TaxTMI 
TaxTMI 
2019 (12) TMI 1366
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....so filed an application under Sec. 7 of the Insolvency & Bankruptcy Code, 2016 for initiation of CIRP against the same corporate debtor. Such CP (IB) No. 1662/KB/2018 was disposed off for the reason that corporate debtor had already been admitted under CIRP and the applicant was granted leave to file its claim before the IRP as per Rules. Accordingly, the applicant filed its claim in the specified form which was admitted. 3. Ld. Sr. Counsel appearing on behalf of the applicant after narrating basic facts pleaded that the admission of corporate debtor in CIRP was an act of fraud as its application filed under Sec. 7 of the Insolvency & Bankruptcy Code, 2016 which was filed prior to the other application was pending on the passing of order dated 20/6/2019. In this regard, it was pointed out by the Bench that the grievance against admission of other application filed under Sec. 7 of the Insolvency & Bankruptcy Code, 2016 had already been argued in separate application filed in that regard, hence, Ld. Sr. Counsel was advised to address the Bench on the issues raised in this application. 4. Ld. Sr. Counsel, thereafter, contended that the corporate debtor had given corporate guaran....
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.... debtor. Ld. Sr. Counsel, thereafter, referred to page 76 and 78 of the Paper Book and drew our attention to the details of guarantees that had been given in relation to the debts of the corporate debtor by other persons specifying which of the guarantors were related parties. In this schedule, the details of bank guarantee of Rs. 14 crore given by Skipper Furnishings Pvt. Ltd. was mentioned. It was also mentioned that such concern was a related party. Thereafter, he drew our attention to clause 8.2 at page 78 of the Paper Book containing details of guarantees that had been given by the corporate debtor in relation to the debts of others which included bank guarantee worth Rs. 16 crore given on behalf of Skipper Furnishings Pvt. Ltd. to ICICI Bank. 9. Ld. Sr. Counsel submitted that the actions of RP were not in accordance with the provisions of Insolvency & Bankruptcy Code, 2016 read with relevant regulations made thereunder and, consequently, such actions were liable to be declared null and void. Ld. Sr. Counsel relied on judicial decision and distinguished the decisions relied by the RP/ICICI Bank which we shall be dealing with in the later part of this order. 10. Ld. Couns....
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....nsel for the RP mainly supported the claim made by the ICICI Bank and drew our attention to the relevant provision of Insolvency & Bankruptcy Code, 2016. It was contended that the event of default of debt had nothing to do with the claim of a person whether secured or unsecured. Ld. Counsel, further, placed reliance of the order of Hon'ble NCLAT in the case of Axis Bank Ltd. vs. Edu Smart Services Pvt. Ltd. order dated 10/8/2018 in support of such plea. It was also claimed that RP had never stated that he would conduct e-voting of the CoC only after taking of the legal opinion, hence, this claim was an instance of wrong statement being made by the applicant. 13. Ld. Counsel for the RP also drew our attention to Circular No. IBBI/CIRP/018/2018 dated 14th September 2018 to show that in that circular it was mentioned that voting power of a member in the CoC was based on the amount of admitted claim in respect of a financial debt. Ld. Counsel, thereafter, placed reliance on the decision of Hon'ble NCLAT in the matter of Prasad Complex vs. Star Agromarine Exports Pvt. Ltd. & Ors. in Company Appeal (AT) (Insolvency) No. 291 of 2018 order dated 1/2/2019 as regard the power of R....
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....on is not applicable here. 20. As far as the case of Axis Bank Ltd. vs. Edu Smart Services Pvt. Ltd. is concerned, the Hon'ble NCLAT itself in its subsequent decision in the case of Edelweiss Asset Reconstruction Company "Ltd. vs. Orissa Manganese and Minerals Ltd. (supra) has rejected the similar claim as made out in the present case. We also find that facts of the present case are similar to the facts of the case of Axis Bank Ltd. vs. Edu Smart Services Pvt. Ltd. Therefore, the said decision also does not help the cause of the ICICI Bank/RP. 21. Similarly, the decision of NCLAT in the case of Canara Bank vs. IVRCL Ltd. will not be of any help in view of subsequent decision of the Hon'ble NCLAT in the case of Edelweiss Asset Reconstruction Company Ltd. vs. Orissa Manganese and Minerals Ltd. (supra). Further, facts of the case of Canara Bank vs. IVRCL Ltd. are similar to the facts of the case of Axis Bank Ltd. vs. Edu Smart Services Pvt. Ltd. which has been overruled by the Hon'ble NCLAT in its subsequent decision. As per accepted judicial norms, later decision on the same issue wherein earlier decision has been considered and different view has been taken then su....
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....n process by financial creditors Under Section 7 and by operational creditors Under Sections 8 and 9 of the Code becomes clear." 25. From the perusal of the above observations, it is clear that a claim can be due or not. Unless a claim becomes due only then it gets converted into debt. Further, debt must be due and payable in law or fact for occurrence of event of default. Thus, there is a marked difference between both the terms i.e. "claim" and "debt". Both have got different implications on various aspects/process which are undertaken under the Insolvency and Bankruptcy Code, 2016. This can be summarized as under:- a) Application under Sec. 7 or 9 of Insolvency and Bankruptcy Code, 2016 can be filed only when there is a default in respect of a debt which is due and payable whereas no such action can be taken in respect of a claim unless it becomes due and payable and default occurs thereafter. b) Claim is wider in its scope than debt. A claim may be due or may not be due but debt must be a claim which is due. c) During CIRP, Interim Resolution Professional is required to make a public announcement under Sec. 30 of Insolvency and Bankruptcy Code, 201....
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....ies; (i) The number of workers and employees and liabilities of the corporate debtor towards them; (j) ***** (k) ***** (l) Other information, which the resolution professional deems relevant to the committee. Clause (d) as reproduced above, deals with the amount of claim in all respects. (d) Thus, a conjoint reading of all these provisions/regulations make it apparent that in all these sections the term "claim" has been used. 26. In contrast, Sec. 30(2)(b) provides for payment of "debt" of operational creditor in such manner as may be specified. The said clause also provides for payment of debt of financial creditor. Sec. 32 also refers to Sec. 53 of Insolvency and Bankruptcy Code, 2016 wherein the term "debt" has been used in its 'various sub-clauses. In Sec. 52(4) again the term "debt" has been used. 27. Regulation 7 to 15 of Chapter IV of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 deal with the procedure relating to claims. In these regulations mechanism has been prescribed as to how claims by operational creditor, financial creditor, creditors in a class, claims by workman and employees and....
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....corporate debtor]. The details for the same are set out below: Relevant Particulars 1. Name of financial creditor 2. Identification number of financial creditor (if an incorporated body, provide identification number and proof of incorporation. If a partnership or individual provide identification records of all the partners or the individual 3. Address and email address of the financial creditor for correspondence 4. Total amount of claim (including any interest as at the insolvency commencement date) 5. Details of documents by reference to which the debt can be substantiated 6. Details of how and when debt incurred 7. Details of any mutual credit, mutual debts, or other mutual dealings between the corporate debtor and the creditor which may be set-off against the claim 8. Details of any security held, the value of the security, and the date it was given 9. Details of the bank account to which the amount of the claim or any part thereof can be transferred pursuant to a resolution plan 10. List of documents attached to this claim in order to prove the....
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....6) To The Liquidator [Name of the Liquidator] [Address as set out in the public announcement] From [Name and address of the registered office and principal office of the financial creditor] Subject:- Submission of proof of claim in respect of the liquidation of [name of corporate debtor] under the Insolvency and Bankruptcy Code, 2016 Madam/Sir, [Name of the financial creditor], hereby submits this proof of claim in respect of liquidation of [name of corporate debtor]. The details for the same are set out below: 1. Name of financial creditor (If an incorporated body provide identification number and proof of incorporation, if a partnership or individual provide identification records of all the partners or the individual) 2. Address and email of financial creditor for correspondence 3. Total amount of claim, including any interest, as at the liquidation commencement date and details of nature of claim (whether term loan, total secured, unsecured) Principal : Interest: Claim: 4. Details of documents by reference to which the debt can be substantiated 5. Details of any order of a court of tribuna....
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....ue and payable. 33. Admittedly, corporate guarantee has been issued by the corporate debtor and it cannot be considered as a debt due and payable then the question arises as to whether this can be ignored at all? In our considered view, this cannot be done for the simple reason that some financial commitment exists in law which may have implications for viability and implementation of resolution plan. Resolution applicant has to submit a plan which should be prepared on the basis of information memorandum provided to him by the resolution applicant in consultation/after approval of CoC. If details uninvoked corporate guarantee(s) are not disclosed, then a situation may arise in future whereby the resolution applicant may not implement the resolution plan and back out in case guarantee is invoked. As per regulation reproduced herein before, it is apparent that the corporate guarantees given in favour of corporate debtor are only to be disclosed in a specific manner. No specific clause as regard to disclosure of corporate guarantee issued by the corporate debtor either to an independent party or to a related party is mentioned. However, as stated earlier, non-disclosure of such in....
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....CoC is comprised only of financial creditors except where there are no financial creditors, CoC may be comprised of operational creditor. Thus, if a financial creditor gets a higher voting share, such financial creditor can dominate the whole CIRP and even can become unreasonable. Having understood this implication, now, we would have to address the core issue as to how the voting percentage/rights are to be calculated. 38. For this purpose, the primary section which is required to be considered is Sec. 5(28) of Insolvency and Bankruptcy Code, 2016. The same is reproduced as under:- "(28) "Voting share" means the share of the voting rights of a single financial creditor in the committee of creditors which is based on the proportion of the financial debt owed to such financial creditor in relation to the financial debt owed by the corporate debtor." 39. From the perusal of the above section, it emerges that voting rights of a single financial creditor in the CoC are calculated on the basis of proportion of the financial debt owed to such financial creditor in relation to the financial debt owed by the corporate debtor. There is no reference to the word "claim" in the ....
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....cant factor which emerges our consideration is the meaning of the term financial debt owed. This term has been used in Sec. 5(7) which defines who will be a financial creditor. Similarly, in Sec. 5(20) operational creditor has been meant as a person to whom an operational debt is owed. In Sec. 3(11) debt has been defined as a liability obligation in respect of a claim which is due. Sec. 3(12) prescribes a situation of default on non-payment of debt which has become due and payable. Thus, in our considered view the rights of a person are obligations to other persons to that transaction, hence, debt due and payable by a person is debt owed to a person. Thus, when the scheme of the Code is read as a whole, it can be safely concluded that voting rights are to be determined only on the basis of financial debt owed. 43. We also reject the claim of the RP which has been made on the basis of circular of IBBI dated 14/9/2018. In this regard, we consider it pertinent to further mention that the language/words used in the circular cannot be interpreted in a manner so as to defeat the substantive provisions of Insolvency and Bankruptcy Code, 2016 as well as regulation made thereunder. Sec. ....
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.... the present case, there is a violation of this mechanism. 46. In conclusion, we hold that even if uninvoked corporate guarantee is found to be considered as claim, the same cannot be taken into consideration for determining the voting share of a financial creditor. 47. The next question which remains to be dealt with is whether the decision of the RP can be said to be in line with the scheme and objects of Insolvency and Bankruptcy Code, 2016. The role of IRP/RP is very crucial. IRP has to constitute CoC as per the provisions of Sec. 18(1)(c) of Insolvency and Bankruptcy Code, 2016. The IRP is also obliged to make every endeavour to protect and preserve the value of property of the corporate debtor and manage the operations of corporate debtor as a going concern. The RP is required to conduct CIRP and convene the meeting of CoC as well as to chair the same. As per Sec. 24(6) each creditor is required to vote with the voting share assigned to him based on the financial debt owed to such creditor. As per Sec. 24(7) the resolution professional has been given authority to determine the voting share to be assigned to each creditor in the manner specified by the Board. If resoluti....