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

Case Details: Maitreya Doshi v. Anand Rathi Global Finance Ltd. - [2021] 133 taxmann.com 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 Batra, Ms. Dhanyashree Jadeja, Ankit Lohia and Manas Kotak, Advs. for the Appellant. 
  • Ms. Smriti Churiwal, Prateek Seksaria, Vishesh Kalra, Jaiveer Kant, Anshula 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 Held

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.

Case Review

• • Anand Rathi Global Finance Ltd. v. Doshi Holdings (P.) Ltd. [2021] 133 taxmann.com 420 (NCLT – Mum.) (para 28) affirmed [See Annex]
  • Dr. Vishnu Kumar Agarwal v. Piramal Enterprises Ltd. [2019] 101 taxmann.com 464/151 SCL 555 (NCL-AT) (para 21) distinguished.

List of Cases Referred to

• • Dr. Vishnu Kumar Agarwal v. Piramal Enterprises Ltd. [2019] 101 taxmann.com 464/151 SCL 555 (NCL-AT) (para 5)
  • State Bank of India v. Athena Energy Ventures (P.) Ltd. [2021] 123 taxmann.com 82/164 SCL 293 (NCL-AT) (para 5)
  • Phoenix ARC (P.) Ltd. v. Ketulbhai Ramubhai Patel [2021] 124 taxmann.com 90/164 SCL 468 (SC) (para 5)
  • Anuj Jain v. Axis Bank Ltd. [2020] 114 taxmann.com 656 (SC) (para 5)
  • Lalit Kumar Jain v. Union of India [2021] 127 taxmann.com 368 (SC) (para 7)
  • State Bank of India v. V. Ramakrishnan [2018] 96 taxmann.com 271/149 SCL 107 (SC) (para 21)
  • R.M.M.S.T. Vyravan Chettiar v. Official Assignee of Madras 1932 SCC Online Mad. 54 (para 24)
  • M. Venkataramanaiah v. Margadarsi Chit Fund Ltd. 2009 (4) ALD 300 (para 24).