2018 (12) TMI 1921 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial debt or not - Guarantee or not - existence of debt and dispute or not - whether the undertaking of the Corporate Debtor to purchase the loan in part or whole in pursuance of clauses 2 and 4.2 of the Loan Purchase Agreement (Annexure A/ 5) amounts to guarantee within the meaning of Section 126 of the Contract Act? - whether the Corporate Debtor by executing the Promoter's undertaking, deed of pledge and undertaking dated 27.03.2015 as an additional contractual comforts providing that the Corporate Debtor undertook to arrange for funding any cost overrun in the project and shortfall in payment to lenders in the event of termination of the Concession Agreement would arnount to 'Guarantee'? HELD THAT - There is no doubt left that Concession Agreement was terminated by the NHAI on 25.05.2018 resulting in the emergence of right provided in the Promoter's Undertaking, Deed of Pledge and the Corporate Debtor undertaking dated 27.03.2015 (Second Promoters Undertaking). A bare perusal of Section 126 of the Contract Act makes it patent that it demystify a contract of guarantee to mean a contract to perform the promise, or discharge the liability of a third person in case of his default. The parties involved are known as 'surety' 'principal debtor' and the 'creditor'. A contract of guarantee involves three parties creditor, surety, and principal-debtor. A contract of guarantee must, therefore, involve a contract to which all those parties are privy. A guarantee is an undertaking to indemnify, if some other person does not fulfil his promise. The liability under a contract of guarantee is conditional on the default of the principal-debtor, and hence does not amount to a 'promise to pay' - It is evident from the facts of this case that Principal Debtor are EIIL and DHPL. The Corporate Debtor is the 'Surety' and the applicant is 'Creditor'. The essential ingredients of contract of guarantee are also fulfilled as is patent from the preceding paras. As per various clauses surety has stood guarantee for the facilities given in case of default by the Principal Debtor. The default has occurred and the amount is recoverable from the Corporate Debtor. If that be so then the Resolution Professional was not justified to decline the claim made by the applicant. It may be true that every security interest would not be a guarantee but in the present case as already held that 'NonDisposal Undertaking' coupled with other would amount to Guarantee. A 'financial creditor' is a person to whom financial debt is owed and the financial debt means a debt along with interest which is disbursed against consideration for the time value of money. The financial debt in the present case is the amount of liability in respect of any of the guarantee as referred in clauses (a) to (h) of Section 5 (7) of the Code. Therefore, any amount raised under any other transaction which has the commercial effect of a borrowing would be considered as financial debt as is specified by Section 5 (8) (f) of the Code. The Corporate Debtor is liable to repay the amount granted by the ICICI Bank Limited to Era Infrastructure (India) Limited and Dehradun Highways Project Limited, as a Financial Debt as per the provisions of the Code - Application allowed.

Summary

Issues Involved:
1. Whether the Corporate Debtor is liable to repay the amount granted by ICICI Bank Limited to Era Infrastructure (India) Limited (EIIL) and Dehradun Highways Project Limited (DHPL) as a Financial Debt.
2. Whether the claims of ICICI Bank should be admitted as Financial Debt by the Resolution Professional.
3. Whether the voting share of ICICI Bank in the Committee of Creditors (COC) should be revised based on the admitted claims.

Issue-wise Detailed Analysis:

1. Liability of the Corporate Debtor to Repay Financial Debt:
The Tribunal examined whether the Corporate Debtor is liable to repay the amounts granted to EIIL and DHPL as Financial Debt. The Tribunal noted that ICICI Bank had extended various credit facilities to EIIL and DHPL, secured by guarantees and securities provided by the Corporate Debtor. The Corporate Debtor had executed several agreements, including a Loan Purchase Agreement, Non-Disposal Arrangement, and Promoter's Undertaking, which guaranteed payment in case of default by EIIL and DHPL. The Tribunal found that these agreements constituted a contract of guarantee under Section 126 of the Contract Act, 1872, making the Corporate Debtor liable as a surety for the defaults of EIIL and DHPL.

2. Admission of ICICI Bank's Claims as Financial Debt:
The Tribunal reviewed the Resolution Professional's rejection of ICICI Bank's claims, which were based on the argument that the claims did not constitute Financial Debt under the Insolvency and Bankruptcy Code, 2016. The Tribunal analyzed the relevant clauses of the Loan Purchase Agreement and other securities provided by the Corporate Debtor. It concluded that the agreements and undertakings provided by the Corporate Debtor amounted to guarantees, thereby qualifying as Financial Debt under Section 5(8) of the Code. The Tribunal referenced the judgment of the Bombay High Court in IL&FS Financial Services Limited v. Vandana Global Limited, which supported the interpretation of such agreements as guarantees. Consequently, the Tribunal directed the Resolution Professional to admit ICICI Bank's claims as Financial Debt.

3. Revision of Voting Share in the Committee of Creditors (COC):
The Tribunal addressed the issue of revising ICICI Bank's voting share in the COC. Given that ICICI Bank's claims were to be admitted as Financial Debt, the Tribunal directed the Resolution Professional to revise the list of financial creditors to include ICICI Bank's claims amounting to INR 700.75 crores. This inclusion would adjust ICICI Bank's voting share in the COC proportionally to the admitted claims, thereby granting it a significant say in the decision-making process of the Corporate Insolvency Resolution Process (CIRP).

Conclusion:
The Tribunal allowed the application by ICICI Bank, setting aside the Resolution Professional's decision to reject the claims. It directed the Resolution Professional to admit the claims as Financial Debt, revise the list of financial creditors, and adjust ICICI Bank's voting share in the COC accordingly. The decision underscores the interpretation of guarantees under the Contract Act and their recognition as Financial Debt under the Insolvency and Bankruptcy Code.