PHOENIX ARC PVT. LTD. versus KETULBHAI RAMUBHAI PATEL

PHOENIX ARC PVT. LTD. versus KETULBHAI RAMUBHAI PATEL

The appellant is not a financial creditor of the corporate debtor because the corporate debtor only provided a pledge of 40,160 shares as security and did not contract to perform the borrower’s promise or to discharge the borrower’s liability; a mere security interest/pledge does not convert the holder into a financial creditor under Sections 5(7) and 5(8) of the IBC, and the Resolution Professional's rejection of the claim was correct.

Parties
Appellant: Phoenix ARC Pvt. Ltd.; Respondent (interim Resolution Professional): Ketulbhai Ramubhai Patel; Corporate Debtor: Doshion Veolia Water Solutions Private Limited; Assignor / Original Lender: L&T Infrastructure Finance Company Limited; Borrower: Doshion Limited; Intervenor: Bank of Baroda
Jurisdiction
India
Judgment Date
03 February 2021
Procedural Posture
Civil Appeal Under Section 62 of the Insolvency and Bankruptcy Code, 2016 / Judgment (final Disposal)
Outcome
appeal dismissed
Legal Topics
Financial Creditor, Financial Debt, Pledge, Guarantee, Security Interest, Interpretation of Section 5(7) and 5(8) IBC, Role of Secured Creditors in CIRP
Insolvency and Bankruptcy Contract Law Company Law Securitisation and Security Interests Financial Creditor Financial Debt Pledge Guarantee +3 more

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Parties

Phoenix ARC Pvt. Ltd.

Appellant

Ketulbhai Ramubhai Patel

Respondent (interim Resolution Professional)

Doshion Veolia Water Solutions Private Limited

Corporate Debtor

L&T Infrastructure Finance Company Limited

Assignor / Original Lender

Doshion Limited

Borrower

Bank of Baroda

Intervenor

Procedural Posture

Civil Appeal Under Section 62 of the Insolvency and Bankruptcy Code, 2016 / Judgment (final Disposal)

Legal Issues

  1. 1 Whether appellant is a financial creditor of the corporate debtor under Section 5(7) and 5(8) of the Insolvency and Bankruptcy Code, 2016
  2. 2 Whether the pledge of shares and deed of undertaking constitute a contract of guarantee or indemnity under the Indian Contract Act, 1872 such that liability of the corporate debtor falls within Section 5(8)(i) IBC
  3. 3 Whether a person having only a security interest over assets of the corporate debtor can be treated as a financial creditor for purposes of CIRP

Ratio Decidendi

The appellant is not a financial creditor of the corporate debtor because the corporate debtor only provided a pledge of 40,160 shares as security and did not contract to perform the borrower’s promise or to discharge the borrower’s liability; a mere security interest/pledge does not convert the holder into a financial creditor under Sections 5(7) and 5(8) of the IBC, and the Resolution Professional's rejection of the claim was correct.

Court Disposition

appeal dismissed

Orders

  • Appeal dismissed
  • Order of the National Company Law Appellate Tribunal and the Adjudicating Authority (NCLT) upholding the Resolution Professional's decision is affirmed