Phoenix Arc Pvt. Ltd vs Ketulbhai Ramubhai Patel

Phoenix ARC Pvt. Ltd. ...Appellant

Vs.

Ketulbhai Ramubhai Patel The Resolution Professional of Doshion Water Solutions Pvt. Ltd. ...Respondent

Present: For Appellant: - Mr. Rajshekhar Rao, Mr. Pai Amit and Mr. Karthik Sundar, Advocates.

For Respondent: - Ms. Ami Jain, Advocate for R.P.

Mr. S.R. Jariwala, C.A for CoC.

O R D E R

09.04.2019─ The 'Corporate Insolvency Resolution Process' has

been initiated against 'Doshion Water Solutions Pvt. Ltd.'- ('Corporate

Debtor'). The Appellant filed Miscellaneous Application under Section

60(50) (c) of the Insolvency and Bankruptcy Code, 2016 ("I&B Code" for

short) claiming it to be the 'Financial Creditor' and challenged the

decision of the 'Resolution Professional'. The Adjudicating Authority

(National Company Law Tribunal), Mumbai Bench, Mumbai, held that

the Appellant do not come within the meaning of 'Financial Creditor' and

there is no assignment in its favour.

2. Learned counsel appearing on behalf of the Appellant submits that

the shares have been pledged which have been assigned in favour of the

Company Appeal (AT) (Insol.) No. 325 of 2019 2

Appellant. This amounts to raising money under the transaction having

commercial effect on borrowings. He relied on Assignment Agreement

dated 30th December, 2013 signed between 'L&T Infrastructure Finance

Company Limited (as Assignor) and the Appellant- 'Phoenix ARC Private

Limited' (as Asignee).

3. It is submitted that in terms of Section 176 of the Contract Act, the

Appellant is entitled to file a suit against the owner i.e. the 'Corporate

Debtor'.

4. We have heard Mr. Rajshekhar Rao, learned counsel appearing on

behalf of the Appellant; Ms. Ami Jain, learned counsel appearing on

behalf of the 'Resolution Professional' and Mr. S.R. Jariwala, Chartered

Accountant on behalf of the 'Committee of Creditors'.

5. From the record, we find that 'L&T Infrastructure Finance

Company Limited' and 'Doshion Water Solutions Pvt. Ltd.'- ('Corporate

Debtor') executed a 'Facility Agreement' dated 12th May, 2011 in respect

of the financial facility of Rs.40,00,00,000/-. As per the 'Facility

Agreement', the financial facility was to be repaid along with applicable

interest at the applicable rate in 72 structured monthly instalments after

the initial Moratorium period contemplated therein.

6. As per the 'Facility Agreement', repayment of the financial facility

inter alia required to be secured by a pledge by 'Doshion Water Solutions

Pvt. Ltd.'- ('Corporate Debtor') of 100% shares of 'Gondwana Engineers

Ltd.' in favour of 'L&T Infrastructure Finance Company Limited'. The

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'Facility Agreement' provided that the Borrower would continue to hold

at least 50% of the equity capital of the 'Corporate Debtor' and the

'Corporate Debtor' would continue to hold at least 51% stake in the equity

capital of 'Gondwana Engineers Ltd.'. The 'Corporate Debtor' was also

required to provide the Board's Resolution to create a charge on the

assets of 'Gondwana Engineers Ltd.', which, as a consequence, became

the subsidiary of the 'Corporate Debtor'.

7. In view of the aforesaid agreement, the assignor and the 'Corporate

Debtor' executed a 'Pledge Agreement' on 10th January, 2012 whereby the

'Corporate Debtor' pledged 40,160 shares of 'Gondwana Engineers Ltd.'

in favour of the assignor as a security inter alia for repayment of the

Financial Facility.

8. Thereafter, by 'Assignment Agreement' dated 30th December, 2013,

'L&T Infrastructure Finance Company Limited' assigned all rights, title

and interest in the Financial Facility including any security interest

therein, in favour of the Appellant- 'Phoenix ARC Private Limited'. In view

of such Assignment Agreement dated 30th December, 2013, the

Appellant- 'Phoenix ARC Private Limited' claimed to be the 'Financial

Creditor'.

9. Section 5(7) defines 'Financial Creditor' and Section 5(8) defines

'Financial Debt'. From the 'pledged agreement', it is clear that the shares

have been assigned and in case the shares or any part of them became

subject matter of an attachment by a Court or otherwise tainted for any

Company Appeal (AT) (Insol.) No. 325 of 2019 4

reason, the 'Corporate Debtor' is liable to replace the same with other

securities acceptable to the Assignor. The 'Pledge Agreement' ensures the

benefit of the Assignor and its successor in title.

10. In view of the aforesaid facts, we hold that the 'pledge of shares' in

question do not amount to "disbursement of any amount against the

consideration for the time value of money" and it do not fall within sub-

clause (f) of sub-section (8) of Section 5 as suggested by the learned

counsel for the Appellant.

11. So far as Section 176 of the Contract Act is concerned, we hold that

the creditors have right to file a suit but that does not mean that all the

creditors who are not the 'Financial Creditors' or the 'Operational

Creditors' have right to file any application under Section 7 or Section 9

of the 'I&B Code'.

12. We find no merit in this appeal. It is accordingly, dismissed. No

cost.

(Justice S.J. Mukhopadhaya) Chairperson

(Justice A.I.S. Cheema) Member(Judicial) Ar/g

Company Appeal (AT) (Insol.) No. 325 of 2019