2020 (10) TMI 445 - Tri - Insolvency and Bankruptcy

Rejection of claim submitted by the applicant as a financial creditor under regulation 18 read with Form-D of the IBBI (Liquidation Process) Regulations 2016 - condonation of delay in filing present application - HELD THAT - Because the liquidation proceedings are yet to be finalised in the present case no prejudice will be caused if the claim of the applicant is adjudicated. Also section 238A of the I B Code makes applicable the provisions of Limitation Act 1963 on this Code the delay in filing of this application by the applicant deserves condonation. Further it cannot be said that the requirement of sufficient cause is not met out in this case as the applicant was not sleeping over its rights but was continuously following up with the liquidator for the perusal of its claims and this process caused the delay in filing this application - the delay is condoned. The loan agreements are executed between applicant and the borrower. It is worth to notice that the corporate debtor is not a party to the Loan agreement. It is also noticed that under Master Restructuring JLF Agreement dated 29th June 2015 the Pledge Agreement dated 2nd August 2016 was executed among other things by Varan Corporation Ltd. in favour of SBICAP Trustee Company Ltd. a security trustee acting as agent and security trustee for various lenders including for ICICI Bank Ltd. (Applicant). The corporate debtor has not undertaken any counter-indemnity obligation by the said pledge agreement dated 2nd August 2016 in respect of any guarantee indemnity bond documentary letter of credit or any other instrument given/issued by ICICI Bank. As per liquidator ICICI Bank has also confirmed that there is no guarantee given by the corporate debtor - The corporate debtor has only given security in the form of a pledge of shares of borrower for the loan facilities granted by the applicant to the borrower. Therefore it is worth to make a mention that the corporate debtor being not part of the loan agreement but only a facilitator to provide security by pledging the shares cannot be said to be a borrower. The terms of the deed of pledge are quite clear in this regard. Therefore it can be said that the said security given for the above loan is merely collateral security. In the present case what is denied by the RP is not the existence of security in the form of pledge of shares towards the debt granted by the applicant to borrower but the applicant s status as a guarantor/financial creditor of the corporate debtor in the light of section 5(8) of the Code. Hence being a secured creditor of the corporate debtor the option to move under section 52(1)(b) of the I B Code is always open to the applicant for realising the security interest on its own. Thus liquidator has rightly rejected the claim of the applicant on the ground that the applicant is not a financial creditor of the corporate debtor and the liability of the corporate debtor is restricted to the pledge of shares only which has already been meted with - petition dismissed.

Summary

Issues Involved:
1. Delay in filing the application under section 42 of the Insolvency and Bankruptcy Code, 2016.
2. Whether the claim of ICICI Bank Ltd. as a financial creditor is valid under the provisions of the Insolvency and Bankruptcy Code, 2016.

Issue-wise Detailed Analysis:

1. Delay in Filing the Application:

The applicant, ICICI Bank Ltd., filed a miscellaneous application under section 42 of the Insolvency and Bankruptcy Code, 2016, challenging the liquidator's order dated 12th September 2018, which rejected their claim of ?57,08,06,489.91. The application was filed after a delay of 18 days beyond the prescribed 14-day period. The applicant sought condonation of this delay under section 238A of the I&B Code read with section 5 of the Limitation Act, 1963.

The Tribunal acknowledged that section 238A of the I&B Code makes the provisions of the Limitation Act, 1963 applicable to the Code. It was noted that the liquidation proceedings were still ongoing, and no prejudice would be caused if the claim was adjudicated. The Tribunal held that the applicant was not negligent but was continuously following up with the liquidator, which caused the delay. Therefore, the delay was condoned.

2. Validity of ICICI Bank Ltd.'s Claim as a Financial Creditor:

The applicant contended that the corporate debtor had provided a pledge of shares to secure the financial facilities extended to Varan Resources Ltd. The applicant claimed that the corporate debtor's obligation to indemnify them for the borrower's default constituted a "financial debt" under section 5(8) of the I&B Code, thus making them a financial creditor.

The liquidator argued that the corporate debtor was not a party to the loan agreements and had only provided collateral security through the pledge of shares. The liquidator emphasized that the corporate debtor had no direct obligation to repay the debt and that the indemnity clause in the pledge agreement did not create a financial debt under section 5(8) of the I&B Code.

The Tribunal examined the relevant documents and agreements, noting that the corporate debtor was not a party to the loan agreements and had not undertaken any counter-indemnity obligation. The Tribunal referred to the decision in ICICI Bank v. Anuj Jain (RP for Jaypee Infratech Ltd.) and Phoenix ARC (P.) Ltd. v. Ketulbhai Ramubhai Patel, which clarified that collateral security does not constitute a financial debt under section 5(8) of the I&B Code.

The Tribunal concluded that the corporate debtor's pledge of shares did not amount to a disbursement of any amount against the consideration for the time value of money and thus did not qualify as a financial debt. The liquidator's rejection of the applicant's claim was upheld, as the applicant was not considered a financial creditor of the corporate debtor.

Conclusion:

The Tribunal dismissed the miscellaneous application filed by ICICI Bank Ltd., holding that the applicant was not a financial creditor of the corporate debtor and that the liquidator had rightly rejected the claim. The application was rejected in its entirety.