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Loan Disbursement And Pledge Agreement Dispute Resolved, Defining New Precedent For Insolvency And Bankruptcy Proceedings: Supreme Court Of India In Maitreya Doshi Vs Anand Rathi Global Finance Ltd

Charchit Pathak ,
  24 May 2023       Share Bookmark

Court :
Supreme Court of India
Brief :

Citation :

Case title:

Maitreya Doshi vs Anand Rathi Global Finance Ltd. 

Date of Order:

22 September, 2022


Hon’ble Justice Indira Banerjee & Justice J.K. Maheshwari 


Appellant: Maitreya Doshi 

Respondent: Anand Rathi Global Finance Ltd.


The Hon’ble Supreme Court of India has dismissed appeal filed by the appellant against the order passed by the NCLT. This case revolves around the loan disbursement and pledge agreement under which appellant concluded as a Co-borrower and liable for the performance of the loan agreement under the below mentioned sections of Insolvency and Bankruptcy Code, 2016.


Insolvency and Bankruptcy Code, 2016

  • Section 62 – This section deals with the clauses relating to the committee of creditors, a collection of lenders of funds to the bankrupt corporation. The committee of creditors' makeup, responsibilities, and decision-making procedure are described.
  • Section 7 – It outlines the steps and prerequisites for a financial creditor to submit a request to the National Company Law Tribunal (NCLT) asking for the opening of insolvency proceedings against a corporate debtor in default.
  • Section 61 – the laws relating to the penalties for illegal or fraudulent trade during the bankruptcy resolution process are described. It outlines the responsibility and punishments for those who commit fraud, go on with commercial operations with the intention of defrauding creditors, or harm a firm unjustly.
  • Section 5(8) – It defines "financial creditor." It covers all parties with whom a financial obligation is owed, including different organizations like banks, financial institutions, holders of debentures, etc.
  • Section 5(7) – It defines “Operational Creditor”. A person who owes an operational debt-one that results from the delivery of products or services, including responsibilities tied to employment—is referred to as an operational creditor.
  • Section 118(a) – This section deals with the National Company Law Tribunal's (NCLT's) authority to issue regulations pertaining to certain IBC-related topics. The NCLT is expressly empowered under Section 118(a) to issue regulations governing the beginning and conclusion of insolvency and bankruptcy proceedings.

The Provincial Insolvency Act, 1920

  • Section 7 – It tells that, if a debtor commits an act of insolvency, either a creditor or the debtor may file an insolvency petition, and the court may act on that petition by issuing an order (hence referred to as an order of adjudication) declaring the debtor to be insolvent.


  • In this case Respondent, a Non-banking Financial Company acting as a Financial Creditor gave a loan of Rs. 6 Crores to M/s Premier Limited (hereinafter referred as “Premier”), under three different Loan-cum-Pledge Agreement. Out of the three, appellant is one of the three persons holding pledged shares held as a security of the loan taken by the premier. 
  • According to the Loan-cum-Pledge Agreements, Premier did not make the required payments. Therefore, the respondent demanded that Premier settle its outstanding dues on the given dates.
  • On a communicated date, respondent called premier and the appellant described about the Loan-cum-pledge agreements and asked to pay the entire outstanding loan amount.
  • Premier acknowledged its obligation under the Loan-cum-Pledge Agreements to pay its outstanding debts to the respondent, but argued that it was unable to do so owing to genuine hardship. Later, the respondent filed a petition under Section 7 of IBC for initiating the suit against the premier and the appellant to recover the loan amount.
  • Both the petition filed by the respondent heard by National Company Law Tribunal (NCLT), and the same is passed an order in favour of the respondent and directed the Premier and the appellant to pay the loan amount. 
  • Thereafter, an appeal is filed by the appellant in the National Company Law Appellate Tribunal (NCLAT).


Whether the appellant is actually the co-borrower and liable to pay the Loan amount as per the agreement to the respondent or not? 

Whether the appeal filed by the appellant against the impugned order passed by the National Company Law Tribunal (NCLT) is maintainable or not? 


  • The Leaned Counsel appeared on the behalf of the appellant mentioned that appellant was not given any money under the Loan-cum-Pledge Agreements by the respondent. Loans were provided to Premier by the respondent. The money for the loans was given to Premier. Appellant did not use any of the funds that the respondent disbursed in accordance with the loan cum pledge arrangement.
  • It was further mentioned that the loan was never utilized by the appellant and the Adjudicating authority was wrong in concluding that the appellant was a borrower and hence the petition under the Section 7 of IBC was not maintainable.
  • He also mentioned that, there was no consideration made to the appellant. Hence, appellant was under no obligation to pay the respondent anything back. Therefore, appellant owed no money to the respondent in accordance with IBC Section 5(8). Regarding appellant, the Loan-cum-promise Agreements only resulted in a promise of appellant Premier stock shares in favour of the respondent. 
  • It was also noticed by the Learned Counsel that, the expressions cannot be compared since they differ from one another in terms of their implications and ramifications. The Learned Counsel distinguished between the terms "contract of indemnity," "contract of guarantee," and "pledge," contending that the formation of a pledge of corporate debtor's shares did not and could not constitute a guarantee or indemnity under Section 5(8) of the IBC.
  • Learned Counsel also stated that the Appellate Authority did not understand that when a promissory note is executed, there is a presumption that it is backed by consideration. However, the assumption is however rebuttable. 


  • The Learned Counsel on the behalf of the respondent submitted that the appellant, who had pledged its shares in Premier in behalf of the respondent, was a party to the Loan-cum-Pledge Agreements in its role as both a co-borrower and pledgor. Learned Counsel stressed that the Appellant had executed documents on appellant's behalf as the co-borrower. Director of both Premier and the appellant.
  • The Learned Counsel also mentioned that both Premier and the appellant have been considered as borrowers in the Loan-cum-Pledge Agreement and it was also argued that the receipt of the same in acknowledged by the appellant and appellant also issued the demand of promissory note unconditionally promising repayment of loan to the respondent and also signed the same.
  • Another argument was made by the Learned Counsel that the need that funds should have been paid to the corporate debtor is not a prerequisite for the definition of corporate debtor. The requirement that a person or entity owe a debt to someone else, rather than that payment is made to that person or entity, qualifies that person or entity as a corporate debtor.
  • It was further mentioned that considering all the points the appellant satisfies the aforesaid criteria as it is a Co-borrower as per the agreement.


  • The court rejected the appellant's arguments and determined that appellant was a party to the loan-cum-pledge agreements as both a co-borrower and pledgor. 
  • Appellant had submitted a demand promissory note pledging repayment to the respondent and confirmed receipt of the disbursed loan amounts. As a borrower under the loan arrangements, the court found that appellant was responsible for repayments.
  • The court further pointed out that the establishment of a pledge is included in the term of "financial debt" in Section 5(8) of the IBC, which includes disbursal against compensation for the time value of money. As a result, the petition filed against the appellant under Section 7 of the IBC was maintainable.
  • The court affirmed the judgement granting admission of the petition filed under Section 7 of the Insolvency and Bankruptcy Code (IBC). Hence, dismissed the appellant's appeal against the decision of the National Company Law Appellate Tribunal (NCLAT).


A judgement and decision dismissing a corporate appeal against the acceptance of a petition for the start of the Corporate Insolvency Resolution Process (CIRP) against Appellant are being challenged in this appeal under Section 62 of the Insolvency and Bankruptcy Code 2016. The appellant, the Appellant who has been placed on administrative leave, contends that Premier Limited, not Appellant, executed the loan-cum-pledge agreements and that no money was paid to Appellant. They claim that because Appellant has no financial obligation to the financial creditor, the petition filed against it according to Section 7 of the IBC cannot be upheld.The appellant uses pertinent case law to bolster its claims. According to the respondent, the appellant, who is a director of both Premier and Appellant, signed the loan-cum-pledge agreements on behalf of Appellant, who was a borrower and pledgor under the agreements. The respondent offers documentation to support its claim that Appellant issued a demand promissory note and acknowledged receiving the loan money. The dispute centres on how Appellant' obligation and financial debt are defined.

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