SC reverses NCLAT order, restores claims of 4 lenders of Reliance Infratel

The Supreme Court on Friday restored claims of four lenders of the insolvent Reliance Infratel Ltd, striking down an order of the National Company Law Appellate Tribunal (NCLAT) that derecognised them as lenders of the firm.

 

The four entities are Assets Care & Reconstruction Enterprise Ltd, Shubh Holdings Pte Ltd, China Development Bank, and Export-Import Bank of China, with their claims amounting to more than Rs 10,952 crore out of the total Rs 41,055 crore.

 

The issue involved in the appeals was whether the lenders could be classified as ‘financial creditors’ within the meaning of sub-section (7) of Section 5 of the Insolvency and Bankruptcy Code, 2016 (IBC).

 

Another issue that arose, in the event the appellants were not considered ‘financial creditors,’ was whether they could be classified as ‘secured creditors’ and be paid commensurate to their security interest.

 

During the insolvency process, the resolution professional had admitted the claims of these four entities as lenders.

 

Doha Bank opposed this before the NCLAT, arguing that these entities were not direct lenders of Reliance Infratel and that it was impermissible to admit them as lenders based on various terms of the deeds of hypothecation (DoH).

 

The NCLAT held that the DoH was not a deed of guarantee. It stated that the only parties to the DoH were the chargors and the security trustee. “The only object of the DoH was to create a charge on the property of the chargors. Therefore, the chargors cannot be treated as guarantors,” the tribunal held.

 

The NCLAT then set aside the order passed by the National Company Law Tribunal (NCLT) and remanded the case to the NCLT for taking consequential actions resulting from derecognising the first four appellants as lenders.

 

When the matter reached the apex court, it ruled based on the definition of ‘claim’ under the IBC. “If the right to payment exists or if a breach of contract gives rise to a right to payment, the definition of ‘claim’ is attracted. Even if that right cannot be enforced by reason of the applicability of the moratorium, the claim will still exist. Therefore, whether the cause of action for invoking the guarantee has arisen or not is not relevant for considering the definition of ‘claim’,” the court held.

 

The Supreme Court has now overturned the NCLAT order and restored the NCLT order. “The order of the NCLAT is quashed and set aside, and the order dated March 2, 2021, passed by the NCLT, Mumbai Bench (adjudicating authority), is restored,” the Supreme Court held.