Summary
Anand Rathi Global Finance lent Rs. 6 crore to Premier Ltd under loan-cum-pledge agreements that also bound Doshi Holdings, which pledged its Premier shares. The agreements called both companies borrowers, and Doshi signed loan receipts and promissory notes. After default, CIRP was admitted against both companies for the same debt, and the NCLAT agreed. Doshi's suspended director argued that nothing was disbursed to Doshi and that a pledgor owes no financial debt (Anuj Jain, Phoenix ARC). The Supreme Court dismissed the appeal. A mere pledgor may owe no financial debt, but the NCLAT's finding that Doshi was also a borrower was a plausible reading and not open to interference under Section 62. As with guarantors (Lalit Kumar Jain), Section 7 proceedings may run against co-borrowers, though the debt can be recovered only once.
Issues
- Whether a company that signed loan-cum-pledge agreements, receipts and demand promissory notes as a 'borrower' and pledged its shares owed a 'financial debt' under Section 5(8) of the IBC, although the money was disbursed to another company.
- Whether CIRP may be initiated under Section 7 against two co-borrowers for the same debt.
- Whether the NCLAT's finding that the company was a co-borrower could be disturbed in an appeal under Section 62.
Provisions considered
- Sections 5(8) and 7, Insolvency and Bankruptcy Code, 2016A pledgor as such may not owe a financial debt. A co-borrower bound under the loan documents does, and Section 7 proceedings can be brought against each corporate debtor liable for the same debt, though it may be recovered only once. (¶¶ 29, 36, 37)
- Section 62, Insolvency and Bankruptcy Code, 2016An appeal to this Court lies on questions of law. A plausible reading of the agreements by the NCLAT, the final fact-finding authority, will not be disturbed. (¶¶ 33, 34)
- Sections 124, 126 and 172, Indian Contract Act, 1872Indemnity, guarantee and pledge are distinct contracts, and a pledge is a bailment of goods as security. The distinction did not help the appellant because Doshi Holdings was also a borrower. (¶¶ 35, 36)
Held
- The lender disbursed Rs. 6 crore under agreements executed by both Premier and Doshi Holdings, and Doshi Holdings was named as borrower and pledgor. Prima facie it was a party in that dual capacity, as the NCLAT found. (¶ 33)
- The NCLAT's finding that Doshi Holdings was a borrower was a plausible interpretation of the agreements and supporting documents and could not be interfered with under Section 62. (¶¶ 33, 34)
- Indemnity, guarantee and pledge are distinct, and a pledgor per se may not be a financial debtor. Here, however, Doshi Holdings was found to be a borrower too. (¶¶ 35, 36)
- As approval of a resolution plan for a corporate debtor does not discharge its guarantor (Lalit Kumar Jain), resolution of one borrower does not discharge a co-borrower. Section 7 proceedings may be initiated against both, but the same amount cannot be realised twice. (¶¶ 36, 37)
Result
Appeal dismissed. The admission of the Section 7 petition and the initiation of CIRP against Doshi Holdings were upheld.