Financial creditor's claim admission upheld as security deed created additional mortgage without discharging original obligations

NCLAT Principal Bench dismissed appeal challenging admission of financial creditor's claim. Appellant argued that Deed of Security dated 20.03.2020 discharged its obligations under financing documents, but tribunal held the deed created additional security through mortgage of 2,00,000 sq. ft. carpet area as contemplated in Consent Term. The deed did not novate or discharge original financial obligations, with appellant remaining liable for repayment. Section 41 discharge provisions were inapplicable. Supreme Court precedent in Venkataraman Krishnamurthy was distinguished on facts. Adjudicating Authority correctly interpreted agreements and admitted financial creditor's claim.

---

---

Issues Involved:
1. Whether the Deed of Security dated 20.03.2020 discharged SPIL from its financial obligations.
2. Applicability of Section 41 and Section 62 of the Indian Contract Act, 1872.
3. Whether the Adjudicating Authority correctly admitted the financial claims of IIFL and IIFL Home Finance Ltd.

Summary:

Issue 1: Whether the Deed of Security dated 20.03.2020 discharged SPIL from its financial obligations.

The Appellant, a Financial Creditor of SPIL, challenged the admission of IIFL Home Finance Ltd.'s claim as a Financial Creditor based on the Deed of Security dated 20.03.2020. The Appellant argued that SPIL was discharged from its obligations to IIFL and IIFL Home Finance Ltd. upon the execution of the Deed of Security, which created a first and exclusive charge on 2,00,000 sq. ft. carpet area of the project "Satra Hills." The Adjudicating Authority held that the Deed of Security was an additional security and did not discharge SPIL from its obligations. The Tribunal affirmed this view, stating that the Deed of Security was not an amendment to the financial documents or Consent Terms but an additional security document.

Issue 2: Applicability of Section 41 and Section 62 of the Indian Contract Act, 1872.

The Appellant contended that under Section 41 of the Indian Contract Act, 1872, the acceptance of performance from a third person (SPDPL) discharged SPIL from its obligations. The Tribunal rejected this argument, stating that the Deed of Security did not discharge SPIL from its obligations. Additionally, the Appellant argued that Section 62, which deals with novation, rescission, and alteration of contracts, applied. The Tribunal held that the Deed of Security did not novate the terms of the facility documents but was an additional security document, hence Section 62 was not applicable.

Issue 3: Whether the Adjudicating Authority correctly admitted the financial claims of IIFL and IIFL Home Finance Ltd.

The Adjudicating Authority had allowed the applications filed by IIFL and IIFL Home Finance Ltd. to admit their claims as Financial Creditors in the CIRP of SPIL. The Tribunal upheld the Adjudicating Authority's decision, stating that the claims were legitimate and the Deed of Security was intended to provide additional security, not to discharge SPIL's obligations. The Tribunal dismissed both appeals, affirming the orders dated 22.11.2023 and 05.12.2023, which directed the admission of the financial claims.

Conclusion:

The Tribunal concluded that the Deed of Security dated 20.03.2020 did not discharge SPIL from its financial obligations, and the Adjudicating Authority correctly admitted the financial claims of IIFL and IIFL Home Finance Ltd. The appeals were dismissed.

---