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2019 (7) TMI 464 - Tri - Insolvency and BankruptcyAppeal against the decision of liquidator - 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 - Section 42 of the I B Code - time limitation - condonation of Delay in filing application. Whether the delay in filing this application can be condoned or not? - HELD THAT - Because the liquidation proceedings are yet to be finalized in the present case, no prejudice will be caused if the claim of the applicant is adjudicated - 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 in filing this application is condoned. 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 U/s 52(1)(b) of the I B Code is always open to the Applicant for realising the security interest on its own. The 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 - application dismissed.
Issues Involved:
1. Delay in filing the application under Section 42 of the Insolvency & Bankruptcy Code (I&B Code). 2. Status of the Applicant as a Financial Creditor. 3. Interpretation of the Deed of Pledge and indemnity obligations. 4. Applicability of Section 238A of the I&B Code and the Limitation Act, 1963. Detailed Analysis: 1. Delay in Filing the Application: The application was filed 18 days beyond the prescribed 14-day period under Section 42 of the I&B Code. 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 noted that liquidation proceedings were not yet finalized, and no prejudice would be caused by adjudicating the claim. The delay was attributed to the Applicant's continuous follow-up with the Liquidator, and thus, the delay was condoned. 2. Status of the Applicant as a Financial Creditor: The Applicant argued that the Corporate Debtor’s obligation to indemnify under Clause 11 of the Deed of Pledge constituted a 'financial debt' under Section 5(8) of the I&B Code, making the Applicant a Financial Creditor. The Liquidator countered that the Corporate Debtor was not a party to the Loan Agreement and had only provided collateral security by pledging shares. The Tribunal agreed with the Liquidator, stating that the Corporate Debtor was not a borrower and the pledge of shares was merely collateral security, not a financial debt. 3. Interpretation of the Deed of Pledge and Indemnity Obligations: The Applicant claimed that Clause 11 of the Deed of Pledge created an indemnity obligation on the Corporate Debtor for the Borrower’s default. The Liquidator argued that this clause did not specify an 'event of default' and that the Corporate Debtor was not a party to the Master Restructuring JLF Agreement. The Tribunal found that the Corporate Debtor’s role was limited to providing collateral security and there was no privity of contract or counter-indemnity obligation making the Corporate Debtor liable as a Financial Creditor. 4. Applicability of Section 238A of the I&B Code and the Limitation Act, 1963: The Liquidator contended that Section 238A, which applies the Limitation Act to the I&B Code, was not applicable to appeals under Section 42. The Tribunal, however, condoned the delay, emphasizing that the Applicant was actively pursuing its claim and the liquidation proceedings were ongoing. The Tribunal further referenced the decision in T.R. Rajakumari v. Motion Picture Producers Combine Ltd., which allows creditors to prove their debt before final asset distribution without disturbing paid dividends. Conclusion: The Tribunal concluded that the Applicant, ICICI Bank Limited, was not a Financial Creditor of the Corporate Debtor under Section 5(8) of the I&B Code. The Corporate Debtor’s liability was limited to the pledge of shares, which had already been fulfilled. Consequently, the Miscellaneous Application challenging the Liquidator’s order was dismissed. The Tribunal upheld the Liquidator's decision to reject the Applicant’s claim of ?570,806,489.91.
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