The division judge bench of Justice Indira Banerjee and Justice J.K Maheshwari of the supreme court of India in the case of Maitreya Doshi Vs Anand Rathi Global Finance Ltd. and Ors held that if there are two borrowers or if two corporate bodies fall within the ambit of corporate debtors, there is no reason why proceedings under Section 7 of the IBC cannot be initiated against both the Corporate Debtors. Needless to mention, the same amount cannot be realised from both the Corporate Debtors.
BRIEF FACTS
The factual matrix of the case is that respondent no. 1 (financial creditor) disbursed the loan of Rs 6 crores to M/S Premier Limited under three different loan cum pledge agreements. According to the Appellant, Doshi Holdings pledged shares held by it in Premier, in favor of the Financial Creditor, by way of security for the loan. Thereafter, the premier failed to repay in terms of loan-cum-pledge agreements. Further, the Financial Creditor, therefore, called upon Premier to repay its outstanding dues of Rs.7,64,60,360/-. However, the premier acknowledged its responsibility to pay the outstanding dues but stated that it could not pay the same on account of genuine difficulty.
The financial creditor filed a petition under section 7 of the IBC for initiation of CIRP against the premier for default in repayment. Also, the financial creditor also filed the petition under section 7 of the IBC against Doshi Holdings. The adjudicating authority allows the petition for initiation of CIRP against Doshi Holdings for the same set of loans arising out of the same loan documents, in respect of which the Financial Creditor had initiated CIRP against Premier. Furthermore, the appeal was filed before the national company law appellate tribunal under section 61 of the IBC and the NCLAT dismissed the appeal.
The learned senior counsel appearing on behalf of the appellant has contended that the Doshi holdings didn’t take over any part of the money disbursed by the Financial Creditor under the loan- cum- pledge agreement. It was further submitted that the loan-cum-pledge agreement is the standard form of agreement in which the premier was the borrower and Doshi Holdings the pledgor. The Loan-cum-Pledge Agreement and other related documents were signed by the Appellant on behalf of Premier and Doshi Holdings because the Appellant had been independently and separately given permission by Premier and Doshi Holdings to sign the documents. However, Doshi Holdings and Premier remain separate legal entities. It was also contended that no disbursement has been made to Doshi Holdings against consideration for the time value of money, there was no obligation on the part of Doshi Holdings to make any repayment to the Financial Creditor. There was, therefore, no financial debt owed by Doshi Holdings to the Financial Creditor under Section 5(8) of the IBC. Insofar as Doshi Holdings is concerned, the Loan-cum-Pledge Agreements only created a pledge of the shares of Doshi Holdings in Premier in favor of the Financial Creditor. The petition under Section 7 of the IBC against the Corporate Debtor was clearly not maintainable. Also, the Adjudicating Authority/Appellate Authority erred in determining that Doshi Holdings was a borrower because no money had been paid to the company. Furthermore, the definition of ‘financial debt’ in Section 5(8) of the IBC does not include a pledge.
The learned counsel vehemently contended that the “Contract of Indemnity”, “Contract of Guarantee” and “Pledge” have been defined in the Indian Contract Act, 1872. The expressions are different from one another in terms of their ramification and implication and they cannot be equated. Distinguishing between the expressions, contract of indemnity, contract of guarantee, and pledge, it was argued that the creation of pledge of shares of the Corporate Debtor did not and cannot amount to a guarantee and/or indemnity under Section 5(8) of the IBC.
The learned counsel appearing on behalf of the appellant further relied upon the judgments titled Anuj Jain, Interim Resolution Professional for Jaypee Infratech Limited v. Axis Bank Limited and Other, Phoenix ARC Pvt. Ltd. v. Ketulbhai Ramubhai Patel, Bharat Barrel & Drum Manufacturing Company v. Amin Chand Payrela, and Sub-Inspector Rooplal & Another v. Lieutenant Governor and Others.
The learned counsel appearing on behalf of the respondent contended that Doshi Holdings was party to the Loan-cum-Pledge Agreements in its dual capacity as co-borrower and pledgor which had pledged its shares in Premier in favor of the Financial Creditor. It was further argued that by signing loan receipts, Doshi Holdings acknowledged receiving the funds disbursed under three loan agreements. Additionally, Doshi Holdings had issued a demand promissory note guaranteeing the Financial Creditor's loan repayment in full. The appellant has signed the loan agreements, receipts, and demand promissory notes in his capacity as the authorized signatory/Director of Doshi Holdings and Premier. Doshi Holdings received a demand notice to repay the loan in its capacity as a co-borrower after Premier failed to make loan payments as required. It was further stated that the sine qua non for an entity to be considered as a Corporate Debtor is that such person/entity should owe a debt to any person and not that a disbursal has to be made to such a person/entity.
COURT’S OBSERVATION
The hon’ble apex court stated that it is not in dispute that the Financial Creditor disbursed loan to the tune of Rs.6,00,00,000/- to Premier pursuant to the Loan-cum-Pledge Agreements referred to above, executed both by Premier and by Doshi Holdings. Doshi Holdings has been referred to in the agreement as borrower and pledgor. Prima facie, it appears that Doshi Holdings was a party to the Loan-cum-Pledge Agreement in its dual capacity of borrower and pledgor of shares. The Appellate Authority has arrived at the factual finding that Doshi Holdings is also a borrower under the Loan-cum-Pledge Agreement. The factual finding of the Appellate Authority which was the final fact-finding authority ought not to interfere in this appeal. The finding of the Appellate Authority that Doshi Holdings is a borrower, is based on its interpretation of the Loan-cum-Pledge Agreements and supporting documents. The interpretation given by the Appellate Authority is definitely a possible interpretation. In our view, the interpretation is a plausible interpretation that cannot be interfered with in an appeal under Section 62 of the IBC.
The hon’ble court relied upon the judgment titled Lalit Kumar Jain v. Union of India, this Court held that the approval of a resolution plan in relation to a Corporate Debtor does not discharge the guarantor of the Corporate Debtor. On a parity of reasoning, the approval of a resolution in respect of one borrower cannot certainly discharge a co-borrower.
The top court held that if there are two borrowers or if two corporate bodies fall within the ambit of corporate debtors, there is no reason why proceedings under Section 7 of the IBC cannot be initiated against both the Corporate Debtors. Needless to mention, the same amount cannot be realised from both the Corporate Debtors. If the dues are realised in part from one Corporate Debtor, the balance may be realised from the other Corporate Debtor being the co-borrower. However, once the claim of the Financial Creditor is discharged, there can be no question of recovery of the claim twice over. The hon’ble court supported the judgment of the appellate authority and dismissed the present appeal.
CASE NAME- Maitreya Doshi Vs Anand Rathi Global Finance Ltd. and Ors
CITATION- CIVIL APPEAL NO. 6613 OF 2021
DATE-22.09.22
CORUM- Justice Indira Banerjee and Justice J.K Maheshwari
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