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TMI Blog2022 (9) TMI 750X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Appellant in C.P. (IB) 418/AHD/2018. The brief facts of the case necessary to be noticed for deciding this Appeal are: (i) The Corporate Debtor - Reliance Naval & Engineering Ltd. was declared NPA by IDBI Bank on 28.02.2018. Reliance Infrastructure Limited advanced a sum of Rs.2,500 Crores to the Corporate Debtor by way of interest bearing Inter-Corporate Deposits. The loan was secured by way of Deed of Hypothecation dated 07.03.2018 and indenture of Mortgage dated 07.03.2018. (ii) IDBI Bank filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as 'I&B Code') against the Corporate Debtor in September, 2018. (iii) The Appellant - 'Citi Securities & Financial Services Pvt. Ltd' claimed to have obtained assignment of debt of Reliance Infrastructure Limited by documents dated 01.03.2019. (iv) Section 7 application filed by the IDBI Bank against the Corporate Debtor was admitted on 15.01.2020. (v) The Appellant filed its claim as Financial Creditor before the Interim Resolution Professional (IRP) on 29.01.2020 on the strength of assignment documents dated 01.03.2019. The claim filed by the Appellant before the IRP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich was also paid by the Appellant to Reliance Infrastructure Limited. The Adjudicating Authority has also erred in observing that the Assignment Deed is not appropriately stamped, could not be looked into whereas the Deed being not sufficiently stamped was a curable defect which could have been very well cured by the Appellant. It is submitted that Assignment Deed dated 01.03.2019 was 'assignment of actionable claim', hence, it did not require any registration. It is further submitted that in any view of the matter even if for arguments sake it is accepted that Appellant is a related party, the Appellant's claim as Financial Creditor ought to have been accepted whereas the Adjudicating Authority committed error in rejecting the claim of the Appellant altogether. 3. Learned counsel for the Respondent - Resolution Professional refuting the submissions of learned counsel for the Appellant submits that the Adjudicating Authority has rightly considered all the aspects of the matter and has rejected the claim. It is submitted that the Resolution Professional on the basis of materials which were provided by the Appellant could not have verified the claim of the Appellant and Resolution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceiving Rs.220 crore from Reliance Home Finance Ltd., the same was also forwarded onward to other group company of Reliance, which proved the circuitous transaction between the different Reliance Group Companies and other entities. The Appellant has no net-worth to make any payment of Rs.114.93 Crores nor any securities has been shown except circuitous transaction by Reliance group. It is submitted that the Adjudicating Authority has rightly rejected the claim filed by the Appellant. The Assignment Deed dated 01.03.2019 itself being not admissible, the rejection of claim by the Adjudicating Authority is wholly justified. 4. Learned counsel for both the parties have placed reliance on the judgment of the Hon'ble Supreme Court in "Phoenix ARC Private Limited vs. Spade Financial Services Limited & Ors., (2021) 3 SCC 475". Learned counsel for both the parties also relied on few judgments of this Appellate Tribunal which we shall notice hereinafter. 5. Before considering the submissions of learned counsel for the parties, it is relevant to notice the transactions entered between the Reliance Infrastructure Ltd. and the Corporate Debtor according to which the Inter-Corporate Deposit of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Existing DOH." 6. On the same dated, 07.03.2018, an Indenture of Mortgage was also executed between the parties to secure the Inter-Corporate Deposit of Rs.2500 Crore. Schedule-III contains details of the property with regard to which mortgage was created. Para 5 of the Indenture of Mortgage provide:- "5. GRANT AND TRANSFERS For the consideration aforesaid and as continuing security for the payment and discharge of the outstandings and performance of all obligations by the Borrower hereby secured or intended to be hereby secured, the Borrower doth, hereby grant, assign, convey, assure charge and transfer unto Lenders by way of continuing security:- (a) all the rights, title, interest and benefit in all and singular the beneficial right, title and interest of the Borrower, including the leasehold rights in respect of all its immovable properties in more particularly described in Schedule III of the Indenture together with all buildings, erections and construction of every description which are standing, erected or attached or shall at any time hereafter during the continuance of the Security, hereby, constituted be erected and standing or attached to the aforesaid lands a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Confirming Party (Corporate Debtor). The Assignment Deed which contains all rights and liabilities indicates that the assignment was not of only actionable claim. 10. The Adjudicating Authority by the impugned order has rejected the claim of the Appellant holding that the Assignment Deed dated 01.03.2019 was required to be registered under Section 17 of the Registration Act and further being insufficiently stamped could not be looked into for any claim of the Appellant. We need to, thus, consider as to whether registration as well as appropriate stamping of the Assignment Deed was necessary as held by the Adjudicating Authority or it was not required to be registered and in so far as insufficient stamping is concerned it is a curable defect. Whether Registration of Assignment Deed was necessary? 11. Section 17 of the Registration Act, 1908 provides for registration of certain documents. Section 17(1)(b) and (c) of the Registration act which are relevant are as follows:- "17. Documents of which registration is compulsory.-(1) The following documents shall be registered, if the property to which they relate is situate in a district in which, and if they have been executed on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vered by the definition of actionable claim being secured by the mortgage of immovable property as well as hypothecation of movable property. The Assignment Deed dated 01.03.2019 contains rights of the Assignor, hence, the Deed, as per Section 17(1) (b) and (c) required the registration. The consequences and benefits of registration have been reiterated time and again by the Hon'ble Supreme Court. In "Suraj Lamp & Industries (P) Ltd. vs. State of Haryana, (2009) 7 SCC 363", Hon'ble Supreme Court held that Registration Act, 1908 was enacted with intention of providing public notice in regard to transactions relating to immovable property and protection from fraud and forgery of documents of transfer, which is achieved by requiring compulsory registration of certain types of documents. In Paras 16, 17 and 18 following has been observed:- "..... 15. The Registration Act, 1908, was enacted with the intention of providing orderliness, discipline and public notice in regard to transactions relating to immovable property and protection from fraud and forgery of documents of transfer. This is achieved by requiring compulsory registration of certain types of documents and providing for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 60 of 2019, where claim was rejected by the Resolution Professional on the ground of non-availability of duly stamped agreement in support of the claim. The decision of the Resolution Professional was affirmed by the Hon'ble Supreme Court. In Para 152 of the judgment following has been laid down:- "152. So far as Civil Appeal No. 7266 of 2019 and Civil Appeal No. 7260 of 2019 are concerned, the resolution professional has rejected the claim of the Appellants on the ground of non-availability of duly stamped agreements in support of their claim and the failure to furnish proof of making payment of requisite stamp duty as per the Indian Stamp Act despite repeated reminders having been sent by the resolution professional. The application filed by the Appellants before the NCLT came to be dismissed by an order dated 14.02.2019 on the ground of non-prosecution. The subsequent restoration application filed by the appellants then came to be rejected by the NCLT through judgment dated 08.03.2019 on two grounds: one, that the applications could not be entertained at such a belated stage; and two, that notwithstanding the aforementioned reason, the claim had no merit in view of the failure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all not have any right of representation, participation or voting in a meeting of the committee of creditors:" 19. The Hon'ble Supreme Court deliberated on the meaning and object of Section 21(2) and laid down following in Para 98:- "98. Hence, we would need to consider the meaning of the first proviso in the light of the context, object and purpose for which it was enacted. The purpose of excluding a related party of a corporate debtor from the CoC is to obviate conflicts of interest which are likely to arise in the event that a related party is allowed to become a part of the CoC. The logic underlying the exclusion has been summarised as follows: "The Committee was of the view that the disability under the first proviso to Section 21(2) is aimed at removing any conflict of interest within the CoC, to prevent erstwhile promoters and other related parties of the corporate debtor from gaining control of the corporate debtor during the CIRP by virtue of any loan that may have been provided by them." 20. The Hon'ble Supreme Court while explaining the meaning of the related party observed that although related party which is not related party in praesenti is not disqualified. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it should not be disabled from participating in the CoC. Further, the aforesaid disability is not related to the debt itself but is based on the relationship existing between a related party creditor and the corporate debtor. Therefore, as the disability imposed under the first proviso to Section 21(2) pertains to the related party financial creditor and not to the debt it is owed, the Committee agreed that it is clear that when a related party financial creditor assigns her debt to a third party in good faith, such third party should not be disqualified from participating, voting or being represented in a meeting of the CoC. 11.10. However, the Committee discussed that in certain cases, a related party creditor may assign its debts with the intention of circumventing the disability imposed under the first proviso to Section 21(2) by indirectly participating in the CoC through the assignee. As a related party is expressly prohibited from participating in the CoC, it cannot do so indirectly by assigning its debt to a third-party assignee for the purposes of circumventing this restriction. Therefore, in order to prevent any misuse, the Committee recommended that prior to includi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Corporate Debtor was filed in September, 2018 and after filing of the application within six months Assignment Deed dated 01.03.2019 was executed by the Assignor in favour of the Assignee. The purpose and object was obvious that Reliance Infrastructure Ltd. being related party could not have participated in the CoC of the Corporate Debtor, hence, Assignee has been brought into for the sole purpose of participating in the CoC which Assignee as per the case of the Appellant is not a related party. Further, the debt of Rs.2538 Crore has been assigned for amount of Rs.114.93 Crores speaks for itself. Further, the Reliance Infrastructure Ltd. had Hypothecation Deed and Mortgage. The time and manner in which assignment has been made clearly indicate that Assignment is not bonafide and was made only to put the Appellant in the CoC with ulterior motive to watch the interest of the related party. Para 103 of the judgment of Hon'ble Supreme Court in "Phoenix ARC Private Limited" (Supra) clearly lays down that 'where the related party financial creditor divests itself of its shareholding or ceases to become a related party in a business capacity with the sole intention of participating the Co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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