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TMI Blog2022 (3) TMI 1417X X X X Extracts X X X X X X X X Extracts X X X X ..... of Definition Clause which says invoice receivable shall mean all or such part of receivable under invoice, as may be agreed to acquire by the financier, for the consideration listed in the platform, which is referred to in Annexure - A. It is further observed that Right and interest receivable under invoice, may be owned fully or partly by the financier alongwith one or more than one financier. Further, the goods are supplied by the sellers and not by the applicants. The Sellers have assigned the Right and interest receivable under invoice to the applicant. Admittedly, the debt is assigned to the applicants by the seller who have raised the invoice (s) and in lieu of that invoice(s) the applicants had paid the amount in the account of the seller and not in the account of the Corporate Debtor. In the case in hand also, there is no disbursal of the amount to the respondent rather the amount was disbursed to the third person. As it is observed that the applicants are claiming the discounted invoices, therefore, in view of Section 21 (5) of IBC 2016, where an Operational Creditor has assigned or legally transferred any operational debt to a financial creditor, the assignee or transfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scounting: a. That Minions Ventures operates KredX as the Invoice Discounting Platform for facilitating invoice discounting and reverse invoice discounting transactions between sellers, customers and financiers registered on KredX. b. As such, for availing the Invoice Discounting Platform, the users have to get themselves registered on KredX. c. As is the case with traditional invoice discounting facility, the kinds of participants that are involved in the invoice discounting include the purchasers, the sellers, the financiers and the facilitator. In the present case, KredX acts as a facilitator; d. The Corporate Debtor and the Seller are both registered on KredX for availing its Invoice Discounting Platform. In this regard, the Seller executed a "Seller Services Agreement' dated 29.12.2018 with Minion Ventures, The said agreement was executed electronically. Similarly, the Corporate Debtor had executed a Seller Service Agreement on 28.12.2018 with Minion Ventures electronically; e. All the Applicants are registered on KredX as the 'financiers' who purchase the rights to receivables (whether in full or in part) under any invoice and provide finance to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reement, the Corporate Debtor was to pay a sum of Rs. 3,11,097/- (i.e., part of the invoice amount) to the Applicant No. 1 on 06.12.2019, i.e. the due date mentioned in the said COR Agreement. c. In respect of the same Invoice as well as other invoices as mentioned hereinabove, other Applicants being Applicant No. 2 to 25 had also entered into respective agreements for creation of rights and paid respective consideration amounts to the Seller, which money was to be repaid by the Corporate Debtor to the respective Applicants. v. It is submitted that due to continual defaults on the part of the Corporate Debtor, Minion Ventures had issued an email dated 04.07.2019 thereby intimating the Corporate Debtor that as per Kredx's internal risk grading of the Corporate Debtor, the limits extended to the Corporate Debtor have been suspended and further calling upon the Corporate Debtor to clear all outstanding dues irrespective of the due dates stipulated under the respective COR Agreements. vi. The Corporate Debtor responded to the aforesaid email vide its email dated 06.09.2019 undertaking therein to make payments in respect of all outstanding dues. vii. It is further submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en submissions and additional written submissions and scanned copies of the same are reproduced below: WRITTEN SUBMISSIONS BEHALF OF THE RESPONDENT The present Written Submissions are being filed on behalf of the Respondent pursuant to directions given by the Hon'ble Tribunal vide its Order dated 03.12.2021. The submissions are in addition to Written Submissions dated 29.11.2021 filed on behalf of the Respondent. The Respondent submits that the present Petition is liable to be dismissed on inter alia the following grounds A. NON-MAINTAINABILITY OF THE PRESENT PETITION UNDER SECTION 7 OF THE CODE: 1. It is an admitted case that the primary transaction on the basis of which the Sec. 7 Petition is filed is essentially a transaction for provisions of goods and services wherein the Respondent purchased certain goods from one Ashoka Creations (Seller") and Invoices were raised by the Seller upon the Respondent against the supply of goods (Pg 6 Vol 1). The invoices were listed on an online platform by the name of KredX (Minions Ventures Pvt. Ltd.) where the Customer (Respondent), the Seller and Applicants (Financiers) were all registered. 2. The Applicants, Respondent (C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r refer to "COR Agreement") for creating rights in receivable under the invoices in favour of the applicants. 12. It is further contended on behalf of the applicants that the applicants have advanced money towards the traditional invoices discounting transactions for the benefit of M/s. Ashoka Creation i.e. Seller. 13. It is further contended that the Seller has assigned to the applicants, the right to collect money due under invoices issued by the seller to the corporate debtor. 14. It is further contended that it is the Corporate Debtors who are benefited by the finance made by the applicants and the corporate debtor agreed to repay each of the applicants, the sum greater than the money advanced by each of them of a specified due date i.e. interest. 15. It is further contended that since the respondent/corporate debtor failed to make the payment on due date, therefore, the present application is maintainable. 16. On the other hand, the claim of the respondent is that the application under Section 7 of IBC, 2016 is not maintainable in terms of the decision of Cooperative Rabo Bank, LLA. Singapore Branch V/s. M/s. Shailender Ajmira and also in terms of the order pass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suppressed by the applicants. 21. It is further contended that the applicants have taken "U" turn and distinguished the decision of Cooperative Rabo Bank, U.A. Singapore Branch V/s. m/s. Shailender Ajmera, on the ground that the claim is not based on discounting the invoices, which is contrary to the averments made in the application. 22. In reply to, the Learned Senior Counsel appearing for the applicants submitted that both the decisions, Cooperative Rabo Bank, U.A. Singapore Branch V/s. M/s. Shailender Ajmera and Anuj Jain's Case, on which the respondent has placed reliance are not applicable under the facts and circumstances of the case. Now, in terms of the facts referred to Supra, we consider the prayer. 23. Before considering the prayer, at this juncture, we would like to refer to the averments made in the application on the basis of which, the applicants are claiming the amount. For better appreciation of the facts, we would like to refer to paragraph 5 of the brief synopsis at page (L) and the scanned copy of the same is reproduced below;- 24. In terms of the averments referred to Supra, we consider the submissions of the applicants, by which; the applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to "COR Agreement", the invoices raised by the seller were listed on KredX and the same were discounted by the applicants and the payment disbursed to the Seller through and ESCROW account and in consideration of receipt of payment, the seller(s) has/have agreed for discounting of the invoices of the customer for Creation of Rights and interest in the invoices. receivable in favour of the applicant(s)/financier(s). 28. For better appreciation of the facts, we would like to refer to the Agreement for Creation of Rights, from page 211 to 217, volume - 2 of the application and the scanned copy of the same is reproduced below:-- 29. At this juncture, we would also like to refer to the clause 1.1(e) and (1) of the Seller and KredX i.e. definition of consideration and invoices, at page 168-169 of the main application, and same is reproduced below: 30. On bare perusal of these clauses, we notice that invoice shall mean the unpaid genuine invoices raised by the seller on a customer pursuant to the sales of goods or rendering of services as applicable and listed by the customer on the platform and the consideration means the price as determined by customer i.e., the financier ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oubt that for a debt to become 'financial debt' for the purpose of Part II of the Code, the basic elements are that it ought to be a disbursal against the consideration for time value of money. It may include any of the methods for raising money or incurring liability by the modes prescribed in subclauses (a) to (f) of Section 5(8); it may also include any derivative transaction or counter-indemnity obligation as per sub-clauses (g) and (h) of Section 5(8); and it may also be the amount of any liability in respect of any of the guarantee or indemnity for any of the items referred to in subclauses (a) to (h). The requirement of existence of a debt, which is disbursed against the consideration for the time value of money, in our view, remains an essential part even in respect of any of the transactions/dealings stated in sub-clauses (of to (i) of Section 5(8), even if it is not necessarily stated therein. In any case, the definition, by its very frame, cannot be read so expansive, rather infinitely wide, that the root requirements of 'disbursement' against 'the consideration for the time value of money' could be forsaken in the manner that any transaction coul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r', an 'unsecured creditor', an 'Operational Creditor', and a 'decree-holder', Similarly, a "debt" means a liability or obligation in respect of a claim which is due from any person and this expression has also been given an extended meaning to include a 'financial debt' and an 'operational debt'. 46.1. The use of the expression "means and includes' in these douses, on the very same principles of interpretation as indicated above, makes it clear that for a person to become a creditor, there has to be a debt i.e., a liability or obligation in respect of a claim which may be due from any person. A 'secured creditor" in terms of Section 3(30) means a creditor in whose favour a security interest is created; and "security interest", in terms of Section 3(31), means a right, title or interest or claim of property created in favour of or provided for a secured creditor by a transaction which secures payment for the purpose of an obligation and it includes, amongst others, a mortgage. Thus, any mortgage created in favour of a creditor leads to a security interest being created and thereby, the creditor beco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the interest of realising the value of its security (there being no other stakes involved and least any stake in the Corporate Debtors growth or equitable liquidation) white the latter would, apart from looking at safeguards of its own interests, would also and simultaneously be interested in rejuvenation, revival and growth of the Corporate Debtor. Thus understood, it is dear that if the former i.e., a person having only security interest over the assets of the Corporate Debtor is also included as a Financial Creditor and thereby allowed to have its say in the processes contemplated by Part II of the Code, the growth and revival of the Corporate Debtor may be the casualty. Such result would defeat the very objective and purpose of the Code, particularly of the provisions aimed at corporate insolvency resolution. 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 Cre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Creditor and Operational Creditor deserve equal treatment under a resolution plan. It was in the setup of such background that in Essar Steel, this Court made the observations relied upon by the respondents. 50.1. The referred observations in the case of Essar Steel are essentially based on the earlier observations occurring in the case of Swiss Ribbons. As noticed, the decision in Swiss Ribbons was rendered by this Court when constitutional validity of various provisions of the Code was put to challenge. In Essar Steel, this Court reiterated the enunciations in Swiss Ribbons in paragraph 55 in the following; "55. Financial Creditors are in the business of tending money. The RBI report on Trend and Progress of Banking in India, 2017-2018 reflects that the net interest margin of Indian banks for the financial year 2017-2018 is averaged at 2,5%. Likewise, the global trend for net interest margin was at 3.3% for banks in the USA and 1.6% for banks in the UK in the year 2016, as per the data published on the website of the bank. Thus, it is clear that Financial Creditors earn profit by earning interest on money lent with low margins, generally being between 1 to 4%. Also, Fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs, Operational Creditors having to receive a minimum payment, being not less than liquidation value, which does not apply to Financial Creditors. The amended Regulation 38 set out in paragraph 77 again does not lead to the conclusion that financial and Operational Creditors, or secured and unsecured creditors, must be paid the same amounts, percentage wise, under the resolution plan before it can pass muster. Fair and equitable dealing of Operational Creditors' rights under the said Regulation involves the resolution plan stating as to how it has dealt with the interests of Operational Creditors, which is not the same thing as saying that they must be paid the same amount of their debt proportionately. Also, the fact that the Operational Creditors are given priority in payment over all Financial Creditors does not lead to the conclusion that such payment must necessarily be the same recovery percentage as Financial Creditors. So long as the provisions of the Code and the Regulations have been met, it is the commercial wisdom of the requisite majority of the Committee of Creditors which is to negotiate and accept a resolution plan, which may involve differential payment to diff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor, was never under consideration in the said decisions. 50.4. We may usefully elaborate a little. On a contextual reading of the expositions in Essar Steel and Swiss Ribbons, it is but clear that the Court had examined the status of direct secured creditor of the Corporate Debtor and there had not been any occasion to examine the features related with an indirect secured creditor, who is neither involved in assessing the viability of the Corporate Debtor nor in tending finances to the Corporate Debtor for setting up the business. As noticed, the prime, rather only, area of interest of such indirect secured creditor is in recovery of its debt and not in reorganization of the Corporate Debtor's business. Thus understood, it is absolutely clear that the class of secured creditors indicated by this Court in Essar Steel and Swiss Ribbons, as being subsumed in Financial Creditors, is only that of such secured creditors who are directly engaged in advancing credit to the Corporate Debtor and not the indirect creditors who had extended any loan or facility to a third party but had taken a security from the Corporate Debtor, whose resolution is under consideration. 50.5. Hence, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, the promisor has became a surety and this would be an agreement to offer security for due performance of that promise and to that extent Sections 126, 127 and 128 of the Contract Act read as follows: 13. The liability of the surety is co-extensive with that of - the debtors. However, in the present case, the liability of the surety is as otherwise provided by the contract Ex. 20. Therefore, the liability of the defendant is as provided in the agreement and to that extent of securing dues by a creation of mortgage, no personal liability is accepted by the surety. It is, therefore, fallacious to say that the defendant is not a debtor and, therefore, the defendant could not have created a mortgage in favour of the creditor. The defendant has rendered himself liable to the dues of Nitin Pharmaceuticals by agreeing to provide security in the form of mortgage for the dues Just as the principal debtor can create a mortgage of his immovable properties, a third person can also agree to create a mortgage so as to secure the dues of the principal debtor. In that manner, he becomes a surety to the extent of the security or the mortgage. If that were not so, the present commercial and bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20 was executed. Thus, even under the English Law, this consideration is held to be good and sufficient consideration. Under Indian Law, which is significantly different from English Law of Contract, past consideration or the consideration towards third person is statutorily held to be good consideration as defined in Section 2(d) and as mentioned in Section 127 of the Contract Act The observation of the learned trial Judge that as the husband of the defendant had to pay Rs. 5 lacs to the plaintiff, the writing Ex. 20 which is subsequently obtained is without consideration, is patently erroneous. In the present case, it is amply clear that the principal debtor was a defaulter in meeting his financial obligations to the bank and the bank had noticed the irregularities in his accounts and the, bank could have proceeded against the principal debtor to effect recovery. At that stage, at the instance of the principal debtor-husband, wife comes forward and agrees to give collateral security obviously to secure forbearance against the principal debtor. Thus, at the desire of the promisor (defendant) the bank has abstained from enforcing its claim against the principal debtor and has forbo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, in view of Section 21 (5) of IBC 2016, where an Operational Creditor has assigned or legally transferred any operational debt to a financial creditor, the assignee or transferee shall be considered as an operational creditor to the extent of such assignment or legal transfer. Therefore, though the applicants may be the Operational creditor(s) but in terms of Section 5 (7), Part 11 of the IBC, 2016, the applicants cannot be treated as the financial creditor (s). 37. Hence, we are of the considered view, the present application filed under Section 7 of IBC is not maintainable and on this score alone, the application is liable to be dismissed. Since, we held that the present application is not maintainable under Section 7 IBC, therefore, it is needless to consider the other submissions raised on behalf of the respondent on the point of maintainability of the application. 38. In sequel to the above, we have no option but to reject the prayer of the applicants to initiate the CIRP against the Corporate Debtor under Section 7 of the IBC. 2016. Accordingly, the present application is hereby dismissed. However, the applicants is at liberty to file an appropriate application under s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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