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2018 (5) TMI 1901 - Tri - IBCRejection of the Applicant as a Financial Creditor of the Corporate Debtor - Section 60 (5) of the Insolvency and Bankruptcy Code 2016 - HELD THAT - From a conjoint reading of Sections 5 (7) 5 (8) 3 (1 1) 3 (6) and 3 (8) and Regulation 13 14 of CIRP Regulations it is clear that the claims are invited from the creditors of the corporate debtor i.e. financial creditors operational creditors and other creditors and not from any person or the creditors of the holding company of the corporate debtor who is not under corporate insolvency Resolution Process. The Resolution Professional is required to verify the claims received from all the three categories of the creditors by the regulation 13 of the CIRP Regulations and the statutory forms in which the claims are submitted. The Code therefore clearly envisages that claims are to be invited from the creditors of The Corporate Debtor and not as contended by the applicant. The Regulation 36 (2) (a) of the CIRP Regulations requires the Resolution Professional to place the liabilities of the corporate debtor in different classes while preparing the information memorandum of the corporate debtor in terms of sec 29 of the code. The Resolution Professional has correctly rejected the claim of the applicant on the ground that the Applicant is not a financial creditor of the corporate debtor concerning the Mortgages and the Mortgaged Debt. The resolution professional has rightly observed that guarantee and indemnity are distinct documents under the relevant laws and the mortgages executed by the corporate debtor are not like guarantee and indemnity. By the mortgage created by the corporate debtor as collateral security for the debt of its holding company i.e Jaiprakash Associates Ltd (JAL) in favour of the Applicant i.e. ICICI Bank the applicant cannot be treated as Financial Creditor of the Corporate Debtor - Application dismissed.
ISSUES PRESENTED and CONSIDERED
The primary issue considered by the Tribunal was whether the applicant, ICICI Bank, could be classified as a Financial Creditor of the Corporate Debtor, Jaypee Infratech Ltd (JIL), under the Insolvency and Bankruptcy Code 2016 (IBC), due to the mortgages created by JIL as security for loans granted to its holding company, Jaiprakash Associates Ltd (JAL). ISSUE-WISE DETAILED ANALYSIS Relevant Legal Framework and Precedents The Tribunal analyzed several sections of the Insolvency and Bankruptcy Code 2016, including:
Precedents from the Supreme Court and High Courts were considered to interpret the terms "debt" and "financial debt," with particular reference to the nature of mortgages and pecuniary liabilities. Court's Interpretation and Reasoning The Tribunal held that the mortgages created by JIL did not qualify as a financial debt under Section 5(8) of the IBC. The key reasoning was that the mortgages were not disbursed against the consideration for the time value of money. The Tribunal noted that JIL was not a borrower and the mortgages were created as collateral security for JAL's debt, not for any direct financial liability of JIL. Key Evidence and Findings The Tribunal found that the mortgages were created to secure loans given to JAL, not JIL. There was no evidence that JIL had borrowed money from ICICI Bank or that any financial debt was owed by JIL to ICICI Bank. The Tribunal also noted that the applicant admitted the mortgages were created for the financial debt extended to JAL. Application of Law to Facts The Tribunal applied the definitions under the IBC to determine that ICICI Bank's claim did not constitute a financial debt owed by JIL. The Tribunal emphasized that the mortgages did not involve the disbursement of money to JIL, nor did they create a pecuniary liability on JIL for JAL's debts. Treatment of Competing Arguments The applicant argued that the mortgages implied a pecuniary liability on JIL and should be considered as financial debt. The Tribunal rejected this argument, stating that the mere creation of a mortgage does not transform it into a financial debt under the IBC. The Tribunal also dismissed the applicant's reliance on case law regarding the nature of debt and mortgages, noting that these precedents did not apply to the specific definitions under the IBC. Conclusions The Tribunal concluded that ICICI Bank could not be classified as a Financial Creditor of JIL because the mortgages did not meet the criteria for financial debt under the IBC. The Tribunal upheld the Resolution Professional's decision to reject ICICI Bank's claim. SIGNIFICANT HOLDINGS Core Principles Established The Tribunal established that for a claim to qualify as a financial debt under the IBC, it must involve the disbursement of money against the consideration for the time value of money. Mortgages created as collateral for a third party's debt do not meet this criterion. Final Determinations on Each Issue The Tribunal determined that ICICI Bank's claim did not qualify as a financial debt and that ICICI Bank could not be considered a Financial Creditor of JIL. The application was rejected, affirming the Resolution Professional's decision.
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