In the case of China Development Bank v. Doha Bank Q.P.S.C. & Ors. (Civil Appeal No. 7298 of 2022), the Supreme Court of India addressed the classification of financial creditors under the Insolvency and Bankruptcy Code, 2016 (IBC).
Brief Facts
Parties Involved
- Appellant: China Development Bank.
- Respondents: Doha Bank Q.P.S.C. and others.
Background:
- The insolvency proceedings were initiated against Reliance Infratel Limited (the Corporate Debtor) by Ericsson India Private Limited.
- China Development Bank, among others, claimed status as a Financial Creditor of the Corporate Debtor based on Deeds of Hypothecation (DoH).
- The Resolution Professional accepted these claims, classifying the appellants as Financial Creditors.
- Doha Bank challenged this classification before the National Company Law Tribunal (NCLT), arguing that the appellants were not direct lenders to the Corporate Debtor and should not be considered Financial Creditors based on the DoH.
Final Judgment
Supreme Court’s Observations:
- The Court clarified that under Section 5(8) of the IBC, a financial debt does not require an actual default to exist; the mere existence of a liability or obligation is sufficient.
- It emphasized that once it is established that a financial debt is owed to any person, that person qualifies as a Financial Creditor under Section 5(7) of the IBC, irrespective of whether the debt is being serviced on time.
- The Court rejected the argument that the absence of default under the DoH negates the classification as a Financial Creditor, stating that the IBC does not mandate default as a prerequisite for such classification.
Conclusion:
- The Supreme Court upheld the appellants’ status as Financial Creditors, reinforcing that the definition under the IBC encompasses creditors to whom a financial debt is owed, regardless of default.
This judgment underscores the broad interpretation of ‘financial debt’ and ‘financial creditor’ under the IBC, affirming that the existence of a debt obligation suffices for creditor classification without necessitating a default.