05 (8) (i)

Discharge of Principal Borrower when Resolution Plan is approved in CIRP of Surety? | Guarantee extinguished after approval of Resolution Plan? | Simultaneous IBC Proceedings against Corporate Debtor and Guarantor | Subrogation in Insolvency | Assets of Subsidiary Company in Resolution Plan of Holding Company – BRS Ventures Investments Ltd. Vs. SREI Infrastructure Finance Ltd. and Anr. – Supreme Court

In this important judgment, Hon’ble Supreme Court clarifies following issues:

A. Liability of Guarantor / Surety
B. Discharge of Principal Borrower when Resolution Plan is approved in CIRP of Surety/ Guarantor vs. Discharge of Surety/ Guarantor when Resolution Plan is approved in CIRP of Principal Borrower?
C. Simultaneous Proceedings under the IBC against Corporate Debtor and Guarantor
D. Subrogation under Section 140 of the Indian Contract Act, 1872.
E. Whether the assets of the Corporate Debtor were part of CIRP in respect of Corporate Guarantor.

Discharge of Principal Borrower when Resolution Plan is approved in CIRP of Surety? | Guarantee extinguished after approval of Resolution Plan? | Simultaneous IBC Proceedings against Corporate Debtor and Guarantor | Subrogation in Insolvency | Assets of Subsidiary Company in Resolution Plan of Holding Company – BRS Ventures Investments Ltd. Vs. SREI Infrastructure Finance Ltd. and Anr. – Supreme Court Read Post »

While deciding the issue of whether a debt is a Financial Debt or an Operational Debt under IBC, it is necessary to ascertain what is the real nature of the transaction – Global Credit Capital Ltd. and Anr. Vs. Sach Marketing Pvt. Ltd. and Anr. – Supreme Court

In this landmark decision, Hon’ble Supreme Court ruled that:

(i) There cannot be a debt within the meaning of Section 3(11) of the IB Code unless there is a claim within the meaning of Section 3(6) of thereof;
(ii) The test to determine whether a debt is a financial debt within the meaning of Section 5(8) is the existence of a debt along with interest, if any, which is disbursed against the consideration for the time value of money. The cases covered by categories (a) to (i) of sub-section (8) must satisfy the said test laid down by the earlier part of Section 5(8);
(iii) While deciding the issue of whether a debt is a financial debt or an operational debt arising out of a transaction covered by an agreement or arrangement in writing, it is necessary to ascertain what is the real nature of the transaction reflected in the writing; and
(iv) Where one party owes a debt to another and when the creditor is claiming under a written agreement/ arrangement providing for rendering ‘service’, the debt is an operational debt only if the claim subject matter of the debt has some connection or co-relation with the ‘service’ subject matter of the transaction.

While deciding the issue of whether a debt is a Financial Debt or an Operational Debt under IBC, it is necessary to ascertain what is the real nature of the transaction – Global Credit Capital Ltd. and Anr. Vs. Sach Marketing Pvt. Ltd. and Anr. – Supreme Court Read Post »

Indemnity obligations under Debenture Subscription Agreement is not a Financial Debt under Section 5(8)(h) of the IBC and if Applicant is neither a bank nor Financial Institution, it cannot be construed as Financial Creditor against the Corporate Debtor – HT Media Ltd. Vs. GHCL Ltd. – NCLT Ahmedabad Bench

Hon’ble NCLT Ahmedabad Bench held that:
(i) The Applicant has claimed himself as Financial Creditor, though the investments by way of convertible debentures were made in Rosebys Interiors India Limited. It is an admitted fact that the said convertible debentures have since been converted to equity shares and that the Rosebys Interiors India Limited is presently under liquidation.
(ii) The Applicant is claiming to be Financial Creditor in terms of Section 5(8)(f), (h) r.w (i) of IBC, 2016. The Respondent/ Corporate Debtor is admittedly indemnifier as per Debenture Subscription Agreement.
(iii) In the present case, the Applicant is neither a bank nor Financial Institution. Hence, the applicant cannot be construed as Financial Creditor against the Respondent/ Corporate Debtor.
(iv) In regard to the above averments and interpretation of the Section 5(8)(f), (h) and (i) this Tribunal is of the view that the debt claimed by the Applicant does not falls under the ambit of the Financial debt provided under the Section 5(8) of IBC, 2016.

Indemnity obligations under Debenture Subscription Agreement is not a Financial Debt under Section 5(8)(h) of the IBC and if Applicant is neither a bank nor Financial Institution, it cannot be construed as Financial Creditor against the Corporate Debtor – HT Media Ltd. Vs. GHCL Ltd. – NCLT Ahmedabad Bench Read Post »

Whether the Debenture Holders are Financial Creditors in the light of the provisions of the IBC and the Debenture Trust Deed and Deed of Irrevocable and Unconditional Guarantee? – Mr. Zubin Bharucha Vs. Reliance AIF Management Company Ltd. – NCLAT New Delhi

The issues that arise for consideration in this Appeal are as follows:-

(i) Whether the Debenture Holders, namely, the Respondents No. 1 and 2 are Financial Creditors in the light of the provisions of the IBC and the Debenture Trust Deed and Deed of Irrevocable and Unconditional Guarantee?
(ii) Whether the Debenture Holders can claim the repayment on account of Event of Default under Section 5(8) of the IBC and the Appellant is a Corporate Debtor under the provisions of the IBC?

Whether the Debenture Holders are Financial Creditors in the light of the provisions of the IBC and the Debenture Trust Deed and Deed of Irrevocable and Unconditional Guarantee? – Mr. Zubin Bharucha Vs. Reliance AIF Management Company Ltd. – NCLAT New Delhi Read Post »

An indemnity of the obligations under the Agreement will equally not constitute a Financial Debt under Section 5(8) of the Code – Axix Bank Ltd. Vs. Mr. Nageswara Rao Administrator Reliance Capital Ltd. – NCLT Mumbai Bench

NCLT held that is not an indemnity that would constitute financial debt under Section 5(8) of the Code. As stated above, the obligations under the Undertaking do not attract the definition of financial debt. A fortiori, an indemnity of the obligations under the Agreement will equally not constitute a financial debt under Section 5(8) of the Code.

An indemnity of the obligations under the Agreement will equally not constitute a Financial Debt under Section 5(8) of the Code – Axix Bank Ltd. Vs. Mr. Nageswara Rao Administrator Reliance Capital Ltd. – NCLT Mumbai Bench Read Post »

Whether Personal Guarantor is entitled to include as Secured Creditor in the list of creditors prepared under Section 36 of IBC claiming right of subrogation under Section 140 of Contract Act? – K.V. Jayaprakash Vs. State Bank of India – NCLAT New Delhi

In this case, proceedings under IBC against the Corporate Debtor who is a Principal Borrower is going on at Liquidation stage and property of personal guarantor is sold for recovery of debt under the SARFAESI Act. The main endeavour of the appellant (Guarantor) is that, when insolvency or liquidation proceedings are initiated against the Corporate Debtor(Principal Borrower) and if the property of personal guarantor is sold for recovery of debt under the SARFAESI Act, he is entitled to recover the amount from the corporate debtor under Section 140 of the Indian Contract Act and the liability of the surety is coextensive with that of the Principal Debtor, thereby, he is entitled to be included as a Secured Creditor in the list of creditors under Section 36 of IBC. Read here NCLAT view.

Whether Personal Guarantor is entitled to include as Secured Creditor in the list of creditors prepared under Section 36 of IBC claiming right of subrogation under Section 140 of Contract Act? – K.V. Jayaprakash Vs. State Bank of India – NCLAT New Delhi Read Post »

Whether the mobilization advance given to a Corporate Debtor is a Financial Debt within the meaning of Section 5(8) of IBC or is an Operational Debt within the meaning of Section 5(21) of the Code – Athena Demwe Power Ltd. Through its RP, Mr. Umesh Garg Vs. Abir Infrastructure Pvt. Ltd. – NCLAT New Delhi

Following are two issues which need to be considered:

(i) Whether the mobilization advance given by the Appellant to the Corporate Debtor is a Financial Debt within the meaning of Section 5(8) of the Code;

(ii) Whether the mobilization advance given by the Appellant to the Corporate Debtor is an Operational Debt within the meaning of Section 5(21) of the Code.

NCLAT concluded that claim of the Appellant is to be treated as an Operational Debt and the Resolution Applicant is under obligation to include the claim of the Appellant as an Operational Debt and make payment to the Appellant also as an Operational Creditor. In result, this Appeal is allowed.

Whether the mobilization advance given to a Corporate Debtor is a Financial Debt within the meaning of Section 5(8) of IBC or is an Operational Debt within the meaning of Section 5(21) of the Code – Athena Demwe Power Ltd. Through its RP, Mr. Umesh Garg Vs. Abir Infrastructure Pvt. Ltd. – NCLAT New Delhi Read Post »

Lease of land by NOIDA to Builders does not fall within the ambit of Financial Debt, to be treated as an Operational Debt – New Okhla Industrial Development Authority Vs. Anand Sonbhadra – Supreme Court

Hon’ble Supreme Court held that Section 5(8)(d) includes only a finance or a capital lease, which is deemed, as such, under the Indian Accounting Standards. Section 5(8)(f) is a residuary and catch all provision. A lease, which is not a finance or a capital lease under Section 5(8)(d), may create a financial debt within the meaning of Section 5(8)(f), if, on its terms, the Court concludes that it is a transaction, under which, any amount is raised, having the commercial effect of the borrowing. All that we are finding, in the facts of this case, is that the lease in question does not fall within the ambit of Section 5(8)(f). This is for the reason that the lessee has not raised any amount from the appellant under the lease, which is a transaction.

Lease of land by NOIDA to Builders does not fall within the ambit of Financial Debt, to be treated as an Operational Debt – New Okhla Industrial Development Authority Vs. Anand Sonbhadra – Supreme Court Read Post »

A speculative investor cannot claim status and benefits as Financial Creditor under Explanation (i) of Section 5(8)(f) of the IBC – Mrs. Nidhi Rekhan Vs. Samyak Projects Pvt. Ltd. – NCLAT New Delhi

NCLAT holds that in our clear opinion, the Appellant, who is a speculative investor, cannot claim status and benefits as financial creditor under Explanation (i) of Section 5(8)(f) of the IBC, and is not interested in the financial well-being, growth and vitality of the Corporate Debtor, but is just interested in her investment and has come in the garb of an allottee. In such a situation, the Appellant is certainly not a financial creditor holding financial debt, which is in default of payment by the Corporate Debtor, and consequently we conclude that the Impugned Order does not require any interference. The appeal is, therefore, dismissed.

A speculative investor cannot claim status and benefits as Financial Creditor under Explanation (i) of Section 5(8)(f) of the IBC – Mrs. Nidhi Rekhan Vs. Samyak Projects Pvt. Ltd. – NCLAT New Delhi Read Post »

The definition of Financial Debt in Section 5(8) of IBC does not expressly exclude an interest free loan. Financial Debt would have to be construed to include interest free loans advanced to finance the business operations of a corporate body – M/s. Orator Marketing Pvt. Ltd. Vs. M/s. Samtex Desinz Pvt. Ltd. – Supreme Court

This judgment is not only on interest free advance. In this judgment, Hon’ble Supreme Court interpreted definition of Financial Creditor u/s 5(8) of the IBC, right of a financial creditor on default by Corporate Debtor, Construction/Interpretation of Statutory Provision, in case of doubt, how to read a statute, Interpretation of word “include” etc. Read summary with full text of the judgment.

The definition of Financial Debt in Section 5(8) of IBC does not expressly exclude an interest free loan. Financial Debt would have to be construed to include interest free loans advanced to finance the business operations of a corporate body – M/s. Orator Marketing Pvt. Ltd. Vs. M/s. Samtex Desinz Pvt. Ltd. – Supreme Court Read Post »

Scroll to Top