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2023 (4) TMI 448
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.... (in short 'Impugned Order passed in C.P. (IB) No. 4108/MB/2019'). The Appellant is aggrieved by the Impugned Order whereby a Section 7 application filed by the Respondents No. 1 and 2 before NCLT, Mumbai was admitted and Corporate Insolvency Resolution Process (in short 'CIRP') was initiated. 2. In brief, the case of the Appellant is that the Corporate Debtor - Bharucha & Motivala Infrastructure Private Limited (in short 'B & M Infra') had given a Corporate Guarantee as a Co-Obliger in respect of the residential project called 'The Cove' which was being developed by Lake District Realty Private Limited (in short 'LDRPL' and also 'Issuer Company'). It was developing the project with Pune Kondhwa Realty Private Limited (in short 'PKRPL') on land owned by PKRPL admeasuring a total of 6.7272 ha in village Yeolewadi, Taluka Haveli, District Pune through a Joint Development Agreement entered into between PKRPL with LDRPL on 27.06.2016. 3. The Appellant has further stated that PKRPL executed a Power of Attorney in favour of LDRPL in relation to the development of the project 'The Cove' and according to Joint Development Agreement, LDRPL was entitled to (a) 71.8% of the realization of u....
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....ed of the Debenture Holders whether they continued to be interested in supporting the project and thereafter, a condition for opening of escrow account to deposit monies received from the flat buyers was imposed by the Debenture Holders which was agreed to by the Corporate Debtor. 9. The Appellant has further stated that after a notification dated November, 2017 issued by the Government of Maharashtra, pursuant to a direction of NGT, stopped construction within 100 feet of base of the hill, the Issuer Company had to stop construction leading to delay in the completion of the project due to such hurdles in the execution of the project, which was beyond the control of the Issuer Company, the Issuer Company was trying to effect a deal with a 3rd party developer 'Provident Housing Limited' for completion of the project and the Debenture Holders and Debenture Trustee were in full knowledge of these developments and a Supplementary Memorandum of Understanding was entered into between the Issuer Company and the Provident Housing Limited to complete the project and all along the Debenture Holders were aware of these developments and they through email dated 27.09.2018 communicated their a....
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....by the Respondents No. 1 and 2 a notification was issued by the Government of Maharashtra purportedly to give effect to an earlier order of NGT which restrained all development activity within 100 feet of the base of any hill, thereby bringing construction activity at the project site of 'The Cove' to a halt. He has further stated that this notification issued by the Government of Maharashtra was found arbitrary by the Hon'ble Supreme Court vide judgement dated 14.07.2020 and the notification was set aside, but during these proceedings the work at the project site was halted and the project plan had to be revised by the Issuer Company. He has further argued that the delays caused by uncertainty in the regulatory orders was not in the control of the Corporate Debtor but despite the fact that the Debenture Holders were fully aware of reasons of such delay, they issued a demand notice on 02.01.2019 and thereafter, the Debenture Trustee also issued a notice on 21.02.2019 and later a Demand Certificate was also issued by the Debenture Trustee asking the Corporate Debtor (R-3) to pay an amount due to the Debenture Holders on account of occurrence of 'Event of Default'. 14. The Learned C....
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....nt about locus of the Debenture Holders has been dealt with in the impugned order on the basis of another Judgment of NCLT dated 10.01.2020 in the matter of 'Bennett Property Holdings Company Ltd. vs. Brick Eagle Affordable Housing (CP (IB) 1267/I&B/2019)' but the fact is that this is a case which was decided entirely on the basis of language of clause 18.2.1 which existed in the Debenture Subscription Agreement of the parties in the Bennett Property Holding case and no general statement of law can be presumed from the order in that case which can be applied in the present case. 16. The Learned Counsel for the Appellant has further added that an 'English Mortgage' has been created to secure the dues of the Issuer Company which are liable to be paid to the Debenture Holders and clause 5 of the Mortgage Deed recognizes the power of the Debenture Trustee to enforce the mortgage on the occurrence of any 'Event of Default' including their sale and clause 8 of the Debenture Trust Deed contains a covenant that enables the Debenture Trustee to make reconveyance of the mortgage property to the Issuer Company only on proof of payment of the NCDs and thus the mortgage is indeed and English M....
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....hom such 'financial debt' is owed is a financial creditor. He has added that it is not the Appellant's case that monies are owed to any other person/entity then the Respondents No. 1 and 2 which fact has been admitted in the rejoinder by the Appellant. 18. The Learned Counsel for the Respondents No. 1 and 2 has referred to the judgment of Hon'ble Supreme Court in the matter of 'M/S Orator Marketing Pvt. Ltd. vs M/S Samtex Desinz Pvt. Ltd.' dated 26.07.2021 and in 'Pioneer Urban Land and Infrastructure Limited & Anr. Vs. Union of India & Ors [(2019) 8 SCC 416]' to buttress his argument that a Debenture Holder is also a Financial Creditor under the provisions of IBC and the Debenture Holders can claim repayment of a debt on the basis of such a relationship of financial creditor and corporate debtor. 19. The Learned Counsel for the Respondents No. 1 and 2 has placed reliance on the judgment in the case of 'Anuj Jain Vs. Axis Bank Limited (2020) 8 SCC 401' to contend that even in that case there was no disbursal of monies by the Corporate Debtor but such an argument was rejected and further the case of the Anuj Jain dealt with a mortgage and not a guarantee whereas in the present cas....
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....bscribe to debentures pursuant to a guarantee issued by the Corporate Debtor which is mentioned in recital 3 of DTD, and also in clause 2 the corporate debtor acting as a guarantor and co-obliger has undertaken to repay the monies to the Debenture Holders. Moreover, the Corporate Debtor had also undertaken to make payments to Debenture Holders upon issuance of a Demand Certificate by the Debenture Trustee which is incorporated in clause 4 of the DTD which has been done in the present case. 21. The Learned Counsel for the Respondents No. 1 and 2 has finally argued that the Respondents No. 1 and 2 as the Debenture Holders are the Financial Creditors within the meaning of the IBC and the responsibilities / obligations of the Corporate Debtor are clearly enumerated in the Debenture Trust Deed and the Deed of Guarantee and nowhere expressly or impliedly the rights of the Respondents No. 1 and 2 as the Debenture Holders to take recourse of provision of law regarding repayment of NCDs has been restricted. He has further argued that any instrument cannot restrict the statutory right conferred upon the Debenture Holders as the Financial Creditors and invoke the provision of the IBC under S....
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....tered into between various parties viz. LDRPL (Issuer Company), Mr. Rustom Darius Bharucha, Mr. Zubin Darius Bharucha, Bharucha & Motivala Infrastructure Pvt. Ltd. and PRA Realty (India) Pvt. Ltd. and Vistra ITCL (India) Limited (The Debenture Trustee). Out of these parties, Bharucha & Motivala Infrastructure Pvt. Ltd. and PRA Realty (India) Pvt. Ltd. are the Guarantors and Co-Obligors of the issued NCDs as is laid down in the Debenture Trust Deed. The paragraphs 10, 11 and 12 of the Recital of the DTD are as follows:- "10. With a view to raising debt for the purposes as more particularly described hereinafter, the Company being duly empowered by its memorandum of association and articles of association and pursuant to the authority granted by the resolution of the Board of Directors of the Company passed as its meeting held on 10th September, 2016 and authority granted by the resolution passed by the Shareholders in their meeting held on 15th September, 2016, (certified true copies of said resolutions are attached herein as Schedule AF) intends to issue, by way of a private placement, Debentures (as hereinafter defined) to the Debenture Holders in one or more tranches in the man....
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....TD. Further clause 3.4, which is about disbursement of the amount by Debenture Holders for subscription of NCDs, states as follows:- "3.4 It is clarified that the Debenture Holders shall disburse the Debentures Subscription Amount, directly into the Debenture Payment Account in accordance with the provisions of this Deed". 30. Clauses 8.6(b) & (d) which are relevant about principal payment of the redemption amount and ensuring a pre-tax IRR to the Debenture Holders by the Issuer Company are as follows:- "8.6(b) Notwithstanding anything to the contrary stated herein, the Company shall, in addition to the principal amounts outstanding, be liable to pay a Redemption Premium to ensure that the Debenture Holders receive a pre-tax IRR of 21.67%,... 8.6(d) Upon redemption of the NCDs, if the Company does not pay the Redemption Amount to Debenture Holders, the Debenture Holders and the Debenture Trustee shall be entitled to exercise any of their rights as set out in the Transaction Documents and the Security shall be enforceable in the manner set out in the Transaction Documents." 31. Further clause 8.12(a), which is regarding 'Payments', states as follows:- "All payments shal....
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....een B & M Infra and PRA Realty (India) Pvt. Ltd (both as "the Guarantors" who have 'jointly and severally, absolutely, irrevocably and unconditionally agree and guarantee" the covenants of the Deed), Vistra ITCL (India) Limited ("Debenture Trustee") and LDRPL ("the Company") as a confirming party. In this Deed of Guarantee, B & M Infra and PRA Realty India Pvt. Ltd. are collectively referred to a Guarantors who have jointly and severally signed the Deed of Guarantee). 36. The recital of this Deed of Guarantee clearly states that upon a request made by the Issuer Company and the other Security Providers to the Debenture Holders, the Debenture Holders have decided to invest in the Issuer Company up to an amount of Rs. 40,00,00,000/- by subscribing to NCDs and the Guarantee is being issued by the Guarantors in follow up to the issue of NCDs. Recital 4 of this Deed of Guarantee is particularly noticed in this regard which is as follows:- "4. In consideration of the Debenture Holders agreeing to subscribe to the NCDs in terms of the Debenture Trust Deed and the Transaction Documents, the Guarantors have agreed to issue and execute this Guarantee, the terms and conditions whereof are ....
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.... for appropriation towards the Debenture Outstandings and all other sums payable by the Security Providers to the Debenture Trustee and/or the Debenture Holders (as the case may be) under the Debenture Trust Deed and/or any other Transaction Documents. 39. Further, Clause 4 of the "Deed of Guarantee" very clearly places the obligation on the Guarantors for the payment of the amount mentioned in the Demand Certificate, which is as follows:- "4. The Guarantors agree and undertake that they shall without any demur, delay or protest and on first demand and no later than two days of receipt of a demand certificate in writing in the format annexed as Schedule I (Demand Certificate) from the Debenture Trustee demanding payment of the amount mentioned therein, make payment of such amount to the Debenture Holders, towards the Obligations, as per the demand certificate." 40. Thus a reading of the recitals 2, 3 & 4 and clauses 2 and 4 of the 'Deed of Irrevocable and Unconditional Guarantee' makes it clear that the Guarantors have jointly and severally undertaken without any demur, delay or protest and on first demand and no later than two days of the receipt of a demand certificate in w....
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....or; who would engage in restructuring of the loan as well as in reorganisation of the corporate debtor's business when there is financial stress. In other words, the financial creditor, by its own direct involvement in a functional existence of corporate debtor, acquires unique position, who could be entrusted with the task of ensuring the sustenance and growth of the corporate debtor, akin to that of a guardian. In the context of insolvency resolution process, this class of stakeholders namely, financial creditors, is entrusted by the legislature with such a role that it would look forward to ensure that the corporate debtor is rejuvenated and gets back to its wheels with reasonable capacity of repaying its debts and to attend on its other obligations. Protection of the rights of all other stakeholders, including other creditors, would obviously be concomitant of such resurgence of the corporate debtor. 51. Indisputably, the debts in question are in the form of third party security; said to have been given by the corporate debtor JIL so as to secure the loans/advances/facilities obtained by JAL from the respondent-lenders. Such a 'debt' is not and cannot be a 'financial debt' w....
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....also referred to judgment of NCLT, Mumbai in 'Bennett Property Holdings Company Ltd. vs. Brick Eagle Affordable Housing (CP (IB) 1267/I&B/2019)' to claim that debt subscription agreement is as would as a loan agreement as has been held in para 24 of this judgment. As has been noted above in various judgments cited earlier in this judgment, the Debenture Holders are Financial Creditors within the meaning of Section 5(8) of the IBC and the Corporate Debtor who has Co-obligor and Guarantor of the loan holds responsibility and obligations to repay the debts as is laid down in clause .......of the Deed of Irrevocable and Unconditional Guarantee and therefore, the jural relationship between the Debenture Holders as the Financial Creditor and the Corporate Debtor as Guarantor cum Co-obligor is clearly established. 47. On the other hand, the Learned Counsel for the Respondent has cited the judgment in the matter of 'M/S Orator Marketing Pvt. Ltd. vs M/S Samtex Desinz Pvt. Ltd., (2021) SCC OnLine SC 513' in which the relevant portion is as follows: "14. In Pioneer Urban Land and Infrastructure Ltd. Vs. Union of India4, this Court speaking through Nariman, J. referred to several earlier j....
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....ational debtors, as has been pointed out hereinabove. So far as unequals being treated as equals is concerned, home buyers/allottees can be assimilated with other individual financial creditors like debenture holders and fixed deposit holders, who have advanced certain amounts to the corporate debtor. For example, fixed deposit holders, though financial creditors, would be like real estate allottees in that they are unsecured creditors. Financial contracts in the case of these individuals need not involve large sums of money. Debenture holders and fixed deposit holders, unlike real estate holders, are involved in seeing that they recover the amounts that are lent and are thus not directly involved or interested in assessing the viability of the corporate debtors. Though not having the expertise or information to be in a position to evaluate feasibility and viability of resolution plans, such individuals, by virtue of being financial creditors, have a right to be on the Committee of Creditors to safeguard their interest. Also, the question that is to be asked when a debenture holder or fixed deposit holder prefers a Section 7 application under the Code will be asked in the case of a....
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....for repayment of the financial debt owed to the financial creditors. Therefore, the discretion has to be exercised in favour of the financial creditors who, in the present case, are the Debenture Holders. 52. The Learned Counsel for the Respondent has also placed reliance on a decision of this Tribunal in the case of 'Ascot Realty Pvt. Ltd. Vs. Ajay Kumar Agarwal & Ors., 2020 SCC Online NCLAT 732' which is as follows, to claim that guarantors are not liable to repay financial debt:- "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....
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.... form of release of fund as a "borrowing" and must have a "time value of money". The method may be different but the nature must be borrowing and in extended terminology even the liability in respect of guarantee is also covered. There must be a "Financial Debt" which is owed by the other side i.e. the Debtor. It should be amply clear that the CD owe the "Financial Debt" to the Creditor. There is a difference between the levy of liquidated damages or penal interest for default and the financial debt per se. Hence, we cannot borrow unrelated concept from unrelated judgments to prove that wherever a word "interest" is there it means corresponding to a "Financial Debt" and we accordingly confirm that "Financial Debt" will always carry an interest towards time value of money. However, interest per se in any business contract cannot be termed to make the "debt" as a "Financial Debt", if it is in the nature of liquidated damages or in the nature of penal interest, which is a result of compensation for breach of contract which is stipulated for penalty. Hence, while examining the case, whether the Appellant is a Financial Creditor or not we are now arriving at a conclusion based on above ....
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....herein. Form 1 is a detailed form in 5 parts, which requires particulars of the applicant in Part I, particulars of the corporate debtor in Part II, particulars of the proposed interim resolution professional in Part III, particulars of the financial debt in Part IV and documents, records and evidence of default in Part V. Under Rule 4(3), the applicant is to dispatch a copy of the application filed with the adjudicating authority by registered post or speed post to the registered office of the corporate debtor. The speed, within which the adjudicating authority is to ascertain the existence of a default from the records of the information utility or on the basis of evidence furnished by the financial creditor, is important. This it must do within 14 days of the receipt of the application. It is at the stage of Section 7(5), where the adjudicating authority is to be satisfied that a default has occurred, that the corporate debtor is entitled to point out that a default has not occurred in the sense that the "debt", which may also include a disputed claim, is not due. A debt may not be due if it is not payable in law or in fact. The moment the adjudicating authority is satisfied tha....