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2024 (12) TMI 1152 - SC - IBCClassification of appellant - Financial Creditors within the meaning of sub-section (7) of Section 5 of the Insolvency and Bankruptcy Code, 2016 or not - whether the appellants can be classified as Secured Creditors and paid commensurate to their security interest? - HELD THAT - Section 14(1) imposes an embargo or prohibition on certain acts. However, it does extinguish the claim. If the argument that the claims of all the creditors of the Corporate Debtor are extinguished once the moratorium comes into force is accepted, no creditor would be able to file a claim. For example, if money advanced is secured by a promissory note or a negotiable instrument, a suit for recovery based on the said documents will not lie once a moratorium comes into force. But, the liability under the documents will continue to exist. In fact, after moratorium, no creditor can recover any dues from the Corporate Debtor. But still, there is a provision for making a claim. Hence, the argument based on moratorium deserves to be rejected. The DoH will continue to be valid. However, on the basis of the DoH, something which is prohibited by Section 14, cannot be done. Therefore, Section 14 will be of no assistance to the 1st respondent-Doha Bank. 64. When we are on the interpretation of DoH, we must refer to sub-clause (vi) of clause 16 of the DoH, which provides that every provision contained in the deed shall be severable and distinct from every other such provision. If the right to payment exists or if a breach of contract gives rise to a right to payment, the definition of claim is attracted. Even if that right cannot be enforced by reason of the applicability of the moratorium, the claim will still exist. Therefore, whether the cause of action for invoking the guarantee has arisen or not is not relevant for considering the definition of claim . Much capital was made of the fact that the CoC, including the appellants as well as the third-party lenders, have voted for the Resolution Plan. At this stage, it is noted that the NCLAT has not held against the appellants on the ground that if the case of the appellants is accepted, it will amount to modification of the Resolution Plan - The NCLAT observed that the Resolution Plan was rightly approved, subject to the disposal of the pending application. In fact, in paragraph 7, the NCLAT observed that depending upon the outcome of the applications, if the Resolution Plan requires to be reconsidered, the adjudicating authority will do so after hearing the parties. This order has become final. The sum and substance of the above discussion is that the impugned judgment and order dated 9th September 2022 passed by the NCLAT cannot be sustained, and the order dated 2nd March 2021 of the NCLT deserves to be upheld. Accordingly, the impugned order of the NCLAT is quashed and set aside, and the order dated 2nd March 2021 passed by the NCLT, Mumbai Bench (adjudicating authority) is restored. The appeals are, accordingly, allowed.
Issues Involved:
1. Classification of appellants as 'Financial Creditors' under Section 5(7) of the Insolvency and Bankruptcy Code, 2016 (IBC). 2. Classification of appellants as 'Secured Creditors' if not 'Financial Creditors.' 3. Interpretation of Deeds of Hypothecation (DoH) and whether they constitute a guarantee. 4. Impact of moratorium under Section 14 of IBC on the appellants' claims. 5. Validity and enforceability of the Resolution Plan approved by the Committee of Creditors (CoC). Issue-wise Analysis: 1. Classification as 'Financial Creditors': - The primary issue was whether the appellants could be classified as 'Financial Creditors' under Section 5(7) of the IBC. The appellants argued that they should be considered as such due to the Deeds of Hypothecation (DoH), which they claimed included a guarantee. The court analyzed the DoH and found that the appellants had a right to payment under the terms of the DoH, which constituted a guarantee as per Section 126 of the Indian Contract Act, 1872. The court concluded that the appellants were indeed 'Financial Creditors' because the Corporate Debtor had undertaken to discharge the liability of the third parties (RCom and RTL) in case of default. 2. Classification as 'Secured Creditors': - The appellants contended that even if they were not classified as 'Financial Creditors,' they should be considered 'Secured Creditors' due to their security interest under the DoH. The court did not delve into this alternative argument, as it upheld the appellants' status as 'Financial Creditors.' 3. Interpretation of Deeds of Hypothecation: - The court examined the DoH and determined that the Corporate Debtor had provided a guarantee by agreeing to pay any shortfall or deficiency in the realization of the outstanding debt after the sale of hypothecated assets. This promise to discharge the liability of a third party (RCom and RTL) in case of default constituted a contract of guarantee under Section 126 of the Contract Act. The court emphasized that the title of the document (DoH) was not decisive; the content and effect of the document were crucial in determining its nature. 4. Impact of Moratorium: - The respondents argued that the moratorium under Section 14 of IBC extinguished the appellants' claims. However, the court clarified that the moratorium only prohibited certain actions but did not extinguish the claims themselves. The claims continued to exist, and creditors could file claims during the Corporate Insolvency Resolution Process (CIRP). The court rejected the argument that the contingent nature of the contract (DoH) was affected by the moratorium. 5. Validity of the Resolution Plan: - The appellants had voted in favor of the Resolution Plan, which was approved by the CoC. The court noted that the NCLAT had not held against the appellants on the grounds of modifying the Resolution Plan. The court referred to a previous order of the NCLAT, which had approved the Resolution Plan subject to the disposal of the pending application challenging the appellants' status. The court upheld the NCLT's order recognizing the appellants as 'Financial Creditors' and allowed the appeals, thereby restoring the NCLT's decision. Conclusion: The Supreme Court set aside the NCLAT's judgment and upheld the NCLT's decision, recognizing the appellants as 'Financial Creditors' based on the guarantee provided under the DoH. The court emphasized that the moratorium did not extinguish claims and that the Resolution Plan was approved subject to the outcome of the pending application regarding the appellants' status.
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