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2020 (10) TMI 962
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....inst Impugned Order dated 9th June, 2020 passed by the Adjudicating Authority (National Company Law Tribunal, Kolkata Bench, Kolkata). The Appellant had filed I.A. (IB) No....../KB/2020 in CP(IB) No.1671/KB/2019 under Rule 11 of National Company Law Tribunal Rules, 2016 read with Section 60(5) of Insolvency and Bankruptcy Code, 2016 (IBC - in short) before the Adjudicating Authority. The Appellant is one of the Financial Creditors who filed claim before the Respondent No.1 - Ajay Agarwal, the Resolution Professional (RP) in Corporate Insolvency Resolution Process (CIRP) which was initiated against RDH Technologies Private Limited - (Corporate Debtor) (Respondent No.14) when Application under Section 7 filed by Oriental Bank of Commerce (now, Punjab National Bank) - Respondent No.2, was admitted by Order dated 28.08.2019. The Appellant submitted claim before RP on the basis of an Arbitral Award which was accepted and he was permitted to attend third COC (Committee of Creditors) Meeting onwards. The Appellant after becoming Member of COC, objected to part claim of Respondent No.2 - Oriental Bank of Commerce (OBC), to the extent it is based on corporate guarantees given by the Corpora....
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.... Housing Finance Ltd. was towards corporate guarantee given by the Corporate Debtor towards third party debts. 4. The Adjudicating Authority heard the parties. The Appellant claimed before Adjudicating Authority that the claim of Respondent No.2 - OBC to be Financial Creditor to the extent of corporate guarantee furnished by Corporate Debtor for third party debts was illegal as in the matter of "Anuj Jain", Hon'ble Supreme Court has held that security extended by Corporate Debtor towards third party's debt would stand outside the purview of financial debt and the creditor would not qualify as Financial Creditor within the meaning of Section 5(8) of IBC. 5. The Resolution Professional had claimed before the Adjudicating Authority that the guarantees concerned had been invoked on 26.09.2018 and the Corporate Debtor was directed to make payments of the security and about Rs. 40 Lakhs and odd partly due from the Corporate Debtor and partly due as guarantor upon invocation of the corporate guarantee on 26.09.2018. RP claimed before Adjudicating Authority that there was no illegality in including entire claim of OBC and the proposition laid down in "Anuj Jain" was not applicable to....
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....OBC. 9. The Adjudicating Authority in Para - 15 of the Impugned Order raised question whether the entire claim of OBC and the claim of India Bulls was contrary to the proposition laid down in the matter of "Anuj Jain" as alleged. The Adjudicating Authority took note of the rival contentions and claims and record and referred to the Judgement in the matter of "Anuj Jain" and observed in Para - 19 as under:- "19. In the present case the debt due to the OBC appears to me falls under the definition of financial debt and the lender is therefore a financial creditor. Because the lender/OBC had invoked the corporate guarantee even before the CIRP (i.e. on 26.09.2018). The concepts of financial debt as discussed in the above cited judgment is different from the debt claimed by the OBC in the case in hand. In this regard it appears to me that once a guarantee is invoked against the Guarantor, the Guarantor steps into the shoes of the principal borrower, the debt that originally is a "financial debt" under section 5(8) towards the principal borrower becomes a "financial debt" towards the guarantor and the same could be enforced as if it were being enforced against the principal b....
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.... to in sub-clauses (a) to (h). The requirement of existence of a debt, which is disbursed against the consideration for the time value of money, in our view, remains an essential part even in respect of the transactions/dealings stated in sub-clauses (a) to (i) of Section 5(8), even if it is not necessarily stated therein..." In view of the foregoing discussion and the proposition of law, I am of the view that inclusion of the entire claim of the financial creditor/Oriental Bank of Commerce, by the RP is not illegal, as their claims fall under the definition of the financial debt 5(8)(i) and not contrary to the proposition laid down by the Hon'ble Supreme Court of India in the case of Anuj Jain." 10. Even regarding India Bulls, the Adjudicating Authority found that it was a case of Corporate Debtor availing a loan facility as one of the co-borrower in the Loan Agreement. It found that Corporate Debtor was a co-borrower of the loan and was principal borrower of Respondent No.3 - India Bulls and had even created mortgage on its property to secure the loan and thus, it was a financial debt. Consequent to such findings, Adjudicating Authority did not find fault with the ent....
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....l debt. The learned Counsel relied on Para - 43 to 47.2(2) (Para - 205 - 213 in SCC OnLine) of "Anuj Jain". It is argued that in that matter, Hon'ble Supreme Court dealt with situation where Corporate Debtor - Jaypee Infratech Ltd. (JIL) had mortgaged its property towards the debt of another Company which was holding Company of Corporate Debtor namely, Jaiprakash Associates Ltd. (JAL). Argument is that Hon'ble Supreme Court found that the lenders of JAL were not Financial Creditors of Jaypee. Argument is that this principle fairly applies to the facts of present case also as here also, Corporate Debtor has secured debts of third party Companies by furnishing corporate guarantees. It is argued that the learned NCLT wrongly referred to the Judgement in the matter of "Smt. Kusum" to justify the liability of principal guarantor to be co-extensive liability. Argument is that the Hon'ble Supreme Court has in the matter of "Anuj Jain" held that the decision in the case of "Smt. Kusum" cannot be stretched and applied to the definition of financial debt under Section 5(8) of the IBC. Learned Counsel stressed that disbursement against consideration for time value of money was the main elemen....
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....re is no Appeal filed by OBC against the finding recorded by the Adjudicating Authority. We are, however, considering the claim of being Financial Creditor made by OBC which has been objected to by the Appellant with regard to the corporate guarantees given by the Corporate Debtor. 16. The learned Counsel for the Respondent No.2 - Bank submitted that if the facts of the case in the matter of "Anuj Jain" are seen, in that case, the Corporate Debtor - JIL had mortgaged its properties as collateral securities for the loans and advances made by lender banks and financial institutions to JAL which was holding Company of JIL. It was in the set of those facts that on strength of mortgage created by the Corporate Debtor - JIL, as collateral security of debts of the holding Company - JAL, the Applicants in that matter were found not to be Financial Creditors of Corporate Debtor - JIL. Referring to various paragraphs in the matter of "Anuj Jain", it is argued that, that was not a case of Agreement of Guarantee like present case and the present facts are totally different. It is argued that in the present matter, Corporate Debtor had executed several Agreements of Guarantee with the OBC on....
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....one in the said Appeal which is filed in Supreme Court and it is requested by the learned Counsel for the Appellant that this may be treated as bona fide inadvertent mistake. 18. We are not entering into the allegations made against the Counsel for Appellant. Related party issue was not duly raised nor decided before the Adjudicating Authority. 19. We proceed to refer to the Judgement of Hon'ble Supreme Court of India in the matter of "Anuj Jain" on which both the parties are relying on the basis of their arguments. 20. In the matter of Anuj Jain, the Corporate Debtor - JIL had mortgaged properties as collateral securities towards the loans and advances which had been made by the lender banks and financial institutions to holding Company JAL. Para - 2.2 of the Judgement (we are referring to Judgement as reported in Manupatra) reads as under:- "2.2. For what has been indicated in the introduction, it is evident that two major issues would arise in these appeals. One, as to whether the transactions in question deserve to be avoided as being preferential, undervalued and fraudulent, in terms of Sections 43, 45 and 66 of the Code; and second, as to whether the respond....
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....e observations made by NCLT in its Judgement as under:- "33. The Adjudicating Authority, NCLT, in its order dated 09.05.2018 as passed on the application moved by ICICI Bank Limited, with reference to the nature of transaction in question, whereby JIL had extended collateral security towards the facility extended to its holding company JAL as also with reference to the definition and connotations of the expressions 'financial debt' and 'financial creditor' as occurring in IBC, essentially proceeded to find that in such a transaction, as regards the corporate debtor JIL, no consideration for time value for money was involved; and hence, the transaction in question did not qualify as 'financial debt' qua the corporate debtor JIL. The NCLT, inter alia, observed as under:- "9. In the present case undisputedly corporate debtor has mortgaged its property for creating collateral security for the debt of its holding company JAL. The Corporate debtor is not a borrower, it has created a mortgage in favour of financial institutions for creating collateral security for the money borrowed by its holding company JAL. In the said transaction time value of money is not involved. ....
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....inst payment of interest nor indemnity or a guarantee as claimed by the applicant and therefore, the same does not fall within the definition of the financial debt in terms of Sec. 5 (8) of IBC. It is stated that the corporate debtor has neither issued any guarantee nor has provided an indemnity to the applicant in respect of the financial assistance granted to JAL." Para - 33.3 of "Anuj Jain" reads as follows:- "33.3. While observing that in the scheme of the Code and CIRP Regulations thereunder, the claims are invited from the creditors of the corporate debtor i.e., financial creditors, operational creditors and other creditors, and not from any person or creditors of the holding company of the corporate debtor; and while further observing that the resolution professional had righty observed that the mortgages in questions were not like guarantee or indemnity, NCLT observed that the basic ingredient of financial debt i.e., 'debt alongwith interest disbursed against time value of money' was lacking in the impugned transactions. NCLT also referred to the interpretation of the expression 'financial creditors' by NCLAT in the case of Nikhil Mehta and Sons v. AMR Infrastru....
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....n sub-clauses (a) to (i) of Section 5(8), even if it is not necessarily stated therein. In any case, the definition, by its very frame, cannot be read so expansive, rather infinitely wide, that the root requirements of 'disbursement' against 'the consideration for the time value of money' could be forsaken in the manner that any transaction could stand alone to become a financial debt. In other words, any of the transactions stated in the said sub- clauses (a) to (i) of Section 5(8) would be falling within the ambit of 'financial debt' only if it carries the essential elements stated in the principal clause or at least has the features which could be traced to such essential elements in the principal clause. In yet other words, the essential element of disbursal, and that too against the consideration for time value of money, needs to be found in the genesis of any debt before it may be treated as 'financial debt' within the meaning of Section 5(8) of the Code. This debt may be of any nature but a part of it is always required to be carrying, or corresponding to, or at least having some traces of disbursal against consideration for the time value of money." "47.2. Therefor....
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....o be read as Euclid's theorems nor as provisions of the statute. These observations must be read in the context in which they appear. Judgments of courts are not to be construed as statutes. To interpret words, phrases and provisions of a statute, it may become necessary for Judges to embark upon lengthy discussions but the discussion is meant to explain and not to define. Judges interpret statutes, they do not interpret judgments. They interpret words of statutes, their words are not to be interpreted as statutes. In London Graving Dock Co. Ltd. v. Horton : 1951 AC 737 (at p. 761) Lord MacDermot observed: (All ER p. 14C-D) The matter cannot, of course, be settled merely by treating the ipsissima verba of Willes, J., as though they were part of an Act of Parliament and applying the rules of interpretation appropriate thereto. This is not to detract from the great weight to be given to the language actually used by that most distinguished Judge." 20. In Home Office v. Dorset Yacht Co. MANU/UKHL/0014/1970 : (1970) 2 All ER 294 Lord Reid said (at All ER p. 297g-h), "Lord Atkin's speech ... is not to be treated as if it were a statutory definition. It will require qua....
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....e of the Agreement of Guarantee executed by the Corporate Debtor in favour of M/s. Safal Dealers Pvt. Ltd. The same has been filed by Respondent No.2 with Diary No.21786 as Annexure - B/3. It was stated by the learned Counsel for the Bank that the other guarantees issued were also similarly worded. If this document (Annexure - B/3) filed by Respondent Bank is perused, it shows that the same was executed by the Corporate Debtor as Guarantor in favour of the Oriental Bank of Commerce on 2nd September, 2014 and the contents show that the guarantor agreed for repayment of the amount/sum due/outstanding to the bank in the loan account of the borrower, i.e. M/s. Safal Dealers Pvt. Ltd. Thus, for the loan taken by the borrower, Corporate Debtor gave guarantee of repayment of the amounts. Even if such guarantee was given after the bank had proceeded against the borrower in DRT, that does not affect the liability when the corporate guarantee is issued assuring payment of the dues outstanding. The argument of the learned Counsel for the Appellant that the borrower had not signed this document does not make any difference. The learned Counsel himself has referred to Judgement in the matter of....
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....quires us to consider if the debt carries the essential elements stated in the principal clause of Section 5(8) or at least has the features which could be traced to such essential elements in the principal clause. In the present matter, there was disbursal of debt by the bank to the third parties and the Corporate Debtor gave guarantee for repayment of such debt when it became outstanding. Clearly, the loan advanced carried the element of consideration for time value of money and when such disbursal was guaranteed, it has to be treated as a financial debt under Section 5(8)(a) read with (i) of IBC. 29. The third party was advanced debt which was admittedly given by the Financial Creditor to the said third party. Even if Corporate Debtor issued guarantee in recovery proceeding for the financial debt of third party and in default the said guarantee/s have been invoked by the Financial Creditor, the Corporate Debtor is liable to pay the amount being amount of liability in respect of guarantee issued which falls in the definition of Section 5(8)(i) of IBC. 30. The learned Counsel for the Appellant argued that the Adjudicating Authority wrongly relied on Judgement in the matter o....