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TMI Blog2019 (12) TMI 1366X X X X Extracts X X X X X X X X Extracts X X X X ..... Insolvency & Bankruptcy Code, 2016 for initiation of CIRP against the same corporate debtor. Such CP (IB) No. 1662/KB/2018 was disposed off for the reason that corporate debtor had already been admitted under CIRP and the applicant was granted leave to file its claim before the IRP as per Rules. Accordingly, the applicant filed its claim in the specified form which was admitted. 3. Ld. Sr. Counsel appearing on behalf of the applicant after narrating basic facts pleaded that the admission of corporate debtor in CIRP was an act of fraud as its application filed under Sec. 7 of the Insolvency & Bankruptcy Code, 2016 which was filed prior to the other application was pending on the passing of order dated 20/6/2019. In this regard, it was pointed out by the Bench that the grievance against admission of other application filed under Sec. 7 of the Insolvency & Bankruptcy Code, 2016 had already been argued in separate application filed in that regard, hence, Ld. Sr. Counsel was advised to address the Bench on the issues raised in this application. 4. Ld. Sr. Counsel, thereafter, contended that the corporate debtor had given corporate guarantee in respect of loan facilities granted to its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 and 78 of the Paper Book and drew our attention to the details of guarantees that had been given in relation to the debts of the corporate debtor by other persons specifying which of the guarantors were related parties. In this schedule, the details of bank guarantee of Rs. 14 crore given by Skipper Furnishings Pvt. Ltd. was mentioned. It was also mentioned that such concern was a related party. Thereafter, he drew our attention to clause 8.2 at page 78 of the Paper Book containing details of guarantees that had been given by the corporate debtor in relation to the debts of others which included bank guarantee worth Rs. 16 crore given on behalf of Skipper Furnishings Pvt. Ltd. to ICICI Bank. 9. Ld. Sr. Counsel submitted that the actions of RP were not in accordance with the provisions of Insolvency & Bankruptcy Code, 2016 read with relevant regulations made thereunder and, consequently, such actions were liable to be declared null and void. Ld. Sr. Counsel relied on judicial decision and distinguished the decisions relied by the RP/ICICI Bank which we shall be dealing with in the later part of this order. 10. Ld. Counsel for ICICI Bank initiated his argument by submitting that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k and drew our attention to the relevant provision of Insolvency & Bankruptcy Code, 2016. It was contended that the event of default of debt had nothing to do with the claim of a person whether secured or unsecured. Ld. Counsel, further, placed reliance of the order of Hon'ble NCLAT in the case of Axis Bank Ltd. vs. Edu Smart Services Pvt. Ltd. order dated 10/8/2018 in support of such plea. It was also claimed that RP had never stated that he would conduct e-voting of the CoC only after taking of the legal opinion, hence, this claim was an instance of wrong statement being made by the applicant. 13. Ld. Counsel for the RP also drew our attention to Circular No. IBBI/CIRP/018/2018 dated 14th September 2018 to show that in that circular it was mentioned that voting power of a member in the CoC was based on the amount of admitted claim in respect of a financial debt. Ld. Counsel, thereafter, placed reliance on the decision of Hon'ble NCLAT in the matter of Prasad Complex vs. Star Agromarine Exports Pvt. Ltd. & Ors. in Company Appeal (AT) (Insolvency) No. 291 of 2018 order dated 1/2/2019 as regard the power of RP in respect of accepting or rejecting the claim of a financial cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mart Services Pvt. Ltd. is concerned, the Hon'ble NCLAT itself in its subsequent decision in the case of Edelweiss Asset Reconstruction Company "Ltd. vs. Orissa Manganese and Minerals Ltd. (supra) has rejected the similar claim as made out in the present case. We also find that facts of the present case are similar to the facts of the case of Axis Bank Ltd. vs. Edu Smart Services Pvt. Ltd. Therefore, the said decision also does not help the cause of the ICICI Bank/RP. 21. Similarly, the decision of NCLAT in the case of Canara Bank vs. IVRCL Ltd. will not be of any help in view of subsequent decision of the Hon'ble NCLAT in the case of Edelweiss Asset Reconstruction Company Ltd. vs. Orissa Manganese and Minerals Ltd. (supra). Further, facts of the case of Canara Bank vs. IVRCL Ltd. are similar to the facts of the case of Axis Bank Ltd. vs. Edu Smart Services Pvt. Ltd. which has been overruled by the Hon'ble NCLAT in its subsequent decision. As per accepted judicial norms, later decision on the same issue wherein earlier decision has been considered and different view has been taken then such later decision is to be allowed, hence, decision relied on by the ICICI Bank do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erusal of the above observations, it is clear that a claim can be due or not. Unless a claim becomes due only then it gets converted into debt. Further, debt must be due and payable in law or fact for occurrence of event of default. Thus, there is a marked difference between both the terms i.e. "claim" and "debt". Both have got different implications on various aspects/process which are undertaken under the Insolvency and Bankruptcy Code, 2016. This can be summarized as under:- a) Application under Sec. 7 or 9 of Insolvency and Bankruptcy Code, 2016 can be filed only when there is a default in respect of a debt which is due and payable whereas no such action can be taken in respect of a claim unless it becomes due and payable and default occurs thereafter. b) Claim is wider in its scope than debt. A claim may be due or may not be due but debt must be a claim which is due. c) During CIRP, Interim Resolution Professional is required to make a public announcement under Sec. 30 of Insolvency and Bankruptcy Code, 2016 which contains information/details regarding submission of claim and last date thereof in terms of provisions of Sec. 15 of Insolvency and Bankruptcy Code, 2016. Und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reproduced above, deals with the amount of claim in all respects. (d) Thus, a conjoint reading of all these provisions/regulations make it apparent that in all these sections the term "claim" has been used. 26. In contrast, Sec. 30(2)(b) provides for payment of "debt" of operational creditor in such manner as may be specified. The said clause also provides for payment of debt of financial creditor. Sec. 32 also refers to Sec. 53 of Insolvency and Bankruptcy Code, 2016 wherein the term "debt" has been used in its 'various sub-clauses. In Sec. 52(4) again the term "debt" has been used. 27. Regulation 7 to 15 of Chapter IV of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 deal with the procedure relating to claims. In these regulations mechanism has been prescribed as to how claims by operational creditor, financial creditor, creditors in a class, claims by workman and employees and by other creditors would be made. It is also provided that how such claims would be substantiated. In these regulations when question of proving existence arises, the words "debt due" have been used. As per regulation 11 the cost of proving the debt due is to be borne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtners or the individual 3. Address and email address of the financial creditor for correspondence 4. Total amount of claim (including any interest as at the insolvency commencement date) 5. Details of documents by reference to which the debt can be substantiated 6. Details of how and when debt incurred 7. Details of any mutual credit, mutual debts, or other mutual dealings between the corporate debtor and the creditor which may be set-off against the claim 8. Details of any security held, the value of the security, and the date it was given 9. Details of the bank account to which the amount of the claim or any part thereof can be transferred pursuant to a resolution plan 10. List of documents attached to this claim in order to prove the existence and non-payment of claim due to the financial creditor. 30. From the perusal of the above, it appears that total amount of claim mentioned in column 3 is in relation to principal plus interest which equals to claim. This also requires details of nature of claim which is suffixed by whether term loan total, secured, unsecured. In column 6 the details of debt as to how ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ereby submits this proof of claim in respect of liquidation of [name of corporate debtor]. The details for the same are set out below: 1. Name of financial creditor (If an incorporated body provide identification number and proof of incorporation, if a partnership or individual provide identification records of all the partners or the individual) 2. Address and email of financial creditor for correspondence 3. Total amount of claim, including any interest, as at the liquidation commencement date and details of nature of claim (whether term loan, total secured, unsecured) Principal : Interest: Claim: 4. Details of documents by reference to which the debt can be substantiated 5. Details of any order of a court of tribunal that has adjudicated on the non-payment of debt 6. Details of how and when debt incurred 7. Details of any mutual credit, mutual debts, or other mutual dealings between the corporate debtor and the financial creditor which may be set-off against the claim 8. Details of any security held, the value of the security, and the date it was given 8 [A. Whether security interest reli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red on the basis of information memorandum provided to him by the resolution applicant in consultation/after approval of CoC. If details uninvoked corporate guarantee(s) are not disclosed, then a situation may arise in future whereby the resolution applicant may not implement the resolution plan and back out in case guarantee is invoked. As per regulation reproduced herein before, it is apparent that the corporate guarantees given in favour of corporate debtor are only to be disclosed in a specific manner. No specific clause as regard to disclosure of corporate guarantee issued by the corporate debtor either to an independent party or to a related party is mentioned. However, as stated earlier, non-disclosure of such information relating to such guarantee may result into failure of resolution plan or some other unintended consequences, such as, litigation etc. Thus, to avoid the happening of such events, in our considered view, the information relating to such guarantee given must be given in the information memorandum as per clause 36(2)(1) which would take care of all eventualities. 34. It is also noted that the RP has included corporate guarantee issued in favour of ICICI Bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uired to be considered is Sec. 5(28) of Insolvency and Bankruptcy Code, 2016. The same is reproduced as under:- "(28) "Voting share" means the share of the voting rights of a single financial creditor in the committee of creditors which is based on the proportion of the financial debt owed to such financial creditor in relation to the financial debt owed by the corporate debtor." 39. From the perusal of the above section, it emerges that voting rights of a single financial creditor in the CoC are calculated on the basis of proportion of the financial debt owed to such financial creditor in relation to the financial debt owed by the corporate debtor. There is no reference to the word "claim" in the aforesaid section and, therefore, on the face of it unless a claim gets converted into a financial debt owed such claim cannot be taken into consideration to determine the voting share. Voting share of two or more financial creditors as part of consortium or agreement prescribed in Sec. 21(3) of Insolvency and Bankruptcy Code, 2016 which is reproduced as under:- "(3) [Subject to sub-sections (6) and (6A), where] the corporate debtor owes financial debts to two or more financial credi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f a person are obligations to other persons to that transaction, hence, debt due and payable by a person is debt owed to a person. Thus, when the scheme of the Code is read as a whole, it can be safely concluded that voting rights are to be determined only on the basis of financial debt owed. 43. We also reject the claim of the RP which has been made on the basis of circular of IBBI dated 14/9/2018. In this regard, we consider it pertinent to further mention that the language/words used in the circular cannot be interpreted in a manner so as to defeat the substantive provisions of Insolvency and Bankruptcy Code, 2016 as well as regulation made thereunder. Sec. 240 also prescribes that regulations made should be consistent with the provisions of the Insolvency and Bankruptcy Code, 2016. This provision, in our view is also applicable for circular issued by IBBI. 44. We further hold that if such contingent claims are considered in determining voting share, then a situation may arise where debts due and payable are not that magnitude and if such corporate debtor has given a number of corporate guarantees, then financial creditors holding such guarantees will have largest chunk of vot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Sec. 18(1)(c) of Insolvency and Bankruptcy Code, 2016. The IRP is also obliged to make every endeavour to protect and preserve the value of property of the corporate debtor and manage the operations of corporate debtor as a going concern. The RP is required to conduct CIRP and convene the meeting of CoC as well as to chair the same. As per Sec. 24(6) each creditor is required to vote with the voting share assigned to him based on the financial debt owed to such creditor. As per Sec. 24(7) the resolution professional has been given authority to determine the voting share to be assigned to each creditor in the manner specified by the Board. If resolution professional assigns higher voting share to any creditor, then such creditor gets an added advantage. In the present case, the facts have already been narrated and findings have been given as regard to both contentions of the applicant in his favour which also refers to mode and manner of process which has been adopted. The other facts are that in one of the meetings of the CoC, this issue was discussed and it was agreed that for assigning voting shares one of rights, RP would take a legal opinion which he has not done till date. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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