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SUPREME COURT OF INDIA
S. RAVINDRA BHAT, DIPANKAR DATTA, JJ.
Infrastructure Leasing And Financial Services Ltd. - Appellant
Versus
HDFC Bank Ltd. & Anr. - Respondents
Civil Appeal No(s). 4708 Of 2022
Decided On : 19-10-2023
(A) Interpretation of Documents – Rules of Construction – It is a known principle of contract interpretation that substance of a document is discernible from its terms, rather than label or its nomenclature – That one document is styled or described in a certain manner or that it uses a certain expression or term is not conclusive – It is effect of all terms of documents which bring out true purport and intention of parties – Likewise, where transaction is not subject of one document, but several which refer to each other or a reading of all, describe entire contract, then, it is open to Court to consider all of them together – Nomenclature given to document is not decisive factor but nature and substance of transaction has to be determined with reference to terms of documents – Admissibility of a document is entirely dependent upon recitals contained in that document but not on the basis of pleadings set up by party who seeks to introduce document in question. (Paras 26 and 27)
(B) Transfer of Property Act, 1882 – Sections 130, 131 and 132 – Transfer of actionable claims – Lease Rental Discounting (LRD) arrangement – LRD has flexibility of ensuring that asset owner is given access to credit – Dominant condition is that a substantial portion or entire rent or receivables which owner would be entitled to are made, sold or assigned, absolutely to creditor bank – Future rent payable is actually an unsecured debt that owner/borrower would have been otherwise entitled to claim, but for assignment or transfer, to lender/creditor – Because owner is a debtor of bank, latter becomes creditor of tenant or lessee – This arrangement has advantage of virtually ring fencing creditor from eventuality of bankruptcy or an insolvency event which borrower might be exposed to – There can be a transfer of debts which are defined as actionable claims – In present case, rents payable by IL&FS tenants, lessees and licensees are debts which stood transferred to creditor, i.e. HDFC Bank – NCLATs conclusions upheld. (Paras 29, 39 and 40)
Facts of the case:
Present appeal [Under Section 432, the Companies Act, 2013], is preferred by Infrastructure Leasing and Financial Services Ltd aggrieved by an order of the National Company Law Appellate Tribunal. Point in issue is whether documents executed by IL&FS by which rents were made over to the respondent, Housing Development Finance Corporation Ltd (“HDFC” or “the lender”) constituted an assignment and thus fell outside scope of an asset and security freeze order made by the NCLAT.
Findings of Court:
Earlier discussion in this judgment, about true nature of the transaction in this case led this court to hold that it is an assignment and not a pledge. Reference to pledge, in some places in documents, did not undermine the fact that rents payable to and receivable by lender (IL&FS) stood absolutely assigned to HDFC.
Result : Appeal dismissed.
JUDGMENT :
(S. Ravindra Bhat, J.)
1. This appeal1[Under Section 432, the Companies Act, 2013], is preferred by Infrastructure Leasing and Financial Services Ltd (hereafter “IL&FS” or “the borrower”) aggrieved by an order of the National Company Law Appellate Tribunal (hereafter, ‘NCLAT’)2[Dated 13.5.2022 in IA 2196/2020 [in CoAp. (AT) No. 346/2018]. The point in issue is whether the documents executed by IL&FS by which rents were made over to the respondent, Housing Development Finance Corporation Ltd (hereafter “HDFC” or “the lender”) constituted an assignment and thus fell outside the scope of an asset and security freeze order made by the NCLAT.
2. IL&FS had approached the HDFC for financial assistance. By Sanction Letter dated 22.06.2018, the lender sanctioned a financial facility of Rs. 400 crores to the borrower. On 25.06.2018, a “Master Facility Agreement” (“MFA”) was entered between IL&FS and HDFC for Rs. 400 crores. The MFA envisioned the creation of a separate escrow account with Housing Development Finance Corporation Bank Limited (hereinafter 'Escrow Bank') for opening of a separate escrow account with the Escrow Bank. Along with MFA, an “Assignment Agreement” (hereafter “AA”) dated 25.06.2018 was also executed between the IL&FS and HDFC. Under this document (i.e., the AA) the parties agreed that the authorised indebtedness of IL&FS in terms of the MFA, by way of the facility together with the interest thereon was payable from the gross income and revenue to be derived from the operation of the Business Centre Services Agreements/Lease/Leave and License Agreement/s. It was also agreed that ‘all the receivables derived/to be derived from the operation of the Borrower's Contracts, a sufficient portion of which, to pay the principal and interest as and when the same shall become due’ in terms of the said MFA was assigned and pledged and was to be ‘set aside for that purpose on the same day’ and a Power of Attorney by way of Security Interest was also executed between the IL&FS and HDFC.
3. By an order, dated 01.10.2018, NCLT in a petition3[No. 3638 (M.B.) of 2018], filed by the Union of India ("UoI") under Sections 241 and 242 of the Companies Act, 2013 (hereafter “the 2013 Act”) ordered to supersede the existing board of directors of the IL&FS. A new board of directors was also constituted, to take charge of the affairs of that company. Later, by its order dated 12.10.2018, the NCLT declined to issue a moratorium sought by the UOI, (akin to a moratorium under Section 14 of the IBC) in respect of IL&FS and its 348 group companies. Aggrieved, appeals were filed before the NCLAT. By order dated 15.10.2018 NCLAT, inter-alia, stayed: (i) the institution or continuation of suits or any other proceedings against the IL&FS or its 348 group companies, before any court/tribunal/arbitration panel/arbitration authority; (ii) any action to foreclose, recover or enforce any security interest created over the assets of the IL&FS or those of its 348 group companies; and (iii) the acceleration, premature withdrawal or other withdrawal, invocation of any term loan, corporate loan, bridge loan, commercial paper, debentures, fixed deposits, guarantees, letter of support, commitment or comfort and other financial facilities or obligations availed by the IL&FS and its 348 group companies.
4. After the interim order of NCLAT, the borrower informed the Escrow Bank about it, by an email dated 16.10.2018. On 19.10.2018, HDFC instructed the Escrow Bank to transfer monthly instalments from the Escrow Account to the Lender's Account. On 23.10.2018, IL& FS informed the HDFC about the interim order from NCLAT (dated 15.10.2018). The letter stated that the interim order restrained HDFC from appropriating IL& FS account’s with Escrow Bank. IL&FS called upon the lender by letter dated 27.10.2018 to reverse the debit of Rs.6.24 crores and credit the amount back into the account of the borrower. HDFC responded to IL&FS's letter, stating that receivables (i
(1) Substance of a document is discernible from its terms, rather than label or its nomenclature.(2) Future rent payable is actually an unsecured debt – There can be a transfer of debts which are def....
The assignment of debt under the SARFAESI Act and the interpretation of 'financial institution' and 'secured creditor' were central to the court's decision.
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An assignment of rights made in violation of a court's injunction is treated as a nullity, and the transferee cannot claim any rights or be added as a party to ongoing proceedings based on such an as....
The Asset Reconstruction Company is validly substituted as an applicant based on the Assignment Agreement under the SARFAESI Act, 2002, without requiring a Trust Deed.
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