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TMI Blog2023 (10) TMI 962X X X X Extracts X X X X X X X X Extracts X X X X ..... titled to claim, but for the assignment or transfer, to the lender/creditor. The borrower is correct in arguing that the expression LRD is nowhere used in any of the documents executed at the time - An application of the rule that all the contemporaneous documents are to be read together, to discern the true purport of the contract, it is evident that what the parties intended was the assignment of the debt, i.e., the rents payable. The reference to pledge, in some places in the documents, did not undermine the fact that the rents payable to and receivable by the lender (IL FS) stood absolutely assigned to HDFC. The provisions of the TPA and the discussion of the various authorities support the conclusion that there can be a transfer of debts, which are defined as actionable claims. In the present case, the rents payable by IL FS tenants, lessees and licensees are debts, which stood transferred to the creditor, i.e. HDFC Bank. Therefore, the NCLAT s conclusions are unexceptionable; the challenge to its correctness, therefore fails. This court holds that there is no merit in the appeal - Appeal dismissed. - S. RAVINDRA BHAT And DIPANKAR DATTA , JJ. For the Appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cuted between the IL FS and HDFC. 3. By an order, dated 01.10.2018, NCLT in a petition No. 3638 (M.B.) of 2018 , filed by the Union of India ( UoI ) under Sections 241 and 242 of the Companies Act, 2013 (hereafter the 2013 Act ) ordered to supersede the existing board of directors of the IL FS. A new board of directors was also constituted, to take charge of the affairs of that company. Later, by its order dated 12.10.2018, the NCLT declined to issue a moratorium sought by the UOI, (akin to a moratorium under Section 14 of the IBC) in respect of IL FS and its 348 group companies. Aggrieved, appeals were filed before the NCLAT. By order dated 15.10.2018 NCLAT, inter-alia, stayed: (i) the institution or continuation of suits or any other proceedings against the IL FS or its 348 group companies, before any court/tribunal/arbitration panel/arbitration authority; (ii) any action to foreclose, recover or enforce any security interest created over the assets of the IL FS or those of its 348 group companies; and (iii) the acceleration, premature withdrawal or other withdrawal, invocation of any term loan, corporate loan, bridge loan, commercial paper, debentures, fixed deposits, guara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ake an appropriate order. IL FS made representation before the learned judge on 28.08.2019. A letter dated 03.09.2019 was sent by the HDFC reiterating that monies in the escrow account were its exclusive property and that IL FS could not claim ownership over such property. The Escrow Bank wrote on 04.09.2019 to IL FS that it had acted in terms of Escrow Agreement and was obliged to hold the money lying in trust for the purpose for which it was received i.e. for the benefit of HDFC. Former judge of this court issued a show-cause notice dated 30.09.2019 to the HDFC and issued a notice to the Escrow Bank on 10.10.2019. The Escrow Bank on 23.10.2019 wrote to former judge of this court stating that the receivables stood assigned in favour of HDFC and monies received were not the assets of the IL FS. Former judge of this court granted a personal hearing to the parties. On 12.05.2020, former judge of this court recommended the Escrow Bank and HDFC to maintain the status quo in the Escrow Account till a final view was taken on the IL FS s application. The Escrow Bank stopped debiting any amount from the Escrow Account and informed the IL FS and HDFC about this. On 03.07.2020, former judge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or debited in the HDFC's account and they needed to be reversed, after adjusting the shortfall in debiting any interest or principal of any earlier months. Parties contentions 9. Mr. Ramji Srinivasan, Sr. Advocate urged, on behalf of IL FS that the MFA (dated 25.06.2018) and other agreements executed on 25.06.2018 clearly indicate that the Facility advanced to the Borrower was loan repayable within 96 months. The Security Interest was created by the Borrower and the receivables were nothing but security for repayment of the loan. The Escrow Account was created in the Escrow Bank to facilitate the repayment of principal and interest as per the repayment schedule. There was no transfer of title in the receivables from Borrower to Lender. The receivables deposited in the Escrow Bank were the assets of the Borrower which were deposited in the Escrow Bank as security for the repayment of the loan of ₹ 400 Crores. Till 15.10.2018, the escrow agent was debiting the amount as in terms of the Escrow Agreement. However, after the interim order (dated 15.10.2018), the Escrow Bank was not entitled to debit any amount to the Lender's Account which was prohibited by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... establish that nature of relationship between the parties was that of lender-borrower and not that of seller and buyer. It is also pointed out that pursuant to the execution of the financing documents IL FS submitted form CHG-one An application for registration, or modification of charge , which is confirmed by HDFC Ltd, i.e., the lender form for registration of creation of charge to secure the Facility. Therefore, the lender in fact filed its claim as a secured creditor of IL FS before Grant Thornton India, the client s management consultant. 13. It is argued that various conditions in the MFA and the Escrow Agreement indicate that the transaction is essentially a loan transaction between the lender and the borrower with the creation of a security. Counsel points out that the documents which are part of the MFA nowhere use the expression lease rent discounting . It is also argued that in terms of the Assignment and Administration Agreement (also executed on 25 June 2018), receivables which are relevant with respect to the security property were created in favour of the lender bank. Because one clause Clause 1 of the Assignment and Administration Agreement dated 25.06.2018 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ants [..] (c) The Borrower agrees that the Receivables shall be exclusive property of the Lender for the purpose of secured repayment of the Facility and as such the Borrower will not make any further borrowing on the strength of the Receivables on being Borrower's property of Schedule I of the Facility Agreement recognizes that the assigned receivables are the exclusive property of HDFC Ltd. The assigned receivables are clearly the property of HDFC Ltd. The borrower has no right/title or interest in the monies/receivables/amount deposited in the Escrow Account. The relief of release/refund/reversal of amounts debited from the Escrow Account stating that the same is in line with the order dated 03.07.2020 issued by former judge of this court is misplaced since the same has not attained finality and was under scrutiny by the tribunal in the applications filed by the lender. 16. It was submitted that no judicial order or judgment prohibited the licensees of the TIFC property from depositing monthly lease rent in the Escrow Account, nor the orders held that the lender was disentitled from using the assigned receivables/rents. The transaction was not prohibited by the order d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner as instructed by Lender on the asset/property more particularly described in Schedule-III to this Agreement as the principal Security for securing the repayment of the Facility. The Borrower hereby unconditionally and irrevocably undertakes and confirms to create security interest on the said Secured Property in favour of the Lender and perfect the security creation as mentioned herein above in favour of the Lender in such form and manner as may be deem fit by Lender within 6 months from the date of first disbursement of the Facility. The Company further undertakes and confirms to open an Escrow Account within 30 days of the first disbursement of the Facility for the assignment of receivables arising/accruing from the TIFC Property and creating charge on the said Escrow Account in manner and form as made be deem fit by Lender. 20. Clause 13 of the MFA provided for Assignment/Transfer . Clause 13.1 of MFA is as follows: 13. ASSIGNMENT/TRANSFER 13.1. The Borrower shall not assign or transfer all or any of its rights, benefits or obligations under the Facility Agreement and the Transaction Documents without the approval of Lender. Lender may, at any t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the borrower has to open an Escrow Account with the Escrow Bank. Recital (C) of the Escrow Account Agreement provided: (C) The Borrower has agreed that, the payments to be collected/received by the Borrower from the clients of Business Service Centre/License/Lessee of various Units/properties (hereinafter referred to as the said Units ) built and/or to be built and leased/to be leased on the Secured Property detailed in Schedule B hereunder (hereinafter called the said Property ) for/against which the Facility granted/to be granted by Lender as per the Offer Letter and Facility Agreement, shall be credited to the said Escrow Account (hereinafter referred to as the Receivables ) and the Lender shall on satisfaction of the condition as described in Item No. 6 of Schedule A hereunder, adjust all the amounts to be paid by the Borrower to the Lender under the Facility Agreement, from time to time, out of the amounts credited in the said Escrow Account, and permit the transfer in the Designated account of the Borrower opened with the Escrow Bank, the amount as mentioned in Item No. 7 of Schedule A out of the remaining balance in the said Escrow Account after such adjustment as ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s per the Offer Letter and Facility Agreement, shall be credited to the said Escrow Account (hereinafter referred to as the Receivables ) and the Lender shall on satisfaction of the condition(s) as described in Item No. 6 of Schedule A hereunder, adjust all the amounts to be paid by the Borrower to the Lender under the Facility Agreement, from time to time, out of the amounts credited in the said Escrow Account, and transfer to the Designated Account of the Borrower, the amount as mentioned in Item No. 7 of Schedule A out of the remaining balance in the said Escrow Account after keeping the minimum balance in the Escrow Account. (c) The Lender shall be entitled to instruct the Escrow Bank from time to time to transfer amounts from the Escrow Account including as stated hereinabove. The Lender shall appropriate these monies towards the repayment of the Facility, as and when the same is due and payable in full together with all other amounts payable under the Facility Agreement. ------------------------- (e) The Borrower hereby irrevocably authorizes the Escrow Bank to pay and to transfer the money(ies) received in the Escrow Account to the Lender as per the terms ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Jagadheeswararao Ors. 2015 (11) SCR 849 , the court held: It is well settled that the nomenclature given to the document is not decisive factor but the nature and substance of the transaction has to be determined with reference to the terms of the documents and that the admissibility of a document is entirely dependent upon the recitals contained in that document but not on the basis of the pleadings set up by the party who seeks to introduce the document in question. In Assam Small Scale Ind. Dev. Corp. Ltd. Ors. v. J.D. Pharmaceuticals Anr 2005 (4) Suppl. SCR 232 the court stated as follows: The nature of transaction is required to be determined on the basis of the substance there and not by the nomenclature used. Documents are to be construed having regard to the contexts thereof wherefor 'labels' may not be of much relevance. This was also stated in V. Lakshmanan v. B.R. Mangalagiri Ors 1994 Supp (6) SCR 561 ( that the nomenclature or label given in the agreement as advance is not either decisive or immutable. ). This principle of substance, over the form, was followed in Super Poly Fabriks Ltd. vs. Commissioner of Central Excise, Punjab 2008 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceeds, to the extent of liability of IL FS. 29. The Lease Rental Discounting (LRD) arrangement - a new kind of financial agreement by which a banker allows credit facilities to a commercial property owner, has the flexibility of ensuring that the asset owner is given access to credit. The dominant condition is that a substantial portion or the entire rent or receivables which the owner would be entitled to are made- sold or assigned, absolutely to the creditor bank. This is with the intention that the borrower s liabilities are discharged automatically from the proceeds payable in respect of the property. Such amounts virtually are by way of unsecured debts. In other words, future rent payable is actually an unsecured debt that the owner/borrower would have been otherwise entitled to claim, but for the assignment or transfer, to the lender/creditor. Because the owner is a debtor of the bank, the latter becomes the creditor of the tenant or the lessee as the case may be. This arrangement has the advantage of virtually ring fencing the creditor from the eventuality of bankruptcy or an insolvency event, which the borrower might be exposed to. In fact, the Reserve Bank of India (RBI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s claims and choices in action cannot be transferred. 33. Actionable claim is defined by the Transfer of Property Act, 1882 (hereafter TPA ) in the following manner: Section 3 Interpretation clause . actionable claim means a claim to any debt, other than a debt secured by mortgage of immoveable property or by hypothecation or pledge of moveable property, or to any beneficial interest in moveable property not in the possession, either actual or constructive, of the claimant, which the Civil Courts recognise as affording grounds for relief, whether such debt or beneficial interest be existent, accuring, conditional or contingent: Thus, in terms of Section 3 of the TPA, actionable claim means (a) claim to an unsecured debt (other than a debt secured by mortgage of immovable property, hypothecation or pledge (b) beneficial interest in a movable property. Both these are recognised as enforceable. Other claims, however, do not fall within the expression actionable claim . 34. Sections 130, 131 and 132 of TPA, deal with transfer of actionable claims: 130. Transfer of actionable claim (1) The transfer of an actionable claim [whether with or with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by execution of an instrument in writing signed by the transferor or his duly authorised agent, whereas under Section 54 of the Transfer of Property Act, Sale is a transfer of ownership in exchange for a price paid or promised or part-paid and part-promised. This payment of price, in full or in part or promised is by the purchaser to the seller. The sale of a property of a value of more than Rs. 100/- has to be compulsorily registered, whereas, an actionable claim of any amount can be had only by execution of an instrument. Thus, the sale of a property and sale of an actionable claim are two different things and one has no relation with the other. As the transfer of an actionable claim is not done by a registered deed 36. This court has ruled, in Sunrise Associates vs Govt. Of NCT of Delhi 2006 Supp(2) SCR 421 that: Distinct elements are deducible from the definition of 'actionable claim' in Section 3 of the Transfer of Property Act. An actionable claim is of course as its nomenclature suggests, only a claim. A claim might connote a demand, but in the context of the definition it is a right, albeit an incorporeal one. Every claim is not an actionable claim. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'in futuro'. In any event the distinction is immaterial to the question as to whether the subject matter of the transfer is an actionable claim, since an actionable claim may be existent, accruing, conditional or contingent. 37. In another decision, Noor Ors. v G.S. Ibrahim (Dead) by LRs 2003 Supp (2) SCR 204 it was held that: If right to recover the arrears is assigned, then the transferee/landlord can recover those arrears as rent and if not paid maintain a petition for eviction under the rent laws for those arrears as well. 38. In another decision, ICICI Bank v Official Liquidator of APS Star Industries Ltd 2010 (12) SCR 644 this court held that: rights under a contract are always assignable unless the contract is personal in its nature or unless the rights are incapable of assignment, either under the law or under an agreement between the parties. A benefit under the contract can always be assigned. That, there is, in law, a clear distinction between assignment of rights under a contract by a party who has performed his obligation thereunder and an assignment of a claim for compensation which one party has against the other for breach of con ..... X X X X Extracts X X X X X X X X Extracts X X X X
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