicating Authority that has jurisdiction to adjudicate all issues arising out of the resolution process of a Corporate Debtor. Since the Adjudicating Authority had already approved the decision of the Resolution Professional, the Tribunal confined its consideration to whether the Adjudicating Authority had committed any error in rejecting the IA filed by the Appellant. The Tribunal found no error in the Adjudicating Authority's decision.ConclusionThe Tribunal concluded that the Agreement dated 29.03.2019 was not a Deed of Guarantee but an agreement for additional security. Consequently, the Appellant could not be admitted as a 'Secured Financial Creditor' and included in the CoC. The Tribunal upheld the decision of the Adjudicating Authority and dismissed the appeal.