The court affirmed that the assignment of rental receivables constituted a valid transfer, emphasizing the principle of substance over form in contract interpretation.

JUDGEMENT

S. RAVINDRA BHAT, J.

1. This appeal1, 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. 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 ₹ 400 crores to the borrower. On 25.06.2018, a “Master Facility Agreement” (“MFA”) was entered between IL&FS and HDFC for ₹ 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 1 Under Section 432 , the Companies Act, 2013 2 Dated 13.5.2022 in IA 2196/2020 [in CoAp. (AT) No. 346/2018] Digitally signed by VISHAL ANAND Date: 2023.10.19 13:54:48 IST Reason:

Signature Not Verified 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, 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 p