National Company Law Appellate Tribunal (NCLAT), New Delhi Bench comprising Justice Ashok Bhushan, Chairperson and Barun Mitra, Technical Member was recently hearing an Appeal where the Appellants were claiming to be Financial Creditors of the Corporate Debtor. The NCLAT New Delhi Bench held that present was a case, which was not filed by Financial Institutions as Financial Creditors, rather it was Promoters of the Corporate Debtor, who extended the Personal Guarantee and the Corporate Guarantee who filed their claims, which rightly been rejected.
These three appeals have been filed against common judgment rejecting I. A. Nos.257, 423 and 427 of 2021 filed by the Appellant(s) respectively. By the impugned order, the Adjudicating Authority rejected the claim of the Appellant(s) to be declared as Financial Creditors of the Corporate Debtor.
The averments made in the above three IAs filed by the Appellant(s) before the Adjudicating Authority were more or less similar. It shall be sufficient to notice the pleadings in Company Appeal (AT) (Insolvency) No.1109 of 2022 for deciding all these Appeals. Aggrieved by the impugned order dated 28.06.2022, rejecting the claim filed by the Appellant(s), these Appeal(s) have been filed.
Appellants’ Submission:
The learned Counsel for the Appellant(s) challenging the impugned order submitted that the Appellant(s) being Financial Creditors, their claim deserves admission by the Resolution Professional. The learned Counsel for the Appellant(s) relying on Clause 5.10 of the Purchase Agreement dated 04.03.2015 submits that both the Acquirer (Reliance Group) and the Corporate Debtor have undertaken to indemnify the Promoter Guarantor (Appellant(s) herein) for any loss suffered by Founder Promoters on account of the enforcement of any Disclosed Founder Promoter Guarantees given by the Appellant(s) dated 31.03.2015 and 30.03.2015 having been invoked by Security Trustee by letter dated 17.03.2018. The Appellant(s) have suffered loss, with regard to which claim was submitted before the Resolution Professional. It was submitted that proceeding before Debts Recovery Tribunal has already been initiated on the basis of invocation of the Guarantee and Pledge Shares, hence, the liability is imminent and the claim for the said amount was a Financial Claim within the meaning of Section 5(8)(h) of the Code. It was submitted that the claim need not be matured and even if a claim was not matured, the creditor is entitled to file a claim. The mere fact that no payment has been made by the Appellant(s) (Promoter Guarantors) towards the invocation of Securities cannot be a ground for rejection of the claim. It was submitted that the Adjudicating Authority also committed an error in rejecting the claim on the ground that no disbursement has been made by the Appellant(s) to the Corporate Debtor, hence, their claim cannot be accepted as Financial Creditors. The Contract of Indemnity was a separate and independent Contract and under Section 125 of the Contract Act, 1972, the Appellant(s) were entitled to recover from the Promisor all damages which he may be compelled to pay in any suit or any proceedings. It was submitted that in the facts of the present case, there was a counter indemnity obligation on the Corporate Debtor by virtue of Clause 5.10 of the Purchase Agreement and the Adjudicating Authority has not correctly appreciated the merit of Clause 5.10. The right of the Guarantor as against the Principal Debtor as contained in Section 145 is independent of the Contract of Guarantee. Under Section 3(11) of the Code, a debt means not only a liability but also an obligation in respect of a claim, which is due from any person. The IRP/RP was only entitled to collate all the claims.
Resolution Professional’s Submission:
The learned Counsel for the Resolution Professional refuting the submissions for counsel for the Appellant(s) submits that the Appellant(s) were Promotors of the Corporate Debtor and had executed Deed of Personal Guarantee dated 31.03.2015 to secure the Financial Facilities extended under the Master Restructuring Agreement dated 30.03.2015. the Appellant(s) can by no stretch of imagination be Financial Creditors of the Corporate Debtor. They were Guarantors, who guaranteed the repayment of the Financial Facilities extended to the Corporate Debtor by CDR Lenders. Neither any debt was owed nor due to the Appellant(s) nor any amount has been disbursed by the Appellant(s) to the Corporate Debtor that can be construed as ‘Financial Debt’. In order to be ‘Financial Creditor’, there has to be a debt due or debt owed to the Appellant(s) by the Corporate Debtor. Under the Personal Guarantee, there is a specific clause that until all the monies due to the Finance Parties under the Restructured Facilities are fully repaid/ paid in accordance with the Personal Guarantee, Personal Guarantors are not entitled to any benefit of subrogation vis-a-vis securities or otherwise. No amount has been disbursed by the Appellant(s) to the Corporate Debtor. The rejection of the claim was due to insufficient documents to corroborate the claim of the Appellant(s). Even as Clause 5.10 relied upon the Appellant(s) of the Purchase Agreement, any claim can be made by the Appellant(s) only when a loss is suffered by them. It was an admitted case of the Appellant(s) that no payments have yet been made by the Appellant(s) towards the invocation of the Guarantee. Hence, there was no question of accepting that the Appellant(s) were ‘Financial Creditors’.
NCLAT’s Analysis:
The Appellant(s) before the Appellate Tribunal were the Personal Guarantor/ Corporate Guarantor of the Financial Facilities extended to the Corporate Debtor by Consortium Lenders. A Purchase Agreement dated 04.03.2015 was entered between Pipavav Defence and Offshore Engineering Limited with Reliance Defense Systems Ltd. and Reliance Infrastructure Ltd. wherein the Reliance Group (Acquirer) entered into an Agreement of Purchase of sale of shares.
The Appellate Authority noted that it was the Appellants’ case that Consortium Lenders were discussing restructuring the corporate debt and implementation of the CDR Scheme in relation to the original loan transaction. A Master Restructuring Agreement was entered on 30.03.2015 for restructuring the debt to secure the payment under the Master Restructuring Agreement and securities were executed. The Appellant – Nikhil Gandhi and Bhavesh Gandhi, the Promoters of the Corporate Debtor executed a Deed of Personal Guarantee in favour of a Security Trustee.
The Appellate Tribunal noticed that the claim was filed in Form-C by the Appellant(s) relying on the aforesaid documents. The copy of the Deed of Personal Guarantee, Purchase Agreement and relevant letters were all part of the Claim Form. It was also relevant to notice that the e-mail dated 28.01.2021 by which the claim of the Appellant(s) as Financial Creditors has been rejected.
From the sequence of events as it was clear that the Appellant(s) were Promoters of the Corporate Debtor, who had entered into a Purchase Agreement with Reliance Group, where Reliance Group had undertaken to discharge on the security of the Appellant(s), which admittedly had not yet taken place. After the loan restructuring, a Personal Guarantee dated 31.03.2015 was executed by Nikhil Gandhi, and Bhavesh Gandhi and Corporate Guarantee has been issued by SKIL Infrastructure Ltd. along with a Share Pledge Agreement dated 20.04.2015. To answer the issue as to whether the claim of the Appellant(s) was a claim of a Financial Creditor.
The learned Counsel for the Appellant(s) has relied on Section 5(8)(h) of the Code to support the claim of the Appellant(s) as a ‘Financial Creditor’. The learned Counsel for the Appellant(s) has also placed reliance on two judgments of the Hon’ble Supreme Court to support his submission of ‘Financial Creditor’, i.e., Pioneer Urban Land and Infrastructure Limited and Anr. v Union of India and Ors., REED 2019 SC 08502, and the next judgment, which was relied on by the Appellant(s) was a judgment of the Hon’ble Supreme Court was Anuj Jain, Interim Resolution Professional for Jaypee Infratech Ltd. v Axis Bank Ltd., REED 2020 SC 02502. It was categorically held that disbursal against the consideration for the time value of money remains an essential part even in respect of any of the transactions referred to in Section 5(8), sub-sections (a) to (h).
In the present case, it was clear that the disbursal was made by CDR Lenders to the Corporate Debtor and the Appellant(s) before the Appellate Tribunal were Personal Guarantors/ Corporate Guarantors to guarantee the repayment of Financial Facilities extended to the Corporate Debtor. The Appellate Authority was failing to see how the Guarantors will become a ‘Financial Creditor’ of the Corporate Debtor. The Appellant(s) who were Promoters of the Corporate Debtor had given a guarantee for repayment of the debt and the relevant clauses of the Personal Guarantee. Section 5(8)(h), which was the sheet anchor of submission of Appellant(s) to be covered under Clause (h).
Section 5(8)(h), the counter-indemnity obligation has to be in respect of a guarantee, indemnity, bond, documentary letter of credit or any other instrument. The financial claim has been filed by the Appellant(s) for invocation of guarantee dated 31.03.2015 and 30.03.2015, which is specifically mentioned in Form-C. Clause 5.10 in the Purchase Agreement dated 04.03.2015 cannot be read to be any counter-indemnity obligation with respect to guaranteeing dated 31.03.2015 and 30.03.2015. Since the Guarantee was not even existent when the Purchase Agreement dated 04.03.2015 was executed. Thus, the pre-condition for applicability of Section 5(8)(h) is not fulfilled in the facts of the present case. When the specific case of the Appellant is on the basis of invocation of the guarantee dated 31.03.2015 and 30.03.2015, the Appellant(s) cannot rely on Clause 5.10 to satisfy the condition of existence of any counter-indemnity obligation in respect of a guarantee. We, thus, are clearly of the opinion that Clause 5(8)(h) is not attracted to the facts of the present case. It is further to be noted that even if we look into Clause 5.10, the obligation of the Acquirer and the Company agree to promptly reimburse and indemnify on demand the Founder Promoter was “for any loss suffered by the Founder Promoter on account enforcement of any other guarantors as disclosed to the Acquirer provided by them to the Lenders”. The Resolution Professional has clearly noticed that the Appellant(s) has admitted by sending an email stating that to date they have not made any payments towards the invocation of the Guarantee. Thus, even Clause 5.10 could not have been relied on by the Appellant(s), since they have not suffered any loss, since no payments have been made by them to date.
The learned Counsel for the Appellant(s) on the basis of the aforesaid judgment of this Tribunal submits that it is not necessary that the claim may be matured on the date when a claim is filed. The claim can be filed even if it is an unmatured claim. In the facts of the present case, the Personal Guarantee and the Corporate Guarantee both were invoked and in the present case, the claim was founded by the Appellant(s) on the basis of Clause 5.10, which specifically provided for indemnification by the Acquirer of the Corporate Debtor in event of suffering loss by Guarantor. Hence, on the facts of the case, it was clear that no loss has been suffered by the Appellant(s) since no payments have been made. Thus, it was rightly held by Adjudicating Authority that under Clause 5.10 also, the case was not covered. The judgment of the Appellate Tribunal in the above case was not a case where Guarantors have filed any claim as a ‘Financial Creditor’. Rather, in the above case, Financial Institutions, who had disbursed the amount had filed the claim on the basis of Guarantee against CIRP of the Guarantor. Thus, in the facts of that case, the Appellate Tribunal held that both Export-Import Bank of India and Axis Bank were ‘Financial Creditors’. Whereas present was a case, which was not filed by Financial Institutions as Financial Creditor, rather it was Promoters of the Corporate Debtor, who extended the Personal Guarantee and the Corporate Guarantee who have filed their claims, which has rightly been rejected.
In the present case it had already noticed one of the clauses in the Personal Guarantee, i.e. Clause 4.6 under which the Guarantor waives in favour of the Security Trustee all the suretyship and other rights, which the Guarantors might otherwise be entitled to enforce, including but not limited to those arising under Sections 133, 134, 135, 139 and 141 of the Indian Contract Act, 1872. It was not open for the Appellant(s) to file any claim in view of the specific Clause 4.6. Hence, the claim was liable to be rejected on this ground also.
The Appellate Tribunal were satisfied that the condition for declaring the Appellant(s) as ‘Financial Creditor’ was not satisfied in the claims submitted by the Appellant(s) and both Resolution Professional and Adjudicating Authority have rightly rejected their claims as ‘Financial Creditor’ for valid reasons. No grounds have been made out to interfere with the impugned judgment. All the Appeal(s) were dismissed.
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