NCLT rightly admitted CIRP plea against a corporate debtor who had pledged shares in favour of creditor against a loan

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  • Last Updated on 29 January, 2022

Corporate insolvency resolution process - Financial debt - Appellant was suspended director of corporate debtor

Case Details: Maitreya Doshi v. Anand Rathi Global Finance Ltd. - [2021] 133 421 (NCL-AT)

Judiciary and Counsel Details

    • Justice A.I.S. Cheema, Officating Chairperson and V. P. Singh, Technical Member
    • Krishnendu Datta, Sr. Adv., Ms. Pooja BatraMs. Dhanyashree JadejaAnkit Lohia and Manas Kotak, Advs. for the Appellant. 
    • Ms. Smriti ChuriwalPrateek SeksariaVishesh KalraJaiveer KantAnshula Grover, Advs. and Kanak Jani, IRP for the Respondent.

Facts of the Case

In the instant case, Mr Maitreya Doshi, (Hereinafter referred as “Appellant”) Suspended as Director of ‘M/s Doshi Holdings Pvt. Ltd.’ (Hereinafter referred as Corporate Debtor) filed an appeal against the order of Adjudicating Authority for admitting the application of ‘M/s Anand Rathi Global Finance Ltd’ (Hereinafter referred as Financial Creditor/Respondent) u/s 7 of the code and ordering initiation of CIRP of Corporate Debtor.

Appellant stated that the respondent had disbursed a loan to the M/s Premier Ltd. (Herein after referred as “P”) and the corporate debtor had pledged shares held by the corporate debtor in P in favour of the respondent.

The Appellant claims that there is no financial debt in existence against the Corporate Debtor as the disbursement was made to “P” and no amount was disbursed to the Corporate Debtor.

Appellant claimed that the respondent could not file its claim under section 7 of the code against the corporate debtor as the corporate debtor was merely a pledger of shares and it could not be said to be financial debt. Hence the Adjudicating Authority wrongly admitted the petition of the respondent the same was liable to be rejected.

The appellant claimed that in the loan-cum-pledge agreements although the corporate debtor had been referred to as ‘pledgor’, the intent of parties was clear that as far as the corporate debtor was concerned, its sole obligation under the loan-cum-pledge agreements was limited to only pledging shares held by it in ‘P’.


NCLAT observed that from loan-cum-pledge agreements it is clear that in addition to ‘P’ the present corporate debtor also had undertaken to repay the lender i.e. respondent. Further, it was also observed that the appellant signed this agreement on behalf of ‘P’ as well as separately for ‘Corporate Debtor’ as authorized signatory.

NCLAT further observed that the documents show that ‘P’ and ‘Corporate Debtors’ were co-borrowers and promised to pay back the loan with interest. Their liability to pay was joint and several liabilities.

NCLAT ordered that there was no bar in IBC to proceed against both the co-borrowers when the debts were outstanding. ‘Corporate Debtor’, in addition to stepping into the shoes of co-borrower, which is financial debt, additionally pledge shares. The liability invoked by the financial creditor was based on the corporate debtor being a co-borrower and not merely a pledgor. It was surprising to find that the appellant is denying liability on account of ‘Corporate Debtor’ when the appellant has signed joint documents after documents in favor of the respondent as authorized signatory for both the companies. The corporate debtor cannot be permitted to back out from the documents and promises made.

NCLAT ordered that the Adjudicating Authority rightly admitted the application under section 7. The appeal was to be dismissed.

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