Maitreya Doshi vs Anand Rathi Global Finance Ltd. & Anr

[Arising out of Order dated 19th February, 2021 passed by the Adjudicating Authority (National Company Law Tribunal), Court 5, Mumbai Bench in C.P. (IB) No. 1220/MB/2020]

IN THE MATTER OF:

Maitreya Doshi Ex-Director of Doshi Holdings Pvt. Ltd. 6, Neela House, Dhanukar Marg, Mumbai - 400 026. ...Appellant

Versus

Anand Rathi Global Finance Ltd. Express Zone, A wing, 10th Floor, Western Express Highway, Goregaon (E), Mumbai - 400 063. ...Respondent No. 1

Kanak Jani The Interim Resolution Professional of Doshi Holdings Pvt. Ltd., 58, Nariman Bhavan, Nariman Point, Mumbai - 400 021. ...Respondent No. 2

For Appellant: Mr. Krishnendu Datta, Sr. Advocate with Ms. Pooja Batra, Ms. Dhanyashree Jadeja, Mr. Ankit Lohia and Mr. Manas Kotak, Advocates.

For Respondents: Ms. Smriti Churiwal, Mr. Prateek Seksaria, Mr. Vishesh Kalra and Mr. Jaiveer Kant, Advocates for Respondent No.1. Mr. Anshula Grover, Advocate with Mr. Kanak Jani, IRP in person for Respondent No.2.

Cont'd..../ 2

[25.08.2021]

A. I. S. Cheema, J.

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.

2. The Appeal claims and it has been argued on behalf of the Appellant that

Respondent No. 1 an NBFC disbursed loan to the tune of Rs.6 Crore to M/s

Premier Ltd. under three separate Loan cum Pledge Agreements dated

29.06.2015, 04.05.2016 and 05.10.2016. The terms of the said loans were

extended by way of various addendums. According to Appellant, in the amounts

disbursed to M/s Premier Ltd., the Corporate Debtor - Doshi Holdings had

pledged shares held by the Corporate Debtor in M/s Premier Ltd in favour of the

Respondent No. 1 - Financial Creditor. According to the Appellant, under the

Company Appeal (AT) (Insolvency) No. 191 of 2021 3

Loan cum Pledge Agreement, the amounts were disbursed by the Respondent No.

1 - Financial Creditor solely to M/s Premier Ltd. as can be seen from the Bank

Statement of the Financial Creditor as annexed with Section 7 petition which was

filed (Annexure A-5 at page 130 of Appeal).

3. Appellant claims that in the Loan cum Pledge Agreements although

Corporate Debtor has been referred as 'Borrower 2/Pledgor', the intent of parties

was clear as can be seen from agreements that as far as regards Doshi Holdings

(Corporate Debtor), its sole obligation under the Loan cum Pledge Agreements

was limited to only pledging shares held by it in M/s Premier Ltd. and that Doshi

Holdings was not liable and/or obliged towards Respondent No.1 for the amounts

disbursed to M/s Premier Ltd. The Appellant claims that the Corporate Debtor -

Doshi Holdings is not a beneficiary from the loan disbursed to M/s Premier Ltd.

and is not liable to pay the amounts. When default occurred, it is claimed that

the Appellant sought payment of the amount defaulted from M/s Premier Ltd.

and not from the Corporate Debtor - Doshi Holdings.

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

Company Appeal (AT) (Insolvency) No. 191 of 2021 4

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

Company Appeal (AT) (Insolvency) No. 191 of 2021 5

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.

6. Against this, Respondent No.1 has filed reply and written submissions

and orally argued pointing out the various loan documents for the three

facilities which were provided to the Corporate Debtor - Doshi Holdings

alongwith M/s Premier Ltd. Respondent No.1 claims that Doshi Holdings was

Company Appeal (AT) (Insolvency) No. 191 of 2021 6

the Co-borrower with M/s Premier Ltd. and by way of three loan transactions

Rs.6,00,00,000/- (Rupees Six Crore) was advanced as loan by the Financial

Creditor to these entities. The Learned Counsel for Respondent No.1 referred

to the contents of the loan documents to submit that the loans were sanctioned

to both these entities and they were joint loan agreements which were signed

for both the entities by the same Appellant - Maitreya Doshi. It is argued that

there were joint loan receipts as well as loan documents executed by both the

companies and the receipt of the money on behalf of both the companies was

accepted by this very Appellant. The argument is that only because the

Appellant let the amounts be received in the loan transaction be deposited in

the account of M/s Premier Ltd. would not make any difference and the

Corporate Debtor is as much a borrower and loan was disbursed also to the

Corporate Debtor as a Co-borrower and it cannot be said that there was no

consideration or no time value for the money was involved. M/s Premier Ltd.

as well as Doshi Holdings executed the documents through the Appellant who

was the authorized signatory of M/s Premier Ltd. as well as Authorized

Signatory and Chairman of the Corporate Debtor - Doshi Holdings. Learned

Counsel for the Respondent No. 1 thus claims that if these two companies as

sister concerns under the agreements as Co-borrowers took loan and let the

money be deposited in account of one of the companies, the consideration was

clearly there as both entities were acting in tandem due to their intimate

connection. Corporate Debtor joined the Agreements to loan as Co-borrower

for consideration of time value for the money to get the same deposited in

Company Appeal (AT) (Insolvency) No. 191 of 2021 7

account of M/s Premier Ltd. That, Doshi Holdings additionally pledged shares

also.

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

Company Appeal (AT) (Insolvency) No. 191 of 2021 8

parties. This will curtail need to refer to detailed arguments which have been

made without connecting to facts of the case.

9. Execution of the documents is not in dispute. It is a matter of looking

into the documents and applying law to the parties. By way of three separate

Loan cum Pledge Agreements thrice loan facilities were extended by the

Financial Creditor. We will refer to one set for convenience of reading. Counsel

for Respondent No.1 has filed written submissions with Convenience

Compilation - Dy. No. 28041 and argued from the same also. We are referring

to the documents as filed from this Convenience Compilation.

10. Firstly, there is 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:

Company Appeal (AT) (Insolvency) No. 191 of 2021 9

"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 co- opted 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, Maharashtra- 400021 (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) Whereas;

A. ARGFL as part of its business provides loans against the deposit of securities such as shares, mutual funds and other financial instruments; B. Borrower(s) is desirous of availing of a loan facility for a sum of Rs.30000000 (Rs. Rupees Three

Company Appeal (AT) (Insolvency) No. 191 of 2021 10

Crores Only) at an interest rate of 16% p.a. for the period of _____ days from ________ to ______ C. The Lender in lieu of granting such loan facility, has requested a Master Agreement to be entered into between both the parties concerned, for the loan facility to be so granted to the Borrower(s), and also the pledge which shall be provided by the Borrower(s)/ Pledgor to the Lender;

D. In consideration of the Lender granting or agreeing to grant the loan facilities to the Borrower(s), the Borrower(s) is/are desirous of executing this Agreement which sets out the general terms and conditions (so far as they may be applicable) with regard to both the aforementioned. The special terms and conditions governing the Facility and the pledge (are set forth in their respective schedules to this Agreement) as executed between the Parties from time to time.

NOW THIS AGREEMENT WITNESS AND THE PARTIES HERETO AGREE AS UNDER;

xxx xxx xxx"

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. In Article 1 where definition and interpretations is mentioned

definition of 'disbursement' is as follows:

"'Disbursement' means every amount advanced to the Borrower(s) under each facility"

In this Loan cum Pledge Agreement Clauses 2.6 and 2.8 read as follows:

"2.6 Repayments:

The Borrower(s) undertakes to repay to the Lender, each "Facility Balance" in accordance with the provision in the relevant Schedules(s) of Terms. On occurrence of

Company Appeal (AT) (Insolvency) No. 191 of 2021 11

any Event of Default in accordance with the provisions of Article 2, the loan Balance shall become payable. Further on Recall of the loan or one or more facilities, the loan Balance or the Facility Balance(s) shall become payable in accordance with the provisions of Article 2.12."

"2.8 Demand Promissory note:

The Borrower(s) shall execute Demand Promissory note and/or continuity note for the respective Facility and/ or individual or aggregate amount, for which facility is extended before availing any facility granted by the Lender which shall be treated as part & parcel of the agreement entered into between Borrower(s) and the Lender."

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.

Company Appeal (AT) (Insolvency) No. 191 of 2021 12

14. At page 189, there is 'Demand Promissory Note' executed by M/s Premier

Ltd. as well as M/s Doshi Holdings. It may be copied:

15. It is apparent that M/s Premier Ltd. and M/s Doshi Holdings

unconditionally promised to pay Respondent No.1 - Financial Creditor the

amount mentioned "for value received".

16. In the Loan Agreement-2 and Loan Agreement-3 there are similar

documents and we are not burdening this judgment with reference to them,

Company Appeal (AT) (Insolvency) No. 191 of 2021 13

which will be repetition. The relationship between the parties reveals their

connection. The Premier Ltd. and Doshi Holdings were jointly sanctioned loan

by Respondent No.1 and they executed Tripartite Agreements and documents

in favour of Respondent No.1 admitting value received and were joint promisors

for paying back the loan. The documents make it clear that Doshi Holdings

was not only Co-borrower but also pledged shares.

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.

19. Learned Counsel for Appellant has relied on judgment of this Tribunal in

the matter of 'Dr. Vishnu Kumar Agarwal Vs. M/s Piramal Enterprises Ltd.'

(Supra) in which it was observed in Paras 31 and 32 as under:

"31. The matter can be looked from another angle. The question arises whether the 'Financial Creditor'- ('M/s. Piramal Enterprises Ltd.') can claim same amount

Company Appeal (AT) (Insolvency) No. 191 of 2021 14

of Rs. 40,28,76,461/- from the 'Resolution Professional' appointed pursuant to the 'Corporate Insolvency Resolution Process' against the 'Corporate Guarantor No.1' ('Sunrise Naturopathy and Resorts Pvt. Ltd.'), as also from the 'Resolution Professional' appointed pursuant to 'Corporate Insolvency Resolution Process' initiated against 'Sunsystem Institute of Information Technology Pvt. Ltd.'- ("Corporate Guarantor No.2")? Admittedly, for same set of debt, claim cannot be filed by same 'Financial Creditor' in two separate 'Corporate Insolvency Resolution Processes'. If same claim cannot be claimed from 'Resolution Professionals' of separate 'Corporate Insolvency Resolution Processes', for same claim amount and default, two applications under Section 7 cannot be admitted simultaneously. Once for same claim the 'Corporate Insolvency Resolution Process' is initiated against one of the 'Corporate Debtor' after such initiation, the 'Financial Creditor' cannot trigger 'Corporate Insolvency Resolution Process' against the other 'Corporate Debtor(s)', for the same claim amount (debt).

32. There is no bar in the 'I&B Code' for filing simultaneously two applications under Section 7 against the 'Principal Borrower' as well as the 'Corporate Guarantor(s)' or against both the 'Guarantors'. However, once for same set of claim application under Section 7 filed by the 'Financial Creditor' is admitted against one of the 'Corporate Debtor' ('Principal Borrower' or 'Corporate Guarantor(s)'), second application by the same 'Financial Creditor' for same set of claim and default cannot be admitted against the other 'Corporate Debtor' (the 'Corporate Guarantor(s)' or the 'Principal Borrower'). Further, though there is a provision to file joint application under Section 7 by the 'Financial Creditors', no application can be filed by the 'Financial Creditor' against two or more 'Corporate Debtors' on the ground of joint liability ('Principal Borrower' and one 'Corporate Guarantor', or 'Principal Borrower' or two 'Corporate Guarantors' or one 'Corporate Guarantor' and other 'Corporate Guarantor'), till it is shown that the 'Corporate Debtors' combinedly are joint venture company."

[Emphasis supplied]

Company Appeal (AT) (Insolvency) No. 191 of 2021 15

20. Relying on the above observations, the Appellant is arguing that for same

debt two proceedings could not be maintained. Piramal's Judgment was

matter relating to filing of proceeding against Principal Borrower as well as

Corporate Guarantor and in that context this Tribunal had held that for same

debt there could not be two separate proceedings and that in one proceeding

filed under Section 7 of IBC action against two Corporate Debtors was not

contemplated.

21. Firstly, the judgment would not apply to present set of facts where it is

not a matter of Principal Borrower and Corporate Guarantor. This is a matter

of Co-borrowers jointly applying and receiving loan in account of one of them

who executed documents jointly with promise to pay. With regard to Judgment

in the matter of 'Dr. Vishnu Kumar Agarwal Vs. M/s Piramal Enterprises Ltd.',

on subsequent occasion, this Tribunal has distinguished the judgment in the

matter of 'State Bank of India vs. Athena Energy Ventures Pvt. Ltd.'. In Athena,

this Tribunal discussed the judgment of Hon'ble Supreme Court in the matter

of 'State Bank of India vs. V. Ramakrishnan & Anr.', (2018)17 SCC 394 and

provisions of Section 60(2) and (3) of IBC. We had noticed that in the matter of

'Dr. Vishnu Kumar Agarwal Vs. M/s Piramal Enterprises Ltd.', Sub-section (2)

and (3) of Section 60 of IBC as they stood at relevant time were not noticed.

Thus, the finding in matter of 'Piramal' was per incurium, that for same set of

claim and default second application against other debtor cannot be

maintained. Now, Hon'ble Supreme Court has in the matter of 'Lalit kumar

Company Appeal (AT) (Insolvency) No. 191 of 2021 16

Jain vs. Union of India' held that Resolution Plan in relation to a Corporate

Debtor does not ipso facto discharge Guarantor of a Corporate Debtor. We

have made this brief reference to these judgments with regard to matters where

Principal Borrower and Guarantor are involved for the limited purpose to

observe that IBC does not have any aversion to more than one proceeding

against different Debtors even if they are arising out of one debt and one

default. The Appellant has heavily relied on judgment in the matter of 'Dr.

Vishnu Kumar Agarwal Vs. M/s Piramal Enterprises Ltd.', to say that for same

claim amount and default two applications cannot be maintained. However, as

we have already seen and which law has now become quite clear there can be

separate proceedings for the same debt and default against Principal Borrower

as well as Guarantor, when we peruse Section 60(2) and (3), which reads as

under:

"60. (1) The Adjudicating Authority, in relation to insolvency resolution and liquidation for corporate persons including corporate debtors and personal guarantors thereof shall be the National Company Law Tribunal having territorial jurisdiction over the place where the registered office of the corporate persons located.

(2) Without prejudice to sub-section (1) and notwithstanding anything to the contrary contained in this Code, where a corporate insolvency resolution process or liquidation proceeding of a corporate debtor is pending before a National Company Law Tribunal, an application relating to the insolvency resolution or 1[liquidation or bankruptcy of a corporate guarantor or

personal guarantor, as the case may be, of such corporate debtor] shall be filed before such National Company Law Tribunal."

Company Appeal (AT) (Insolvency) No. 191 of 2021 17

22. No doubt in Section 60 reference is with regard to proceeding against

Corporate Debtor as well as Corporate Guarantor or Personal Guarantor in

which contingency, if there are two proceedings, the same have to be brought

before the same Adjudicating Authority. Now, Legislature has even enforced

Part III of IBC to the extent of proceedings for Insolvency Resolution Process

against Personal Guarantors to the Corporate Guarantors. Thus, considering

the aims and objects of IBC, we do not wish to take a technical view only due to

the observations made in judgment of 'Dr. Vishnu Kumar Agarwal Vs. M/s

Piramal Enterprises Ltd.', which were made without considering Section 60 of

IBC as it then stood. If we do so, the present Co-borrower will walk away

without liability even after execution of so many documents and having jointly

received the loan from Respondent No.1 - Financial Creditor. 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.

Company Appeal (AT) (Insolvency) No. 191 of 2021 18

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.

24. The Learned Counsel for the Appellant argued that the Adjudicating

Authority has wrongly used the terms 'Co-borrower/Guarantor'

interchangeably. It is argued that considering the documents it cannot be said

to be a case of a Principal Borrower and Guarantor of the Borrower. The

Learned Counsel referred to judgments in the matter of 'R.M.M.S.T. Vyravan

Chettiar vs The Official Assignee of Madras', 1932 SCC Online Mad 54 and 'M.

Venkataramanaiah vs Margadarsi Chit Fund Limited and Ors.' 2009(4) ALD 300.

It does appear that this is not a case of Borrower and its Guarantor. This is a

case of Co-borrowers for the amount received by them in joint documents

executed, as have been referred. It additionally happens that the Corporate

Debtor - Doshi Holdings has also pledged shares.

25. The Learned Counsel for the Appellant referred to judgment in the matter

of 'Phoenix ARC Pvt. Ltd. vs. Ketulbhai Ramubhai Patel', (2021) SCC Online SC

Company Appeal (AT) (Insolvency) No. 191 of 2021 19

54 and added that the Hon'ble Supreme Court in this judgment relied on

judgment in the matter of 'Anuj Jain, Interim Resolution Professional for Jaypee

Infratech Limited vs. Axis Bank Ltd. ', (2020) 8 SCC 401, where it was held that

in case Corporate Debtor has only extended a security by pledging shares, the

Applicant will at best be Secured Debtor qua the security but shall not be a

Financial Creditor within the meaning of Section 5 sub-sections (7) and (8). When judgment in the matter of 'Phoenix ARC Pvt. Ltd.' (supra) is perused brief

facts referred by the Hon'ble Supreme Court show that in that matter 'L&T

Infrastructure Finance Company Ltd.' advanced financial facility to 'Doshion

Ltd.' for which a Facility Agreement dated 12th May, 2011 was executed

between them. 'Doshion Ltd' was the Borrower and 'L&T Infrastructure

Finance Company Ltd.' was the Lender. Subsequently, on 10th January, 2012,

a Pledge Agreement was executed between 'Doshion Veolia Water Solutions Pvt.

Ltd.' and 'L&T Infrastructure Finance Company Ltd.' by which agreement

40,160 shares of 'Gondwana Engineers Limited' were pledged as a security. On

the same date, a Deed of Undertaking was also executed by 'Doshion Veolia

Water Solutions Pvt. Ltd.' in favour of 'L&T Infrastructure Finance Company

Ltd.'. Thus, the facts involved in the matter of 'Phoenix ARC Pvt. Ltd.' (supra)

were different. It was in the context of facts which were before Hon'ble

Supreme Court in the matter of 'Phoenix ARC Pvt. Ltd.' that the Hon'ble

Supreme Court observed in Para 24 of the Judgment that Pledge Agreement

and Undertaking given between Assignor and Corporate Debtor cannot be

termed as contract of guarantee under Section 126. The Hon'ble Supreme

Company Appeal (AT) (Insolvency) No. 191 of 2021 20

Court discussed the judgment in the matter of 'Anuj Jain, Interim Resolution

Professional for Jaypee Infratech Limited vs. Axis Bank Ltd.' (supra) in Para 29

of the judgment and referred in detail to the findings in that judgment of

'Jaypee Infratech Limited' and observed in Para 30 of the judgment as under:

"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)."

[Emphasis supplied]

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

Company Appeal (AT) (Insolvency) No. 191 of 2021 21

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 -

Company Appeal (AT) (Insolvency) No. 191 of 2021 22

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.

[Justice A.I.S. Cheema] The Officiating Chairperson

[V. P. Singh] Member (Technical) Archana

Company Appeal (AT) (Insolvency) No. 191 of 2021