MAITREYA DOSHI versus ANAND RATHI GLOBAL FINANCE LTD. AND ANR.

[2022] 15 S.C.R.

MAITREYA DOSHI

ANAND RATHI GLOBAL FINANCE LTD. AND ANR.

(Civil Appeal No. 6613 of 2021)

SEPTEMBER 22, 2022

[INDIRA BANERJEE AND J. K. MAHESHWARI, JJ.]

Insolvency and Bankruptcy Code 2016 – ss.7, 62 – CorporateInsolvency Resolution Process – Respondent No. 1, NBFC-Financial Creditor disbursed loan to the tune of Rs.6 Crores to M/Cs Premier Ltd. – Doshi Holdings pledged shares held by it in Premier,in favour of the Financial Creditor, by way of security for the loan– Premier failed to make repayments – Financial Creditor calledupon Premier and Doshi Holdings, to pay the entire outstanding loanamount – Premier admitted and acknowledged its liability to pay itsoutstanding dues, but stated that it could not pay the same on accountDof genuine difficulty – Financial Creditor filed petition u/s.7 forinitiation of CIRP against Premier for default in repayment – On thesame day, the Financial Creditor also filed petition against DoshiHoldings u/s.7 in respect of the same claim, based on the same loandocuments – NCLT admitted the petitions – NCLAT dismissed theEappeal against the admission of petitions by NCLT – On appeal, held:Loan-cum-Pledge Agreements were executed by both Premier andDoshi Holdings and Doshi Holdings has been referred to in theagreement as borrower and pledgor – The interpretation given byNCLAT that Doshi Holdings is borrower is definitely plausibleinterpretation which cannot be interfered with in an appeal underFs.62 of the IBC – pledgor per se may not be Financial Debtor butNCLAT arrived at factual finding that Disha Holdings was aborrower – The approval of resolution in respect of one borrowercannot certainly discharge co-borrower – If there are two borrowersor if two corporate bodies fall within the ambit of corporate debtors,Gthere is no reason why proceedings under s.7 of the IBC cannot beinitiated against both the Corporate Debtors – The same amountcannot be realised from both the Corporate Debtors – If the duesare realised in part from one Corporate Debtor, the balance may berealised from the other Corporate Debtor being the co-borrower –Once the claim of the Financial Creditor is discharged, there canHbe no question of recovery of the claim twice over.

Dismissing the appeal, the Court

HELD: 1. Prima facie, it appears that Doshi Holdings wasa party to the Loan-cum-Pledge Agreement in its dual capacity ofborrower and pledgor of shares. The Appellate Authority hasarrived at the factual finding that Doshi Holdings is also borrowerunder the Loan-cum-Pledge Agreement. The factual finding ofthe Appellate Authority which was the final fact finding authorityought not to be interfered in this appeal. [Paras 32 and 33][545-C-D]

2. The finding of the Appellate Authority that DoshiHoldings is borrower, is based on its interpretation of the Loan-cum-Pledge Agreements and supporting documents. Theinterpretation given by the Appellate Authority is definitely apossible interpretation. The interpretation is plausibleinterpretation which cannot be interfered with in an appeal underSection 62 of the IBC. It is true, that contract of indemnity,contract of guarantee and pledge are not one and the same. Thecontract of indemnity is contract by which one party promisesto save the other from loss caused to him by the conduct of thepromisor himself or by the conduct of any other person. In acontract of indemnity, promisee acting within the scope of hisauthority is entitled to recover from the promisor all damagesand all costs which he may incur. contract of guarantee, on theother hand, is promise whereby the promisor promises todischarge the liability of third person in case of his default. Theperson who gives the guarantee is called the surety. The personin respect of whose default, the guarantee is given is the principaldebtor and the person to whom the guarantee is given is thecreditor. Anything done or any promise made for the benefit ofthe principal debtor may be sufficient consideration to the suretyfor giving the guarantee. On the other hand, the bailment of goodsas security for payment of debt or performance of promise isa pledge. [Paras 34 and 35][545-E-H]

3. The proposition of law which emerges from the judgmentis that pledgor per se may not be Financial Debtor. However,in this case, the Appellate Authority arrived at factual findingthat Disha Holdings was borrower. In Lalit Kumar Jain v. Union

Aof India, this Court held that the approval of resolution plan inrelation to Corporate Debtor does not discharge the guarantorof the Corporate Debtor. On parity of reasoning, the approvalof resolution in respect of one borrower cannot certainlydischarge co-borrower. If there are two borrowers or if twocorporate bodies fall within the ambit of corporate debtors, thereBis no reason why proceedings under Section 7 of the IBC cannotbe initiated against both the Corporate Debtors. Needless tomention, the same amount cannot be realised from both theCorporate Debtors. If the dues are realised in part from oneCorporate Debtor, the balance may be realised from the otherCCorporate Debtor being the co-borrower. However, once theclaim of the Financial Creditor is discharged, there can be noquestion of recovery of the claim twice over. [Paras 36 and37][546-B-D]

Lalit Kumar Jain v. Union of India (2021) 9 SCC 321 :D2021 (5 ) JT 545 – relied on.

Anuj Jain, Interim Resolution Professional for JaypeeInfratech Limited v. Axis Bank Limited and Others(2020) 8 SCC 401 : [2020] 8 SCR 291; Phoenix ARCPvt. Ltd. v. Ketulbhai Ramubhai Patel (2021) 2 SCCE799 : 2021 (2) JT 526; Bharat Barrel & DrumManufacturing Company v. Amin Chand Payrelal (1999)3 SCC 35 : [1999] 1 SCR 704; Sub-Inspector Rooplal& Another v. Lieutenant Governor and Others (2000)1 SCC 644 : [1999] 5 Suppl. SCR 310 – referred to.

Case Law ReferenceF

From the Judgment and Order dated 25.08.2021 of the NationalCompany Law Appellate Tribunal, New Delhi in Company Appeal (AT)(Insolvency) No. 191 of 2021.

K.V. Viswanathan, Sr. Adv., Ms. Dhanyashree Jadeja, Ankit Lohia,Manas Kotak, Ms. Kanika Tandon, R. Venkataraman, ChanakyaDwivedi, Samiron Borkataky, Advs. for the Appellant.

Prateek Sakseria, Saket Mone, Vishesh Kalra, Nishant Chottani,Smriti Churiwal, Jaiveer Kant, Ms. Priyashree Sharma Ph., Ms. RushaliAgarwal, Syed Faraz Alam, Kush Chaturvedi, Advs. for the Respondents.

The Judgment of the Court was delivered by

INDIRA BANERJEE, J.

This appeal under Section 62 of the Insolvency and BankruptcyCode 2016, hereinafter referred to as the ‘IBC’, is against Judgementand Order dated 25[th] August 2021, passed by the National CompanyLaw Appellate Tribunal (NCLAT), dismissing the Company Appeal (AT)(Insolvency) No. 191 of 2021 filed by the Appellant, against an orderdated 19[th] February 2021, passed by the Adjudicating Authority (NationalCompany Law Tribunal), NCLT, Mumbai Bench admitting CompanyPetition C.P. (IB) No. 1220/MB/2020 filed by the Respondent No. 1 -Anand Rathi Global Finance Limited as Financial Creditor, for initiationof the Corporate Insolvency Resolution Process (CIRP) of M/s DoshiHoldings Pvt. Ltd., hereinafter referred to as “Doshi Holdings”, underSection 7 of the IBC. The Appellant is suspended Director of DoshiHoldings.

2. The Respondent No 1, Non-banking Financial Company,hereinafter referred to as the “Financial Creditor” disbursed loan to thetune of Rs.6 Crores to M/s Premier Limited, hereinafter referred to as“Premier” under three separate Loan-cum-Pledge Agreements, dated29[th] June 2015, 4[th] May 2016 and 5[th] October 2016, respectively.According to the Appellant, Doshi Holdings pledged shares held by it inPremier, in favour of the Financial Creditor, by way of security for theloan.

3. According to the Appellant, the Loan-cum-Pledge Agreementscontemplated two distinct transactions under one document, that is, grantof loan to Premier, and creation of pledge by Doshi Holdings of securitiesheld by the Doshi Holdings in Premier.

4. Premier failed to make repayments in terms of the Loan-cum-Pledge Agreements. The Financial Creditor, therefore, called uponPremier to repay its outstanding dues of Rs.7,64,60,360/- on diversedates between 28[th] June 2019 and 10[th] February 2020.

A5. By communication dated 14[th] February 2020, the FinancialCreditor called upon Premier and Doshi Holdings, also described as theborrower under the Loan-cum-Pledge Agreements, to pay the entireoutstanding loan amount.

6. By letter dated 19[th] February 2020, Premier admitted andBacknowledged its liability to pay its outstanding dues to the FinancialCreditor under the Loan-cum-Pledge Agreements, but stated that it couldnot pay the same on account of genuine difficulty.

7. On 21[st] September 2020, the Financial Creditor filed petitionunder Section 7 of the IBC being C.P.(IB) No.1224/MB/2020 for initiationCof CIRP against Premier for default in repayment of Rs. 8,35,25,398/-.

8. On the same day, the Financial Creditor also filed petitionagainst Doshi Holdings, under Section 7 of the IBC, for initiation ofCIRP in respect of the same claim of Rs. 8,35,25,398/-, based on thesame loan documents.

D9. Both the petitions filed by the Financial Creditor were heardtogether by the Adjudicating Authority (NCLT). By an order dated 29[th]January 2021, the Adjudicating Authority (NCLT) admitted the petitionfor initiation of CIRP against Premier. By another Order passed on 19[th]February 2021, the Adjudicating Authority (NCLT) admitted the petitionfor initiation of CIRP against Doshi Holdings for the same set of loansEarising out of the same loan documents, in respect of which the FinancialCreditor had initiated CIRP against Premier.

10. The Appellant filed an appeal in the National Company LawAppellate Authority (NCLAT) under Section 61 of the IBC. By theimpugned judgment and order dated 25[th] August 2021, the AppellateFAuthority (NCLAT) dismissed the appeal and upheld the order ofadmission of the petition under Section 7 of the IBC.

11. Mr. K.V. Vishwanathan, learned Senior Counsel appearing onbehalf of the Appellant submitted that no amount under the Loan-cum-Pledge Agreements was disbursed by the Financial Creditor to DoshiGHoldings. The Financial Creditor granted loans to Premier. The loanswere disbursed to Premier. Doshi Holdings did not utilize any part of themoney disbursed by the Financial Creditor under the Loan-cum-PledgeAgreement.

12. According to Mr. Vishwanathan, the Loan-cum-PledgeHAgreements were standard form agreements in which Premier was the

borrower and Doshi Holdings the pledgor. For convenience, the borrowerand the pledgor have collectively been referred to as borrowers andindividually referred to as borrower or pledgor. The Appellant executedthe Loan-cum-Pledge Agreement and other related documents on behalfof Premier and Doshi Holdings, because the Appellant had independentlyand separately been authorised by Premier and Doshi Holdings to executethe documents. The fact remains that Doshi Holdings and Premier areseparate entities.

13. Mr. Vishwanathan argued that since no disbursement has beenmade to Doshi Holdings against consideration for the time value of money,there was no obligation on the part of Doshi Holdings to make anyrepayment to the Financial Creditor. There was, therefore, no financialdebt owed by Doshi Holdings to the Financial Creditor under Section5(8) of the IBC. Insofar as Doshi Holdings is concerned, the Loan-cum-Pledge Agreements only created pledge of the shares of Doshi Holdingsin Premier in favour of the Financial Creditor. The petition under Section7 of the IBC against the Corporate Debtor was clearly not maintainable.

14. In support of his argument, Mr. Vishwanathan, cited AnujJain, Interim Resolution Professional for Jaypee Infratech Limitedv.Axis Bank Limited and Others[1], where this Court held :-

“46. ...essential element of disbursal, and that too againstthe consideration for time value of money, needs to be foundin the genesis of any debt before it may be treated as “financialdebt” within the meaning of Section 5(8) of the Code....”

15. Mr. Vishwanathan next argued that the Adjudicating Authority/Appellate Authority erred in arriving at the finding that Doshi Holdingswas borrower and hence liable to make repayment in respect of theloan disbursement to Premier. He submitted that the loan was neverutilised by Doshi Holdings.

16. Mr. Vishwanathan argued that it was not in dispute that noamount was disbursed to Doshi Holdings. Having accepted the factualposition, that no amount had been disbursed to Doshi Holdings, theAdjudicating Authority/Appellate Authority erred in arriving at the findingthat Doshi Holdings was borrower. The petition under Section 7 of theIBC was not maintainable against Doshi Holdings.

17. Mr. Vishwanathan argued that the Adjudicating Authority/Appellate Authority misconstrued the expression “financial debt” inSection 5(8) of the IBC and/or failed to appreciate the scope and ambitof the said expression. The definition of ‘financial debt’ in Section 5(8)of the IBC does not include pledge.

B18. Mr. Vishwanathan submitted that “Contract of Indemnity”,“Contract of Guarantee” and “Pledge” have been defined in the IndianContract Act, 1872. The expressions are different from one and anotherin terms of their ramification and implication and they cannot be equated.Distinguishing between the expressions, contract of indemnity, contractof guarantee and pledge, Mr. Vishwanathan argued that creation of pledgeCof shares of the Corporate Debtor did not and cannot amount to aguarantee and/or indemnity under Section 5(8) of the IBC.19. Mr. Vishwanathan cited Phoenix ARC Pvt. Ltd. v. KetulbhaiRamubhai Patel[2], where this Court, relying upon Anuj Jain (supra)held that where Corporate Debtor had only extended security byDpledging shares, the applicant (Respondent) would at best be the secureddebtor qua the security but, not Financial Creditor within the meaningof Sections 5(7) and 5(8) of the IBC.

20. Mr. Vishwanathan argued that the Adjudicating Authority(NCLT) interchangeably referred to Doshi Holdings as co-borrower/Eguarantor under the Loan-cum-Pledge Agreement, losing sight of thedifference in the liability of pledgor from that of guarantor.

21. Mr. Vishwanathan submitted that the Appellate Authority failedto appreciate that the execution of promissory note gives rise to apresumption that such promissory note is supported by consideration.FThe presumption is, however, rebuttable.

22. Mr. Vishwanathan cited Bharat Barrel & Drum ManufacturingCompany v. Amin Chand Payrelal[3], where this Court held :-

“12. Upon consideration of various judgments as notedhereinabove, the position of law which emerges is that onceGexecution of the promisory note is admitted, the presumptionunder Section 118(a) would arise that it is supported byconsideration. Such presumption is rebuttable. Thedefendant can prove the non-existence of consideration by

2 (2021) 2 SCC 799

H3 (1999) 3 SCC 35

raising probable defence. If the defendant is proved to havedischarged the initial onus of proof showing that the existenceof consideration was improbable or doubtful or the same wasillegal, the onus would shift to the plaintiff who will be obligedto prove it as matter of fact and upon its failure to provewould disentitle him to the grant of relief on the basis of thenegotiable instrument.....”

23. Mr. Vishwanathan pointed out that the interpretation clause inthe agreement stated that Premier and Doshi Holdings were collectivelyreferred to as the borrowers and individually as borrower or pledgor.Mr. Vishwanathan submitted that the expressions borrower and pledgorhad to be read in the context of the obligation of the parties under theLoan-cum-Pledge Agreement.

24. Mr. Vishwanathan finally argued that the Adjudicating Authorityhad passed its order dated 19[th] February 2021, impugned in this appeal,ignoring its earlier finding pronounced in open Court on 29[th] January2021, which is as follows :-

“25...However, under Section 7, if the claim against PremierLimited (Corporate debtor herein) is “Admitted” then for thesame set of loans, arising under the same loan documents,the same debt/claim against Doshi will not be permissible...”

25. Mr. Vishwanathan submitted that the order of admission wascontrary to judicial discipline. Relying on the judgment of this Court inSub-Inspector Rooplal & Another v. Lieutenant Governor andOthers[4], Mr. Vishwanathan argued that in the event, if any, Member ofthe Bench was of the opinion that earlier view taken by another Memberof the same Bench was incorrect, the matter should have been referredto larger Bench to avoid difference of opinion.

26. Mr. Prateek Sakseria, learned counsel appearing on behalf ofthe Respondent submitted that Doshi Holdings was party to the Loan-cum-Pledge Agreements in its dual capacity as co-borrower and pledgorwhich had pledged its shares in Premier in favour of the FinancialCreditor. Mr. Sakseria emphasised on the fact that the Appellant hadsigned documents on behalf of Doshi Holdings in its capacity as co-borrower. The Appellant was Director of both, Premier and DoshiHoldings.

A27. Mr. Sakseria referred to the following documents:-

(i)Letter of Sanction dated 27[th] June 2015, 4[th] May 2016 and5[th] October 2016.

(ii)Loan-cum-Pledge Agreement dated 29[th] June 2015.

(iii)Loan-cum-Pledge Agreement dated 4[th] May 2016.

(iv)Loan-cum-Pledge Agreement dated 5[th] October 2016.

(v)Loan Receipts acknowledging the receipt of Rs.6,00,00,000/-.

(vi)Demand Promissory Note unconditionally promising to payto the Financial Creditor.

28. Mr. Sakseria pointed out that both Premier and Doshi Holdingshave been described as borrowers in the Loan-cum-Pledge Agreements.Mr. Sakseria also pointed out that Doshi Holdings had acknowledgedreceipt of monies disbursed under three loan agreements by executingloan receipts. Doshi Holdings had also issued demand promissory noteDunconditionally promising repayment of loan to the Financial Creditor.The loan agreements, receipts and demand promissory notes have beensigned by the Appellant in his capacity as the authorised signatory/Directorof Doshi Holdings and Premier. After Premier defaulted in payment ofloan, demand notice was issued to Doshi Holdings to repay the loan in itsEcapacity as co-borrower.

29. Mr. Sakseria argued that the definition of financial debtcontemplates disbursal against consideration for time value of money,and not disbursal necessarily to the Corporate Debtor. Otherwise, anamount payable under guarantee could never have been includedFinasmuch as amounts are never disbursed to guarantor, but he is liablefor debts of another.

30. Mr. Sakseria further argued that the definition of CorporateDebtor does not require as pre-condition that monies should have beendisbursed to the Corporate Debtor. The sine qua non for an entity to beGconsidered as Corporate Debtor is that such person/entity should owea debt to any person and not that disbursal has to be made to such aperson/entity.

31. Mr. Sakseria submitted that Doshi Holdings satisfies theaforesaid criteria inasmuch as it is Co-Borrower in terms of the LoanHAgreement under which monies have been borrowed by both Premier

and Doshi Holdings. Both Premier and Doshi Holdings have executedloan receipts admitting receipt of loan amounts and demand promissorynotes unconditionally promising to pay the monies borrowed to theFinancial Creditor for value received.

32. The mere fact of it also being pledgor is wholly irrelevantand does not in any manner disentitle the Respondent No.1 to initiateproceedings under Section 7 of the IBC against such co-borrower.

33. It is not in dispute that the Financial Creditor disbursed loan tothe tune of Rs.6,00,00,000/- to Premier pursuant to the Loan-cum-PledgeAgreements referred to above, executed both by Premier and by DoshiHoldings. Doshi Holdings has been referred to in the agreement asborrower and pledgor. Prima facie, it appears that Doshi Holdings wasa party to the Loan-cum-Pledge Agreement in its dual capacity ofborrower and pledgor of shares. The Appellate Authority has arrived atthe factual finding that Doshi Holdings is also borrower under theLoan-cum-Pledge Agreement. The factual finding of the AppellateAuthority which was the final fact finding authority ought not to beinterfered in this appeal.

34. The finding of the Appellate Authority that Doshi Holdings isa borrower, is based on its interpretation of the Loan-cum-PledgeAgreements and supporting documents. The interpretation given by theAppellate Authority is definitely possible interpretation. In our view,the interpretation is plausible interpretation which cannot be interferedwith in an appeal under Section 62 of the IBC.

35. It is true, as argued by Mr. Vishwanathan that contract ofindemnity, contract of guarantee and pledge are not one and the same.The contract of indemnity is contract by which one party promises tosave the other from loss caused to him by the conduct of the promisorhimself or by the conduct of any other person. In contract of indemnity,a promisee acting within the scope of his authority is entitled to recoverfrom the promisor all damages and all costs which he may incur. Acontract of guarantee, on the other hand, is promise whereby thepromisor promises to discharge the liability of third person in case ofhis default. The person who gives the guarantee is called the surety. Theperson in respect of whose default, the guarantee is given is the principaldebtor and the person to whom the guarantee is given is the creditor.Anything done or any promise made for the benefit of the principal debtormay be sufficient consideration to the surety for giving the guarantee.

FGH

AOn the other hand, the bailment of goods as security for payment of adebt or performance of promise is pledge.

36. The proposition of law which emerges from the judgment isthat pledgor per se may not be Financial Debtor. However, in thiscase, as observed above, the Appellate Authority arrived at factualBfinding that Disha Holdings was borrower. In Lalit Kumar Jain v.Union of India[5], this Court held that the approval of resolution plan inrelation to Corporate Debtor does not discharge the guarantor of theCorporate Debtor. On parity of reasoning, the approval of resolutionin respect of one borrower cannot certainly discharge co-borrower.

C37. If there are two borrowers or if two corporate bodies fallwithin the ambit of corporate debtors, there is no reason why proceedingsunder Section 7 of the IBC cannot be initiated against both the CorporateDebtors. Needless to mention, the same amount cannot be realised fromboth the Corporate Debtors. If the dues are realised in part from oneCorporate Debtor, the balance may be realised from the other CorporateDDebtor being the co-borrower. However, once the claim of the FinancialCreditor is discharged, there can be no question of recovery of the claimtwice over.

38. We find no grounds to interfere with the impugned judgmentand order of the Appellate Authority. The appeal is, accordingly, dismissed.

Devika Gujral

(Assisted by : Deepak Panwar, LCRA)

Appeal dismissed.