Maitreya Doshi vs Anand Rathi Global Finance Ltd. on 22 September, 2022

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Supreme Court of India

Maitreya Doshi vs Anand Rathi Global Finance Ltd. on 22 September, 2022

Author: Hon’Ble Ms. Banerjee

Bench: Hon’Ble Ms. Banerjee, J.K. Maheshwari



                                   IN THE SUPREME COURT OF INDIA

                                    CIVIL APPELLATE JURISDICTION

                                    CIVIL APPEAL NO. 6613 OF 2021

  MAITREYA DOSHI                                                        ....Appellant (s)


  ANAND RATHI GLOBAL FINANCE LTD. AND ANR.                           ...Respondent (s)


Indira Banerjee, J.

This appeal under Section 62 of the Insolvency and Bankruptcy Code

2016, hereinafter referred to as the ‘IBC’, is against a Judgement and Order

dated 25th August 2021, passed by the National Company Law Appellate

Tribunal (NCLAT), dismissing the Company Appeal (AT) (Insolvency) No. 191 of

2021 filed by the Appellant, against an order dated 19th February 2021, passed

by the Adjudicating Authority (National Company Law Tribunal), NCLT, Mumbai

Bench admitting a Company Petition C.P. (IB) No. 1220/MB/2020 filed by the
Signature Not Verified

Digitally signed by
Date: 2022.09.22

Respondent No. 1 – Anand Rathi Global Finance Limited as Financial Creditor,
16:41:49 IST

for initiation of the Corporate Insolvency Resolution Process (CIRP) of M/s Doshi

Holdings Pvt. Ltd., hereinafter referred to as “Doshi Holdings”, under Section 7

of the IBC. The Appellant is a suspended Director of Doshi Holdings.

2. The Respondent No 1, a Non-banking Financial Company, hereinafter

referred to as the “Financial Creditor” disbursed loan to the tune of Rs.6 Crores

to M/s Premier Limited, hereinafter referred to as “Premier” under three

separate Loan-cum-Pledge Agreements, dated 29th June 2015, 4th May 2016

and 5th October 2016, respectively. According to the Appellant, Doshi Holdings

pledged shares held by it in Premier, in favour of the Financial Creditor, by way

of security for the loan.

3. According to the Appellant, the Loan-cum-Pledge Agreements

contemplated two distinct transactions under one document, that is, grant of

loan to Premier, and creation of pledge by Doshi Holdings of securities held by

the Doshi Holdings in Premier.

4. Premier failed to make repayments in terms of the Loan-cum-Pledge

Agreements. The Financial Creditor, therefore, called upon Premier to repay its

outstanding dues of Rs.7,64,60,360/- on diverse dates between 28 th June 2019

and 10th February 2020.

5. By a communication dated 14th February 2020, the Financial Creditor

called upon Premier and Doshi Holdings, also described as the borrower under

the Loan-cum-Pledge Agreements, to pay the entire outstanding loan amount.

6. By a letter dated 19th February 2020, Premier admitted and

acknowledged its liability to pay its outstanding dues to the Financial Creditor

under the Loan-cum-Pledge Agreements, but stated that it could not pay the

same on account of genuine difficulty.

7. On 21st September 2020, the Financial Creditor filed a petition under

Section 7 of the IBC being C.P.(IB) No.1224/MB/2020 for initiation of CIRP

against Premier for default in repayment of Rs. 8,35,25,398/-.

8. On the same day, the Financial Creditor also filed a petition against Doshi

Holdings, under Section 7 of the IBC, for initiation of CIRP in respect of the

same claim of Rs. 8,35,25,398/-, based on the same loan documents.

9. Both the petitions filed by the Financial Creditor were heard together by

the Adjudicating Authority (NCLT). By an order dated 29 th January 2021, the

Adjudicating Authority (NCLT) admitted the petition for initiation of CIRP against

Premier. By another Order passed on 19 th February 2021, the Adjudicating

Authority (NCLT) admitted the petition for initiation of CIRP against Doshi

Holdings for the same set of loans arising out of the same loan documents, in

respect of which the Financial Creditor had initiated CIRP against Premier.

10. The Appellant filed an appeal in the National Company Law Appellate

Authority (NCLAT) under Section 61 of the IBC. By the impugned judgment and

order dated 25th August 2021, the Appellate Authority (NCLAT) dismissed the

appeal and upheld the order of admission of the petition under Section 7 of the


11. Mr. K.V. Vishwanathan, learned Senior Counsel appearing on behalf of the

Appellant submitted that no amount under the Loan-cum-Pledge Agreements

was disbursed by the Financial Creditor to Doshi Holdings. The Financial

Creditor granted loans to Premier. The loans were disbursed to Premier. Doshi

Holdings did not utilize any part of the money disbursed by the Financial

Creditor under the Loan-cum-Pledge Agreement.

12. According to Mr. Vishwanathan, the Loan-cum-Pledge Agreements were

standard form agreements in which Premier was the borrower and Doshi

Holdings the pledgor. For convenience, the borrower and the pledgor have

collectively been referred to as borrowers and individually referred to as

borrower or pledgor. The Appellant executed the Loan-cum-Pledge Agreement

and other related documents on behalf of Premier and Doshi Holdings, because

the Appellant had independently and separately been authorised by Premier

and Doshi Holdings to execute the documents. The fact remains that Doshi

Holdings and Premier are separate entities.

13. Mr. Vishwanathan argued that since no disbursement has been made to

Doshi Holdings against consideration for the time value of money, there was no

obligation on the part of Doshi Holdings to make any repayment to the

Financial Creditor. There was, therefore, no financial debt owed by Doshi

Holdings to the Financial Creditor under Section 5(8) of the IBC. Insofar as

Doshi Holdings is concerned, the Loan-cum-Pledge Agreements only created a

pledge of the shares of Doshi Holdings in Premier in favour of the Financial

Creditor. The petition under Section 7 of the IBC against the Corporate Debtor

was clearly not maintainable.


14. In support of his argument, Mr. Vishwanathan, cited Anuj Jain, Interim

Resolution Professional for Jaypee Infratech Limited v. Axis Bank

Limited and Others1, where this Court held :-

“46. …essential element of disbursal, and that too against the
consideration for time value of money, needs to be found in the
genesis of any debt before it may be treated as “financial debt”
within the meaning of Section 5(8) of the Code….”

15. Mr. Vishwanathan next argued that the Adjudicating Authority/Appellate

Authority erred in arriving at the finding that Doshi Holdings was a borrower

and hence liable to make repayment in respect of the loan disbursement to

Premier. He submitted that the loan was never utilised by Doshi Holdings.

16. Mr. Vishwanathan argued that it was not in dispute that no amount was

disbursed to Doshi Holdings. Having accepted the factual position, that no

amount had been disbursed to Doshi Holdings, the Adjudicating

Authority/Appellate Authority erred in arriving at the finding that Doshi

Holdings was a borrower. The petition under Section 7 of the IBC was not

maintainable against Doshi Holdings.

17. Mr. Vishwanathan argued that the Adjudicating Authority/Appellate

Authority misconstrued the expression “financial debt” in Section 5(8) of the

IBC and/or failed to appreciate the scope and ambit of the said expression. The

definition of ‘financial debt’ in Section 5(8) of the IBC does not include a


1(2020) 8 SCC 401

18. Mr. Vishwanathan submitted that “Contract of Indemnity”, “Contract of

Guarantee” and “Pledge” have been defined in the Indian Contract Act, 1872.

The expressions are different from one and another in terms of their

ramification and implication and they cannot be equated. Distinguishing

between the expressions, contract of indemnity, contract of guarantee and

pledge, Mr. Vishwanathan argued that creation of pledge of shares of the

Corporate Debtor did not and cannot amount to a guarantee and/or indemnity

under Section 5(8) of the IBC.

19. Mr. Vishwanathan cited Phoenix ARC Pvt. Ltd. v. Ketulbhai

Ramubhai Patel2, where this Court, relying upon Anuj Jain (supra) held that

where a Corporate Debtor had only extended security by pledging shares, the

applicant (Respondent) would at best be the secured debtor qua the security

but, not a Financial Creditor within the meaning of Sections 5(7) and 5(8) of the


20. Mr. Vishwanathan argued that the Adjudicating Authority (NCLT)

interchangeably referred to Doshi Holdings as a co-borrower/guarantor under

the Loan-cum-Pledge Agreement, losing sight of the difference in the liability of

a pledgor from that of a guarantor.

21. Mr. Vishwanathan submitted that the Appellate Authority failed to

appreciate that the execution of a promissory note gives rise to a presumption

that such promissory note is supported by consideration. The presumption is,

however, rebuttable.

2 (2021) 2 SCC 799

22. Mr. Vishwanathan cited Bharat Barrel & Drum Manufacturing

Company v. Amin Chand Payrelal3 , where this Court held :-

“12. Upon consideration of various judgments as noted hereinabove,
the position of law which emerges is that once execution of the
promisory note is admitted, the presumption under Section 118(a)
would arise that it is supported by consideration. Such a
presumption is rebuttable. The defendant can prove the non-
existence of a consideration by raising a probable defence. If the
defendant is proved to have discharged the initial onus of proof
showing that the existence of consideration was improbable or
doubtful or the same was illegal, the onus would shift to the plaintiff
who will be obliged to prove it as a matter of fact and upon its
failure to prove would disentitle him to the grant of relief on the
basis of the negotiable instrument…..”

23. Mr. Vishwanathan pointed out that the interpretation clause in the

agreement stated that Premier and Doshi Holdings were collectively referred to

as the borrowers and individually as a borrower or pledgor. Mr. Vishwanathan

submitted that the expressions borrower and pledgor had to be read in the

context of the obligation of the parties under the Loan-cum-Pledge Agreement.

24. Mr. Vishwanathan finally argued that the Adjudicating Authority had

passed its order dated 19th February 2021, impugned in this appeal, ignoring its

earlier finding pronounced in open Court on 29 th January 2021, which is as

follows :-

“25…However, under Section 7, if the claim against Premier Limited
(Corporate debtor herein) is “Admitted” then for the same set of
loans, arising under the same loan documents, the same debt/claim
against Doshi will not be permissible…”

25. Mr. Vishwanathan submitted that the order of admission was contrary to

judicial discipline. Relying on the judgment of this Court in Sub-Inspector

3 (1999) 3 SCC 35

Rooplal & Another v. Lieutenant Governor and Others4, Mr. Vishwanathan

argued that in the event, if any, Member of the Bench was of the opinion that

earlier view taken by another Member of the same Bench was incorrect, the

matter should have been referred to a larger Bench to avoid difference of


26. Mr. Prateek Sakseria, learned counsel appearing on behalf of the

Respondent submitted that Doshi Holdings was party to the Loan-cum-Pledge

Agreements in its dual capacity as co-borrower and pledgor which had pledged

its shares in Premier in favour of the Financial Creditor. Mr. Sakseria

emphasised on the fact that the Appellant had signed documents on behalf of

Doshi Holdings in its capacity as co-borrower. The Appellant was Director of

both, Premier and Doshi Holdings.

27. Mr. Sakseria referred to the following documents:-

(i) Letter of Sanction dated 27th June 2015, 4th May 2016 and 5th
October 2016.

(ii) Loan-cum-Pledge Agreement dated 29th June 2015.

(iii) Loan-cum-Pledge Agreement dated 4th May 2016.

(iv) Loan-cum-Pledge Agreement dated 5th October 2016.

(v) Loan Receipts acknowledging the receipt of Rs.6,00,00,000/-.

(vi) Demand Promissory Note unconditionally promising to pay to the
Financial Creditor.

28. Mr. Sakseria pointed out that both Premier and Doshi Holdings have been

described as borrowers in the Loan-cum-Pledge Agreements. Mr. Sakseria also

pointed out that Doshi Holdings had acknowledged receipt of monies disbursed
4 (2000) 1 SCC 644

under three loan agreements by executing loan receipts. Doshi Holdings had

also issued demand promissory note unconditionally promising repayment of

loan to the Financial Creditor. The loan agreements, receipts and demand

promissory notes have been signed by the Appellant in his capacity as the

authorised signatory/Director of Doshi Holdings and Premier. After Premier

defaulted in payment of loan, demand notice was issued to Doshi Holdings to

repay the loan in its capacity as co-borrower.

29. Mr. Sakseria argued that the definition of financial debt contemplates a

disbursal against consideration for time value of money, and not a disbursal

necessarily to the Corporate Debtor. Otherwise, an amount payable under a

guarantee could never have been included inasmuch as amounts are never

disbursed to a guarantor, but he is liable for debts of another.

30. Mr. Sakseria further argued that the definition of Corporate Debtor does

not require as a pre-condition that monies should have been disbursed to the

Corporate Debtor. The sine qua non for an entity to be considered as a

Corporate Debtor is that such person/entity should owe a debt to any person

and not that a disbursal has to be made to such a person/entity.

31. Mr. Sakseria submitted that Doshi Holdings satisfies the aforesaid criteria

inasmuch as it is a Co-Borrower in terms of the Loan Agreement under which

monies have been borrowed by both Premier and Doshi Holdings. Both Premier

and Doshi Holdings have executed loan receipts admitting receipt of loan

amounts and demand promissory notes unconditionally promising to pay the

monies borrowed to the Financial Creditor for value received.

32. The mere fact of it also being a pledgor is wholly irrelevant and does not

in any manner disentitle the Respondent No.1 to initiate proceedings under

Section 7 of the IBC against such a co-borrower.

33. It is not in dispute that the Financial Creditor disbursed loan to the tune of

Rs.6,00,00,000/- to Premier pursuant to the Loan-cum-Pledge Agreements

referred to above, executed both by Premier and by Doshi Holdings. Doshi

Holdings has been referred to in the agreement as borrower and pledgor.

Prima facie, it appears that Doshi Holdings was a party to the Loan-cum-Pledge

Agreement in its dual capacity of borrower and pledgor of shares. The

Appellate Authority has arrived at the factual finding that Doshi Holdings is also

a borrower under the Loan-cum-Pledge Agreement. The factual finding of the

Appellate Authority which was the final fact finding authority ought not to be

interfered in this appeal.

34. The finding of the Appellate Authority that Doshi Holdings is a borrower,

is based on its interpretation of the Loan-cum-Pledge Agreements and

supporting documents. The interpretation given by the Appellate Authority is

definitely a possible interpretation. In our view, the interpretation is a plausible

interpretation which cannot be interfered with in an appeal under Section 62 of

the IBC.

35. It is true, as argued by Mr. Vishwanathan that contract of indemnity,

contract of guarantee and pledge are not one and the same. The contract of

indemnity is a contract by which one party promises to save the other from loss

caused to him by the conduct of the promisor himself or by the conduct of any

other person. In a contract of indemnity, a promisee acting within the scope of

his authority is entitled to recover from the promisor all damages and all costs

which he may incur. A contract of guarantee, on the other hand, is a promise

whereby the promisor promises to discharge the liability of a third person in

case of his default. The person who gives the guarantee is called the surety.

The person in respect of whose default, the guarantee is given is the principal

debtor and the person to whom the guarantee is given is the creditor. Anything

done or any promise made for the benefit of the principal debtor may be a

sufficient consideration to the surety for giving the guarantee. On the other

hand, the bailment of goods as security for payment of a debt or performance

of a promise is a pledge.

36. The proposition of law which emerges from the judgment is that a

pledgor per se may not be a Financial Debtor. However, in this case, as

observed above, the Appellate Authority arrived at a factual finding that Disha

Holdings was a borrower. In Lalit Kumar Jain v. Union of India 5, this Court

held that the approval of a resolution plan in relation to a Corporate Debtor

does not discharge the guarantor of the Corporate Debtor. On a parity of

reasoning, the approval of a resolution in respect of one borrower cannot

certainly discharge a co-borrower.

37. If there are two borrowers or if two corporate bodies fall within the ambit

of corporate debtors, there is no reason why proceedings under Section 7 of

the IBC cannot be initiated against both the Corporate Debtors. Needless to
5 (2021) 9 SCC 321

mention, the same amount cannot be realised from both the Corporate

Debtors. If the dues are realised in part from one Corporate Debtor, the balance

may be realised from the other Corporate Debtor being the co-borrower.

However, once the claim of the Financial Creditor is discharged, there can be

no question of recovery of the claim twice over.

38. We find no grounds to interfere with the impugned judgment and order of

the Appellate Authority. The appeal is, accordingly, dismissed.





SEPTEMBER 22, 2022

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