9911796707
TMI Blog2023 (5) TMI 303X X X X Extracts X X X X X X X X Extracts X X X X ..... d appellant nos. 2 and 3 to extend a short - term loan facility of INR 500 crores to its group companies i.e. Brassco Engineers Ltd. and WLD Investments Pvt. Ltd. for the ultimate end use of the Corporate Debtor. According to the appellants it was an understanding that the Corporate Debtor will create a first ranking exclusive security by way of pledge over 16,82,06,100 equity shares of face value of Rs.2/each of JMT Auto Ltd. held by the Corporate Debtor (Pledged Shares). A Security Trustee Agreement was executed between the appellant no.1 and WLD for an amount of Rs.150,00,00,000/on 28.12.2015. The Corporate Debtor's board of directors passed Board Resolutions whereby the board of directors resolved to create security over the shares of JMT Auto Ltd. 2.2 IDBI Bank issued NOC stating that they had no objection to the proceeds of sale of assets to the extent of a maximum of INR 450,00,00,000 being used to first settle all the dues under the Security Trustee Agreement STFs issued by AAL. The Security Trustee Agreement was executed between the appellant no.1 and Brassco for an amount of Rs.150,00,00,000/. That thereafter pursuant to the resolution passed on 23.12.2015, the Corporate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion Professional filed I.A. No.225 of 2020 before the Adjudicating Authority on 12.06.2020 seeking approval of the resolution plan. The Adjudicating Authority dismissed the application filed by the appellants being I.A. No.62 of 2020. The order passed by the Adjudicating Authority dated 09.07.2020 passed in I.A. No.62 of 2020 was the subject matter of appeal before the NCLAT. By the impugned judgment and order the NCLAT has dismissed the said appeal by observing that the appellant no.1's claim in purported capacity of 'Secured Financial Creditor' has been rejected way back in the year 2017 and the decision in this regard has not been called in question and therefore it is not open for the appellants to raise the same issue in 2020 by filing I.A. No.62 of 2020. The NCLAT has also observed that the appellants have not lent any money to the Corporate Debtor and the Corporate Debtor did not owe any financial debt to the appellants except the pledge of shares was to be executed. Therefore, the NCLT observed that the appellants not having advanced any money to the Corporate Debtor as a financial debt would not be coming within the purview of financial creditor of the Corporate Debtor. Ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e CIRP process under the supervision of the Resolution Professional and CoC itself carried on for 3 years, which 3 years is well beyond the timeline of 330 days as set out under the IBC. Therefore, the CoC and Resolution Professional cannot justify their delay on one hand and then seek to erode the rights of the Appellants by relying on delay. 3.5 On merits learned counsel appearing on behalf of the appellants have vehemently submitted that the decisions of this Court in the case of Anuj Jain Interim Resolution Professional for Jaypee Infratech Limited vs. Axis Bank Limited etc. etc. (2020) 8 SCC 401 and Phoenix ARC Private Limited vs. Ketulbhai Ramubhai Patel, (2021) 2 SCC 799 are distinguishable and shall not be applicable to the facts of the case on hand. 3.6 It is submitted that there is creditordebtor relationship between the appellants and the Amtek Auto Limited. It is submitted that WLD and Brassco took loans from the appellant nos.2 and 3 through appellant no.1 for the end use and ultimate benefit of the Corporate Debtor. In order to establish a direct debtorcreditor relationship, reliance is placed on the Board Resolution of Amtek Auto dated 13.06.2016; no objection cert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n (supra) and Phoenix ARC Private Limited (supra). We will first examine the decisions in these two cases and then advert to the contention of the Appellant No. 1 - M/s Vistra ITCL that these decisions are distinguishable from the facts of the instant case. 5.1 In Anuj Jain (supra), the issue was whether the lenders of Jaypee Associates Limited (JAL), the holding company of Jaypee Infratech Limited (JIL), the Corporate Debtor, hold the status of 'financial creditors' of JIL within the meaning of Section 5(7) of the Insolvency and Bankruptcy Code, 2016 For short, Code read with expression 'financial debt' as defined in Section 5(8) of the Code. This issue had arisen as JIL had mortgaged certain land with the creditors of JAL. The mortgage by JIL in favour of creditors of JAL were, in fact, set aside in terms of Section 43 of the Code, albeit this Court had opined on the legal issue on the assumption even if the mortgage was valid. Highlighting and expounding the unique status of the financial creditors in the context of Corporate Insolvency Resolution Process For short, CIRP under the Code, and that the legislature has assigned them a specific role to ensure that the Corporate Debt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "25. As is clear from the definition a "contract of guarantee" is a contract to perform the promise, or discharge the liability, of a third person in case of his default. The present is not a case where the corporate debtor has entered into a contract to perform the promise, or discharge the liability of borrower in case of his default. The pledge agreement is limited to pledge 40,160 shares as security. The corporate debtor has never promised to discharge the liability of the borrower. The facility agreement under which the borrower was bound by the terms and conditions and containing his obligation to repay the loan security for performance are all contained in the facility agreement. A contract of guarantee contains a guarantee "to perform the promise or discharge the liability of third person in case of his default". Thus, key words in Section 126 are contract "to perform the promise", or "discharge the liability", of a third person. Both the expressions "perform the promise" or "discharge the liability" relate to "a third person". Reference is made to the expression 'pledge' as defined in Section 172 of the Contract Act and it has been held: "26. .....The pledge agreeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supra) and Phoenix ARC (supra) from the instant case, on the ground that the Short Term Loan Facilities (STL Facilities) advanced by the Appellant No. 1 Vistra in the present case to the group companies of the Corporate Debtor - Amtek Auto Limited (Amtek) i.e., Brassco Engineering Limited (Brassco) and WLD Investments Private Limited (WLD) vide Facility Agreement dated 30.06.2016 (Facility Agreement), was in fact for the enduse and benefit of the Corporate Debtor - Amtek. The said reasoning does not appeal to us for the reason that the liability to repay the STL Facilities advanced to Brassco and WLD is that of the said companies, and that not of the Corporate Debtor Amtek, even if the latter was, as per the terms of the Facility Agreement, the ultimate beneficiary of the amount disbursed through the STL Facilities. The aforesaid decisions cannot be distinguished on the ground that the loans were not for the end use and benefit of JIL or Doshion Veolia. The Corporate Debtor - Amtek was not liable to repay the loans advanced by the predecessor-in-interest of the appellant Vistra, in respect of which there were detailed and separate agreements executed by the lenders with Brassco and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the burden to repay/discharge the loan was/is upon Brassco and WLD. IDBI Bank had only permitted the corporate debtor - Amtek to pledge the shares in question, and to this extent, they did not have any objection. However, there is another aspect of the matter. 7. Appellant No. 1 Vistra is a secured creditor to the extent of the shares pledged to it by the Corporate Debtor Amtek. It holds the first right in pledge on 66.77% shareholding in JMT Auto Limited. The expression 'security interest' as defined in Section 3(31) of the Code states that it means right, title, interest or a claim to a property created in favour, or provided for a secured creditor by a transaction which secures payment or performance of an obligation and includes, mortgage, charge, hypothecation, assignment and encumbrance, or any other agreement or arrangement for securing payment or performance of any obligation of any person. The person is whose favour the security interest is created need not be the creditor who avails the credit facility, and can be a third person. Security interest can be created for credit facilities/loan advanced to another person. It is accepted and admitted that the Appellant No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he bailee is responsible to the bailor for any loss, destruction, or deterioration of the goods from that time. As per Section 163, in the absence of any contract to the contrary, the bailee is bound to deliver to the bailor, or in accordance with his directions, any increase or profit that may accrue from the goods bailed. 20. Section 172 of the Contract Act is reproduced as under: "172. "Pledge", "pawnor" and "pawnee" defined.-The bailment of goods as security for payment of a debt or the performance of the promise, is called a "pledge". The bailor is in this case called the "pawnor". The bailee is called the "pawnee"." As per Section 172, creating a valid pledge requires delivery of the possession of goods by the pawnor to the pawnee by way of security upon the promise of repayment of a debt or the performance of a promise, thereby, creating an estate that vests with the pawnee. 22. As per Section 176, when a pawnor makes a default in payment of debt or performance of a promise, the pawnee may bring a suit against the pawnor upon such debt or promise and retain the goods pledged as collateral security, or he may sell the goods pledged upon giving the pawnor reasonabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ebts of the corporate debtor; (b) provides for the payment of debts of operational creditors in such manner as may be specified by the Board which shall not be less than- (i) the amount to be paid to such creditors in the event of a liquidation of the corporate debtor under Section 53; or (ii) the amount that would have been paid to such creditors, if the amount to be distributed under the resolution plan had been distributed in accordance with the order of priority in subsection (1) of Section 53, whichever is higher, and provides for the payment of debts of financial creditors, who do not vote in favour of the resolution plan, in such manner as may be specified by the Board, which shall not be less than the amount to be paid to such creditors in accordance with subsection (1) of Section 53 in the event of a liquidation of the corporate debtor. Explanation 1.-For the removal of doubts, it is hereby clarified that a distribution in accordance with the provisions of this clause shall be fair and equitable to such creditors. Explanation 2.-For the purposes of this clause, it is hereby declared that on and from the date of commencement of the Insolvency and Bankru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y is satisfied that the resolution plan as approved by the committee of creditors under sub-section (4) of Section 30 meets the requirements as referred to in sub-section (2) of Section 30, it shall by order approve the resolution plan which shall be binding on the corporate debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority to whom a debt in respect of the payment of dues arising under any law for the time being in force, such as authorities to whom statutory dues are owed, guarantors and other stakeholders involved in the resolution plan: Provided that the Adjudicating Authority shall, before passing an order for approval of resolution plan under this sub-section, satisfy that the resolution plan has provisions for its effective implementation. that the adjudicating authority should be satisfied that the resolution plan, as approved by the CoC under subsection (4) of Section 30 meets with the requirement as referred to in subsection (2) of Section 30. Only then, the adjudicating authority shall approve the resolution plan, which shall then be binding on the Corporate Debtor and its employees, members, cred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... curity interest, which we need not elaborate for the present decision. If the secured creditor relinquishes the security interest, it is then entitled to priority in payment under clause (b) to subsection (1) to Section 53 of the Code. The debts owed to the secured creditor in such event, rank pari passu with the workmen's dues for the period 24 months preceding the liquidation commencement date. As per Section 52(9) of the Code, where the proceeds on realisation of secured assets are not adequate to repay the debts due to the secured creditors who have exercised the option to realise the security interest, the unpaid dues of such secured creditors are to be paid by the liquidator in terms of clause (e) of subsection (1) of Section 53 of the Code. 9. Thus, we are presented with a difficult situation, wherein, Appellant No.1 - Vistra, a secured creditor, is being denied the rights under Section 52 as well as Section 53 of the Code in respect of the pledged shares, whereas, the intent of the amended Section 30(2) read with Section 31 of the Code is too contrary, as it recognises and protects the interests of other creditors who are outside the purview of the CoC. To our mind, the an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st meet the argument raised by the Respondent No. 1 - Dinkar Venkatasubramanian, resolution professional for the Corporate Debtor - Amtek and the Respondent No. 2 - the CoC of the Corporate Debtor - Amtek, that the present plea of the Appellant No.1 - Vistra to be treated as a financial creditor of the Corporate Debtor Amtek should be dismissed on the grounds of delay, laches and acquiescence. The submission is that the Appellant No. 1 Vistra had not objected to the resolution plan submitted by the erstwhile resolution applicant LHG and, as a sequitur, its non-classification as a financial creditor in the CoC of the Corporate Debtor Amtek. Though this argument had appealed and had weighed with the NCLAT, in our opinion is untenable since the resolution plan submitted by erstwhile resolution applicant LHG did not in any way affect the rights or interests of the Appellant No. 1 - Vistra as a secured creditor in respect of the pledged shares. Appellant No. 1 - Vistra has elaborately explained that LHG etc. were in negotiations with them so as to redeem the pledge and acquire the shares. 11. In view of our aforesaid findings, the impugned judgment of the NCLAT affirming the view taken ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
