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TMI Blog2024 (10) TMI 400X X X X Extracts X X X X X X X X Extracts X X X X ..... lender. Thus, there can be no liability of Guarantor, if principal borrower is not liable. Regulation 8, sub-regulation (2) provides that existence of debt due to the Financial Creditor may be proved based on- (a) the records available with an information utility, if any, or (b) other relevant documents, including the record evidencing that the amounts committed by the Financial Creditor to the Corporate Debtor under a facility has been drawn by the Corporate Debtor. Further, sub-regulation (b) (i) refers to a financial contract supported by financial statements as evidence of the debt. Thus, financial statements need to be brought on record evidencing that amounts committed by Financial Creditor to the Corporate Debtor under a facility has been drawn by the Corporate Debtor, are the statutory prescription for proving the existence of debt. The debt shall become due only when there is liability or obligation in respect of a claim, which is due from any person. Thus, unless the liability or obligation becomes due on the Corporate Debtor, who is liable to pay the debt to the Appellant, it cannot be said that the amount of Rs.195 crores for which facility was sanctioned has become due ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Financial Facilities by the Bank of Maharashtra in the year 2018. Cash Credit Limit, Term Loan and the Encashment of Bank Guarantees were extended by Bank of Maharashtra. The Corporate Debtor could not service the Facilities; hence, the account was declared as NPA on 31.12.2019. (ii)The Corporate Debtor was awarded a Hybrid Annuity Model Road Project ( HAM Project ) by the Public Works Department ( PWD ) in the year 2018. The Corporate Debtor formed a SPV for the purposes of execution of HAM Project namely - M/s Sudhir Constructions Infraspace (Shegaon Palkhi Road) Private Limited ( SPV ). A Concession Agreement was executed between SPV and PWD on 03.01.2019 to carry out the work within 24 months. The Corporate Debtor faced difficulties in executing the Project. The Corporate Debtor efforts to find out the entities to carry out the Project failed twice. (iii)On 18.06.2022, the SPV of the Corporate Debtor M/s Sudhir Constructions Infraspace (Shegaon Palkhi Road) Private Limited entered into an Agreement with M/s Saratvam Creators (Appellant herein) to execute the work on back-to-back basis. The Appellant agreed to execute the work on back-to-back basis on mutually agreed condition a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10.04.2023 was sent by Bank of Maharashtra to the RP, pleading that claim of unsecured creditors admitted by RP is untenable. It was pleaded that CoC has been formed on the basis of erroneous and fictitious claims, which are not valid in law. It was stated that RP without proper and genuine documents, has constituted the CoC. It was stated that to protect the interest of the Corporate and secured Financial Creditors, the Bank of Maharashtra prayed that minutes be recalled and CoC be reconstituted. The RP proceeded to hold the 2nd meeting of the CoC on 21.04.2023 with the same members of the CoC as was earlier constituted. The RP has also filed Report before the Adjudicating Authority regarding constitution of the CoC and detail of claims received. The Bank of Maharashtra also called upon the RP to share the relevant financial documents on the basis of which the claims of the Appellant and other unsecured Financial Creditors have been admitted, which was not shared by the RP. The RP in support of its decision to admit the claim of Appellant and other unsecured Financial Creditors, relied on two legal opinions, which were shared. (ix)The Bank of Maharashtra filed an application IA N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted the Deed of Guarantee-cum-Indemnity Agreement in favor of the lender, i.e. Appellant, ingredients of financial debts were proved. It is submitted that Adjudicating Authority committed error in returning a finding that there was no privity of contract between the Appellant and the Corporate Debtor. The finding of Adjudicating Authority that Loan Agreement and Deed of Guarantee-cum-Indemnity Agreement dated 05.08.2022 was executed with ulterior motive were unfounded. Further, the Adjudicating Authority committed error in directing for forensic audit for finding out as to whether there is preferential transaction between the Corporate Debtor and the Appellant. When the Adjudicating Authority has directed for forensic audit, which was to be completed within 60 days, there was no occasion for direction to reconstitute the CoC at this stage. In the impugned order, several errors have been committed by the Adjudicating Authority. The Adjudicating Authority has accepted the contention of Bank of Maharashtra that Loan Agreement and Deed of Guarantee-cum-Indemnity came into existence after Section 7 Application was served on the Corporate Debtor on 04.07.2022, whereas it failed to apprec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that Appellant is a Financial Creditor. It is further submitted that in any case, the Appellant must be regarded as a Secured Creditor. The learned Counsel for the Appellant has referred to Agreement dated 05.08.2022 Clauses 5 and 6, which deals with Security and Guarantee/ Indemnity . The learned Counsel for the Appellant in support of his submission has relied on judgment of Hon ble Supreme Court in Paschimanchal Vidyut Vitran Nigam Ltd. v Raman Ispat Pvt. Ltd. Ors. (2023) 10 SCC 60. 6.Shri Abhijeet Sinha learned Senior Counsel appearing for the Bank of Maharashtra refuting the submissions of learned Counsel for the Appellant submits that entire claim of the Appellant is not only mala fide claim, but is based on documents, which were prepared by the Corporate Debtor and the Appellant after Section 7 Application was served on the Corporate Debtor on 04.07.2022 by the Bank of Maharashtra. The object of Corporate Debtor was only to somehow create documents in favour of entities claiming to have unsecured Financial Creditors of the Corporate Debtor, to reduce the vote share of the Bank of Maharashtra in the CoC. It is submitted that bare perusal of the claim submitted by Appellant in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... execute any Deed of Guarantee-cum-Indemnity. Further, as per the term of the sanctioned Facilities by the Bank of Maharashtra, no liability can be taken by the Corporate Debtor, without obtaining a no objection from Bank of Maharashtra. At no point of time, the Corporate Debtor obtained no objection from Bank of Maharashtra for entering Deed of Guarantee-cum- Indemnity. The Escrow Account, which was maintained in the Bank of Maharashtra itself indicate that between August 2022 to January 2023 against total amount credit was Rs.10,95,00,000/- and an amount of Rs.19,73,11,473/- has been paid to the Appellant. Thus, even if, Rs.19 crores was disbursed to SPV, it was received back by the Appellant. 7.In the written submission, which has been filed by Respondent No.7 suspended Director, it is stated Respondent No.7 was heard by NCLT in IA No.2142 of 2023. In the written submission Respondent No.7 pleaded that Loan Agreement dated 05.08.2022 entered with the Appellant while exercising the best business judgment in relation to Project (Shegaon Palkhi Marg). Respondent No.7 also contended that NCLT recorded factually incorrect findings. Under the HAM Projects, it is a nationwide common pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ORS 2 Saratvam Creator 195,28,11,699 195,28,11,699 0 3 Spondere Structures 75,68,67,721 75,68,67,721 0 4 Sanguine Engineering Services 60,24,48,287 60,24,48,287 0 5 Mahhesh Bapuraoji Nage 3,57,51,974 3,57,51,974 0 6 Anil Tukaram Savarkar 2,88,64,861 2,88,64,861 0 7 Go Ahead Infra Private Limited 10,11,05,600 0 10,11,05,600 8 Supreme Infra Products (Proprietor Suresh Beoraoji Doifode) 20,56,23,808 0 20,56,23,808 9 Gurudeo Fabrication Pvt.Ltd.(Formerly known as L7 Fabrication Pvt. Ltd.) 11,66,47,699 0 11,66,47,699 10 Areon Multi Projects Pvt. Ltd. 7,24,74,638 0 7,24,74,638 11 Moonland Realty Developers Pvt. Ltd. 1,45,83,471 0 1,45,83,471 12 Vardhman Associates Karta Paras Jain HUF 6,10,049 0 6,10,049 13 Climb Up Infra Pvt. Ltd. 77,41,62,572 0 77,41,62,572 TOTAL 6,31,89,63,366 491,62,55,529 133,27,07837 10.The Report further under the heading Constitute a committee of creditors , mention as follows: b) Constitute a committee of creditors:As per Section 21(1) 18(1)(c) of the IBC, 2016 and Regulation 17(1) of IBBI (CIRP), 2016, it is the duty of IRP to constitute a Committee of Creditors (CoC) and submit its report certifying the constitution of CoC to the Adjudicating Authority. In res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the present Application and after examining the same, be pleased to direct the Resolution Professional to produce on record the documents based on which the claims of 3rd parties as mentioned in Paragraph 6 have been admitted along with copies of Form C submitted by the said 3rd parties. (d)That this Hon'ble Tribunal be pleased to examine the contents of the present Application and after examining the same be pleased to issue appropriate directions to the Resolution Professional tp give appropriate explanation for its failure to identify the transactions of the Corporate Debtor with various 3rd parties as mentioned in Paragraph 6 as preferential, undervalued, fraudulent and extortionate transactions hit by the various provisions of IBC 2016. (e)That this Hon'ble Tribunal be pleased to examine the contents of the present Application and after examining the same be pleased to direct the Resolution Professional to take appropriate steps to avoid the transactions on basis of which various 3rd parties have made claims before the Resolution Professional and till such decision not to allow the said 3rd parties as mentioned in Paragraph 6 from attending the COC. (f)That this Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Agreement have admitted the claims of the R2 to R4 as Unsecured Financial Creditors. It is observed that not only did these documents come into existence after the advance service of CP No. 52 of 2023 to the CD, but these documents were also executed against the loan agreement/ sanction letter with the Applicant Bank and without their prior consent. (ii) 71. Additionally, this Tribunal cannot overlook the fact that the CD, was declared an NPA on 31.12.2019, and it could not legally execute any Deed of Guarantees cum Indemnity Agreement. This act on the part of the CD is not only inappropriate but also irregular conduct (iii) 71. This Tribunal is constrained to state that the RP in this case has failed to conduct himself in a fair and unbiased manner . In paragraph 73, following findings have been returned: (iv) 73. Here it is important to take note that Respondent No.2's claim is admitted of Rs.1,95,28,11,699/- against the actual disbursement of nearly Rs.19,71,24,699/-. The fact of actual disbursement is of merely Rs. 19 crores is not disputed by either of the Respondents and or the RP and it is evident from the FORM C' In paragraph 75 following findings have been returne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Indian Partnership Act 1932 having its registered office at Flat No. Saisurbhi Apartments, Hill Top Layout, Ambazari, Shankar Nagar, Nagpur, Maharashtra440015 Hereinafter referred to as EPC Contractor on the SECOND PART which expression shall mean and include the firm, all its Present and Future Partners their heir successors legal representative executors administrative and assignees as of the other Party. Thus, on the perusal of the above clauses it is established that R2 to R4 comes within the ambit of Operational Creditors and not unsecured Financial Creditors. Hence R2 to R4 be treated as Operational Creditors. In paragraph 79, following findings have been returned: (viii) 79. Further the Tribunal finds merit in the applicant s concerns regarding the R2 to R4 being related parties to CD. It is to be noted that M/s. Saratvam Creators has 3 partners namely Mr. Anand Deshmukh, Mr. Vilas Rathod, and Mr. Anil Sawarkar. These alleged Partners are related Party. Mr. Anil Sawarkar is related to the Corporate Debtor since the year 2018. He stood as Guarantor for the loans availed by CD from Pusad Urban Cooperative Bank Limited at Nagpur. As, the CD defaulted in repayment of its lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n be held to be a related party . The Adjudicating Authority s observation that Mr. Anil Sawarkar is related to the Corporate Debtor since the year 2018 and stood Guarantor for the loan availed by the Corporate Debtor from Pusad Urban Co-operative Bank Limited at Nagpur, cannot be held to be a sufficient finding covering the Appellant within the definition of related party. It is relevant to notice that Adjudicating Authority by the impugned order has also directed for transaction audit report. We, thus, are of the view that sufficient finding not being returned by the Adjudicating Authority, holding the Appellant as related party , we need to proceed to consider the Appeal on the premise that Appellant is not a related party . However, after transaction audit report is received, there shall be liberty to the parties to file fresh Application before the Adjudicating Authority based on materials brought on record with transaction audit report regarding related party issue. We only clarify that our disapproval at this stage of the finding of the Adjudicating Authority regarding Appellant being a related party shall not come in the way of the Adjudicating Authority to consider afresh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht Lakhs Eleven Thousand Six Hundred Ninety-Nine Only) The particulars of claim and calculations of interest is attached as Annexure C . 5. Details of documents by reference to which Loan Agreement dated 05.08.2022 Annexure A and Guarantee Cum Indemnity Dated 05.08.2022 Annexure B . the debt can be substantiated 6. Details of how and when debt incurred: SARATVAM CREATORS, a partnership firm registered under the provisions of the Indian Partnership Act, 1932 having its registered office at Audumber App. Plot No. 57, Surendra Nagar, Nagpur Maharashtra 440015 has granted and committed to grant loan to the subsidiary of the Corporate Debtor namely Sudhir Constructions Infraspace (Shegaonpalkhi Road) Private Limited having CIN No. U45201MH2018PTC318026 and registered office at Mulik Complex Tenament, 17 No. Wardha Road NAGPUR Nagpur MH 440015. We, Saratvam Creators are fully committed to disburse the total amount of loan as and when required by the Borrower (aforesaid Subsidiary company) for and upto the completion of project and we are also committed for existing and to the future liabilities of the project, if any. The Corporate Debtor has given Guarantee- cum- Indemnity to the SARATV ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s (a)a right to payment, whether such right is reduced to judgment, fixed, disputed, undisputed, legal, equitable, secured, or unsecured. (b)right to remedy for breach of contract under any law for the time being in force, if such breach gives rise to a right to payment, whether such right is reduced to judgment, fixed, matured, unmatured, disputed, undisputed, secured or unsecured; 21.Section 5, sub-section (7) defines financial creditor in following words: (7) financial creditor means any person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred to; 22.The Financial Creditor, thus, is a person to whom financial debt is owed.The word debt is defined in Section 3, sub-section (11), which is as follows: (11) debt means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt; 23.Thus, there can be financial debt only when liability or obligation in respect of a claim, which is due from any person. The whole claim of financial debt by the Appellant is based on Deed of Guarantee-cum-indemnity dated 05.08.2022 executed by the Corporate Debtor. Clause 3 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liability or obligation in respect of a claim, which is due from any person. Thus, unless the liability or obligation becomes due on the Corporate Debtor, who is liable to pay the debt to the Appellant, it cannot be said that the amount of Rs.195 crores for which facility was sanctioned has become due without disbursement of Rs.195 crores, to enable the RP to admit the claim of Rs.195 crores submitted by the Appellant. We, thus, are not persuaded to accept the submission of the Appellant that disbursement of the whole loan money is not a sine qua non to qualify as a Financial Creditor. The liability of the guarantor must be the same as of the principal borrower. When Financial Creditor has not disbursed the amount of Rs.195 crores to the principal borrower, we fail to see that how against the guarantor, the claim of Rs.195 crores can be admitted. 25.The above statement clearly indicate that there is no statement that amount of Rs.195 crores have been disbursed, rather the Annexure-C, which is part of Form-C, itself makes it clear that amount disbursed is only Rs.19,43,13,000 and Adjudicating Authority in paragraph 73, as extracted above has returned a finding that the The fact of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vs. Union of India and Ors. (2019) 4 SCC 17. The relevant paragraph of the judgment in Swiss Ribbons has been quoted by the Hon ble Supreme Court in Anuj Jain s case. In paragraph 42.1 and 42.2, the Hon ble Supreme Court in Anuj Jain s case has extracted the relevant declaration of law in Swiss Ribbons s case, which are as follows: 42.1. The broad features of the expressions used in Sections 5(7) and 5(8) of the Code in defining the terms financial creditor and financial debt were indicated by this Court in Swiss Ribbons [ Swiss Ribbons (P) Ltd. v. Union of India, (2019) 4 SCC 17] in the following: (SCC p. 64, para 42) 42. A perusal of the definition of financial creditor and financial debt makes it clear that a financial debt is a debt together with interest, if any, which is disbursed against the consideration for time value of money. It may further be money that is borrowed or raised in any of the manners prescribed in Section 5(8) or otherwise, as Section 5(8) is an inclusive definition. On the other hand, an operational debt would include a claim in respect of the provision of goods or services, including employment, or a debt in respect of payment of dues arising under any la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ard. Goods may not have been supplied at all. All these qua operational debts are matters to be proved in arbitration or in the courts of law. On the other hand, financial debts made to banks and financial institutions are well documented and defaults made are easily verifiable. 51. Most importantly, financial creditors are, from the very beginning, involved with assessing the viability of the corporate debtor. They can, and therefore do, engage in restructuring of the loan as well as reorganisation of the corporate debtor's business when there is financial stress, which are things operational creditors do not and cannot do. Thus, preserving the corporate debtor as a going concern, while ensuring maximum recovery for all creditors being the objective of the Code, financial creditors are clearly different from operational creditors and therefore, there is obviously an intelligible differentia between the two which has a direct relation to the objects sought to be achieved by the Code. 75. Since the financial creditors are in the business of moneylending, banks and financial institutions are best equipped to assess viability and feasibility of the business of the corporate debtor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te debtor. 29.Further, the Hon ble Supreme Court in paragraph 50, reiterated the enunciation as made by Hon ble Supreme Court in Swiss Ribbons. In paragraph 50, following observation was made: 50. A conjoint reading of the statutory provisions with the enunciation of this Court in Swiss Ribbons [Swiss Ribbons (P) Ltd. v. Union of India, (2019) 4 SCC 17] , leaves nothing to doubt that in the scheme of the IBC, what is intended by the expression financial creditor is a person who has direct engagement in the functioning of the corporate debtor; who is involved right from the beginning while assessing the viability of the corporate debtor; who would engage in restructuring of the loan as well as in reorganisation of the corporate debtor's business when there is financial stress. In other words, the financial creditor, by its own direct involvement in a functional existence of corporate debtor, acquires unique position, who could be entrusted with the task of ensuring the sustenance and growth of the corporate debtor, akin to that of a guardian. In the context of insolvency resolution process, this class of stakeholders, namely, financial creditors, is entrusted by the legislature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after NCLAT ) which rejected its appeal against an order [Raman Ispat (P) Ltd. v. Paschimanchal Vidyut Vitran Nigam Ltd., 2018 SCC OnLine NCLT 25732] of the National Company Law Tribunal, Allahabad (hereinafter NCLT / adjudicating authority ), which allowed an application directing the District Magistrate and Tahsildar, Muzaffarnagar to immediately release property (which was previously attached at the request of the appellant) in favour of the liquidator of the respondent Raman Ispat Pvt. Ltd. (hereinafter corporate debtor ) for enabling its sale, and after realisation of its value, for distributing the proceeds in accordance with the provisions of the Insolvency and Bankruptcy Code, 2016 (hereinafter IBC / Code ). 2. The parties had entered into an agreement on 11-2-2010 for supply of electricity. Clause 5 of the agreement provided that: The outstanding dues will be a charge on the assets of the company. Before sale is made, the outstanding dues will be cleared and, (in) the alternative the deed to agreements/sale will specifically mention the outstanding dues and the method of its payment. 32.In the above case there was categorical finding by NCLT and NCLAT that PVVNL was a secu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng out of insolvency proceedings, which is covered by the IBC and Regulations framed thereunder. 36.The second case relied by Respondent No.7 is judgment of Hon ble Supreme Court of Canada in Douglas Kerr, S. Grace Kerr vs. Danier Leather Inc., (2007) SCC Online Can SC 44. The question, which was raised in the said case, has been noticed in paragraph 1 of the judgment, which is as follows: 1. This appeal raises questions about the continuous disclosure obligations of an issuer seeking to sell its shares to the public by a prospectus governed by the Ontario Securities Act, R.S.O. 1990, c.S.5. Purchasers under a prospectus are given a statutory right of action if the prospectus or any amendment contains a misrepresentation against the issuer and officers of the issuer who signed the prospectus. 37.We fail to see that how the said case has any relevance in the present case. 38.The third case relied by learned Counsel for Respondent No.7 is judgment of Bombay High Court in (2014) 4(5) Mh. L.J. in royal Power turnkey Implements Pvt. Ltd. vs. Maharashtra Industrial Development Corporation, Mumbai. The above was a case where writ petition was filed by a Company praying for quashing and se ..... X X X X Extracts X X X X X X X X Extracts X X X X
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