2021 (12) TMI 908 - AT - Insolvency and Bankruptcy

Tripartite agreement - financial creditors or not - whether the Appellant/M/s. Axis Bank can be considered as a Financial Creditor on account of its having sanctioned and released housing loans to some of the allottees who have purchased Flats/units in the Project floated by the Corporate Debtor ? - HELD THAT - It is clear from the principle laid down by the Hon ble Supreme Court in Pioneer Urban Land Infrastructure Ltd. Anr. 2019 (8) TMI 532 - SUPREME COURT that it is the Home Buyer who should be considered as Financial Creditors of the Corporate Debtor whether he has self financed his flat or has exercised his choice of taking a loan from the Bank - admittedly, as per Section 77 of the Companies Act, 2013 every security interest has to be registered with the Registrar within 30 days of its creation and admittedly no charge has been created against any of the property of the Corporate Debtor in favour of the Appellant. A perusal of the documents shows that none of the Home Buyers appeared in any of the proceedings before the DRT whereby the recovery certificates were obtained - a mere Permission to Mortgage is of no relevance in the absence of not having registered a charge under Section 77 of the Companies Act, 2013. It can be seen from the material on record that Axis Bank had rendered financial assistance for the purpose of booking units in the Project floated by the Corporate Debtor and had a tie-up with the Corporate Debtor for procuring business from the Home Allottees. The Home Loan Agreements in these cases were made individually by the Borrowers. As per standing instructions, the money in the account of the Home Allottees was disbursed automatically to the Corporate Debtor - The Home Loan Agreement read with the Demand Letters and the Allotment Letter clearly specify that when there is a default on behalf of the Home Allottee a penalty interest would have to be paid by the allottee to the Bank. Therefore, the default aspect is to be seen vis-a-vis the Home Allottee and the Appellant Bank only. It is contended by the Respondent that though the Allotment Letter shows that the payments were construction linked, the Bank released the entire amount prior to completion of construction. It is definitely not the scope and objective of the Code to include Banks/Financial Institutions which have advanced loans to Home Buyers to be considered as Financial Creditors and included in the CoC, specifically in the light of the fact the liability to repay the Home Loan is on the individual Home Buyers. This would defeat the very spirit and objective of the Code aiming at Resolution and maximisation of the assets of the Corporate Debtor . Presence of a mere tri-partite Agreement does not change the character of the amount borrowed by the Home Buyer vis-a-vis the Bank and vis-a-vis the Corporate Debtor . Viewed from any angle, the Appellant cannot be included as a Secured Financial Creditor in this case and hence, there are no reasons to interfere with the well-reasoned Order of the Adjudicating Authority. This Appeal fails and is accordingly dismissed.

Summary

Issues Involved:
1. Whether Axis Bank can be considered a 'secured financial creditor' of the corporate debtor.
2. Whether the loans advanced by Axis Bank to home buyers qualify Axis Bank as a 'financial creditor' under the Insolvency and Bankruptcy Code, 2016.
3. The validity of Axis Bank's claim based on the decree/recovery certificate issued by the Debt Recovery Tribunal (DRT).

Issue-Wise Detailed Analysis:

1. Whether Axis Bank can be considered a 'secured financial creditor' of the corporate debtor:
The appellant, Axis Bank, sought to be recognized as a 'secured financial creditor' of the corporate debtor, claiming that loans were advanced to home buyers who purchased units in the corporate debtor's project. Axis Bank argued that it should be accorded all rights and privileges of a secured financial creditor, including proportionate voting rights in the Committee of Creditors (CoC). The tribunal observed that Axis Bank cannot be called a creditor to the corporate debtor because the loans were given to the home buyers, not directly to the corporate debtor. Thus, the application was dismissed as devoid of merit and misconceived.

2. Whether the loans advanced by Axis Bank to home buyers qualify Axis Bank as a 'financial creditor' under the Insolvency and Bankruptcy Code, 2016:
The tribunal considered whether Axis Bank, by sanctioning loans to home buyers, could be deemed a 'financial creditor' of the corporate debtor. The tribunal referred to the definitions under Sections 3(10), 5(7), and 5(8) of the Insolvency and Bankruptcy Code, 2016. The tribunal emphasized that home buyers are considered 'financial creditors' irrespective of whether they financed their flats through loans or their own finances, as established in the Supreme Court judgment in 'Pioneer Urban Land & Infrastructure Ltd. & Anr. Vs. Union of India & Ors.' The tribunal concluded that the liability to repay the loan is on the individual home buyers, and the presence of a tri-partite agreement does not alter the nature of the debt. Therefore, Axis Bank cannot be included as a 'financial creditor' in the CoC.

3. The validity of Axis Bank's claim based on the decree/recovery certificate issued by the Debt Recovery Tribunal (DRT):
Axis Bank argued that the recovery certificates issued by the DRT against the home buyers and the corporate debtor should qualify it as a creditor. However, the tribunal noted that the recovery certificates were obtained ex-parte and that no charge was created under Section 77 of the Companies Act, 2013, in favor of Axis Bank. The tribunal emphasized the necessity of registering a charge to establish a security interest and found that Axis Bank had not done so. Furthermore, the tribunal found no evidence that Axis Bank had taken steps under Section 78 of the Companies Act, 2013. Consequently, the tribunal held that the recovery certificates did not substantiate Axis Bank's claim as a secured financial creditor.

Conclusion:
The tribunal dismissed the appeal, holding that Axis Bank cannot be considered a 'secured financial creditor' or a 'financial creditor' of the corporate debtor based on the loans advanced to home buyers. The tribunal emphasized the importance of the registration of charges and the specific definitions under the Insolvency and Bankruptcy Code, 2016. The well-reasoned order of the adjudicating authority was upheld, and the appeal was dismissed with no order as to costs.