The court affirmed the classification of appellants as Financial Creditors under the IBC, establishing that obligations in the Deeds of Hypothecation constituted guarantees.

JUDGMENT :

ABHAY S. OKA, J.

FACTUAL ASPECTS

1. These appeals take exception to the judgment dated 9th September 2022 of the National Company Law Appellate Tribunal, Principal Bench, New Delhi (for short, ‘the NCLAT’). The appellants in this batch of appeals (for short, ‘appellants’), except the appellant in Civil Appeal No.7434 of 2023, were parties to the appeals preferred by 1st to 4th respondents in Civil Appeal No. 7298 of 2022.

2. The issue involved in these appeals is whether the appellants can be classified as ‘Financial Creditors’ within the meaning of sub-section (7) of Section 5 of the Insolvency and Bankruptcy Code, 2016 (for short, ‘the IBC’). Another issue may arise in the event it is held that the appellants are not ‘Financial Creditors’. The issue will be whether the appellants can be classified as ‘Secured Creditors’ and paid commensurate to their security interest.

3. 1st respondent-Doha Bank claims to be a direct lender and secured Financial Creditor of Reliance Infratel Limited (for short, ‘RITL’ or ‘the Corporate Debtor’). A Corporate Insolvency Resolution Process (CIRP) was initiated by the adjudicating authority (NCLT) in respect of RITL-Corporate Debtor at the instance of Ericsson India Private Limited, and the Interim Resolution Professional (IRP) was appointed. We are concerned in this case with Reliance Communications Infrastructure Ltd. (for short, ‘RCIL’), Reliance Communications Ltd. (for short, ‘RCom’), Reliance Telecom Ltd. (for short, ‘RTL’) and RITL. These companies are hereinafter collectively referred to as “RCom entities”.

4. Public announcements were made under Section 15 of the IBC inviting claims from creditors. The appellants submitted their claims as Financial Creditors of the Corporate Debtor. While admitting the claim of the appellants, the Resolution Professional classified the appellants as Financial Creditors. Accordingly, the appellants were included in the Committee of Creditors (for short, ‘the COC’). The 1st Respondent-Doha Bank, made applications before the NCLT to challenge the admission of the claims of the appellants (except the appellant in Civil Appeal No.7434 of 2023) as Financial Creditors. The contention of the 1st respondent-Doha Bank was that the said appellants were not direct lenders of the Corporate Debtor, and it was impermissible to admit them as Financial Creditors on the basis of various terms of the Deeds of Hypothecation.

5. During the pendency of 1st respondent-Doha Bank’s Application, a Resolution Applicant submitted a Resolution Plan for the Corporate Debtor, which the CoC approved in its meeting held on 2nd March 2020. After that, the 5th respondent-RP filed an application for grant of approval to the Resolution Plan. By order dated 3rd December 2020, the NCLT approved the Resolution Plan. The approval was granted without deciding the pending application made by the 1st respondent-Doha Bank, filed for objecting to the status of the appellants as Financial Creditors. The 6th Respondent preferred an appeal before the NCLAT to challenge the approval of the Resolution Plan. By the order dated 19th January 2021, the NCLAT directed the NCLT to decide the application of the 1st Respondent-Doha Bank. The NCLAT disposed of the appeal by observing that depending on the outcome of the application of the 1st Respondent, the order approving the Resolution Plan could be reconsidered.

6. The appellants have relied upon the Deeds of Hypothecation dated 4th March 2011, 9th March 2011, 12th February 2012 and 15th September 2018 (collectively referred to as “the DoH”). The DoH were executed jointly by each of the Rcom entities (described therein as Chargors), including the Corporate Debtor (RCIL), to create a charge over their property for securing the repayment of the facilities advanced by the appellants. The RCom entities agreed to provide their assets as security and further undertook to pay any shortfall of debts owed by each of the RCom entities. All the RCom entities pooled