The NCLAT, Principal Bench New Delhi ruled that on the basis of documents executed between the parties, the Debenture holders have the right to receive payments after the issue of a Demand Certificate by the debenture Trustee and the Guarantors are jointly and severally liable to make such payment to the Debenture Holder.

The  Bench opined that the Debenture holders are the financial creditors who are owed a debt by the Corporate Debtor (“CD”) as CD as the Co-Obliger has guaranteed repayment of due amounts to the Debenture holders.

It was also ruled that the NCLT had examined the existence of debt and default before admitting Section 7 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “IBC”)  application and hence, the order did not require any interference.

Brief Facts:

The present appeal has been preferred against the judgement of NCTL vide which Section 7 petition of the IBC was allowed and Corporate Insolvency Resolution Process (“CIRP”) was commenced.

Brief Background:

The Appellant is the CD who gave corporate guarantee as a Co-Obliger in respect of a residential project. A joint development agreement was entered into between the Lake District Realty Private Limited (“LDRPL”) and Pune Kondhwa Realty Private Limited (“PKRPL”).

The Appellant contended that the project was delayed due to several reasons and that the Appellant was trying to complete the project earnestly. However, the Debenture holders (Respondents No. 1 and 2 ) filed a Section 7 application in 2019, which got admitted and hence, CIRP was commenced.

Contentions of the Appellant:

It was argued that the LDRPL is the issuer company and the Corporate Debtor was not the issuer of debentures, though it was a signatory to the Debenture Trust Deed (DTD). Further, Respondents No. 1 and 2 (Debenture holders) are not parties or signatories to the DTD.

It was submitted that a notification was issued by the Government of Maharashtra due to which the construction project had to be stopped. Later, the Supreme Court set aside that notification, but the construction plan had to be revised. It was argued that the delay was not in the hands of the Appellant.

It was further alleged that no jural relationship exists between the Appellant and the petitioning Financial Creditors as no contract or security documents were signed between them. Since there was no money flow between them, the debtor-creditor relationship also does not exist.

Contentions of Respondents No. 1 and 2 :

It was contended that the existence of debt and default is not disputed in the present case. It was alleged that a Debenture Holder is a financial creditor under Section 5(8)(c) of the IBC.

Further, it was argued that the statutory right under Section 7 of the IBC of the Debenture holders as the financial creditors cannot be curtailed by any instrument.

Observations of the Tribunal:

The issue to be adjudicated upon was whether the Debenture holders can be considered as Financial Creditors under the IBC.

It was noted that the DTD was entered into between various parties. After examining the documents on record, the Tribunal was of the opinion that Debenture holders have the right to receive payments after the issue of a Demand Certificate by the debenture Trustee and the Guarantors are jointly and severally liable to make such payment to the Debenture Holder.

Based on the documents signed between the parties, the Bench held that the Debenture holders are the financial creditors who are owed a debt by the CD as CD as the Co-Obliger has guaranteed repayment of due amounts to the Debenture holders.

It was also ruled that the NCLT had examined the existence of debt and default before admitting the Section 7 application and hence, the order did not require any interference.

The decision of the Tribunal:

Based on the aforementioned findings, the NCLAT upheld the NCLT’s order and dismissed the appeal accordingly.

Case Title: Mr. Zubin Bharucha v. Reliance AIF Management Company Ltd. & Ors.

Coram: Justice Rakesh Kumar (Judicial Member), Dr. Alok Srivastava (Technical Member)

Case No.: Company Appeal (AT)(Ins) No. 504 of 2021

Advocates for Appellant: Advs. Mr. Arun Srikumar, Ms. Neha Madan

Advocates for Respondents: Advs. Mr. Krishnndu Datta, Mr. Amit Agrawal, Ms. Radhika Yadav, Ms. Varsha Himatsingka, Ms. Sana Jain

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