2019 (10) TMI 1363 - Tri - Insolvency and Bankruptcy

Equitable treatment to the Applicant as against the other Financial Creditors - case of these Applicants is that since the Corporate Debtor has entered into a registered agreement of sale to sell flats, they shall be considered as secured creditors because sale agreement has been executed in favour of these Creditors - HELD THAT - It has been holding that if classification is permissible by change of the character of the obligation between the parties, such classification can neither be erased nor invented by the court. Therefore, this Bench on its own, cannot read into something that is not present in the Code. When Section 53 of the Code is very clear that secured creditors are placed ahead of other creditors, now this Bench cannot upgrade anybody to any position other than the position already law mandates. In this case, it is no doubt the applicants invested money for returns through MoU dated 29.01.2015 and also simultaneously entered into Registered Sale Agreements dated 29.01.2015, the Corporate Debtor agreeing to sell undivided share of vacant land in Schedule-B of that Agreement, but it does not reflect creation of charge or passing of interest in favour of these applicants, indeed one of the sale agreements reflects that charge is in force in favour of Tata Capital Housing Finance Limited - After having verified the MoU dated 29.01.2015 and Registered Sale Agreement dated 29.01.2015, since we have not found anywhere creation of any kind of charge over the asset, these Applicants cannot insist upon the Resolution Professional or the CoC to consider them as secured creditors. If they are not shown as secured creditors based on the two documents afore mentioned, their candidature cannot be called as secured creditors. These Creditors are not entitled to be shown as secured creditors for no interest over the asset of the Corporate Debtor has been conveyed to these two creditors having only 2.24% voting rights in the CoC and they cannot restrain the actions of the majority of the CoC members - Application dismissed.

Summary

Issues:
1. Whether the Applicants should be considered as secured financial creditors based on the Sale Agreement.
2. Whether the Applicants are entitled to equitable treatment as against other financial creditors.
3. Allegations regarding non-supply of minutes, cancellation of UDS, and reconsideration of claims.

Analysis:

Issue 1: Secured Financial Creditors
The Applicants sought to be treated as secured financial creditors based on a Sale Agreement with the Corporate Debtor. The Tribunal examined the Sale Agreement and noted that while it was registered, it did not reflect the transfer of title, possession, or any other right to the Applicants. The Tribunal emphasized that for a creditor to be considered secured, a security interest must be created over an asset, as defined in the Insolvency and Bankruptcy Code. In this case, no such interest or claim was created in favor of the Applicants. The Tribunal clarified that a mere agreement to sell property does not amount to creating a charge over the property, especially if it does not transfer any interest as required by the Transfer of Property Act. Therefore, the Tribunal dismissed the Applicants' claim to be treated as secured creditors.

Issue 2: Equitable Treatment
The Applicants also sought equitable treatment compared to other financial creditors. The Tribunal referred to a Supreme Court judgment highlighting the distinction between secured and unsecured creditors, emphasizing that financial creditors have priority over operational creditors. The Tribunal noted that the Code places secured creditors ahead of other creditors, and it cannot alter this hierarchy. Despite the Applicants' investments and agreements with the Corporate Debtor, the Tribunal found no evidence of a charge or interest in their favor. Therefore, the Tribunal held that the Applicants could not be upgraded to secured creditor status beyond what the law mandates.

Issue 3: Allegations of CoC Actions
The Applicants raised various allegations regarding the conduct of the Committee of Creditors (CoC), including non-supply of meeting minutes, potential cancellation of Undivided Share (UDS) in favor of other buyers, and requests for reconsideration of claims. The Tribunal reviewed the responses from the Resolution Professional (RP) and found no substantial evidence supporting these allegations. As the CoC had already approved the Resolution Plan with a significant voting share, the Tribunal deemed these allegations devoid of merit. Consequently, the Tribunal dismissed the Applications, stating that the Applicants lacked any interest over the Corporate Debtor's assets and could not restrain the CoC's actions.

In conclusion, the Tribunal ruled that the Applicants could not be considered secured creditors based on the Sale Agreement and were not entitled to equitable treatment beyond the legal hierarchy established by the Code. The allegations against the CoC were found to be unsubstantiated, leading to the dismissal of the Applications.