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2019 (3) TMI 1605 - Tri - Companies LawIncorporation of the claim of the Applicant herein as a Financial Creditor in the CoC - Mortgage of security towards loan - no corporate guarantee executed - HELD THAT - The Applicant/ Mortgagee of properties of the Corporate Debtor who had advanced loan to a third party is a Financial Creditor of the Corporate Debtor who is also entitled to exercise voting rights under the Code for enabling the successful implementation of CIRP. Accordingly the Resolution Professional is directed to collate the claim received from the Applicant as a Financial Creditor and include the Applicant in the CoC. Application allowed.
Issues Involved:
1. Whether the Applicant qualifies as a Financial Creditor under the Insolvency and Bankruptcy Code (IBC). 2. Whether the Resolution Professional (RP) erred in rejecting the Applicant's claim. 3. Whether the Applicant is entitled to participate in the Committee of Creditors (CoC) during the Corporate Insolvency Resolution Process (CIRP). Issue-wise Detailed Analysis: 1. Whether the Applicant qualifies as a Financial Creditor under the Insolvency and Bankruptcy Code (IBC): The Applicant, an Asset Reconstruction Company, argued that the mortgage created by the Corporate Debtor in favor of the Applicant qualifies them as a Financial Creditor under the IBC. The Applicant contended that the RP's decision to reject their claim was flawed, as a mortgage itself creates a right in favor of the lender to enforce the mortgage in case of default, thereby constituting a financial debt. The Applicant emphasized that under the Transfer of Property Act, 1882, the mortgagor binds himself to repay the mortgage money, and the Corporate Debtor had created an equitable mortgage by depositing title deeds with the Applicant. Therefore, the Applicant asserted that they should be treated as a Financial Creditor. The RP argued that the Applicant is not a Financial Creditor as defined under section 5(8) of the IBC, as the debt was not disbursed to the Corporate Debtor but to a third party. The RP maintained that the Applicant's claim could only be considered during liquidation under section 52 of the IBC, not during the CIRP. The Tribunal found that the mortgage executed by the Corporate Debtor in favor of the Applicant constitutes a security interest under section 3(31) of the IBC. The Tribunal referenced the Supreme Court's judgment in "Vijay Kumar Jain vs. Standard Chartered Bank," which highlighted that stakeholders with security interests are vitally interested in the resolution plan and should be included in the CoC. The Tribunal concluded that the Applicant, as a mortgagee, has a vested interest in the property and should be treated as a Financial Creditor. 2. Whether the Resolution Professional (RP) erred in rejecting the Applicant's claim: The Applicant argued that the RP's decision to reject their claim was without justification, contrary to natural justice, and not based on sound legal principles. The Applicant contended that the RP failed to appreciate the distinction between a mortgage and a guarantee and erroneously concluded that the absence of a corporate guarantee invalidated the Applicant's claim. The RP defended the rejection by stating that the Applicant's claim did not constitute a financial debt under the IBC. The RP further argued that the rights of the mortgagee could only be exercised during liquidation, not during the CIRP. The Tribunal disagreed with the RP's interpretation, stating that excluding the mortgagee from the CoC would violate natural justice and undermine the objective of the IBC. The Tribunal emphasized that the mortgagee, as a secured creditor, should be included in the CoC to ensure a fair and comprehensive resolution process. 3. Whether the Applicant is entitled to participate in the Committee of Creditors (CoC) during the Corporate Insolvency Resolution Process (CIRP): The Applicant sought to be included in the CoC to participate in the resolution process as a Financial Creditor. The Applicant argued that their exclusion would render the CIRP futile and create future complications. The Tribunal agreed with the Applicant, stating that the mortgagee's participation in the CoC is essential for a successful CIRP. The Tribunal noted that the CoC's decision on the resolution plan would be incomplete without considering the mortgagee's interests, as the mortgagee has a vested interest in the mortgaged property. The Tribunal referenced the judgment of the Hon'ble NCLAT in "Export Import Bank of India Vs. Resolution Professional of JEKPL Private Limited," which held that a guarantee given by a Corporate Debtor qualifies the guarantor as a Financial Creditor under section 5(8)(h) of the IBC. The Tribunal concluded that the Applicant, as a mortgagee, is entitled to exercise voting rights under the IBC and should be included in the CoC. Conclusion: The Tribunal allowed the application, directing the RP to collate the Applicant's claim as a Financial Creditor and include the Applicant in the CoC. The Tribunal emphasized that the Applicant's inclusion is necessary for the successful implementation of the CIRP, ensuring that all stakeholders' interests are adequately represented. No costs were awarded.
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