Sunday, 5 September 2021

Maitreya Doshi Ex-Director of Doshi Holdings Pvt. Ltd. Vs. Anand Rathi Global Finance Ltd. - Recovery of debt in one of the proceedings can always be taken note of and set off in the other proceeding so that the Co-borrowers are not put to disadvantage.

NCLAT (25.08.2021) in Maitreya Doshi Ex-Director of Doshi Holdings Pvt. Ltd. Vs. Anand Rathi Global Finance Ltd. [Company Appeal (AT) (Insolvency) No. 191 of 2021] held that; 

  • Hon’ble Supreme Court held in the matter of ‘Phoenix ARC Pvt. Ltd. vs. Ketulbhai Ramubhai Patel’, (2021) SCC Online SC 54, relying on judgment in the matter of ‘Anuj Jain vs. Axis Bank Ltd., (2020) 8 SCC 401, “where a Corporate Debtor has only extended a security by pledging shares, the Applicant will “at best be secured debtor qua above security but shall not be a financial creditor within the meaning of Section 5 sub-sections (7) and (8)”.

  • Hon’ble Supreme Court in the matter of ‘Lalit Kumar Jain vs. Union of India & Ors’– Civil Original Jurisdiction, Transferred Case (Civil) No.245/2020, where it has been held that approval of the Resolution Plan in relation to Corporate Debtor does not discharge Guarantor of the Corporate Debtor.

  • A Co-borrower is as much a Borrower like the other entity and is fully liable to repay the loan taken and it is immaterial as to in which account Co-borrowers received the money, when receipt is an admitted position.

  • Financial Creditor who had extended loan to these joint Borrowers and we find no bar in IBC to proceed against both the Co-borrowers when the debts are outstanding, as has been found by the Adjudicating Authority.

  • It is stated that in the present matter proceedings were before the same Adjudicating Authority with regard to Premier Ltd. and Doshi Holdings. As such, the requirement to have both the proceedings before the same Adjudicating Authority is already there. Recovery of debt in one of the proceedings can always be taken note of and set off in the other proceeding so that the Co-borrowers are not put to disadvantage.


Excerpts of the order;

The Appellant, Maitreya Doshi is Suspended Director of ‘M/s Doshi Holdings Pvt. Ltd.’ (the Corporate Debtor). Respondent No.1 – ‘Anand Rathi Global Finance Ltd.’ filed application under Section 7 of Insolvency and Bankruptcy Code, 2016 (‘IBC’ in short) being C.P. (IB) No. 1220/MB/2020 against the Corporate Debtor before the Adjudicating Authority (National Company Law Tribunal), Court No. 5, Mumbai Bench. The Adjudicating Authority after hearing the parties admitted the application under Section 7 of IBC and CIRP was initiated, by impugned order dated 19th February, 2021. Thus, the present Appeal.


# 4. Appeal claims that the Adjudicating Authority erred in holding that the amounts under Loan cum Pledge Agreements were disbursed by Respondent No.1 in favour of both M/s Premier Ltd. and M/s Doshi Holdings. It is argued (in substance) that Doshi Holdings was merely a Pledgor of shares and for Doshi Holdings it cannot be said to be a Financial Debt; and that for the loan issued to Premier Ltd., CIRP had already started and so for same debt CIRP could not be initiated against Doshi Holdings, especially when Adjudicating Authority earlier observed in its order initiating CIRP against Premier Ltd., that after CIRP starts against Premier Ltd., claim against Doshi Holdings would not be maintainable.


# 5. In Written Submissions filed by the Appellant and oral arguments, the Learned Counsel for the Appellant claimed that by order dated 29.01.2021 passed in C.P. No. (IB) 1224/MB/2020 application under Section 7 which was filed against M/s Premier Ltd. (Annex A-11 of the Appeal), the Adjudicating Authority in earlier order relied on the decision of this Tribunal in the case of ‘Dr. Vishnu Kumar Agarwal Vs. M/s Piramal Enterprises Ltd.’, (2019) SCC Online NCLAT 542 and had observed while admitting application under Section 7 against M/s Premier Ltd. that if the claim against Premier Ltd. was admitted then for the same set of loans, arising under the same loan documents, the same debt/claim against Doshi Holdings would not be permissible. It is argued that if the Adjudicating Authority which had heard both the Applications pending against M/s Premier Ltd. and M/s Doshi Holdings had made such observations by now in the earlier order of admission with regard to Premier Ltd., the Adjudicating Authority while passing present impugned order went back from those observations relying on judgment of this Tribunal in the matter of ‘State Bank of India vs. Athena Energy Ventures Pvt. Ltd.’, (2020) SCC Online NCLAT 774. Thus, according to the Appellant, this was breach of judicial discipline.


The Appellant claims that there is no financial debt in existence against Doshi Holdings as the disbursement was to Premier Ltd. and no amount was disbursed to Doshi Holdings. According to the Appellant, liability of Doshi Holdings was only as a Pledgor of the shares and that Hon’ble Supreme Court held in the matter of ‘Phoenix ARC Pvt. Ltd. vs. Ketulbhai Ramubhai Patel’, (2021) SCC Online SC 54, relying on judgment in the matter of ‘Anuj Jain vs. Axis Bank Ltd., (2020) 8 SCC 401, “where a Corporate Debtor has only extended a security by pledging shares, the Applicant will “at best be secured debtor qua above security but shall not be a financial creditor within the meaning of Section 5 sub-sections (7) and (8)”. It is also claimed that Respondent No. 1 cannot claim to be Financial Creditor with regard to the Corporate Debtor. It is also argued that pledging of shares would not amount to guarantee or indemnity. It is argued that the Adjudicating Authority interchangeable used the words “Co-borrower/ Guarantor/Pledgor” and wrongly relied on the judgment in the matter of ‘State Bank of India vs. Athena Energy Ventures Pvt. Ltd.’. Relying on the judgment in the matter of ‘Dr. Vishnu Kumar Agarwal Vs. M/s Piramal Enterprises Ltd.’, it is argued that when for the same debt an Application under Section 7 had been admitted against the M/s Premier Ltd., another proceeding against the Corporate Debtor – Doshi Holdings could not have been admitted.


# 7. Counsel for Respondent No.1 submits that judgment in the matter of ‘Dr. Vishnu Kumar Agarwal Vs. M/s Piramal Enterprises Ltd.’ (Supra) is not good law considering the judgment of this Tribunal in the matter of ‘State Bank of India vs. Athena Energy Ventures Pvt. Ltd.’ and recent judgment of Hon’ble Supreme Court in the matter of ‘Lalit Kumar Jain vs. Union of India & Ors’– Civil Original Jurisdiction, Transferred Case (Civil) No.245/2020, where it has been held that approval of the Resolution Plan in relation to Corporate Debtor does not discharge Guarantor of the Corporate Debtor. The argument is that there is no bar in IBC to file separate applications against two entities liable to pay same debt. It is argued that the contention raised by the Appellant that the debt amount of Rs.8,35,25,398/- should stand reduced considering the value of pledged shares is irrelevant, as even if the said amount is reduced, the default is of more than Rupees One Crore. It is stated by the Respondent No. 1 that the claim was rightly admitted by the Adjudicating Authority and the Appeal deserves to be dismissed.

 

# 8. Although the parties have raised various grievances, the dispute gets narrowed down if documents are perused. Before considering the arguments, it would be appropriate to first refer to documents executed between the Corporate Debtor and M/s Premier Ltd. with Respondent No. 1 – Financial Creditor so as to have a clear picture regarding the legal relations between the parties. This will curtail need to refer to detailed arguments which have been made without connecting to facts of the case.

 

# 10. Firstly, there is a Sanction Letter dated 27.06.2015 issued by Respondent No. 1 to (i) M/s Premier Ltd. (ii) M/s Doshi Holdings Pvt. Ltd. By this letter dated 27.06.2015, Respondent No.1 conveyed to M/s Premier Ltd. and M/s Doshi Holdings sanction of financial facilities extended to them and that the facility was subject to the terms and conditions contained in the Loan Agreement. The loan sanctioned as per this document was of Rs.3 Crore to these parties. The document bears stamp of “Accepted” with signature and stamps of M/s Premier Ltd. as well as Doshi Holdings. As authorized signatory the same present Appellant signed separately for both the entities.

 

# 11. Then there is Loan cum Pledge Agreement dated 29.06.2015 (page 170). Part of the first page of document may be reproduced:

  • LOAN CUM PLEDGE AGREEMENT

  • THIS AGREEMENT is made at Mumbai this, 29th June 2015 between Anand Rathi Global Finance Ltd., a Non Banking Finance Company registered with Reserve Bank of India and incorporated under the Companies Act, 1956, having its registered office at 4th Floor, Silver Metropolis, Jnl Conch Compound, Opp. Bimbisar Nagar, Goregaon (East), Mumbai- 400 063 (hereinafter called the “Lender” or “Pledgee” which expression shall unless repugnant to the meaning or context thereof, shall be deemed to mean and include its successors in title and permitted assigns) of the ONE PART;

  • And

  • Premier Limited, a company incorporated under Companies Act 1956, having its registered office at Mumbai- Pune Road, Chinchwad, Pune, Maharashtra 411019 (hereinafter referred to as the “Borrower 1” which expression shall, unless it be repugnant to the meaning or context thereof, mean and include its successor in title and permitted assign appointed or coopted of the SECOND PART:

  • And

  • Doshi Holdings Pvt. Ltd., a company incorporated under Companies Act 1956, having its registered office at 58, Nariman Bhavan Nariman Point, Mumbai, Maharashtra400021 (hereinafter referred to as the Borrower(s) 2” or “Pledgor” which expression shall, unless it be repugnant to the meaning or context thereof, mean and include its successor in title and permitted assign appointed or co-opted of the THIRD PART;

  • Borrower 1 and Borrower 2/ Pledgor are collectively referred to as “Borrower(s)” and individually as a “Borrower or Pledgor” (as the case may be) . . . . . 

 

# 12. In this Loan cum Pledge Agreement, it is clear that the Premier Ltd. is the Borrower 1 and Doshi Holdings is Borrower 2/ Pledgor and collectively they are referred as “Borrower(s)” and individually as “Borrower or Pledgor”, as the case may be. . . 

 

# 13. Going through the recitals it is clear to us that in addition to Premier Ltd. the present Corporate Debtor also had undertaken to repay the lender i.e. Respondent No.1. The Loan cum Pledge Agreements have various clauses binding Premier Ltd. and Doshi Holdings to repay the loan and the Appellant signed this Agreement on behalf of Premier Ltd. as well as separately for Doshi Holdings as Authorized Signatory. There is loan receipt (at page 188 of Dy. No. 28041) where the endorsement is:

  • “Received with thanks a Loan of Rs.3,00,00,000/- (Rupees Three Crores) from M/s Anand Rathi Global Finance Ltd. vide RTGS drawn on HDFC Bank, as loan @16% p.a. for _______ days from _______ 2015 to ______ 2015”

 

The loan received has been signed by the Appellant as Chairman and Authorized Signatory on behalf of M/s Doshi Holdings and separately as Authorized Signatory/Pledgor of M/s Premier Ltd.

 

# 17. Considering the documents executed between the parties, perusal of the documents shows that M/s Premier Ltd. and M/s Doshi Holdings were Co-borrowers and promised to pay back the loan with interest. Their liability to pay is joint and several liability. The Promisee may recover the amounts jointly or severally. Here we are not concerned with rights and liabilities inter-se between the Co-borrowers when debt is enforced against one or the other or both of them.

 

# 18. A Co-borrower is as much a Borrower like the other entity and is fully liable to repay the loan taken and it is immaterial as to in which account Co-borrowers received the money, when receipt is an admitted position.

 

# 22. . . . The Respondent No. 1 has to be treated as Financial Creditor who had extended loan to these joint Borrowers and we find no bar in IBC to proceed against both the Co-borrowers when the debts are outstanding, as has been found by the Adjudicating Authority. In the set of facts, we need not enter into the question if in Pledgor-Pledgee relationship would it be Financial Debt. Doshi Holdings, in addition to stepping into the shoes of Co-borrower, which is financial debt, additionally pledged shares. The liability invoked by Financial Creditor is on the basis of Corporate Debtor being Co-borrower and not merely Pledgor. It is surprising to find that the Appellant is denying liability on account of Doshi Holdings when the Appellant has signed joint documents after documents in favour of Respondent No.1 as Authorised Signatory for both the Companies. The Corporate Debtor cannot be permitted to back out from the documents and promises made.

 

# 23. It is stated that in the present matter proceedings were before the same Adjudicating Authority with regard to Premier Ltd. and Doshi Holdings. As such, the requirement to have both the proceedings before the same Adjudicating Authority is already there. Recovery of debt in one of the proceedings can always be taken note of and set off in the other proceeding so that the Co-borrowers are not put to disadvantage.

 

# 26. In judgment in the matter of ‘Anuj Jain vs. Axis Bank Ltd.’ (supra), the issue before the Hon’ble Supreme Court was whether the Respondents (Lenders of Jai Prakash Associate Ltd. – JAL) could be recognized as Financial Creditors of the Corporate Debtor – Jaypee Infratech Limited (JIL) on the strength of the mortgage created by the Corporate Debtor, as collateral security of the debt of its holding company JAL. In Para 33.2 of the judgment, Hon’ble  Supreme Court referred to Para 13 and 14 of the judgment of NCLT in that matter where Resolution Professional had pointed out contents of the mortgage deed concerned to submit that Corporate Debtor had only agreed to create the mortgage in favour of the Applicant towards the financial assistance granted to the holding company JAL. On facts in that matter it was pointed out before NCLT that perusal of the mortgage made it clear that the Corporate Debtor had neither given any guarantee to repay or any indemnity qua the repayment of loans granted by the Applicant to JAL. With such and other facts discussed by the Hon’ble Supreme Court, Hon’ble Supreme Court in Para 47.2 of the judgment concluded the question of law as under:

  • “47.2. Therefore, we have no hesitation in saying that a person having only security interest over the assets of corporate debtor (like the instant third party securities), even if falling within the description of ‘secured creditor’ by virtue of collateral security extended by the corporate debtor, would nevertheless stand outside the sect of ‘financial creditors’ as per the definitions contained in subsections (7) and (8) of Section 5 of the Code. Differently put, if a corporate debtor has given its property in mortgage to secure the debts of a third party, it may lead to a mortgage debt and, therefore, it may fall within the definition of ‘debt’ under Section 3(10) of the Code. However, it would remain a debt alone and cannot partake the character of a ‘financial debt’ within the meaning of Section 5(8) of the Code.

  • The respondent mortgagees are not the financial creditors of corporate debtor JIL”

  • [Emphasis supplied]

 

# 27. Thus on facts the matter is different here. If there had been ‘only a security interest’ like pledging of shares, it would have been different.  However, in the present set of facts considering the documents executed between the parties, apart from the pledging of shares, the Corporate Debtor –Doshi Holdings entered into agreement with the Financial Creditor as Co-borrower and as the Co-borrower a loan was received.

 

# 28. We thus, agree with the Adjudicating Authority when the Adjudicating Authority admitted the Application under Section 7 of IBC although there was error in observations where reference is made interchangeably to Co-borrower and Guarantor. The Adjudicating Authority at the same time dealt with the case as a matter of Co-borrower. It is a case of Co-borrower and for reasons recorded by us in this judgment we decline to interfere with the impugned order admitting the Application.

 

# 29. There is no substance in the Appeal. The Appeal is dismissed. No costs.

 

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The sole purpose of this post is to create awareness on the "IBC - Case Law" and to provide synopsis of the concerned case law, must not be used as a guide for taking or recommending any action or decision. A reader must refer to the full citation of the order & do one's own research and seek professional advice if he intends to take any action or decision in the matters covered in this post.