Summary
The Supreme Court upheld the finding that IL&FS had assigned rental receivables sufficient to service HDFC’s principal and interest, rather than merely pledged them. Reading the contemporaneous financing documents together, it held that those receivables ceased to be IL&FS assets and fell outside the NCLAT freeze order. IL&FS retained its interest in the residual receipts. The appeal seeking reversal of debt-service debits was dismissed.
Issues
- Whether the transaction documents effected an assignment of rents or only created security.
- Whether future rental receivables could be transferred and were covered by the freeze on IL&FS assets.
Provisions considered
- Section 3, actionable claim; Section 130, Transfer of Property Act, 1882Unsecured rental debts, including accruing claims, were capable of written assignment. The documents transferred the relevant rent claims to HDFC. (¶ 32–39)
Held
- The substance and operative terms determined the transaction’s character, rather than labels such as loan, pledge or security. Contemporaneous documents forming one transaction had to be read together. (¶ 26–28)
- The assignment agreement, escrow covenants and power of attorney collectively established an unconditional assignment of the rental portion needed to meet the facility liability. References to pledge did not negate that transfer. (¶ 19–31)
- Future rents were debts capable of transfer as actionable claims; their future or accruing character did not prevent assignment. The Court distinguished such claims from a bare claim for compensation for breach. (¶ 32–39)
- The assigned portion was HDFC’s property and did not remain subject to the freeze on IL&FS assets. The NCLAT had correctly preserved IL&FS’s interest in receipts exceeding principal and interest and the corresponding adjustment or reversal of excess debits. (¶¶ 8, 28–31, 39)
- The challenge to the NCLAT’s construction therefore failed on the documents in this case. (¶ 39–40)
Result
Appeal dismissed; NCLAT order upholding assignment of the debt-service portion of rents sustained. No costs; pending applications disposed of.