Saratvam Creators vs Sudhir Constructions Infraspace ...

NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH, NEW DELHI Company Appeal (AT) (Insolvency) No.1664 of 2024 (Arising out of Order dated 02.08.2024 passed by the Adjudicating Authority (National Company Law Tribunal), Mumbai Bench, Court-V in I.A. No.2142 of 2023 in CP(IB) No.951/MB/2022)

IN THE MATTER OF: Saratvam Creators ... Appellant

Versus

Sudhir Construction Infrapase Pvt. Ltd. & Ors. ... Respondents

Present:

For Appellant : Mr. Ramji Srinivasan, Sr. Advocate with Mr. Gautam Singh, Mr. Shubhendu Anand, Ms. Namrata Sarogi and Mr. Akshat Kaushik, Advocates.

For Respondents : Mr. Kunal Kanungo, Mr. Mukesh Jain, Mr. Aush Rajani and Mr. Muktesh Punaniya, Advocates for R-1. Mr. Abhijeet Sinha, Mr. Anuj Tiwari, Mr. Chaitanya Nikte, Ms. Monika, Mr. Aditya Shukla, Ms. Heena Kochar, Advocates for R-6. Mr. Piyush M Dwivedi, Advocate for R-4.

JUDGMENT

ASHOK BHUSHAN, J.

This Appeal by the Appellant, who claimed to be Financial Creditor of

the Corporate Debtor has been filed challenging the order dated 02.08.2024

passed by National Company Law Tribunal, Mumbai Bench, Court-V in IA

No.2142 of 2023 (filed by Bank of Maharashtra) (Respondent No.6 herein),

Company Appeal (AT) (Insolvency) No.1664 of 2024 1 where by the impugned order, the Adjudicating Authority has allowed IA

No.2142 of 2023 and directed the RP to reconstitute the Committee of

Creditors ("CoC") after excluding the Appellant and other unsecured Financial

Creditors. The Appellant aggrieved by the order dated 02.08.2024 has filed

this Appeal.

2. Brief facts of the case necessary to be noticed for deciding the Appeal

are:

(i) The Corporate Debtor - Sudhir Construction Infraspace Pvt. Ltd.

was extended Financial Facilities by the Bank of Maharashtra in

the year 2018. Cash Credit Limit, Term Loan and the

Encashment of Bank Guarantees were extended by Bank of

Maharashtra. The Corporate Debtor could not service the

Facilities, hence, the account was declared as NPA on 31.12.2019.

(ii) The Corporate Debtor was awarded a Hybrid Annuity Model Road

Project ("HAM Project") by the Public Works Department ("PWD")

in the year 2018. The Corporate Debtor formed a SPV for the

purposes of execution of HAM Project namely - M/s Sudhir

Constructions Infraspace (Shegaon Palkhi Road) Private Limited

("SPV"). A Concession Agreement was executed between SPV and

PWD on 03.01.2019 to carry out the work within 24 months. The

Corporate Debtor faced difficulties in executing the Project. The

Company Appeal (AT) (Insolvency) No.1664 of 2024 2 Corporate Debtor efforts to find out the entities to carry out the

Project failed twice.

(iii) On 18.06.2022, the SPV of the Corporate Debtor M/s Sudhir

Constructions Infraspace (Shegaon Palkhi Road) Private Limited

entered into an Agreement with M/s Saratvam Creators

(Appellant herein) to execute the work on back-to-back basis. The

Appellant agreed to execute the work on back-to-back basis on

mutually agreed condition as mentioned in the Agreement.

(iv) In the year 2022, the Bank of Maharashtra filed Application under

Section 7 against the Corporate Debtor for initiation of CIRP. The

advance copy of Section 7 Application was served on the

Corporate Debtor on 04.07.2022, on which Application CP (IB)

No.52 of 2023 was registered.

(v) After service of the copy of Section 7 Application by Bank of

Maharashtra, the Appellant entered into a Loan Agreement with

SPV and Corporate Debtor dated 05.08.2022. The SPV was the

borrower and the Appellant as lender. A separate Deed of

Guarantee-cum-Indemnity was executed by the Corporate

Debtor. The lender agreed to lend an amount of Rs.195 crores to

the borrower. Guarantor/ Indemnifier has undertaken

guarantee/ indemnity to make good of loss along with interest, if

the borrower fails to repay the amount of loan.

Company Appeal (AT) (Insolvency) No.1664 of 2024 3

(vi) On an Application filed under Section 7 by a Financial Creditor

one Mr. Mahesh Bapuraoji Nage for a principal amount of Rs.1.25

crores, CIRP against the Corporate Debtor commenced on

03.03.2023. In pursuance of the publication issued by the RP,

the Bank of Maharashtra on 16.03.2023 duly submitted its claim

on Form-C, claiming as a secured creditor. Total principal and

interest was claimed as Rs.165,70,10,986/-. The Appellant also

filed its claim on 24.03.2023 as unsecured Financial Creditor for

principal amount of Rs.195/- crores and interest of

Rs.28,11,699/-. Certain other unsecured Financial Creditors

also filed their claims before the IRP.

(vii) The RP after collating the claims issued Notice dated 29.03.2023

for holding the first meeting of the CoC on 03.04.2023. Notice of

the meeting was sent to the Bank of Maharashtra, Appellant and

other unsecured Financial Creditor. The first meeting of the CoC

was held on 03.04.2023. In the minutes of the first meeting, the

RP took note of constitution of Committee and gave amount of

admitted claims of Bank of Maharashtra, the Appellant and other

unsecured Financial Creditors. Apart from Bank of Maharashtra,

there were other unsecured Financial Creditors, whose claims

were shown to be admitted. Vote share ratio of Bank of

Company Appeal (AT) (Insolvency) No.1664 of 2024 4 Maharashtra was 32.28% and the vote share of the Appellant was

39.16%.

(viii) Copy of the minutes was circulated by the RP to the Members of

the CoC. The Bank of Maharashtra after receiving the minutes of

the meeting, objected to the minutes. The detailed objection dated

10.04.2023 was sent by Bank of Maharashtra to the RP, pleading

that claims of unsecured creditors admitted by RP is untenable.

It was pleaded that CoC has been formed on the basis of

erroneous and fictitious claims, which are not valid in law. It was

stated that RP without proper and genuine documents, has

constituted the CoC. It was stated that to protect the interest of

the Corporate and secured Financial Creditors, the Bank of

Maharashtra prayed that minutes be recalled and CoC be

reconstituted. The RP proceeded to hold the 2nd meeting of the

CoC on 21.04.2023 with the same members of the CoC as was

earlier constituted. The RP has also filed Report before the

Adjudicating Authority regarding constitution of the CoC and

detail of claims received. The Bank of Maharashtra also called

upon the RP to share the relevant financial documents on the

basis of which the claims of the Appellant and other unsecured

Financial Creditors have been admitted, which was not shared by

the RP. The RP in support of its decision to admit the claim of

Company Appeal (AT) (Insolvency) No.1664 of 2024 5 Appellant and other unsecured Financial Creditors, relied on two

legal opinions, which were shared.

(ix) The Bank of Maharashtra filed an Application - IA No.2142 of

2023, praying for directing the RP to reconstitute the CoC by

excluding third parties, including the Appellant. The Bank of

Maharashtra also prayed that a forensic auditor be also appointed

to audit the claims of various third parties, to verify whether they

fall under the category of preferential, undervalued, extortionate

and fraudulent transaction. The Application filed by the Bank of

Maharashtra was opposed by learned Counsel for the IRP/RP,

Appellant and other unsecured Financial Creditors. The

Adjudicating Authority after hearing the parties, by the impugned

order allowed prayers (a) and (b) of the Application. Aggrieved by

which order this Appeal has been filed.

3. We have heard Shri Ramji Srinivasan, learned Senior Counsel

appearing for the Appellant; Shri Abhijeet Sinha, learned Senior Counsel

appearing for the Bank of Maharashtra; and Shri Mukesh Jain, learned

Counsel appearing for the RP.

4. When the Appeal was heard, learned Counsel appearing for Bank of

Maharashtra, on whose Application the impugned order was passed has

appeared and sought liberty to file an additional affidavit. The Bank of

Maharashtra has filed an additional affidavit to support its contentions. The

Company Appeal (AT) (Insolvency) No.1664 of 2024 6 RP has also appeared through Counsel. The contesting Respondents having

already appeared, no notices were issued to other Respondents in this Appeal.

Liberty was granted to the parties to file written submissions. The Appellant,

Bank of Maharashtra - Respondent No.6 have filed their written submissions.

The written submission has also been filed by Respondent No.7 - suspended

Director.

5. Shri Ramji Srinivasan, learned Senior Counsel appearing for the

Appellant challenging the order of the Adjudicating Authority contends that

Adjudicating Authority committed error in ousting the Appellant from CoC and

directing for reconstitution of the CoC. It is submitted that Adjudicating

Authority committed error in holding that Appellant is a 'related party'

unsecured Financial Creditor, whereas, the Appellant was not covered by any

clauses of Section 5, sub-section (24) of the IBC. It is submitted that findings

of the Adjudicating Authority that Appellant is a related party is

unsustainable. It is submitted that the Appellant has proved that it was

unsecured Financial Creditor by virtue of Loan Agreement and Deed of

Guarantee-cum-Indemnity dated 05.08.2022. The Corporate Debtor having

executed the Deed of Guarantee-cum-Indemnity Agreement in favor of the

lender, i.e. Appellant, ingredients of financial debts were proved. It is

submitted that Adjudicating Authority committed error in returning a finding

that there was no privity of contract between the Appellant and the Corporate

Debtor. The finding of Adjudicating Authority that Loan Agreement and Deed

Company Appeal (AT) (Insolvency) No.1664 of 2024 7 of Guarantee-cum-Indemnity Agreement dated 05.08.2022 was executed with

ulterior motive were unfounded. Further, the Adjudicating Authority

committed error in directing for forensic audit for finding out as to whether

there is preferential transaction between the Corporate Debtor and the

Appellant. When the Adjudicating Authority has directed for forensic audit,

which was to be completed within 60 days, there was no occasion for direction

to reconstitute the CoC at this stage. In the impugned order, several errors

have been committed by the Adjudicating Authority. The Adjudicating

Authority has accepted the contention of Bank of Maharashtra that Loan

Agreement and Deed of Guarantee-cum-Indemnity came into existence after

Section 7 Application was served on the Corporate Debtor on 04.07.2022,

whereas it failed to appreciate that approval from PWD came only on

18.07.2022 and only thereafter, Loan Agreement and Deed of Guarantee-cum-

Indemnity could have been executed. The observation of the Adjudicating

Authority that Loan Agreement and Deed of Guarantee-cum-Indemnity were

with the ulterior motive of reducing the percentage of Bank of Maharashtra

are erroneous. The finding of Adjudicating Authority regarding insufficient

stamp on the Deed of Guarantee-cum-Indemnity is also erroneous. The Deed

of Guarantee-cum-Indemnity is as per the provisions of Maharashtra Stamp

Act, 1958 and was required to be stamped with Rs.500/- as per Article 35 of

the Maharashtra Stamp Act, which stamping was there in the Deed of

Guarantee-cum-Indemnity. The Adjudicating Authority committed error in

Company Appeal (AT) (Insolvency) No.1664 of 2024 8 holding that claim admitted by RP is inflated claim. The Adjudicating

Authority held that actual disbursement was only INR 19,71,24,699/-,

however, the Adjudicating Authority overlooked the fact that claim was filed

on the basis of Deed of Guarantee-cum-Indemnity, which was for an amount

of Rs.195 crores. The Adjudicating Authority held that Financial Creditor can

be treated only to the extent of amount disbursed against the consideration of

time value of money and the Appellant having not disbursed any money to the

Corporate Debtor, but to SPV is not a Financial Creditor, whereas, the

Appellant is unsecured Financial Creditor, on account of Deed of Guarantee-

cum-Indemnity. The case of the Appellant was fully covered by Section 5 (8)

(i). The Adjudicating Authority relying on the Agreement dated 18.06.2022

has held the Appellant as Operational Creditor, whereas Agreement dated

18.06.2022 was separate and distinct and was entered for executing the HAM

Project on back-to-back basis, whereas there was separate and distinct Loan

Agreement and Deed of Guarantee-cum-Indemnity was entered and the claim

was filed by the Appellant on the basis of Deed of Guarantee-cum-Indemnity.

The fact that the Appellant was Operational Creditor under separate

Agreement, does not by any stretch of imagination disentitles the Appellant

for claiming its right under Deed of Guarantee-cum-Indemnity. Shri Ramji

Srinivasan submits that disbursement of the whole loan money is not a sine

qua non to qualify as a Financial Creditor. Learned Counsel for the Appellant

has referred to Section 5, sub-section (8), sub-clause (i) to support his

Company Appeal (AT) (Insolvency) No.1664 of 2024 9 submission that Appellant is a Financial Creditor. It is further submitted that

in any case, the Appellant must be regarded as a Secured Creditor. The

learned Counsel for the Appellant has referred to Agreement dated 05.08.2022

Clauses 5 and 6, which deals with 'Security' and 'Guarantee/ Indemnity'. The

learned Counsel for the Appellant in support of his submission has relied on

judgment of Hon'ble Supreme Court in Paschimanchal Vidyut Vitran

Nigam Ltd. v Raman Ispat Pvt. Ltd. & Ors. (2023) 10 SCC 60.

6. Shri Abhijeet Sinha, learned Senior Counsel appearing for the Bank of

Maharashtra refuting the submissions of learned Counsel for the Appellant

submits that entire claim of the Appellant is not only malafide claim, but is

based on documents, which were prepared by the Corporate Debtor and the

Appellant after Section 7 Application was served on the Corporate Debtor on

04.07.2022 by the Bank of Maharashtra. The object of Corporate Debtor was

only to somehow create documents in favour of entities claiming to have

unsecured Financial Creditors of the Corporate Debtor, to reduce the vote

share of the Bank of Maharashtra in the CoC. It is submitted that bare perusal

of the claim submitted by Appellant in Form-C, indicate that what was claimed

by the Appellant was that "the Appellant is committed to disburse the total

amount of loan, i.e. amount of Rs.195/- crores". It is admitted fact that only

disbursement, which is claimed in Form-C was Rs.19,43,13,000/-. The RP

without looking into the claim Form and other relevant materials, callously

with malafide intention admitted the claim for Rs.195,28,11,699/-. When the

Company Appeal (AT) (Insolvency) No.1664 of 2024 10 amount of Rs.195/- crores was not even disbursed by the Appellant, which is

the case of the Appellant itself, there was no occasion for admitting any claim

of the Appellant in the CIRP of the Corporate Debtor, who according to the

Appellant was only guarantor and gave only guarantee. The liability of

guarantor can never be more than that of a principal borrower. From the facts

brought on the record, it is clear that no amount was disbursed by the

Appellant to the Corporate Debtor and amount disbursed, if any, was to the

SPV and the amount disbursed to the SPV was returned in favour of the

Appellant, which is apparent from the details of the Escrow Account brought

on record before the Adjudicating Authority. When the Appellant received

back the entire amount, which is claimed by the Appellant as disbursement

to the SPV, the RP committed serious error in admitting the claim of the

Appellant. The Appellant has entered into Agreement dated 18.06.2022 to

carry out the Project of SPV on back-to-back basis and the Appellant was only

an Operational Creditor and EPC Contractor, which is mentioned in the

Agreement itself. The PWD, who has awarded the contract has also recognized

the Appellant as EPC Contractor and has issued letters to release payments

to the EPC Contractor. The documents alleging financial debt of the Appellant

were all created with malafide intention and were all manufactured

subsequent to receipt of Notice under Section 7. The CIRP against the

Corporate Debtor commenced on debt of Rs.1.25 crores on an Application filed

under Section 7 by a friendly unsecured Financial Creditor, which was

Company Appeal (AT) (Insolvency) No.1664 of 2024 11 admitted without any opposition by the Corporate Debtor. The Bank of

Maharashtra filed detailed objection on 10.04.2023 and gave all relevant

pleading to show that the claim could not have been admitted. It is further

pleaded that account of Corporate Debtor was declared as NPA on 31.12.2019

and after the account of Corporate Debtor having been declared NPA, it could

not legally execute any Deed of Guarantee-cum-Indemnity. Further, as per

the term of the sanctioned Facilities by the Bank of Maharashtra, no liability

can be taken by the Corporate Debtor, without obtaining a no objection from

Bank of Maharashtra. At no point of time, the Corporate Debtor obtained no

objection from Bank of Maharashtra for entering into Deed of Guarantee-cum-

Indemnity. The Escrow Account, which was maintained in the Bank of

Maharashtra itself indicate that between August 2022 to January 2023

against total amount credit was Rs.10,95,00,000/- and an amount of

Rs.19,73,11,473/- has been paid to the Appellant. Thus, even if, Rs.19 crores

was disbursed to SPV, it was actually received back by the Appellant.

7. In the written submission, which has been filed by Respondent No.7 -

suspended Director, it is stated Respondent No.7 was heard by NCLT in IA

No.2142 of 2023. In the written submission Respondent No.7 pleaded that

Loan Agreement dated 05.08.2022 entered with the Appellant while exercising

the best business judgment in relation to Project (Shegaon Palkhi Marg).

Respondent No.7 also contended that NCLT recorded factually incorrect

findings. Under the HAM Projects, it is a nationwide common practice that as

Company Appeal (AT) (Insolvency) No.1664 of 2024 12 per tender condition provide by PWD, that the financial partner & executor

brings in the upfront money and then execute the entire project. Respondent

No.7 in support of his submission relied on three judgments, which shall be

noticed hereinafter.

8. We have considered the submissions of learned Counsel for the parties

and have perused the record.

9. In pursuance of the CIRP commenced against the Corporate Debtor on

03.03.2023, publication was issued by the RP and claims were filed by the

Bank of Maharashtra, Appellant and other unsecured Financial Creditors.

The claim of Bank of Maharashtra as secured Financial Creditor was admitted

for an amount of Rs. 160,95,10,987/- with regard to which there is no dispute.

The Bank of Maharashtra has raised objection regarding admission of claim

of the Appellant and other unsecured Financial Creditor, after it came to know

the minutes of the first CoC, which was circulated by the RP. Along with

additional affidavit, which has been filed by the Bank of Maharashtra, notice

and agenda of the first CoC meeting held on 03.04.2023 as well as the minutes

of the meting has been brought on the record, which were part of IA No.2142

of 2023 filed by the Bank of Maharashtra. Report of IRP, which was submitted

under Section 18, has also been brought on record. Clause (b) of the Report,

which give details of the claims submitted and admitted of the creditors is as

follows:

Company Appeal (AT) (Insolvency) No.1664 of 2024 13 "b) Receive and collate all the claims submitted by creditors to him, pursuant to the public announcement made under sections 13 and 15;

Pursuant to the receipt of the CIRP commencement Order on 03.03.2023 IRP made Public Announcement in requisite FORM A in Economic Times (Nagpur Edition, English publication) and Loksatta (Nagpur Edition, Marathi publication) on 06.03.2023 for calling of claims from the creditors of the CD in compliance with Section 13(1)(b), 13(2) and 15 of the Code and Reg 6 of IBBI (CIRP).

As per Reg 6(2) of IBBI (CIRP), Reg. 2016, the last date for submission of claims was fixed as 17th March 2023. Thereafter, IRP has received the below claims from various creditors as summarized below:

*Claims of the Financial Creditors:

Sr. Name of Creditor Amount Claim Claim under No. Claimed (Rs.) Admitted (Rs.) Verification (Rs.)* A. SECURED FINANCIAL CREDITORS 1 Bank of Maharashtra 165,70,10,987 160,95,10,987 4,75,00,000 B. UNSECURED FINANCIAL CREDITORS 2 Saratvam Creator 195,28,11,699 195,28,11,699 0 3 Spondere Structures 75,68,67,721 75,68,67,721 0 4 Sanguine Engineering 60,24,48,287 60,24,48,287 0 Services 5 Mahhesh Bapuraoji 3,57,51,974 3,57,51,974 0 Nage 6 Anil Tukaram Savarkar 2,88,64,861 2,88,64,861 0 7 Go Ahead Infra Private 10,11,05,600 0 10,11,05,600 Limited 8 Supreme Infra Products 20,56,23,808 0 20,56,23,808 (Proprietor - Suresh Beoraoji Doifode) 9 Gurudeo Fabrication 11,66,47,699 0 11,66,47,699 Pvt. Ltd. (Formerly known as L7 Fabrication Pvt. Ltd.) 10 Areon Multi Projects Pvt. 7,24,74,638 0 7,24,74,638 Ltd.

Company Appeal (AT) (Insolvency) No.1664 of 2024 14 11 Moonland Realty 1,45,83,471 0 1,45,83,471 Developers Pvt. Ltd. 12 Vardhman Associates 6,10,049 0 6,10,049 Karta Paras Jain HUF 13 Climb Up Infra Pvt. Ltd. 77,41,62,572 0 77,41,62,572 TOTAL 6,31,89,63,366 491,62,55,529 133,27,07837 ...."

10. The Report further under the heading "Constitute a committee of

creditors", mention as follows:

"b) Constitute a committee of creditors:

As per Section 21(1) & 18(1)(c) of the IBC, 2016 and Regulation 17(1) of IBBI (CIRP), 2016, it is the duty of IRP to constitute a Committee of Creditors (CoC) and submit its report certifying the constitution of CoC to the Adjudicating Authority. In response to the public notice under Form A dated 6th March 2023, the IRP has received thirteen (13) claims under financial creditor category. According, the IRP has constituted the CoC on 27th March 2023 comprising of Six (6) Financial Creditors.

Sr. Name Amount Claim Claim Voting No. Claimed (Rs.) Admitted (Rs.) under (%) Verification (Rs.)* A. SECURED FINANCIAL CREDITORS 1 Bank of 1,65,70,10,987 1,65,70,10,987 4,75,00,000 32.28% Maharashtra B. UNSECURED FINANCIAL CREDITORS 2 Saratvam Creator 1,95,28,11,699 1,95,28,11,699 0 39.16% 3 Spondere 75,68,67,721 75,68,67,721 0 15.18% Structures 4 Sanguine 60,24,48,287 60,24,48,287 0 12.08% Engineering Services 5 Mahhesh Bapuraoji 3,57,51,974 3,57,51,974 0 0.72% Nage 6 Anil Tukaram 2,88,64,861 2,88,64,861 0 0.58% Savarkar TOTAL 5,03,37,55,529 4,98,62,55,529 4,75,00,000 100%

Company Appeal (AT) (Insolvency) No.1664 of 2024 15

11. The above part of the Report makes it clear that claim of the Appellant

was submitted for Rs.195,28,11,699/-, which claim was admitted in toto of

Rs.195,28,11,699/- and the CoC was constituted by the IRP, in which the

Bank of Maharashtra, a secured creditor was given 32.28% vote share,

whereas, the Appellant was given 39.15% vote share. The challenge in the IA

No.2142 of 2023 filed by the Bank of Maharashtra was to the admission of the

claim of Appellant and other unsecured Financial Creditor and their inclusion

in the CoC. The application filed by the Bank of Maharashtra was a detailed

Application, making various pleadings and grounds. The prayers made in the

Application IA No.2142 of 2023 are as follows:

"(a) That this Hon'ble Tribunal be pleased to examine the contents of the present Application and after examining the same, be pleased to direct the Resolution Professional to reconstitute the CoC and thereby exclude various 3rd parties as mentioned in the Paragraph 6 as members of CoC;

(b) That this Hon'ble Tribunal be pleased to examine the contents of the present Application and after examining the same, be pleased to appoint a third party unbiased forensic transaction to audit the claims of various 3rd parties mentioned in Paragraph 6 of the IA and verify whether they fall under the category of preferential, undervalued, extortionate and fraudulent transactions and hit by provisions of IBC 2016 and the report should be placed on record of this Hon'ble Tribunal;

(c) That this Hon'ble Tribunal be pleased to examine the contents of the present Application and after examining the same, be pleased to direct the Resolution Professional to produce on record the documents on the basis of which the claims of 3rd parties as

Company Appeal (AT) (Insolvency) No.1664 of 2024 16 mentioned in Paragraph 6 have been admitted along with copies of Form C submitted by the said 3rd parties;

(d) That this Hon'ble Tribunal be pleased to examine the contents of the present Application and after examining the same be pleased to issue appropriate directions to the Resolution Professional tp give appropriate explanation for its failure to identify the transactions of the Corporate Debtor with various 3rd parties as mentioned in Paragraph 6 as preferential, undervalued, fraudulent and extortionate transactions hit by the various provisions of IBC 2016;

(e) That this Hon'ble Tribunal be pleased to examine the contents of the present Application and after examining the same be pleased to direct the Resolution Professional to take appropriate steps to avoid the transactions on basis of which various 3rd parties have made claims before the Resolution Professional and till such decision not to allow the said 3rd parties as mentioned in Paragraph 6 from attending the COC;

(f) That this Hon'ble Tribunal be pleased to examine the contents of the present Application and after examining the same be pleased to declare the Deed of Guarantee dated 05/08/2023, 09/08/2023 and 16/08/2023 executed by and between the Corporate Debtor and various 3rd parties as preferential, undervalued, extortionate and fraudulent transaction hit by various provisions of IBC 2016;

(g) Pending the hearing and final disposal of the present Application, this Hon'ble Tribunal be pleased to stay the further process of CIRP of the Corporate Debtor;

(h) Pending the hearing and final disposal of the present Application, this Hon'ble Tribunal be pleased to restrain the Resolution Professional to conduct any further meetings of COC and

Company Appeal (AT) (Insolvency) No.1664 of 2024 17 allowing the 3rd parties as mentioned in Paragraph 6 to attend the same;

(i) Interim and ad-interim in terms of prayer clause (a) to (h) kindly be granted;

(j) Any other such order/ directions as this Hon'ble Tribunal may deem fit and proper in the facts and circumstances of the case."

12. Before we proceed further, it is relevant to notice certain findings, which

have been returned by the Adjudicating Authority in the impugned order while

allowing IA No.2142 of 2023. It is necessary to extract various reasons given

by the Adjudicating Authority for allowing the Application. We need to briefly

notice the various reasons given by the Adjudicating Authority in the

impugned order. While noticing the reasons, we shall be extracting the

various findings as reflected in the order, which are contained in paragraphs

71, 72, 73, 75, 76, 78 and 81. The reasons given by Adjudicating Authority

are as follows:

(i) "71. ... It is pertinent to take note that the advance copy of the CP 52 of 2023 was served upon the Corporate Debtor. It is after the service of this advance copy, the Respondent CD got into action and all these Loan Agreement and Deed of Guarantees cum Indemnity Agreement came into existence. The CP was served upon the CD on 4th July 2022. The execution of Deed of Guarantees cum Indemnity Agreement with R2 to R4 are dated 5.08.2022, 9.08.2022, and 16.08.2022 respectively. It deserves to be appreciated that all these documents were executed after the service of the petition upon the CD. This material fact itself is sufficient to cast doubt on intent of executing these documents and also intent of the CD. The RP relying upon these Deed of

Company Appeal (AT) (Insolvency) No.1664 of 2024 18 Guarantees cum Indemnity Agreement have admitted the claims of the R2 to R4 as Unsecured Financial Creditors. It is observed that not only did these documents come into existence after the advance service of CP No. 52 of 2023 to the CD, but these documents were also executed against the loan agreement/ sanction letter with the Applicant Bank and without their prior consent. ..."

(ii) "71. ...Additionally, this Tribunal cannot overlook the fact that the CD, was declared an NPA on 31.12.2019, and it could not legally execute any Deed of Guarantees cum Indemnity Agreement. This act on the part of the CD is not only inappropriate but also irregular conduct..."

(iii) "71. ... This Tribunal is constrained to state that the RP in this case has failed to conduct himself in a fair and unbiased manner...."

In paragraph 73, following findings have been returned:

(iv) "73. ...Here it is important to take note that Respondent No.2's claim is admitted of Rs.1,95,28,11,699/- against the actual disbursement of nearly Rs.19,71,24,699/-. The fact of actual disbursement is of merely Rs. 19 crores is not disputed by either of the Respondents and or the RP and it is evident from the FORM C'..."

In paragraph 75 following findings have been returned:

(v) "75. Thus in the present case there is no disbursement of money by the SPVs/Private Respondent to the CD. The SPVs are not someone who are associated with the CD from the beginning rather they have been associated with the CD only after the contract having been assigned to the CD. Thus in view of the above stated judgement of the Hon'ble Supreme Court, these SPVs cannot be treated as Unsecured Financial Creditors of the

Company Appeal (AT) (Insolvency) No.1664 of 2024 19 CD. In fact, the amounts have been disbursed by the Contractors to the Respondent SPVs. Thus it is evident that there is no privity of contract between the R2 to R4 with CD. In fact, the amounts so invested/ disbursed by the contractors of the Respondents SPVs (R2 to R4) have already been received back by the said Contracts/Creditors in circular flow of money."

In paragraph 76, following findings have been returned:

(vi) "76. It is a common trade practice that the PWD contributes 60% towards the project cost while the SPVs contributes 40% in the Escrow Account. As per the Escrow Account maintained by the Applicant Bank, against total amount of Rs.10,95,000/- credited from the period between August, 2022 till January 2023, an amount of Rs.19,73,11,473/- has been paid to R2 from the escrow account maintained by the Applicant Bank. Thus, 19 crores which is disbursed is actually received back by the Respondent No.2"

In paragraph 77, following findings have been returned:

(vii) "77. ....It deserves appreciation that the said Respondents have referred themselves (in documents executed between CD and R2 to R4) as Contractors. The Contractors by no means can be referred to as Financial Creditors but Operational Creditors. The MOU/ Agreement dated 18.06.2022 executed between CD and R2 to R4 clearly refer and define R2 to R4 as "EPC Contractor".

The relevant paras are reproduced as under For R2

AND M/S. SARATVAM CREATORS (M/s. SC) a Partnership Firm registered under the provision of the Indian Partnership Act 1932 having its registered office at Audumber App., Plot No. 57, Surendra Nagar, Nagpur, Maharashtra- 440015

Company Appeal (AT) (Insolvency) No.1664 of 2024 20 Hereinafter referred to as EPC Contractor on the SECOND PART which expression shall mean and include the firm, all its Present and Future Partners their heir successors legal representative executors administrative and assignees as of the other Party.

For R3

AND M/S. SPONDERE STRUCTURES (M/s. SS) a

Partnership Firm registered under the provision of the Indian Partnership Act 1932 having its registered office at Flat No. Saisurbhi Apartments, Hill Top Layout, Ambazari, Shankar Nagar, Nagpur, Maharashtra440015

Hereinafter referred to as EPC Contractor on the SECOND PART which expression shall mean and include the firm, all its Present and Future Partners their heir successors legal representative executors administrative and assignees as of the other Party.

Thus on the perusal of the above clauses it is established that R2 to R4 comes within the ambit of Operational Creditors and not unsecured Financial Creditors. Hence R2 to R4 be treated as Operational Creditors."

In paragraph 79, following findings have been returned:

(viii) "79. Further the Tribunal finds merit in the applicant's concerns regarding the R2 to R4 being related parties to CD. It is to be noted that M/s. Saratvam Creators has 3 partners namely Mr. Anand Deshmukh, Mr. Vilas Rathod, and Mr. Anil Sawarkar.

These alleged Partners are related Party. Mr. Anil Sawarkar is related to the Corporate Debtor since the year 2018. He stood as "Guarantor" for the loans availed by CD from "Pusad Urban Cooperative Bank Limited" at Nagpur. As, the CD defaulted in

Company Appeal (AT) (Insolvency) No.1664 of 2024 21 repayment of its loans, the applicant Bank addressed a Notice dated 02/07/2021 to Corporate Debtor and marked the same to Mr. Anil Sawarkar. Further, even the Auction Notice issued by the applicant Bank clearly mentions the name of Mr. Anil Sawarkar as the Guarantor and related to CD. In addition, as per the submissions of the Applicant Bank that apart from other financial transactions/dealings between the CD and Mr. Anil Sawarkar, he has also provided certain collaterals for the loans availed by CD in the ordinary course of business. Thus, there is a deep entanglement between R2 and the CD. Thus they are related to each other. Mr. Anand Deshmukh is in fact, the Electrical Contractor of CD for its various Projects like Metro Project, HAM Project, etc. and monies have been received by him from time to time from the Escrow Account of the CD maintained by the Applicant Bank for the works carried out by him as a Contractor for the CD."

13. The above are the reasons, which have been noted by the Adjudicating

Authority for allowing prayer (a) and (b) of the Application.

14. The first submission, which was advanced by the learned Counsel for

the Appellant is that findings of the Adjudicating Authority on the record to

hold the Appellant as 'related party' are not sustainable, since from the facts

and findings as returned in paragraph 79 of the judgment, the ingredients of

Section 5, sub-section (24) are not met. Shri Ramji Srinivasan submits that

as per the law laid down by the Hon'ble Supreme Court in Phoenix ARC (P)

Ltd. vs. Spade Financial Services Ltd. - (2021) 3 SCC 475, the related party

has to be in praesenti only in order to attract the bar of becoming Member of

the CoC. The three findings in paragraph 79 of the impugned order, it is

Company Appeal (AT) (Insolvency) No.1664 of 2024 22 submitted that the Adjudicating Authority has recorded the Appellant as a

related party (i) being a 'guarantor'; (ii) being a 'Electrical Contractor' for other

project; and (iii) having received money by it from time to time from the Escrow

Account of the Corporate Debtor. It is submitted that the above factors are

totally alien to the concept of 'related party' and would not constitute any such

relationship as understood in law. We have perused the findings recorded by

the Adjudicating Authority in paragraph 79, the Adjudicating Authority in the

impugned order has not spelt as to under which sub-clause of Section 5, sub-

section (24), the Appellant is covered and can be held to be a 'related party'.

The Adjudicating Authority's observation that Mr. Anil Sawarkar is related to

the Corporate Debtor since the year 2018 and stood 'Guarantor' for the loan

availed by the Corporate Debtor from Pusad Urban Co-operative Bank Limited

at Nagpur, cannot be held to be a sufficient finding covering the Appellant

within the definition of related party. It is relevant to notice that Adjudicating

Authority by the impugned order has also directed for transaction audit

report. We, thus, are of the view that sufficient finding not being returned by

the Adjudicating Authority, holding the Appellant as 'related party', we need

to proceed to consider the Appeal on the premise that Appellant is not a

'related party'. However, after transaction audit report is received, there shall

be liberty to the parties to file fresh Application before the Adjudicating

Authority on the basis of materials brought on record with transaction audit

report regarding related party issue. We only clarify that our disapproval at

Company Appeal (AT) (Insolvency) No.1664 of 2024 23 this stage of the finding of the Adjudicating Authority with regard to Appellant

being a 'related party' shall not come in the way of the Adjudicating Authority

to consider afresh the issue of 'related party' after the transaction audit report

is received.

15. We have noticed the sequence of events that Corporate Debtor was

declared NPA on 31.12.2019 and advance copy of Application was served on

Corporate Debtor by the Bank of Maharashtra on 04.07.2022 and all

documents pertaining to loan transaction with Appellant and SPV as well as

Deed of Deed of Guarantee-cum-Indemnity executed on 05.08.2022. The

Loan Agreement dated 05.08.2022 has been brought on record in the Appeal

at page 118, where the Appellant is Lender, the SPV - Sudhir Constructions

Infraspace (Shegaon Palkhi Road) Pvt. Ltd. is Borrower and Corporate Debtor

- Sudhir Construction Infraspace Pvt. Ltd. mentioned as Guarantor/

Indemnifier. Clause (i), (ii) and (iii) of the Loan Agreement are as follows:

"1. The Borrower has taken up a project named Ham Am-85, Improvement to Roads for Shegaon Palkhi Marg in Akola, Washim And Buldhana District joining to (Shegaon Nagzari Paras Nimkarda Gaigaon Akola Goregaon Mazoad Wadegaon Medshi Bramhanwada Dava Rasiod to Loni & Bibi to Kingaon Jattu) Length 82.00 Km (System No. 79181) (Lumprum Tender) on Hybrid Annuity Basis (hereinafter referred to as the said Project).

2. The Lender hereby has lent and agrees to lend an amount of up to Rs.195.00 Crores (Rupees One Hundred Ninety Five Crores Only) (hereinafter referred to as the "Loan Amount") to the Borrower from time

Company Appeal (AT) (Insolvency) No.1664 of 2024 24 to time as and when required, subject to certain mutually decided terms and conditions as contained herein

3. The Guarantor/Indemnifier has undertaken Guarantee and Indemnity to make good the loss of Lender along with the interest if the borrower fails to repay such amount to the Lender."

16. A separate Deed of Guarantee-cum-Indemnity was also entered on the

same date, i.e., 05.08.2022 in favour of the Lender.

17. Now, we come to the claim, which was filed by the Appellant before the

IRP, which is filed at Annexure A-9 in the Appeal. The claim was submitted

in Form-C dated 24.03.2023. Clauses 4, 5 and 6, which are relevant for this

case, are as follows:

"4. Total amount of Principal: Rs.195,00,00,000/- (Rupees One Hundred Ninety Five Crores Only) claim (including any interest as at Interest: Rs.28,11,699 (Rupees Twenty the insolvency Eight Lakhs Eleven Thousand Six Hundred commencement Ninety Nine Only).

date) Total Claim: Rs.195,28,11,699/- (Rupees One Hundred Ninety Five Crores Twenty Eight Lakhs Eleven Thousand Six Hundred Ninety Nine Only)

The particulars of claim and calculations of interest is attached as "Annexure C".

5. Details of Loan Agreement dated 05.08.2022 -

Annexure A and Guarantee Cum documents by Indemnity Dated 05.08.2022 - Annexure reference to which B.

Company Appeal (AT) (Insolvency) No.1664 of 2024 25 the debt can be substantiated

6. Details of how and SARATVAM CREATORS, a partnership firm when debt registered under the provisions of the incurred: Indian Partnership Act, 1932 having its registered office at Audumber App. Plot No. 57, Surendra Nagar, Nagpur Maharashtra 440015 has granted and committed to grant loan to the subsidiary of the Corporate Debtor namely Sudhir Constructions Infraspace (Shegaonpalkhi Road) Private Limited having CIN No. U45201MH2018PTC318026 and registered office at Mulik Complex Tenament, 17 No. Wardha Road NAGPUR Nagpur MH 440015.

We, Saratvam Creators are fully committed to disburse the total amount of loan as and when required by the Borrower (aforesaid Subsidiary company) for and upto the completion of project and we are also committed for existing and to the future liabilities of the project, if any.

The Corporate Debtor has given Guarantee-

cum- Indemnity to the SARATVAM CREATORS against the loan granted and agreed to grant to Sudhir Constructions Infraspace (Shegaon palkhi Road) Private Limited. The Loan Agreement is attached as Annexure-A to this Form and The Deed of

Company Appeal (AT) (Insolvency) No.1664 of 2024 26 Guarantee-cum-Indemnification is attached as Annexure-B to the Form.

The aforesaid loan is secured by Hypothecation of Receivables of the subsidiary company - Sudhir Constructions Infraspace (Shegaon palkhi Road Private Limited)

The Corporate Debtor has given Corporate Guarantee by Guarantee cum Indemnity dated 05.08.2022 at Annexure B above in favor of the Subsidiary as security for the repayment of all loan facilities as mentioned above."

18. Another documents, which is part of claim Form, is Annexure-C, which

is calculation of interest, which is as follows:

"Saratvam Creators Annexure-C Calculations of Interest

Total Claim Borrower Lender Amount Interest Amount Sudhir Construction Infraspace Pvt. Ltd.

(Shegaon Palkhi Road) Pvt. Ltd. Saratvam Creators 1,95,00,00,000 28,11,699 1,95,28,11,699

Total 1,95,00,00,000 28,11,699 1,95,28,11,699

Interest Rate 15% Calculation of interest Date 03-03-2023

Company Appeal (AT) (Insolvency) No.1664 of 2024 27 Date Amount no. of days Interest 02-01-2023 1,50,00,000 60 3,69,863 05-01-2023 1,75,00,000 57 4,09,932 16-01-2023 4,70,00,000 46 8,88,493 18-01-2023 3,00,00,000 44 5,42,466 09-02-2023 4,00,00,000 22 3,61,644 14-02-2023 2,90,00,000 17 2,02,603 17-02-2023 25,00,000 14 14,384 20-02-2023 1,50,000 11 678 27-02-2023 1,31,63,000 4 21,638

Total 19,43,13,000 28,11,699"

19. When we look into Annexure-C, amount mentioned as Rs.195 crores

and interest mentioned as Rs.28,11,699/- and the calculation of interest is on

different amount from 01.01.2023 to 27.02.2023 totaling to

Rs.19,43,13,000/-. The chart of calculations of interest which is at Annexure-

C itself indicate that interest is being charged on the amount, which is

Rs.19,43,13,000/-, which is claimed to be disbursed on different dates.

Column 6 of the claim form contained following submission:

"6. ....Saratvam Creators are fully committed to disburse the total amount of loan as and when required by the Borrower (aforesaid Subsidiary company) for and upto the completion of project..."

20. At this stage, we may consider the submission of the Appellant that

disbursement of the whole loan money is not sine qua non to qualify as a

Financial Creditor. The 'claim' is defined in Section 3, sub-section (6), in

following words:

Company Appeal (AT) (Insolvency) No.1664 of 2024 28 "3(6) "claim" means -

(a) a right to payment, whether or not such right is reduced to judgment, fixed, disputed, undisputed, legal, equitable, secured, or unsecured;

(b) right to remedy for breach of contract under any law for the time being in force, if such breach gives rise to a right to payment, whether or not such right is reduced to judgment, fixed, matured, unmatured, disputed, undisputed, secured or unsecured;"

21. Section 5, sub-section (7) defines 'financial creditor' in following words:

"(7) "financial creditor" means any person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred to;"

22. The Financial Creditor, thus, is a person to whom financial debt is owed.

The word 'debt' is defined in Section 3, sub-section (11), which is as follows:

"(11) "debt" means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt;"

23. Thus, there can be 'financial debt' only when liability or obligation in

respect of a claim, which is due from any person. The whole claim of financial

debt by the Appellant is on the basis of Deed of Guarantee-cum-indemnity

dated 05.08.2022 executed by the Corporate Debtor. Clause 3 of Deed of

Guarantee-cum-Indemnity as extracted above contains undertaking of

Guarantor to make good the loss of lender, if the borrower fails to repay such

amount to lender. Thus, there can be no liability of Guarantor, if principal

borrower is not liable. We also need to notice the provisions of the Insolvency

and Bankruptcy Board of India (Insolvency Resolution Process for Corporate

Company Appeal (AT) (Insolvency) No.1664 of 2024 29 Persons) Regulations, 2016 (hereinafter referred to as the "CIRP

Regulations"). Regulation 8, which deals with claim by 'financial creditors

provides as follows:

"8. Claims by financial creditors.

(1) A person claiming to be a 32[financial creditor, other than a financial creditor belonging to a class of creditors, shall submit claim with proof] to the interim resolution professional in electronic form in Form C of the[Schedule-I ]:

Provided that such person may submit supplementary documents or clarifications in support of the claim before the constitution of the committee.

(2) The existence of debt due to the financial creditor may be proved on the basis of -

(a) the records available with an information utility, if any; or

(b) other relevant documents, including -

(i) a financial contract supported by financial statements as evidence of the debt;

(ii) a record evidencing that the amounts committed by the financial creditor to the corporate debtor under a facility has been drawn by the corporate debtor;

(iii) financial statements showing that the debt has not been 33[paid]; or

(iv) an order of a court or tribunal that has adjudicated upon the non-payment of a debt, if any."

24. When we look into Regulation 8, sub-regulation (2), which provides that

existence of debt due to the Financial Creditor may be proved on the basis of

- (a) the records available with an information utility, if any, or (b) other

relevant documents, including the record evidencing that the amounts

Company Appeal (AT) (Insolvency) No.1664 of 2024 30 committed by the Financial Creditor to the Corporate Debtor under a facility

has been drawn by the Corporate Debtor. Further, sub-regulation (b) (i) refers

to a financial contract supported by financial statements as evidence of the

debt. Thus, financial statements need to be brought on record evidencing that

amounts committed by Financial Creditor to the Corporate Debtor under a

facility has been drawn by the Corporate Debtor, are the statutory prescription

for proving the existence of debt. The debt shall become due only when there

is liability or obligation in respect of a claim, which is due from any person.

Thus, unless the liability or obligation becomes due on the Corporate Debtor,

who is liable to pay the debt to the Appellant, it cannot be said that the amount

of Rs.195 crores for which facility was sanctioned has become due without

disbursement of Rs.195 crores, so as to enable the RP to admit the claim of

Rs.195 crores submitted by the Appellant. We, thus, are not persuaded to

accept the submission of the Appellant that disbursement of the whole loan

money is not a sine qua non to qualify as a Financial Creditor. The liability of

the guarantor has to be the same as of the principal borrower. When Financial

Creditor has not disbursed the amount of Rs.195 crores to the principal

borrower, we fail to see that how against the guarantor, the claim of Rs.195

crores can be admitted.

25. The above statement clearly indicate that there is no statement that

amount of Rs.195 crores have been disbursed, rather the Annexure-C, which

is part of Form-C, itself makes it clear that amount disbursed is only

Company Appeal (AT) (Insolvency) No.1664 of 2024 31 Rs.19,43,13,000 and Adjudicating Authority in paragraph 73, as extracted

above has returned a finding that the "The fact of actual disbursement is of

merely of Rs.19 crores is not disputed by either of the Respondents and or the

RP and it is evident from the FORM C". When actual disbursement claimed in

Form-C by the Appellant was only Rs.19,43,13,000/-, on which interest was

also claimed, we fail to see on what basis RP admitted claim of

Rs.195,28,11,699/-. The admission of claim of Rs.195,28,11,699/- on the

face of it unsustainable and is a callous act on the part of the RP. This, we

are observing without entering any other aspect, which has been found by the

Adjudicating Authority with regard to claim of the Appellant. On the very face

of claim in Form-C, the admission of claim of Rs.195,28,11,699 was

unsustainable and Adjudicating Authority has not committed any error in

ousting the Appellant from the CoC.

26. We have further noticed that from the Escrow Account, which was

maintained with the Bank of Maharashtra, which contained contribution of

PWD of 60% and 40% contribution by SPV within the period August 2022 to

January 2023, an amount of Rs.19,73,11,473/- has been paid to the

Appellant. Whereas amount credited in Escrow Account was only

Rs.10,95,00,000/- as per the finding returned in paragraph 76 by the

Adjudicating Authority. The details of the Escrow Account was filed by the

Bank of Maharashtra before the Adjudicating Authority as part of its

Application, which has also been brought on the record along with additional

Company Appeal (AT) (Insolvency) No.1664 of 2024 32 affidavit filed by the Bank of Maharashtra. Respondent No.2 has received

back more amount than the amount it disbursed to the SPV. The claim of the

financial debt of the Appellant raises questions and doubts. The present is a

case where disbursement as claimed by the Appellant is not to the Corporate

Debtor, but to the SPV and the claim was filed by the Appellant on the basis

of Loan Agreement and Deed of Guarantee-cum-Indemnity.

27. The Hon'ble Supreme Court in Anuj Jain IRP for J.P. Infra vs. Axis

Bank Ltd. and Ors. - (2020) 8 SCC 401 had occasion to consider nature of

financial debt, which need to be proved within the meaning of Section 5, sub-

section (8) of the IBC. Various ingredients of the financial debt, which required

to be proved for holding a creditor as 'Financial Creditor' has been examined

and delineated by the Hon'ble Supreme Court. The Hon'ble Supreme Court in

Anuj Jain's case has also referred to and relied earlier judgment of Swiss

Ribbons Pvt. Ltd. and anr. vs. Union of India and Ors. - (2019) 4 SCC 17.

The relevant paragraph of the judgment in Swiss Ribbons has been quoted by

the Hon'ble Supreme Court in Anuj Jain's case. In paragraph 42.1 and 42.2,

the Hon'ble Supreme Court in Anuj Jain's case has extracted the relevant

declaration of law in Swiss Ribbons's case, which are as follows:

"42.1. The broad features of the expressions used in Sections 5(7) and 5(8) of the Code in defining the terms "financial creditor" and "financial debt" were indicated by this Court in Swiss Ribbons [Swiss Ribbons (P) Ltd. v. Union of India, (2019) 4 SCC 17] in the following : (SCC p. 64, para 42)

Company Appeal (AT) (Insolvency) No.1664 of 2024 33 "42. A perusal of the definition of "financial creditor" and "financial debt" makes it clear that a financial debt is a debt together with interest, if any, which is disbursed against the consideration for time value of money. It may further be money that is borrowed or raised in any of the manners prescribed in Section 5(8) or otherwise, as Section 5(8) is an inclusive definition. On the other hand, an "operational debt" would include a claim in respect of the provision of goods or services, including employment, or a debt in respect of payment of dues arising under any law and payable to the Government or any local authority."

42.2. The unique position assigned to a "financial creditor", who plays a crucial role in insolvency resolution process as against the role of other creditors, has been extensively explained by this Court in Swiss Ribbons [Swiss Ribbons (P) Ltd. v. Union of India, (2019) 4 SCC 17] , albeit in the context of its differentiation with the category of "operational creditor", in the following : (SCC pp. 68-69 & 83-84, paras 50-51 & 75)

"50. According to us, it is clear that most financial creditors, particularly banks and financial institutions, are secured creditors whereas most operational creditors are unsecured, payments for goods and services as well as payments to workers not being secured by mortgaged documents and the like. The distinction between secured and unsecured creditors is a distinction which has obtained since the earliest of the Companies Acts both in the United Kingdom and in this country. Apart from the above, the nature of loan agreements with financial creditors is different from contracts with operational creditors for supplying goods and services. Financial creditors generally lend finance on a term loan or for working capital that enables the corporate debtor to either set up and/or operate its business. On the other hand, contracts with operational creditors are relatable to supply of goods and services in the operation of business. Financial contracts generally involve large sums of money. By way of contrast, operational contracts have dues whose quantum is generally less. In the running of a business, operational creditors can be many as opposed to financial

Company Appeal (AT) (Insolvency) No.1664 of 2024 34 creditors, who lend finance for the set-up or working of business. Also, financial creditors have specified repayment schedules, and defaults entitle financial creditors to recall a loan in totality. Contracts with operational creditors do not have any such stipulations. Also, the forum in which dispute resolution takes place is completely different. Contracts with operational creditors can and do have arbitration clauses where dispute resolution is done privately. Operational debts also tend to be recurring in nature and the possibility of genuine disputes in case of operational debts is much higher when compared to financial debts. A simple example will suffice. Goods that are supplied may be substandard. Services that are provided may be substandard. Goods may not have been supplied at all. All these qua operational debts are matters to be proved in arbitration or in the courts of law. On the other hand, financial debts made to banks and financial institutions are well documented and defaults made are easily verifiable.

51. Most importantly, financial creditors are, from the very beginning, involved with assessing the viability of the corporate debtor. They can, and therefore do, engage in restructuring of the loan as well as reorganisation of the corporate debtor's business when there is financial stress, which are things operational creditors do not and cannot do. Thus, preserving the corporate debtor as a going concern, while ensuring maximum recovery for all creditors being the objective of the Code, financial creditors are clearly different from operational creditors and therefore, there is obviously an intelligible differentia between the two which has a direct relation to the objects sought to be achieved by the Code.

* * *

75. Since the financial creditors are in the business of moneylending, banks and financial institutions are best equipped to assess viability and feasibility of the business of the corporate debtor. Even at the time of granting loans, these banks and financial institutions undertake a detailed market study which includes a techno-economic valuation

Company Appeal (AT) (Insolvency) No.1664 of 2024 35 report, evaluation of business, financial projection, etc. Since this detailed study has already been undertaken before sanctioning a loan, and since financial creditors have trained employees to assess viability and feasibility, they are in a good position to evaluate the contents of a resolution plan. On the other hand, operational creditors, who provide goods and services, are involved only in recovering amounts that are paid for such goods and services, and are typically unable to assess viability and feasibility of business. The BLRC Report, already quoted above, makes this abundantly clear."

(emphasis supplied)"

28. In paragraph 42.3 of Anuj Jain's case the Hon'ble Supreme Court

noticed the important features as was highlighted in the Swiss Ribbons that

the Financial Creditor is, from the very beginning, involved in assessing the

viability of the Corporate Debtor who can, and indeed, engage in restructuring

of the loan as well as reorganization of the Corporate Debtor's business where

there is financial stress. It was held that Financial Creditor is not only about

in terrorem clauses for repayment of dues, it has the unique parental and

nursing roles too. In paragraph 42.3, following was held:

"42.3. The enunciation aforementioned illuminates the reasons as to why at all a financial creditor is conferred with a major, rather pivotal, role in the processes contemplated by Part II of the Code. It is the financial creditor who lends finance on a term loan or for working capital that enables the corporate debtor to set up and/or operate its business; and who has specified repayment schedules with default consequences. The most important feature, as this Court has said, is that a financial creditor is, from the very beginning, involved in assessing the viability of the corporate debtor who can, and indeed, engage in restructuring of the loan as well as reorganisation of the corporate debtor's business when there is financial stress. Hence, a financial creditor is not

Company Appeal (AT) (Insolvency) No.1664 of 2024 36 only about in terrorem clauses for repayment of dues; it has the unique parental and nursing roles too. In short, the financial creditor is the one whose stakes are intrinsically interwoven with the well-being of the corporate debtor."

29. Further, the Hon'ble Supreme Court in paragraph 50, reiterated the

enunciation as made by Hon'ble Supreme Court in Swiss Ribbons. In

paragraph 50, following observation was made:

"50. A conjoint reading of the statutory provisions with the enunciation of this Court in Swiss Ribbons [Swiss Ribbons (P) Ltd. v. Union of India, (2019) 4 SCC 17] , leaves nothing to doubt that in the scheme of the IBC, what is intended by the expression "financial creditor" is a person who has direct engagement in the functioning of the corporate debtor; who is involved right from the beginning while assessing the viability of the corporate debtor; who would engage in restructuring of the loan as well as in reorganisation of the corporate debtor's business when there is financial stress. In other words, the financial creditor, by its own direct involvement in a functional existence of corporate debtor, acquires unique position, who could be entrusted with the task of ensuring the sustenance and growth of the corporate debtor, akin to that of a guardian. In the context of insolvency resolution process, this class of stakeholders, namely, financial creditors, is entrusted by the legislature with such a role that it would look forward to ensure that the corporate debtor is rejuvenated and gets back to its wheels with reasonable capacity of repaying its debts and to attend on its other obligations. Protection of the rights of all other stakeholders, including other creditors, would obviously be concomitant of such resurgence of the corporate debtor."

30. One of the submission, which has been advanced by learned Counsel

for the Appellant that in any view of the matter, the Appellant is a 'secured

creditor'. The learned Counsel for the Appellant has relied on Clauses 5 and

6 of the Agreement dated 05.08.2024, which are as follows:

Company Appeal (AT) (Insolvency) No.1664 of 2024 37 "5. SECURITY

This loan shall be secured by way of fire and exclusive charge by way for Hypothecation on the Borrower's entire present and future receivables of any kind from the said Project, to the extent along with applicable interest and default interest as defined in the agreement.

6. GUARANTEE / INDEMNITY:

6.1 The Guarantor / Indemnifier unconditionally and irrevocably agree and undertakes to repay the amount granted by the Lender to the Borrower as and when demanded by Lender without any delay, demur or objection. ....(see the whole provision)

31. The learned Counsel for the Appellant in support of his submission has

also relied on judgment of the Hon'ble Supreme Court in Paschimanchal

Vidyut Vitran Nigam Ltd. (supra). In the above case, Paschimanchal Vidyut

Vitran Nigam Ltd. ("PVVNL") has got assets of Corporate Debtor attached by

District Magistrate and Tahsildar against the outstanding electricity dues of

the PVVNL. In the liquidation proceedings, the Liquidator filed an Application

seeking a direction to the District Magistrate and Tahsildar to release the

property from attachment, to enable its sale and after realization of value for

distributing the proceeds in accordance with the provisions of the IBC. The

Application was allowed by the NCLT and Appeal filed by PVVNL before this

Tribunal was also dismissed. Challenging the aforesaid order, the Appeal was

filed in the Hon'ble Supreme Court and the Hon'ble Supreme Court in

paragraph 1 and 2 of the judgment noticed following:

"1. The appellant Paschimanchal Vidyut Vitran Nigam Ltd. (hereinafter "PVVNL") is aggrieved by an order [Paschimanchal Vidyut Vitran Nigam

Company Appeal (AT) (Insolvency) No.1664 of 2024 38 Ltd. v. Raman Ispat (P) Ltd., 2019 SCC OnLine NCLAT 883] of the National Company Law Appellate Tribunal (hereinafter "NCLAT") which rejected its appeal against an order [Raman Ispat (P) Ltd. v. Paschimanchal Vidyut Vitran Nigam Ltd., 2018 SCC OnLine NCLT 25732] of the National Company Law Tribunal, Allahabad (hereinafter "NCLT"/"adjudicating authority"), which allowed an application directing the District Magistrate and Tahsildar, Muzaffarnagar to immediately release property (which was previously attached at the request of the appellant) in favour of the liquidator of the respondent Raman Ispat Pvt. Ltd. (hereinafter "corporate debtor") for enabling its sale, and after realisation of its value, for distributing the proceeds in accordance with the provisions of the Insolvency and Bankruptcy Code, 2016 (hereinafter "IBC"/"Code").

2. The parties had entered into an agreement on 11-2-2010 for supply of electricity. Clause 5 of the agreement provided that:

"The outstanding dues will be a charge on the assets of the company. Before sale is made, the outstanding dues will be cleared and, (in) the alternative the deed to agreements/sale will specifically mention the outstanding dues and the method of its payment.""

32. In the above case there was categorical finding by NCLT and NCLAT that

PVVNL was a 'secured creditor'. Whereas in the present case, the issue that

the Appellant is a 'secured creditor' does not appear to have neither raised nor

gone into by the Adjudicating Authority. We, thus, are of the view that ends

of justice will be served in giving liberty to the Appellant to file a fresh

Application seeking its claim to be recognized as a 'secured creditor'.

33. Looking to the facts and sequence of event, the Adjudicating Authority

has rightly directed for forensic transaction auditor to look into the

Company Appeal (AT) (Insolvency) No.1664 of 2024 39 transactions, which were claimed by the Appellant on the basis of Loan

Agreement and Deed of Guarantee-cum-Indemnity dated 05.08.2022.

34. We have already noticed that in the claim Form, which was filed by the

Appellant before the RP, disbursement was claimed for an amount of

Rs.19,43,13,000/-. We have already noticed above that from the Escrow

Account, maintained by the Bank of Maharashtra, the Appellant received the

amount of Rs.19,73,11,473/-. As noted above, the initial Agreement between

the Appellant and the SPV dated 18.06.2022 was as EPC Contractor, where

as EPC Contractor the Appellant had to carry out the contract and he was also

obliged to arrange for finances. It was only subsequently on 05.08.2022, the

Loan Agreement was entered by the Appellant, SPV and the Corporate Debtor.

In view of the fact that Adjudicating Authority has directed for transaction

audit report, we are of the view that after receipt of the transaction audit

report, the Appellant be given liberty to file a fresh Application for its claim as

secured creditor/ Financial Creditor, which Application need to be considered

afresh on the basis of materials, which may come on record in transaction

audit report. The transaction audit report, definitely will throw considerable

light on the nature of transaction, which is claimed to be entered on

05.08.2022 by the Corporate Debtor, SPV and the lender - Appellant.

35. We may also notice few cases, which have been relied by Respondent

No.7 in is written submissions. The first case relied by Respondent No.7 is

judgment of United States Court of Appeals for the Ninth Circuit in Cliffford

Company Appeal (AT) (Insolvency) No.1664 of 2024 40 Tindall and Ors. Vs. First Solar Incorporated and Ors. (2018) SCC OnLine

US CA 9C 123. The above Appeal was filed by Plaintiff for dismissal of their

shareholder derivative action under Federal Rule of Civil Procedure 23.1. We

fail to see that how the said judgment has any relevance in the present case

arising out of insolvency proceedings, which is covered by the IBC and

Regulations framed thereunder.

36. The second case relied by Respondent No.7 is judgment of Hon'ble

Supreme Court of Canada in Douglas Kerr, S. Grace Kerr vs. Danier Leather

Inc., (2007) SCC OnLine Can SC 44. The question, which was raised in the

said case, has been noticed in paragraph 1 of the judgment, which is as

follows:

"1. This appeal raises questions about the continuous disclosure obligations of an issuer seeking to sell its shares to the public by a prospectus governed by the Ontario Securities Act, R.S.O. 1990, c. S.5. Purchasers under a prospectus are given a statutory right of action if the prospectus or any amendment contains a misrepresentation against the issuer and officers of the issuer who signed the prospectus."

37. We fail to see that how the said case has any relevance in the present

case.

38. The third case relied by learned Counsel for Respondent No.7 is

judgment of Bombay High Court in (2014) 4(5) Mh. L.J. in royal Power

turnkey Implements Pvt. Ltd. vs. Maharashtra Industrial Development

Company Appeal (AT) (Insolvency) No.1664 of 2024 41 Corporation, Mumbai. The above was a case where writ petition was filed by

a Company praying for quashing and setting aside the Tender Notice

published by Maharashtra Industrial Development Corporation, Mumbai.

Paragraph 2 of the judgment, notices as follows:

"2. By the instant petition, the petitioner, which is a private limited Company, is praying for quashing and setting aside the tender notice No. 31/2013-14, published by the respondent No. 1 - Maharashtra Industrial Development Corporation, Mumbai (For short, "the MIDC"), and for declaring that the action of the respondent No. 1 in inviting fresh tenders for the work which was already tendered by it, is contrary to the principles of natural justice and fair play."

39. We again fail to see any relevance of the said judgment in the facts of

the present case.

40. Learned Counsel for the Bank of Maharashtra has also relied on

Sanction Letter dated 04.04.2018, filed along with the Additional Affidavit,

under which the Corporate Debtor was obliged to obtain NOC from the Bank

for creating any charge or an encumbrance over its undertaking. The Deed of

Guarantee-cum-Indemnity dated 05.08.2022 was executed by the Corporate

Debtor without taking any no-objection from the Bank. Further there is no

contemporaneous letter of Corporate Debtor of even informing the Bank of the

Deed of Guarantee-cum-Indemnity dated 05.08.2022.

41. In view of foregoing discussions and our conclusions, we do not find any

ground to interfere with the impugned order passed in the present Appeal.

However, in view of the fact that Adjudicating Authority has directed for

Company Appeal (AT) (Insolvency) No.1664 of 2024 42 transaction audit report, which report was to be received within 60 days, in

the facts of present case, we are of the view that ends of justice will be served

in giving liberty to both the parties to file fresh Application with regard to:

(A) Whether any material comes in the light of transaction audit

report on the basis of which Appellant can be held to be 'related

party'?

(B) Whether on the basis of transaction audit report, there is any

ground by the Appellant to claim itself as Financial Creditor/

secured creditor?

42. We, thus, dispose of this Appeal in following manner:

(1) The order dated 02.08.2024 passed by National Company Law

Tribunal in IA No.2142 of 2023 is not interfered with.

(2) On the basis of transaction audit report, it shall be open for the

parties to make fresh Application before the Adjudicating

Authority with regard to status of the Appellant as 'related party'.

(3) On the basis of transaction audit report, specially with regard to

Agreements dated 05.08.2022, the Appellant will be at liberty to

file fresh Application to accept his claim as Financial Creditor/

secured creditor.

Company Appeal (AT) (Insolvency) No.1664 of 2024 43

43. We further clarify that while considering the Applications, with regard

to which liberty has been granted as above, the observations made by

Adjudicating Authority in order dated 02.08.2024, shall not come in the way

of fresh consideration. The parties shall bear their own costs.

[Justice Ashok Bhushan] Chairperson

[Mr. Barun Mitra] Member (Technical)

[Arun Baroka] Member (Technical)

NEW DELHI

26th September, 2024

Ashwani

Company Appeal (AT) (Insolvency) No.1664 of 2024 44