Imp. Rulings - Third Party Security Interest
Index;
NCLAT (2025.04.04) in TUF Metallurgical Pvt. Ltd. Vs. Wadhwa Glass Processors Pvt. Ltd., [2025) ibclaw.in 472 NCLT , C.P. (IB) No. 356/PB/2019]
SCI (2021.02.03) in Phoenix ARC Pvt. Ltd. Vs. Ketulbhai Ramubhai Patel (Civil Appeal No.5146 of 2019)
SCI (2020.02.26) in Anuj Jain IRP for Jaypee Infratech Limited Vs Axis Bank Limited Etc. (Civil Appeal Nos. 8512-8527 of 2019 and other petitions)
----------------------------------------
NCLAT (2025.04.04) in TUF Metallurgical Pvt. Ltd. Vs. Wadhwa Glass Processors Pvt. Ltd., [2025) ibclaw.in 472 NCLT , C.P. (IB) No. 356/PB/2019] held that.-
A corporate guarantee must include an explicit clause stating that the guarantor shall be responsible for repayment in case of default. We aren’t moved by the argument of the Petitioner alleging the document to be a Corporate Guarantee as the essentials of a Corporate Guarantee aren’t met.
A security interest alone does not confer upon the Petitioner the status of a Financial Creditor under Section 5(7) read with Section 5(8) of the IBC.
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.
A person having only security interest over the assets of corporate debtor, even if falling within the description of 'secured creditor' by virtue of collateral security extended by the corporate debtor, would not be covered by the financial creditors as per definitions contained in sub-section (7) and (8) of Section 5”.
The Adjudicating Authority is empowered only to verify whether a default has occurred or if a default has not occurred. Based upon its decision, the Adjudicating Authority must then either admit or rej.ect an application respectively. These are the only two courses of action which are open to the Adjudicating Authority in accordance with Section 7(5)”
[ Link Synopsis ]
----------------------------------------
SCI (2021.02.03) in Phoenix ARC Pvt. Ltd. Vs. Ketulbhai Ramubhai Patel (Civil Appeal No.5146 of 2019) held that.-
# 30. This Court held that a person having only security interest over the assets of corporate debtor, even if falling within the description of 'secured creditor' by virtue of collateral security extended by the corporate debtor, would not be covered by the financial creditors as per definitions contained in sub-section (7) and (8) of Section 5. What has been held by this Court as noted above is fully attracted in the present case where corporate debtor has only extended a security by pledging 40,160 shares of GEL. The appellant at best will be secured debtor qua above security but shall not be a financial creditor within the meaning of Section 5 sub-sections (7) and (8).
# 31. Mr. Vishwanathan tried to distinguish the judgment of this Court in Jaypee Infratech Limited (supra) by contending that the above judgment has been rendered in the specific facts scenario which does not apply to the present case at all. Shri Vishwanathan submits that in Jaypee Infratech Limited case (supra) corporate debtor had created mortgage for the loan obtained by the parent Company and no benefit of such loan has been received by the corporate debtor whereas in the present case corporate debtor has been the direct and real beneficiary of the loan advanced by Assigner to the parent Company of the corporate debtor. The above point as contended by the learned counsel does not commend us. The present is also a case where only security was created by the corporate debtor in 40,160 shares of GEL, there was no liability to repay the loan taken by the borrower on the corporate debtor in the present case. At best the Pledge Agreement and Agreement of undertaking executed on 10.01.2012, that is, subsequent to Facility Agreement, is security in favour of Lender-Assignor who at best will be secured creditor qua corporate debtor and not the financial creditor qua corporate debtor.
[ Link Synopsis ]
----------------------------------------------
SCI (2020.02.26) in Anuj Jain IRP for Jaypee Infratech Limited Vs Axis Bank Limited Etc. (Civil Appeal Nos. 8512-8527 of 2019 and other petitions) held that.-
# “47.1. Keeping the objectives of the Code in view, the position and role of a person having only security interest over the assets of the corporate debtor could easily be contrasted with the role of a financial creditor because the former shall have only the interest of realising the value of its security (there being no other stakes involved and least any stake in the corporate debtor’s growth or equitable liquidation) while the latter would, apart from looking at safeguards of its own interests, would also and simultaneously be interested in rejuvenation, revival and growth of the corporate debtor. Thus understood, it is clear that if the former i.e., a person having only security interest over the assets of the corporate debtor is also included as a financial creditor and thereby allowed to have its say in the processes contemplated by Part II of the Code, the growth and revival of the corporate debtor may be the casualty. Such result would defeat the very objective and purpose of the Code, particularly of the provisions aimed at corporate insolvency resolution.
# 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 in the character of a ‘financial debt’ within the meaning of Section 5(8) of the Code.
[ Link Synopsis ]
----------------------------------------------
No comments:
Post a Comment