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TMI Blog2021 (9) TMI 337X X X X Extracts X X X X X X X X Extracts X X X X ..... 316 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI ] Judgment was matter relating to filing of proceeding against Principal Borrower as well as Corporate Guarantor and in that context this Tribunal had held that for same debt there could not be two separate proceedings and that in one proceeding filed under Section 7 of IBC action against two Corporate Debtors was not contemplated. We need not enter into the question if in Pledgor-Pledgee relationship would it be Financial Debt. Doshi Holdings, in addition to stepping into the shoes of Co-borrower, which is financial debt, additionally pledged shares. The liability invoked by Financial Creditor is on the basis of Corporate Debtor being Co-borrower and not merely Pledgor. It is surprising to find that the Appellant is denying liability on account of Doshi Holdings when the Appellant has signed joint documents after documents in favour of Respondent No.1 as Authorised Signatory for both the Companies - Corporate Debtor cannot be permitted to back out from the documents and promises made. When the Adjudicating Authority admitted the Application under Section 7 of IBC although there was error in observations where referenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge Agreements although Corporate Debtor has been referred as Borrower 2/Pledgor , the intent of parties was clear as can be seen from agreements that as far as regards Doshi Holdings (Corporate Debtor), its sole obligation under the Loan cum Pledge Agreements was limited to only pledging shares held by it in M/s Premier Ltd. and that Doshi Holdings was not liable and/or obliged towards Respondent No.1 for the amounts disbursed to M/s Premier Ltd. The Appellant claims that the Corporate Debtor Doshi Holdings is not a beneficiary from the loan disbursed to M/s Premier Ltd. and is not liable to pay the amounts. When default occurred, it is claimed that the Appellant sought payment of the amount defaulted from M/s Premier Ltd. and not from the Corporate Debtor Doshi Holdings. 4. Appeal claims that the Adjudicating Authority erred in holding that the amounts under Loan cum Pledge Agreements were disbursed by Respondent No.1 in favour of both M/s Premier Ltd. and M/s Doshi Holdings. It is argued (in substance) that Doshi Holdings was merely a Pledgor of shares and for Doshi Holdings it cannot be said to be a Financial Debt; and that for the loan issued to Premier Ltd., CIRP had a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor with regard to the Corporate Debtor. It is also argued that pledging of shares would not amount to guarantee or indemnity. It is argued that the Adjudicating Authority interchangeable used the words Co-borrower/ Guarantor/Pledgor and wrongly relied on the judgment in the matter of State Bank of India vs. Athena Energy Ventures Pvt. Ltd. . Relying on the judgment in the matter of Dr. Vishnu Kumar Agarwal Vs. M/s Piramal Enterprises Ltd. , it is argued that when for the same debt an Application under Section 7 had been admitted against the M/s Premier Ltd., another proceeding against the Corporate Debtor Doshi Holdings could not have been admitted. 6. Against this, Respondent No.1 has filed reply and written submissions and orally argued pointing out the various loan documents for the three facilities which were provided to the Corporate Debtor Doshi Holdings alongwith M/s Premier Ltd. Respondent No.1 claims that Doshi Holdings was the Co-borrower with M/s Premier Ltd. and by way of three loan transactions ₹ 6,00,00,000/- (Rupees Six Crore) was advanced as loan by the Financial Creditor to these entities. The Learned Counsel for Respondent No.1 referred to the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d stand reduced considering the value of pledged shares is irrelevant, as even if the said amount is reduced, the default is of more than Rupees One Crore. It is stated by the Respondent No. 1 that the claim was rightly admitted by the Adjudicating Authority and the Appeal deserves to be dismissed. 8. Although the parties have raised various grievances, the dispute gets narrowed down if documents are perused. Before considering the arguments, it would be appropriate to first refer to documents executed between the Corporate Debtor and M/s Premier Ltd. with Respondent No. 1 Financial Creditor so as to have a clear picture regarding the legal relations between the parties. This will curtail need to refer to detailed arguments which have been made without connecting to facts of the case. 9. Execution of the documents is not in dispute. It is a matter of looking into the documents and applying law to the parties. By way of three separate Loan cum Pledge Agreements thrice loan facilities were extended by the Financial Creditor. We will refer to one set for convenience of reading. Counsel for Respondent No.1 has filed written submissions with Convenience Compilation Dy. No. 280 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly referred to as Borrower(s) and individually as a Borrower or Pledgor (as the case may be) Whereas; A. ARGFL as part of its business provides loans against the deposit of securities such as shares, mutual funds and other financial instruments; B. Borrower(s) is desirous of availing of a loan facility for a sum of ₹ 30000000 (Rs. Rupees Three Crores Only) at an interest rate of 16% p.a. for the period of _____ days from ________ to ______ C. The Lender in lieu of granting such loan facility, has requested a Master Agreement to be entered into between both the parties concerned, for the loan facility to be so granted to the Borrower(s), and also the pledge which shall be provided by the Borrower(s)/ Pledgor to the Lender; D. In consideration of the Lender granting or agreeing to grant the loan facilities to the Borrower(s), the Borrower(s) is/are desirous of executing this Agreement which sets out the general terms and conditions (so far as they may be applicable) with regard to both the aforementioned. The special terms and conditions governing the Facility and the pledge (are set forth in their respective schedules to this Agreement) as executed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. 14. At page 189, there is Demand Promissory Note executed by M/s Premier Ltd. as well as M/s Doshi Holdings. It may be copied: 15. It is apparent that M/s Premier Ltd. and M/s Doshi Holdings unconditionally promised to pay Respondent No.1 Financial Creditor the amount mentioned for value received . 16. In the Loan Agreement-2 and Loan Agreement-3 there are similar documents and we are not burdening this judgment with reference to them, which will be repetition. The relationship between the parties reveals their connection. The Premier Ltd. and Doshi Holdings were jointly sanctioned loan by Respondent No.1 and they executed Tripartite Agreements and documents in favour of Respondent No.1 admitting value received and were joint promisors for paying back the loan. The documents make it clear that Doshi Holdings was not only Co-borrower but also pledged shares. 17. Considering the documents executed between the parties, perusal of the documents shows that M/s Premier Ltd. and M/s Doshi Holdings were Co-borrowers and promised to pay back the loan with interest. Their liability to pay is joint and several liability. The Promisee may recover the amounts jointly o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rporate Debtor (the Corporate Guarantor(s) or the Principal Borrower ). Further, though there is a provision to file joint application under Section 7 by the Financial Creditors , no application can be filed by the Financial Creditor against two or more Corporate Debtors on the ground of joint liability ( Principal Borrower and one Corporate Guarantor , or Principal Borrower or two Corporate Guarantors or one Corporate Guarantor and other Corporate Guarantor ), till it is shown that the Corporate Debtors combinedly are joint venture company. [Emphasis supplied] 20. Relying on the above observations, the Appellant is arguing that for same debt two proceedings could not be maintained. Piramal s Judgment was matter relating to filing of proceeding against Principal Borrower as well as Corporate Guarantor and in that context this Tribunal had held that for same debt there could not be two separate proceedings and that in one proceeding filed under Section 7 of IBC action against two Corporate Debtors was not contemplated. 21. Firstly, the judgment would not apply to present set of facts where it is not a matter of Principal Borrower and Corporate Guaran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncy resolution process or liquidation proceeding of a corporate debtor is pending before a National Company Law Tribunal, an application relating to the insolvency resolution or 1[liquidation or bankruptcy of a corporate guarantor or personal guarantor, as the case may be, of such corporate debtor] shall be filed before such National Company Law Tribunal. 22. No doubt in Section 60 reference is with regard to proceeding against Corporate Debtor as well as Corporate Guarantor or Personal Guarantor in which contingency, if there are two proceedings, the same have to be brought before the same Adjudicating Authority. Now, Legislature has even enforced Part III of IBC to the extent of proceedings for Insolvency Resolution Process against Personal Guarantors to the Corporate Guarantors. Thus, considering the aims and objects of IBC, we do not wish to take a technical view only due to the observations made in judgment of Dr. Vishnu Kumar Agarwal Vs. M/s Piramal Enterprises Ltd. , which were made without considering Section 60 of IBC as it then stood. If we do so, the present Co-borrower will walk away without liability even after execution of so many documents and having jointly re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Hon ble Supreme Court in this judgment relied on judgment in the matter of Anuj Jain, Interim Resolution Professional for Jaypee Infratech Limited vs. Axis Bank Ltd. , (2020) 8 SCC 401, where it was held that in case Corporate Debtor has only extended a security by pledging shares, the Applicant will at best be Secured Debtor qua the security but shall not be a Financial Creditor within the meaning of Section 5 sub-sections (7) and (8). When judgment in the matter of Phoenix ARC Pvt. Ltd. (supra) is perused brief facts referred by the Hon ble Supreme Court show that in that matter L T Infrastructure Finance Company Ltd. advanced financial facility to Doshion Ltd. for which a Facility Agreement dated 12th May, 2011 was executed between them. Doshion Ltd was the Borrower and L T Infrastructure Finance Company Ltd. was the Lender. Subsequently, on 10th January, 2012, a Pledge Agreement was executed between Doshion Veolia Water Solutions Pvt. Ltd. and L T Infrastructure Finance Company Ltd. by which agreement 40,160 shares of Gondwana Engineers Limited were pledged as a security. On the same date, a Deed of Undertaking was also executed by Doshion Veolia Water Sol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he mortgage made it clear that the Corporate Debtor had neither given any guarantee to repay or any indemnity qua the repayment of loans granted by the Applicant to JAL. With such and other facts discussed by the Hon ble Supreme Court, Hon ble Supreme Court in Para 47.2 of the judgment concluded the question of law as under: 47.2. Therefore, we have no hesitation in saying that a person having only security interest over the assets of corporate debtor (like the instant third party securities), even if falling within the description of secured creditor by virtue of collateral security extended by the corporate debtor, would nevertheless stand outside the sect of financial creditors as per the definitions contained in subsections (7) and (8) of Section 5 of the Code. Differently put, if a corporate debtor has given its property in mortgage to secure the debts of a third party, it may lead to a mortgage debt and, therefore, it may fall within the definition of debt under Section 3(10) of the Code. However, it would remain a debt alone and cannot partake the character of a financial debt within the meaning of Section 5(8) of the Code. The respondent mortgagees are not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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