TaxTMI 
TaxTMI 
2022 (9) TMI 543
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....aloniThakker, Mr. Nilang Desai, Advocates for R-3. Ms. NafisaKandeparket and Mr. AyushChadda, Advocates for R-2 & 3. Mr. Pradeep Sancheti, Sr. Advocate for R-4. Mr. Siddharth Ranade, Ms. Nishi Bhankharia, Mr. Kaazvin Kapadia and Ms. Saloni Gupta, Advocates for R- 4 & 5. Mr. Ramji Srinivasan, Sr. Advocate with Ms. Rajshree Chaudhary and Mr. Jash Shah, Advocates for Intervenor for SBI. JUDGMENT Dr. Ashok Kumar Mishra, Technical Member The present Appeal has been filed under Section 61 of the IBC, 2016 against the order dated 02.03.2021 passed by Adjudicating Authority (National Company Law Tribunal, Mumbai Bench, Court No. I) in M.A. No. 3055 of 2019 in CP (IB) No. 1385/(MB)/2017. 2. The Appellant No. 1/Doha Bank who claims to be the direct lender and a secured Financial Creditor of Reliance Infratel Ltd.(Corporate Debtor) is aggrieved with the order passed by the Adjudicating Authority holding the decision of the Resolution Professional of classifying the indirect lenders as the Financial Creditor of the Corporate Debtor as correct. Here, the Corporate Debtor is Reliance Infratel Ltd. 3. The Appellant has sought following Reliefs: To allow the pre....
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....tion etc. (g) It was stated by the Ld. Sr. Counsel of the Appellant that the Respondent Nos. 2 to 5 are not the lenders of the Corporate Debtor nor has the Corporate Debtor extended any Corporate Guarantee in favour of Respondents; only 'Deed of Hypothecation' is there and considering the Respondents based on 'Deed of Hypothecation' (DOH) as Financial Creditor is a kind of ignorance of Section 5(8) of the Code. (h) Thereafter, the Appellants challenged the same before the Adjudicating Authority and the Adjudicating Authority has not passed a reasoned order nor it is a speaking order. (i) It was also stated by the Ld. Sr. Counsel of the Appellant that DOH records that it is the borrower and not the CD who shall repay the facilities availed by it as stipulated in the facility documents. (j) Corporate Debtor has not agreed that it shall repay/discharge the liability of other borrowers upon their default and hence the question of construing the same as 'Contract of Guarantee' is untenable. DOH creates only Security Interest to the extent of hypothecated assets. (k) DOH is a boiler plate clause at present in any standard draft of a DOH which was presented by the Ld. Couns....
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.... pay on demand by the Security Trustee, or the receiver, any shortfall or deficiency. (g) It was also stated by the Ld. Sr. Counsel that Respondent Nos. 2 to 5 filed claims under the DoH are based on the beneficial interest under the DoH. (h) Ld. Sr. Counsel has cited the Judgment of Bombay High Court construing an undertaking to pay as being guarantee. 'Intesa Sanpaola S.P.A. v. Videocon Industries Ltd.' (2013 SCC Online Bom 1910)- para 5 to 9, 23 & 59. (i) Ld. Sr. Counsel has also stated the Judgment of 'B.K. Education Service Pvt. Ltd. Vs. Parag Gupta' of Supreme Court ref. does not apply in the present case, as the supreme court in the said case was considering a time barred debt. (j) The Code is a complete code with respect to insolvency laws [Refer para 13 of Innoventive Industries Ltd. v. ICICI Bank (2018) 1 SC 407]. The Code mandates all creditors of the CD, irrespective of the nature of its claim, to file claims before the RP in the CIRP. This is to ensure that the Resolution Applicant can take over the business of the CD on a clean slate [CoC of Essar Steels India vs. Satish Kumar Gupta (2019 SCC Online SC 1478)- Para 88]. Under Section 31 of the Code, an appr....
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....tor, under the MSTA and the DoH, and not only the hypothecation over the secured assets. (e) Appellants' have misled the Tribunal by wrongfully alleging that RP admitted that there is no contract of guarantee. (f) Reliance upon specimen drafts of deeds of hypothecation by Appellants' are of no relevance to interpret the terms of DOH. (g) It is a settled position that the rule of contra-proferentem is not applicable with respect to commercial contracts, for the reason that the clause in a commercial contract is bilateral and has been mutually agreed upon. (h) Respondent No.2 is admittedly a Secured Creditor of the Corporate Debtor. In the alternative and without prejudice to the rights and contentions of R-2 it is submitted that R-2's security interest cannot be extinguished during the CIRP without it being paid a proportionate or commensurate value of the security held by it under the DoH. If the Appellant's are successful in the present appeal then (subject to the right of the Respondents), the distributions provided under the approved Resolution Plan would be rendered non-compliant with Section 30 of the IBC as the Resolution Plan does not provide for any dis....
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....obligation can file proofs of claim directly and do not need to file proofs of claim via the Security Trustee. (d) Respondent No.3 (and, indeed, all Indirect Creditors) have benefit of all rights, benefits, undertakings and indemnities granted by, inter-alia, the Corporate Debtor, under the MSTA and the DoH, and not only the hypothecation over the secured assets. (e) Appellant's have misled the Tribunal by wrongfully alleging that RP admitted that there is no contract of guarantee. (f) Reliance upon specimen drafts of deeds of hypothecation by Appellant's are of no relevance to interpret the terms of DOH. (g) Reliance by the Appellant's on the rule of contra-proferentem is misplaced. (h) Respondent No.3 is admittedly a Secured Creditor of the Corporate Debtor. In the alternative and without prejudice to the rights and contentions of R-3 it is submitted that R-3's security interest cannot be extinguished during the CIRP without it being paid a proportionate or commensurate value of the security held by it under the DoH. If the Appellant's are successful in the present appeal then (subject to the right of the Respondents), the distributions provided under the ....
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....ties pooled their assets to secure all loans availed by each of these entities. R-4 sanctioned five facilities to RCom and RTL, amounting to over USD 3605,200,000 which were secured inter alia by a first pari passu charge over common pooled assets of all four RCom Entities. b. The DoH's have been executed jointly by each of the RCom Entities (in their capacity as chargors), including the CD to create charge over their property for securing repayment of the facilities advanced by R-4. Even if the loan was availed by any of the RCom Entities (in this case RCom and RTL), the other RCom Entities agreed to provide their assets as security and a further undertaking to repay any shortfall of debts owed by each of the RCom Entities. This understanding by the RCom Entities is clearly recorded by terms of the DoH. [Ref: Annexure O of the present Appeal, @ Page No. 483] c. It is submitted that the RCom Entities had pooled their resources in order to provide not only security for the facilities availed by any of the entities, but to ensure that each of the entities were individually liable to repay the debt of all the entities. Thus, as per the terms of the DoH, in the event there is any....
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....s 2,3 and 5 of the DoH constitutes an express obligation to pay, which is akin to a guarantee. h. The nomenclature used in a document is not decisive or conclusive and the nature of a transaction is to be determined on the basis of the substance of the document as a whole rather than the labels used therein. In this regard, it is submitted that the rule of interpretation of a document is that it should be read as a whole in its letter as well as in spirit. An individual sentence cannot be read in isolation while interpreting the document. The fact that the DoH does not use the term guarantee in its nomenclature shall not have any bearing on deciding the nature of the DoH. [Ref: Assam Small Scale Ind. Dev. Corp. v. M/s. J.D. Pharmaceuticals, @ Page 56 of the Case Compilation on behalf of R-4]. On a perusal of the overall scheme of the DoH, it is evident that the only purpose of the DoH is not to merely create a charge, but it also includes an express obligation to repay the outstanding debt of R-4. i. Under Clause 5 (iii) of the DoH, the CD has covenanted to make good any shortfall in the realization of proceeds of the creditors of RCom/RTL, by paying on a demand made by the c....
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....ecedent set out under the approved resolution plan, the financial creditors have not yet received any resolution proceeds from the approved resolution plan. (d) The Corporate Debtor owed a sum of Rs. 41,055 crores to the Financial Creditors. The RPPMSL resolution plan provides for a payment of Rs. 4,520 Crore to all the stakeholders including the Financial Creditors. Evidently, the Financial Creditors are taking a haircut of around 88%. Thus, despite having such enormous outstanding against the Corporate Debtor and waiting for resolution of debt for over four years, the Financial Creditors have been unable to recover any dues from the Corporate Debtor. (e) However, on the contrary if the present Application is dismissed by this Hon'ble Tribunal, there will be severe prejudice which will be caused to the stakeholders of the Corporate Debtor, including the Intervenor and the Consortium. 10. While dismissing the Application, the Adjudicating Authority has observed the following: "Para 8. (xiii) Further Chapter IV of IBBI (Insolvency Resolution Process for Corporate Persons), Regulations 2016- Regulations 7 to 14 deals with the claims by Operational Creditors, Financial Cre....
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....n unenviable proposition that only the defaulted debts of the creditors can be claimed and the rest will end up in a remediless situation. The said proposition fo the Applicant is entirely foreign to the Code. In this regard, the reliance of the Applicant on the decision of the Hon'ble Supreme Court in the case of Swiss Ribbon (supra), Para 63 to 65 is totally misplaced since the paras referred deals with the differentiation in the triggering of the CIRP by Financial Creditors under Section 7 and Operational Creditors under Section 8 & 9 of the Code and not with the filing of claim with the RP. Para 65 of the Hon'ble Supreme Court's case in Swiss Ribbon supra is extracted below: "65. ...Whereas a claim gives rise to a debt only when it becomes due, a default occurs only when a debt becomes due and payable and is not paid by the debtor. It is for this reason that a Financial Creditor has to prove default as opposed to an operational creditor who merely claims a right to payment of a liability or obligation in respect of a debt which may be due. When this aspect is borne in mind, the differentiation in the triggering of the insolvency resolution process by Financial Creditor....
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....der Section 126 of the Contract Act. Without prejudice to the above submission, it is further submitted that there is no occasion for the Security Trustee to realize the hypothecated properties in view of the fact that moratorium has triggered on admission of the CIRP petition against the Corporate Debtor as provided under Section 14(1)(c) of the Code. It is further submitted that the security interest as defined under Section 3(31) of the Code does not have any effect as long as the moratorium continues. In this case, since moratorium has already kicked in there is no question of realization of the security interest by the Security Trustee. It is further submitted that in case the resolution plan then pending for approval of the Bench is rejected, the Respondents as Creditors can either relinquish their security interest and stand in the que as creditors or can prefer to stay outside the insolvency proceedings and realize the hypothecated security. Para 10. As far as the above argument is concerned, we are unable to accept the contention that the said sentence of Clause 5 (iii) of DoH is only relating to the expense of sales and realizations. The proper meaning according to us ....
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....r here is Reliance Infratel Ltd. (RITL/RTL). The Corporate Debtor has gone into CIRP vide order of Adjudicating Authority dated 15.05.2018 and Mr. Manish Dhirajlal Kaneria was appointed as IRP. Thereafter on 21.06.2019 Mr. Anish Nanavaty/Respondent No.1 was appointed as Resolution Professional of the Corporate Debtor. This fact is also not under dispute. (iii) What has come under appeal is that the Adjudicating Authority has considered the R- 2 to R- 5 as Financial Creditors of the Corporate Debtor. The basis of consideration is the 'Deed of Hypothecation'only for considering the R-2 to R-5 as Financial Creditors of the Corporate Debtor. The Appellant No. 1 has critically sought that R-2 to R-5 should be derecognized/deleted as 'Financial Creditors' of the Corporate Debtor. (iv) It is an admitted position that the Corporate Debtor hypothecated its asset in favor of R-2 to R- 5 under the Deed of Hypothecation to secure the loans disbursed by them to the Reliance Communication Entities. It is also an admitted position that R-2 to R-5 have not disbursed money to Corporate Debtor. (v) Clause 5(iii) of the Deed of Hypothecation states as follows: "In the event that an ....
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.... This is the primary basis on which the Adjudicating Authority has considered the claims of R-2 to 5 as 'Financial Creditors'. (vi) Section 5(8) of the Code is exhaustive and mere 'Deed of Hypothecation' does not fall within its ambit. RP has considered DOH as a 'Deed of Guarantee' which is a misconception of the obligations. (vii) CD has not extended Corporate Guarantee in favour of R-2 to R-5. (viii) The Security Interest created under the DOH shall be continuing security and shall remain enforce until all the obligations have been discharged by the borrowers under the respective facility documents. Hence, it can be construed that the clauses of DOH cannot be construed to be a 'Covenant of Guarantee' or 'Contract of Guarantee'. (Clause 9 of DoH- page 492). (ix) Hypothecation Deed is a legal document and it establishes contractual relations between the parties where the lender agrees to grant a loan to the borrower in return for movable assets provided as security. Hypothecation of a moveable assets does not involve giving up ownership rights like title or possession. The Hypothecation Deed ensures that the parties are aware of their rights and liabilities and have a....
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.... even party to the DOH i.e. 'Deed of Hypothecation'. 12. In view of the above stated position of law and fact we are not in a position to sustain the order of the Adjudicating Authority and we are constrained to set aside the impugned order of the Adjudicating Authority and remanding back to the Adjudicating Authority for taking all consequential actions resulting from de-recognizing R-2 to R-5 as 'Financial Creditors'. No order as to costs. ============= Document 1 NOTAR P.A.AL Rega Ambat GOVT. OF INDIA CHARGE lo pursuence of the aforesaid, each of the Chargers does bereby hypetbocates as and by way of a first making pel peine charge to the Security Trustec, acting le trust for sad for the benefit of the Secured Parties, for the purpose of securing the doc discharge by the Obligers of sil their obligations in convection with the Secured feellides, all of its fellowing sasets: 0 (li) all and singular of the whole of the Charger's present and future moveable plant not machinery Inchuding (without limitation) tower assets and optle fibre cables, if any, (whether aached or otherwise), capital work in progress (pertaining to....