Andhra Bank vs F.M.Hammerle Textile Ltd

Andhra Bank ...Appellant

Vs.

M/s. F.M.Hammerle Textile Ltd. ...Respondent

Present: For Appellant: Mr. N.P.Gaur, Advocate

For Respondent: Mr. Rishi Sehgal, Advocate for RP along with RP in person. Mr. U.C. Mittal, Advocate for CoC.

ORDER

13.07.2018─ The Appellant- 'Andhra Bank' claimed to be a 'Financial

Creditor' being guarantor of the 'Corporate Debtor'- 'M/s F.M.Hammerle

Textiles Limited'. The Adjudicating Authority (National Company Law

Tribunal), Chandigarh Bench, Chandigarh, on hearing the parties rejected the

claim of the Bank by impugned order dated 17th November 2017.

2. The Adjudicating Authority held that the Andhra Bank cannot be

treated to be 'Financial Creditor' in view of Section 3(6) as the Appellant has

no right to claim any amount. The Adjudicating Authority further observed

that the right of remedy of appellant can arise only in case of breach of

contract.

3. Similar plea has been taken by the Respondents-'Resolution

Professional' appearing on behalf of the 'Corporate Debtor'.

Company Appeal (AT) (Insolvency) No. 61 of 2018 2

4. Learned counsel for the Appellant referred to Sections 5(7) r/w (8) of

the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as 'I&B

Code') and submitted that Andhra Bank come within the meaning of

'Financial Creditor' for being treated as member of the 'Committee of

Creditors'.

5. We have heard learned counsel for the parties and perused the record.

The 'I&B Code' consolidates the law relating to reorganization and

insolvency resolution of corporate persons, partnership firms and individuals,

in a time bound manner for maximization of value of assets of such persons,

to promote entrepreneurship, availability of credit and balance the interests

of all the stakeholders including alteration in the priority of payment.

6. The 'Corporate Insolvency Resolution Process' thereby is not a recovery

proceeding and cannot be termed to be litigation between two adversaries. No

dispute is settled in the process but steps for 'Corporate Insolvency Resolution

Process' are taken not only for maximizing of value of assets of such person

and to promote the entrepreneurship, availability of credit and balance the

interests of all the stakeholders. If a 'Resolution Applicant' is successful on

approval of 'Resolution Plan' under Section 31, the 'Corporate Debtor' instead

of going through the rigor of liquidation process, continues, though there may

be change of management and ownership; the right of the Creditors does not

extinguish, if claim is not taken care in the 'Resolution Plan'.

7. For instance, the right of guarantor, who may not have claim on the

date of initiation of 'Corporate Insolvency Resolution Process' i.e. the date the

application is admitted on behalf of the third party who has availed loan from Company Appeal (AT) (Insolvency) No. 61 of 2018 3

the 'Financial Creditor'. In case of failure to pay the loan amount given to the

third party by the person having obtained guarantee, such person/Creditor

is entitled to invoke guarantee to recover the amount from the guarantor, but

only after completion of the period of the 'Moratorium'.

8. While 'Moratorium' is declared under Section 13, in terms of clause (b)

public announcement of the initiation of 'Corporate Insolvency Resolution

Process' should be caused and call for the submission of claims under Section

15 of the 'I&B Code'. In terms of Section 15, on public announcement of

'Corporate Insolvency Resolution Process', the creditors may file claim. The

'Interim Resolution Professional' is casted with the duty under Section 18(1)(b)

to receive and collate all the claims submitted by creditors to him pursuant

to the said advertisement.

9. It is not necessary that all the claims as are submitted by the Creditor

should be a claim matured on the date of initiation of Resolution

Process/admission, even in respect of debt, which is due in future on its

maturity, the 'Financial Creditor' or 'Operational Creditor' or 'Secured

Creditor' or 'Unsecured Creditor' can file such claim. Therefore, the definition

of 'Claim' as defined under Section 3(6) is to be read along with Section 13

read with Section 15 of the 'I&B Code'.

10. Even a creditor may choose not to file claim, if not matured and may

decide to submit claim on its maturity, after completion of the period of

'Moratorium', subject to survival of the 'Corporate Debtor'. The debt which the

'Corporate Debtor' owes for payment in future, if not taken into consideration

in the 'Resolution Plan' does not extinguish automatically and the creditors,

Company Appeal (AT) (Insolvency) No. 61 of 2018 4

including the 'Financial Creditor' or 'Operational Creditor' or 'Secured

Creditor' or 'Unsecured Creditor' has rights to claim the same.

11. For example, if there is a default, a 'Financial Creditor' or 'Operational

Creditor' may file application under Sections 7 or 9 for initiation of 'Corporate

Insolvency Resolution Process'. Once it is initiated, order of 'Moratorium' is

passed and the advertisement is issued all claimants whether his claim is

matured or not are supposed to file claim before the 'Resolution Professional'.

The 'Resolution Professional' cannot reject one or other claim on the ground

that only the person whose claim has been matured can be looked into and

other claim not matured cannot be entertained.

12. The only thing which is to be ascertained is whether the person who

claimed to be 'Financial Creditor', whether his debt owed to him come within

the meaning of 'Financial Debt' as defined under Section 5(8) which reads as

follows: -

"(8) "financial debt" means a debt alongwith interest,

if any, which is disbursed against the consideration for

the time value of money and includes--

(a) money borrowed against the payment of

interest;

(b) any amount raised by acceptance under any

acceptance credit facility or its de-materialised

equivalent;

(c) any amount raised pursuant to any note

purchase facility or the issue of bonds, notes,

Company Appeal (AT) (Insolvency) No. 61 of 2018 5

debentures, loan stock or any similar

instrument;

(d) the amount of any liability in respect of any

lease or hire purchase contract which is

deemed as a finance or capital lease under

the Indian Accounting Standards or such

other accounting standards as may be

prescribed;

(e) receivables sold or discounted other than

any receivables sold on nonrecourse basis;

(f) any amount raised under any other

transaction, including any forward sale or

purchase agreement, having the commercial

effect of a borrowing;

(g) any derivative transaction entered into in

connection with protection against or benefit

from fluctuation in any rate or price and for

calculating the value of any derivative

transaction, only the market value of such

transaction shall be taken into account;

(h) any counter-indemnity obligation in respect

of a guarantee, indemnity, bond,

documentary letter of credit or any other

instrument issued by a bank or financial

institution;

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(i) the amount of any liability in respect of any of

the guarantee or indemnity for any of the items

referred to in sub-clauses (a) to (h) of this

clause;"

13. If it is shown that the debt has been disbursed against "consideration

for time value of money" then it is treated to be a 'Financial Debt', which may

include debt as mentioned in Clause (a) to (i) of Section 5(8).

14. From clause (8) of Section 5, we find that any indemnity obligation in

respect of a guarantee also come within the meaning of 'Financial Debt' as

defined under the said provision.

15. Admittedly, the 'Corporate Debtor' has counter-indemnity obligation in

respect of guarantee given by it to the Appellant- 'Andhra Bank', we hold that

Andhra Bank come within the definition of 'Financial Creditor' as defined

under Sections 5(7) r/w (8) of 'I&B Code'. The 'Resolution Professional' and

the Adjudicating Authority both having failed to consider the aforesaid

provisions of law, we set aside the impugned order dated 17th November

2017.

16. Learned counsel appearing on behalf of the 'Resolution Professional'

submits that the 'Resolution Plan' approved by the sole member of the

'Committee of Creditors'- (State Bank of India) is pending consideration before

the Adjudicating Authority. No order has been passed before because of the

pendency of the appeal and in view of the order passed on 4th May 2018. In

that view of the matter while we direct the Adjudicating Authority to exclude

Company Appeal (AT) (Insolvency) No. 61 of 2018 7

the period during which the appeal was pending before this Appellate Tribunal

i.e. from 20th February 2018 till today (13th July 2018) for the purpose of

counting the period of 270 days, remit the matter with direction to the

'Resolution Professional' to place 'Resolution Plan' which has been cleared

again before the 'Committee of Creditors', which will constitute two members

i.e. State Bank of India and Andhra Bank. Both the members of the

'Committee of Creditors' will fix a date preferably by the beginning of the next

month and pass order in terms of Section 30(4) of the 'I&B Code'.

17. We make it clear that we have allowed the Andhra Bank to be a member

of the 'Committee of Creditors' that does not mean that they will raise objection

to the 'Resolution Plan' in question. If they oppose it, they will have to give the

ground. Only if the 'Resolution Plan' is not in accordance with Section 30(2),

then a valid objection can be raised by Andhra Bank who has been added as

a member of the 'Committee of Creditors' otherwise the Committee will

approve it having already found to be viable and workable and 'Resolution

Professional', and thereafter the 'Resolution Professional' will place the matter

before the Adjudicating Authority for its order under Section 31.

18. We further make it clear that if 'Resolution Plan' is approved and

successful 'Resolution Applicant' takes over the management of the 'Corporate

Debtor', the 'Corporate Debtor' will continue to be guarantor of the Andhra

Bank as their right will not cease and as it cannot raise claim at this stage.

Company Appeal (AT) (Insolvency) No. 61 of 2018 8

19. The appeal is allowed with aforesaid observations and directions.

However, in the facts and circumstances of the case, there shall be no order

as to cost.

(Justice S.J. Mukhopadhaya) Chairperson

(Justice Bansi Lal Bhat) Member(Judicial) sm/uk

Company Appeal (AT) (Insolvency) No. 61 of 2018