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2018 (7) TMI 1896 - AT - Insolvency and BankruptcyFinancial Creditor or not - right to claim any amount - Sections 5(7) r/w (8) of the Insolvency and Bankruptcy Code, 2016 - whether Andhra Bank come within the meaning of Financial Creditor for being treated as member of the Committee of Creditors ? Held that - If it is shown that the debt has been disbursed against consideration for time value of money then it is treated to be a Financial Debt , which may include debt as mentioned in Clause (a) to (i) of Section 5(8) - From clause (8) of Section 5, we find that any indemnity obligation in respect of a guarantee also come within the meaning of Financial Debt as defined under the said provision. Admittedly, the Corporate Debtor has counter-indemnity obligation in respect of guarantee given by it to the Appellant- Andhra Bank , we hold that Andhra Bank come within the definition of Financial Creditor as defined under Sections 5(7) r/w (8) of I&B Code . The Resolution Professional and the Adjudicating Authority both having failed to consider the aforesaid provisions of law, we set aside the impugned order dated 17th November 2017. Appeal allowed.
Issues:
1. Whether the Andhra Bank qualifies as a 'Financial Creditor' in the insolvency resolution process. 2. Interpretation of Sections 5(7) r/w (8) of the Insolvency and Bankruptcy Code, 2016. 3. Consideration of the counter-indemnity obligation in respect of a guarantee as 'Financial Debt'. 4. Exclusion of the period during which the appeal was pending for counting the 270-day period. 5. Inclusion of Andhra Bank as a member of the Committee of Creditors and its role in the approval of the Resolution Plan. Analysis: 1. The Appellate Tribunal considered the appeal of Andhra Bank, claiming to be a 'Financial Creditor' as the guarantor of the Corporate Debtor. The Adjudicating Authority had rejected the Bank's claim, stating that the Bank did not have the right to claim any amount unless there was a breach of contract. The Tribunal reviewed the provisions of the Insolvency and Bankruptcy Code, emphasizing that the Corporate Insolvency Resolution Process aims to maximize asset value and balance stakeholders' interests. 2. The Tribunal highlighted that the Resolution Process is not a recovery proceeding but a mechanism to resolve insolvency issues. It noted that even future debts can be claimed by creditors, and the rights of Financial Creditors are preserved post-resolution. The Tribunal clarified the role of the Resolution Professional in receiving and collating claims during the Moratorium period. 3. The Tribunal discussed the definition of 'Financial Debt' under Section 5(8) of the Code, which includes debts disbursed against the consideration for the time value of money. It pointed out that counter-indemnity obligations in respect of guarantees also fall under the definition of Financial Debt. As Andhra Bank had a counter-indemnity obligation from the Corporate Debtor, it qualified as a Financial Creditor. 4. Regarding the exclusion of the pending appeal period for counting the 270-day timeline, the Tribunal directed the Adjudicating Authority to consider this and instructed the Resolution Professional to present the approved Resolution Plan before the Committee of Creditors for further action. 5. The Tribunal allowed Andhra Bank to be a member of the Committee of Creditors but specified that objections to the Resolution Plan must be valid and in accordance with the Code. It emphasized that if the Plan is approved, the Corporate Debtor's obligations, including those to Andhra Bank, would continue, and Andhra Bank's rights would be preserved. The appeal was allowed with specific directions provided to the parties involved.
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