2021 (11) TMI 841 - Tri - Insolvency and Bankruptcy

Validity of reclassification of claims of the applicants as Other Creditors from Secured Financial Creditors - revision of claim of RP - HELD THAT - Nowhere in the agreement, it is mentioned that the loan amount was transferred to the account of the Corporate Debtor. It is contended by the Resolution Professional that examination of the Balance Sheet and other records of the Corporate Debtor suggests that the liability of the Corporate Debtor under the above loan agreements were contingent in nature and the no direct borrowings from the Applicant/Creditor was ever reflected in the financials of the corporate debtor, despite the Corporate Debtor being joint borrower under the above loan agreement. Therefore, in de facto, the liability of corporate debtor under these loan agreements was always contingent and payable only in case of the default by the direct borrower. And this is not disputed by the Applicant. For a debt to become financial debt , the basic elements are that it ought to be a disbursal against the consideration for time value of money. Since, in the case in hand, there is no disbursal of the amount to the corporate debtor, therefore, the applicant cannot be treated as a financial creditor - the loan amount was not disbursed to the Corporate Debtor. Hence, this applicant is also not a financial creditor. Rather, the applicant is a secured creditor. Whether the RP can revise the claim or not? - HELD THAT - A bare perusal of the Sub Regulation 2 of Regulation 14 (Supra) shows that the interim resolution professional or the resolution professional, as the case may be, shall revise the amounts of the claims admitted, including the estimates of claims made under sub regulation (1) as soon as may be practicable, when he comes across additional information warranting such revision. Application dismissed.

Summary

Issues Involved:
1. Validity of reclassification of claims from "Secured Financial Creditors" to "Other Creditors."
2. Applicability of the Supreme Court's judgment in the Jaypee Infra case.
3. Authority of the Resolution Professional (RP) to revise claims.

Detailed Analysis:

1. Validity of Reclassification of Claims:
The Tribunal addressed the issue of whether the claims of the applicants, initially classified as "Secured Financial Creditors," could be reclassified as "Other Creditors." Both applicants, Non-Banking Financial Companies (NBFCs), had extended term loans to the Corporate Debtor and its group companies, with the Corporate Debtor acting as a co-borrower or guarantor. The RP reclassified the claims based on the Supreme Court's judgment in the Jaypee Infra case, which distinguished between "financial debt" and "secured debt."

2. Applicability of the Supreme Court's Judgment in the Jaypee Infra Case:
The Tribunal examined whether the Jaypee Infra case was applicable to the applicants' claims. The Supreme Court in Jaypee Infra held that for a debt to qualify as a "financial debt," it must involve a disbursal against the consideration for the time value of money. The Tribunal found that in both applications, the loan amounts were not directly disbursed to the Corporate Debtor. Instead, the Corporate Debtor's liability was contingent and payable only in case of default by the primary borrower. Therefore, the Tribunal concluded that the applicants' claims did not meet the criteria for "financial debt" as defined in the Insolvency and Bankruptcy Code (IBC).

3. Authority of the Resolution Professional (RP) to Revise Claims:
The Tribunal referred to Regulation 14 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, which allows the RP to revise claims based on additional information. The RP revised the claims in light of the Supreme Court's judgment in the Jaypee Infra case. The Tribunal held that the RP was empowered to revise the claims, as the reclassification was warranted by the new legal position established by the Supreme Court.

Conclusion:
The Tribunal dismissed both applications, upholding the RP's decision to reclassify the claims from "Secured Financial Creditors" to "Other Creditors." The Tribunal found that the applicants' claims did not qualify as "financial debt" under the IBC, as there was no direct disbursal of loan amounts to the Corporate Debtor. The RP's authority to revise claims based on additional information was also affirmed.