Insolvency and Bankruptcy Code, 2016 – ss.5(7), 5(8) – ‘Financial creditors’ – Classification of the appellant as ‘financial creditors’ – Guarantee as financial debt – Requirement of occurrence of default – 1st respondent-bank claims to be a direct lender and secured financial creditor of reliance RITLCorporate debtor – Corporate Insolvency Resolution Process initiated by National Company Law Tribunal in respect of RITL – Claims invited from the creditors – Appellants submitted their claims and Resolution Professional classified them as financial creditors, and were included in the Committee of CreditorsCoC – 1st respondent challenged the admission of the claims of the appellants before NCLT that the appellants were not direct lenders of the corporate debtor, and it was impermissible to admit them as financial creditors on the basis of various terms of the deeds of hypothecation-DoH – Meanwhile, the NCLT approved the resolution plan – In appeal, the NCLAT directed the NCLT to decide the application – NCLT dismissed the application, upholding the status of the appellants as financial creditors – In appeal, the NCLAT holding that the DoH is not a deed of guarantee and the only parties to the DoH were the Chargors and Security Trustee, and Chargors cannot be treated as guarantors, set aside the order passed by the NCLT and remanded the case for taking consequential actions resulting from de-recognising the first four appellants as financial creditors – Sustainability:
Held: Not sustainable – When clause (i) of s.5(8) is applicable, it is not necessary that the Financial Creditor actually tenders any amount to the Corporate Debtor – DoH is a Document creating hypothecation – Only the title of a document cannot be a decisive factor in deciding the nature of the document or the transactions affected by the document – Only because the title of the document contains the word hypothecation, it cannot be concluded that guarantee is not a part of this document – Appellants are Secured Lenders within the meaning of the Master Security Trustee Agreement-MSTA – Two RCom entities-RCom and RTL, are the obligors being the borrowers of the appellants – Parties to DoH are Security Trustees acting on behalf of the appellants, the Corporate Debtor who is not the borrower of the appellants and the other three Reliance entities – Corporate Debtor undertook to discharge the liability of the RCom and RTL, the borrowers of the appellants – RCom and RTL are third parties as far as Corporate Debtor is concerned – Furthermore, s.7(1) provides that Financial Creditor can initiate CIRP against the Corporate Debtor when there is a default on the part of the Corporate Debtor – Moment it is established that the financial debt is owed to any person, he/she becomes a Financial Creditor – On facts, the appellant has a claim – No requirement incorporated in the definition of ‘financial debt’ u/s.5(8) that a debt becomes financial debt only when default occurs – U/s.5(7) any person to whom financial debt is owed becomes a Financial Creditor even if there is no default in payment of debt – Thus, for submitting the claim by a Financial Creditor, no requirement of actual default – Impugned order of the NCLAT quashed and set aside and that of the NCLT restored. [Paras 48, 49, 52, 53, 55, 56, 59, 61, 62, 66, 68]
As published in the Supreme Court Reports, Supreme Court of India. Headnotes prepared by: Nidhi Jain. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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