2018 (1) TMI 1335 - Tri - Companies Law

Corporate insolvency resolution process - financial debt - Held that - RP would not merit any detailed consideration and the same are hereby rejected. The aforesaid detailed facts would further show that the parties have provided for the course to be adopted in the guarantee agreement in case of default by the principal borrower in relation to guarantee. It is well settled that the right of the parties under section 128 of the Indian Contract Act 1872 are subject to the terms of the agreement between the parties and hence the guarantor or the Resolution Professional are not entitled to raise an objection which goes against the express terms of guarantee agreement duly executed between the Financial Creditor and the ESSL Corporate Debtor. Therefore on that count also the objection raised by the RP are liable to be rejected. As a sequel to the above discussion we dispose of this application as per the following directions (a) The applicant being a financial creditor has to be given its due place in the Committee of Creditor by permitting it to join the Corporate Insolvency Resolution Process initiated in the matter of ESSL - Corporate Debtor. (b) The applicant shall be entitled to have its voting rights determined as per its proportion.

Summary

Issues Involved:
1. Rejection of ICICI Bank's claim by the Resolution Professional.
2. Determination of ICICI Bank's status as a Financial Creditor.
3. Admissibility of simultaneous claims against the principal borrower and corporate guarantor.
4. Privity of contract between ICICI Bank and the Corporate Debtor.
5. Voting rights in the Committee of Creditors (COC).

Issue-wise Detailed Analysis:

1. Rejection of ICICI Bank's claim by the Resolution Professional:
The application was filed by ICICI Bank Ltd. under Section 60(5) of the Insolvency & Bankruptcy Code 2016, seeking to set aside the decision of the Resolution Professional (RP) dated 6.9.2017, which rejected ICICI Bank's claim. The RP had expressed her inability to verify the claim amount from the books of the Corporate Debtor, ESSL, and suggested that the claim would be the balance amount after recovery from Edu Comp Solution. ICICI Bank argued that the liability of the guarantor (ESSL) and the principal debtor (Edu Comp Solution) is co-extensive and that the guarantee was invoked in accordance with the terms of the agreement.

2. Determination of ICICI Bank's status as a Financial Creditor:
The Tribunal examined the definition of 'Financial Creditor' and 'Financial Debt' under Section 5(7) and (8) of the Code. It was established that Edu Comp Solution, the principal borrower, enjoyed loan facilities from ICICI Bank, and ESSL furnished a guarantee for the same. Therefore, ICICI Bank qualifies as a 'Financial Creditor' since the debt owed to it by ESSL falls under the definition of 'Financial Debt.'

3. Admissibility of simultaneous claims against the principal borrower and corporate guarantor:
The RP contended that ICICI Bank could not simultaneously raise claims against both the principal borrower (Edu Comp Solution) and the corporate guarantor (ESSL) as it would create anomalies and potentially result in unjust enrichment. However, the Tribunal noted that the liability of the guarantor is co-extensive with that of the principal borrower, and ICICI Bank is entitled to proceed against both simultaneously. The Tribunal referenced Section 128 of the Indian Contract Act, 1872, and concluded that the right to claim against both entities is valid.

4. Privity of contract between ICICI Bank and the Corporate Debtor:
The RP argued that there was no privity of contract between ICICI Bank and ESSL, as the guarantee was executed between ESSL and the Security Trustee (SBI Cap Trustee Company Ltd.). However, the Tribunal rejected this objection, stating that the Corporate Guarantee clearly indicated that the Security Trustee was acting for the benefit of the lenders, including ICICI Bank. The Tribunal emphasized that the terms of the guarantee agreement allowed the lenders to demand payment from the Corporate Debtor, thereby establishing privity of contract.

5. Voting rights in the Committee of Creditors (COC):
ICICI Bank requested to be allowed to join the COC and be granted proportionate voting rights. The RP had provisionally admitted ICICI Bank's claim but did not grant voting rights pending a decision from the NCLT. The Tribunal directed that ICICI Bank, being a financial creditor, should be given its due place in the COC and be entitled to voting rights as per its proportion.

Conclusion:
The Tribunal concluded that ICICI Bank's claim should be admitted, and it should be allowed to join the COC with appropriate voting rights. The objections raised by the RP were rejected, and the application was disposed of with directions to recognize ICICI Bank as a financial creditor and grant it voting rights in the COC.