Holding

The Court held that the appellants are financial creditors of the corporate debtor because the guarantee embedded in the Deeds of Hypothecation creates a financial debt under Section 5(8) of the IBC, and no default is required for such a debt to arise.

Summary

The Supreme Court examined whether several foreign banks that had extended loans to Reliance entities could be treated as "financial creditors" of Reliance Infratel Ltd (the corporate debtor) under Section 5(7) of the Insolvency and Bankruptcy Code, 2016. The dispute arose because the corporate debtor, Reliance Communications Infrastructure Ltd, had executed Deeds of Hypothecation (DoH) that created a charge over its assets and also contained a covenant to pay any shortfall arising from the borrowers' default, which the banks argued amounted to a guarantee. The Court held that the DoH, despite its title, created a guarantee within the meaning of Section 126 of the Contract Act, and that such a guarantee falls within clause (i) of Section 5(8) of the IBC, making the banks financial creditors even in the absence of an actual default. It further ruled that no default is required for a claim to be a financial debt and that the moratorium does not extinguish the claim. Consequently, the NCLAT order de‑recognising the banks as financial creditors was set aside and the NCLT order admitting them as financial creditors was restored.

Issues considered

Whether the appellants qualify as "financial creditors" under Section 5(7) of the Insolvency and Bankruptcy Code, 2016.
Whether the Deeds of Hypothecation contain a guarantee that brings the liability within clause (i) of Section 5(8) of the IBC.
Whether the occurrence of default is a prerequisite for a claim to be a financial debt.
Whether the appellants, if not financial creditors, can be treated as secured creditors.
Effect of the moratorium under Section 14 of the IBC on the enforceability of the guarantee.

Legislation cited

Indian Contract Act, 1872s. s.126, s. s.127
Insolvency and Bankruptcy Code, 2016s. s.14(1), s. s.15(1), s. s.3(11), s. s.3(12), s. s.3(6), s. s.5(7), s. s.5(8), s. s.7(1)
Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002

Headnote

Issue for Consideration Whether the appellants can be classified as ‘Financial Creditors’ within the meaning of s.5(7) of the Insolvency and Bankruptcy Code, 2016. Headnotes† Insolvency and Bankruptcy Code, 2016 – ss.5(7), 5(8) – ‘Financial creditors’ – Guarantee as financial debt – Requirement of occurrence of default – 1st respondent-bank claims to be a direct lender and secured financial creditor of reliance RITL- Corporate debtor – Corporate Insolvency Resolution Process initiated by National Company Law

Subjects

Financial creditorsSecured creditorsCorporate Insolvency Resolution ProcessCommittee of creditorsDeeds of hypothecationNCLTNCLATMaster Security Trustee AgreementGuarantee as financial debtSecurity TrusteeChargorsResolution planGuarantorDirect lenderCorporate debtorNomenclature of documentsPromise to discharge liability of third partyOccurrence of defaultMoratoriumRequirement of occurrence of defaultFinancial debt

Judgment

[2024] 12 S.C.R. 2043 : 2024 INSC 1029

China Development Bank
v.
Doha Bank Q.P.S.C. & Ors.
(Civil Appeal No. 7298 of 2022)
20 December 2024
[Abhay S Oka* and Pankaj Mithal, JJ.]

Issue for Consideration
Whether the appellants can be classified as ‘Financial Creditors’
within the meaning of s.5(7) of the Insolvency and Bankruptcy
Code, 2016.

Headnotes†
Insolvency and Bankruptcy Code, 2016 – ss.5(7), 5(8) –
‘Financial creditors’ – Classification of the appellant as
‘financial creditors’ – Guarantee as financial debt – Requirement
of occurrence of default – 1st respondent-bank claims to be a
direct lender and secured financial creditor of reliance RITL-
Corporate debtor – Corporate Insolvency Resolution Process
initiated by National Company Law Tribunal in respect of RITL –
Claims invited from the creditors – Appellants submitted their
claims and Resolution Professional classified them as financial
creditors, and were included in the Committee of Creditors-
CoC – 1st respondent challenged the admission of the claims
of the appellants before NCLT that the 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-DoH – Meanwhile, the
NCLT approved the resolution plan – In appeal, the NCLAT
directed the NCLT to decide the application – NCLT dismissed
the application, upholding the status of the appellants as
financial creditors – In appeal, the NCLAT holding that the
DoH is not a deed of guarantee and the only parties to the
DoH were the Chargors and Security Trustee, and Chargors
cannot be treated as guarantors, set aside the order passed
by the NCLT and remanded the case for taking consequential
actions resulting from de-recognising the first four appellants
as financial creditors – Sustainability:

*Author
2044 [2024] 12 S.C.R.

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Held: Not sustainable – When clause (i) of s.5(8) is applicable, it
is not necessary that the Financial Creditor actually tenders any
amount to the Corporate Debtor – DoH is a Document creating
hypothecation – Only the title of a document cannot be a decisive
factor in deciding the nature of the document or the transactions
affected by the document – Only because the title of the document
contains the word hypothecation, it cannot be concluded that
guarantee is not a part of this document – Appellants are Secured
Lenders within the meaning of the Master Security Trustee
Agreement-MSTA – Two RCom entities-RCom and RTL, are the
obligors being the borrowers of the appellants – Parties to DoH
are Security Trustees acting on behalf of the appellants, the
Corporate Debtor who is not the borrower of the appellants and
the other three Reliance entities – Corporate Debtor undertook to
discharge the liability of the RCom and RTL, the borrowers of the
appellants – RCom and RTL are third parties as far as Corporate
Debtor is concerned – Furthermore, s.7(1) provides that Financial
Creditor can initiate CIRP against the Corporate Debtor when
there is a default on the part of the Corporate Debtor – Moment
it is established that the financial debt is owed to any person,
he/she becomes a Financial Creditor – On facts, the appellant
has a claim – No requirement incorporated in the definition of
‘financial debt’ u/s.5(8) that a debt becomes financial debt only
when default occurs – U/s.5(7) any person to whom financial
debt is owed becomes a Financial Creditor even if there is no
default in payment of debt – Thus, for submitting the claim by a
Financial Creditor, no requirement of actual default – Impugned
order of the NCLAT quashed and set aside and that of the NCLT
restored. [Paras 48, 49, 52, 53, 55, 56, 59, 61, 62, 66, 68]

Case Law Cited
C.C., C.E. and S.T. Bangalore (Adjudication) & Ors. v. Northern
Operating Systems Pvt. Ltd, 2022 INSC 598 : [2022] 18 SCR 901 :
AIR 2022 SC 2450; Phoenix ARC Pvt. Ltd. v. Ketulbhai Ramubhai
Patel, 2021 INSC 59 : [2021] 1 SCR 1043 : (2021) 2 SCC 799;
Kotak Mahindra Bank Limited v. A. Balakrishnan, 2022 INSC 630 :
[2022] 5 SCR 1072 : (2022) 9 SCC 186; Orator Marketing Pvt.
Ltd. v. Samtex Desinz Pvt. Ltd, 2021 INSC 359 : [2021] 6 SCR
742 : (2023) 3 SCC 753; Maitreya Doshi v. Anand Rathi Global
Finance Ltd. & Ors, 2022 INSC 1004 : [2022] 15 SCR 536 : AIR
2022 SC 4595; M.C. Chacko v. State Bank of Travancore, 1969
[2024] 12 S.C.R. 2045

China Development Bank v. Doha Bank Q.P.S.C. & Ors.

INSC 151: [1970] 1 SCR 658 : (1969) 2 SCC 343; Vistra ITCL
(India) Ltd. & Ors. v. Dinkar Venkatasubramanian, 2023 INSC 500
[2023] 6 SCR 806 : (2023) 7 SCC 324; B.K. Muniraju v. State of
Karnataka & Ors., 2008 INSC 208 : [2008] 2 SCR 992 : (2008)
4 SCC 451; Union of India v. D.N. Revri & Co. and Ors., 1976
INSC 208 : [1977] 1 SCR 483 : (1976) 4 SCC 147; Maharashtra
State Electricity Distribution Company Limited v. Maharashtra
Electricity Regulatory Commission & Ors., 2021 INSC 644 :
[2021] 5 SCR 1056 : (2022) 4 SCC 657; Committee of Creditors
of Essar Steel India Limited v. Satish Kumar Gupta & Ors, 2019
INSC 1256 : [2019] 16 SCR 275 : (2020) 8 SCC 531; Anuj Jain,
Interim Resolution Professional for Jaypee Infratech Limited v. Axis
Bank Limited & Ors, 2020 INSC 227 : [2020] 8 SCR 291 : (2020)
8 SCC 401 – referred to.
Essar Steel Ltd. v. Gramercy Emerging Market Fund, 2002 SCC
OnLine Guj 319; Western Coalfields Limited & Anr. v. Rajesh s/o
Nandlal Biyani, 2011 SCC OnLine Bom 1217 : (2012) 2 Mah LJ
394 – referred to.

List of Acts
Contract Act, 1872; Insolvency and Bankruptcy Code, 2016.

List of Keywords
Financial creditors; Secured creditors; Corporate Insolvency
Resolution Process; Committee of creditors; Deeds of hypothecation;
NCLT; NCLAT; Master Security Trustee Agreement; Guarantee
as financial debt; Security Trustee; Chargors; Resolution plan;
Guarantor; Direct lender; Corporate debtor; Nomenclature of
documents; Promise to discharge liability of third party; Occurence
of default; Moratorium; Requirement of occurrence of default;
Financial debt.

Case Arising From
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 7298 of 2022
From the Judgment and Order dated 09.09.2022 of the National
Company Law Appellate Tribunal in CAAT (I) No. 414 of 2021
With
Civil Appeal No(s). 7407, 7615 and 7328 of 2022 and Civil Appeal
No. 7434 of 2023
2046 [2024] 12 S.C.R.

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Appearances for Parties
Neeraj Kishan Kaul, Chetan Kapadia, Darius Khambata, Sr. Advs.,
Syed Jafar Alam, Siddharth Ranade, Nishi Bhankharia, Ms. Kaazvin
Kapadia, Deepak Joshi, Raghav Agrawal, Rohan Rajadhyaksha,
Rajendra Barot, Ms. Liz Mathew, Nilang Desai, Ms. Saloni Thakkar,
Ms. Nafisa Khandeparkar, Abhinjan Jha, Bharat Makkar, Harshil
Goda, Madhur Arora, Ms. Mallika Agarwal, Nisarg Bhardwaj, Advs.
for the Appellant.
Gopal Jain, P. Chidambaram, Sr. Advs., S.S. Shroff, Saurav Panda,
Vaijayant Paliwal, Ms. Charu Bansal, Ms. Mohana Nijhawan, Ms.
Mehak Nayak, Ms. Payal Dubey, M/s. Juris Corp., Dhruv Malik, Ms.
Palak Nenwani, Abhijnan Jha, Sanjay Kapur, Ms. Megha Karnwal,
Surya Prakash, Advs. for the Respondents.

Judgment / Order of the Supreme Court

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
[2024] 12 S.C.R. 2047

China Development Bank v. Doha Bank Q.P.S.C. & Ors.

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
2048 [2024] 12 S.C.R.

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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 their
resources to provide security for the facilities availed by any of the
entities, ensuring that each entity was individually liable to pay the
debt of all the entities. According to the case of the appellants, in
terms of the DoH, if there is any default by any entity, all the RCom
entities were liable to make good the shortfall in recovery of the
amounts after realisation of hypothecated assets.
7. Thereafter, the NCLT heard the application of the 1st respondent
and dismissed it, upholding the status of the appellants (except the
appellant in Civil Appeal No.7434 of 2023) as the Financial Creditors.
An appeal was preferred by 1st to 4th respondents against the said
order. By the impugned judgment and order, the NCLAT held that the
DoH is not a deed of guarantee. It was held that the only parties to
the DoH were the Chargors and the Security Trustee. The only object
of the DoH was to create a charge on the property of the Chargors.
Therefore, the Chargors cannot be treated as guarantors. Hence,
the NCLAT set aside the order passed by the NCLT and remanded
the case to the NCLT for taking consequential actions resulting from
de-recognising the first four appellants herein as Financial Creditors.
8. At this stage, we may note that as far as Civil Appeal No.7434 of
2023 is concerned, the appeal is preferred by a Bank that was not
a party to the appeal before the NCLAT. However, the NCLT dealt
with the issue of the appellant’s qualification as a Financial Creditor.

SUBMISSIONS OF THE APPELLANTS
Submissions in Civil Appeal No.7298 of 2022, Civil Appeal
No.7615 of 2022 and Civil Appeal No.7434 of 2023
9. Very detailed submissions have been made by the learned counsel
appearing for the parties. The learned senior counsel appearing for
the appellants in some of the appeals firstly referred to the factual
aspects of the case. He pointed out that the RCom entities entered
into the Master Security Trustee Agreement (MSTA) with Axis Trustees
Services Limited (security trustee). Pursuant to the MSTA, the Security
Trustees executed the aforementioned four DoH on behalf of the
appellants and other lenders whereunder, the RCom entities, including
[2024] 12 S.C.R. 2049

China Development Bank v. Doha Bank Q.P.S.C. & Ors.

the Corporate Debtor, agreed to provide their common pooled assets
as security for the loans availed by them. The DoH further provided
that in the event of any default by the RCom entities, each of the
RCom entities is liable to make a good shortfall in recovery of the
amounts in default. The learned senior counsel submitted that this
obligation to pay the shortfall is a promise to pay, which is in the
nature of a guarantee.
10. He pointed out that the CIRP was initiated by the NCLT for RITL-
Corporate Debtor, RTL and RCom. He pointed out that on 2nd March
2020, in their capacity as Secured Financial Creditors, the appellants,
along with other Financial Creditors, unanimously approved the
Resolution Plan submitted by Reliance Digital Platform and Project
Services Ltd. He pointed out that the appellants by their letter dated
2nd March 2020 addressed to the RP, pointed out that there were
voting in favour of the RP in their capacity as ‘Secured Financial
Creditors’.
11. The learned senior counsel pointed out that under the DoH, the
Corporate Debtor has undertaken a three-fold obligation under the
DoH. Firstly, under clause 2 of the DoH, the Corporate Debtor, in
its capacity as Chargor and Obligor, has covenanted to pay the
appellants the amount due under the relevant facilities availed by
RCom and RTL. Secondly, under clause 3 of the DoH, the Corporate
Debtor created a charge over its entire asset pool on a first-ranking
pari passu basis for the benefit of the secured creditors, including
the appellants and others. The learned senior counsel pointed out
that the entire asset pool is the subject matter of the approved
Resolution Plan. Thirdly, under sub-clauses (ii) and (iii) of clause
5 of the DoH, the Corporate Debtor unambiguously, unequivocally
and expressly agreed to make good the shortfall in realisation of the
outstanding debt to the appellants, in the event charged assets were
not sufficient to satisfy the outstanding debts owed to the appellants.
He submitted that the Corporate Debtor in its capacity as a Chargor,
in addition to hypothecating its properties, has undertaken to pay
the appellants the amounts due and payable under the relevant
facilities granted to RCom and RTL, which amounts to a guarantee
in terms of Section 5(8).
12. The learned senior counsel pointed out the findings recorded in
paragraph 8 of the order made by the NCLT. Relying upon Section
2050 [2024] 12 S.C.R.

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126 of the Indian Contract Act, 1872 (for short, ‘the Contract Act’),
he submitted that a contract of guarantee is a contract to perform
the promise or discharge the liability of a third person in case of a
default. He submitted that since the Corporate Debtor undertook to
pay the amounts due and payable by other RCom entities, it was
a contract to perform or discharge the liability of a third party in the
event of default by the original borrower. Moreover, clauses 5(iii) and
16(viii) of the DoH provided that upon the occurrence of an event of
default, the Security Trustee was authorised to take steps against
the Corporate Debtor without having any obligation to first proceed
against the borrower.
13. The learned senior counsel rebutted the 1st respondent’s contention
that clause 5(iii) was a standard clause included in hypothecation
deeds. He submitted that unlike the sample hypothecation deeds
relied upon by the 1st respondent, where the borrower himself
provides security, as per the DoH in the present case, the Corporate
Debtor, being a third party, undertook to pay the shortfall amount.
In that sense, the promise to pay is in the nature of a guarantee.
Therefore, the appellants were entitled to file a claim as Financial
Creditors. The learned senior counsel submitted that every word stated
in the contract has to be given its due meaning, and no part of the
contract and words used thereunder could be said to be redundant.
14. He submitted that there is a fallacy in the 1st respondent’s submission
that the appellants were not entitled to file a claim in Form-C since
there was no default or the shortfall as on 20th May 2019. The learned
senior counsel distinguished between a claim submitted pursuant
to the public announcement under Section 15 of the IBC and the
requirement of the existence of debt and default for the purposes of
filing an application under Section 7 of the IBC. He submitted that
the claim as defined under Section 3(6) of the IBC arises without
any default taking place at the time of filing the claim.
15. He also dealt with the contention raised by the respondents that
the appellants’ rights as secured creditors under the MSTA and
the DoH cannot survive after moratorium comes into force under
Section 14 of the IBC. He urged that the moratorium only bars any
action for recovery or enforcement outside the resolution process
and therefore, there is a provision for filing claims to the RP. Once
the CIRP commences, creditors cannot enforce any rights under
[2024] 12 S.C.R. 2051

China Development Bank v. Doha Bank Q.P.S.C. & Ors.

the documents and are required to file their claims for outstanding
dues with the RP.
16. He submitted that the definition of ‘financial debt’ under Section
5(8) of the IBC is inclusive and not exhaustive. He relied upon
the decisions of this Court in the cases of Kotak Mahindra Bank
Limited v. A. Balakrishnan1 and Orator Marketing Pvt. Ltd. v.
Samtex Desinz Pvt. Ltd.2 He submitted that the debt need not be
directly disbursed to the Corporate Debtor. He relied upon another
decision of this Court in the case of Maitreya Doshi v. Anand Rathi
Global Finance Ltd. & Ors.3 He submitted that the Security Trustee
under the DoH is acting for the benefit of the secured lenders like
the appellants who are the direct and intended beneficiaries under
the DoH. He submitted that the beneficiary to a contract can enforce
such a contract even when it is not a party to the same. He relied
upon the decisions of this Court in the cases of M.C. Chacko v.
State Bank of Travancore4 and Essar Steel Ltd. v. Gramercy
Emerging Market Fund.5
17. The learned senior counsel submitted that the entire CIRP of the
Corporate Debtor has proceeded on the basis that the appellants are
Financial Creditors of the Corporate Debtor. They have participated
and voted as Financial Creditors. Therefore, at this belated stage,
when the proceeds of the approved Resolution Plan have been
realised and are pending distribution, the entire process cannot be
overturned, and the appellants cannot be removed from the list of
Financial Creditors.
18. In the alternative, the learned counsel contended that appellants
are entitled to receive a payout commensurate to their security
interest. The learned counsel submitted that the RP accepted that
the appellants were secured Financial Creditors. Therefore, the
security interest of the appellants cannot be extinguished during the
CIRP of the Corporate Debtor, and the appellants ought to be paid
at least the commensurate value as per the security interest held

1 2022 INSC 630 : (2022) 9 SCC 186
2 2021 INSC 359 : (2023) 3 SCC 753
3 2022 INSC 1004 : AIR 2022 SC 4595
4 1969 INSC 151 : (1969) 2 SCC 343
5 2002 SCC OnLine Guj 319
2052 [2024] 12 S.C.R.

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in the event their status as Financial Creditors is not accepted. He
relied upon a decision of this Court in the case of Vistra ITCL (India)
Ltd. & Ors. v. Dinkar Venkatasubramanian6 on the entitlement of
the secured creditor.

Submissions in Civil Appeal no. 7407 of 2022
19. The learned senior counsel appearing for the appellants in Civil Appeal
No. 7407 of 2022 also made detailed submissions and pointed out
the factual aspects of the case. The learned senior counsel pointed
out that the appellants’ claim as Financial Creditors was admitted
by the RP in August 2019. He referred to the relevant portion of the
minutes of the CoC meeting held on 2nd August 2019. He pointed
out that the extracts of the minutes show that in response to the
query made whether there was any deed of guarantee, the learned
counsel appearing for the RP made it clear that while there was no
deed of guarantee, there was a legal obligation in the DoH under
which, the Corporate Debtor had undertaken to pay the shortfall.
The learned senior counsel analysed clause 5(iii) of the DoH. He
pointed out that the Chargors (including the Corporate Debtor) have
agreed to accept the Security Trustee’s account of the expenses,
sales and realisation and to pay on demand by the Security Trustee
any shortfall. He pointed out that Clause 2.15 of MSTA clarifies that
the security created under the DoH is in addition to and independent
of any other rights or remedies available to the appellants in law,
equity or otherwise. More importantly, there is a personal covenant
to pay on the part of the Chargors. He pointed out that clause 5(iii)
of the DoH provides protection to the Security Trustee precisely
because there is an obligation on the Chargors to pay the shortfall/
deficiency in payment of debt. When there are no recoveries from
the sale of the charged properties, the entirety of the amount of
default by RCom would be rendered in shortfall or deficiency and
form part of the Corporate Debtor’s liability to pay. He pointed out that
in the present case, the Corporate Debtor has not merely provided
security for RCom’s dues but has also expressly undertaken to
pay any shortfall or deficiency that may arise in the recovery of the
amounts from RCom following the realisation from the sale of the
security. Therefore, clause 5(iii) of the DoH contains the ingredients

6 2023 INSC 500 : (2023) 7 SCC 324
[2024] 12 S.C.R. 2053

China Development Bank v. Doha Bank Q.P.S.C. & Ors.

of a contract of guarantee under Section 126 of the Contract Act.
Relying upon the definition of financial debt under Section 5(8) of
the IBC, he submitted that the facility availed by RCom undoubtedly
falls within the definition of financial debt and especially, clause (a)
of sub-section (8) of Section 5 of the IBC. Therefore, the guarantee
provided by RITL-Corporate Debtor for such a financial facility would
be a financial debt, which would entitle the appellant to be classified
as a Financial Creditor.
20. He submitted that a sentence or term in a document is not determinative
of the real nature of the document and obligations thereunder. He
relied upon the decision of this Court in the case of B.K. Muniraju v.
State of Karnataka & Ors.7, to state that the nature of the document
or transaction between the parties to the contract is to be read as
a whole and is not to be determined by the nomenclature/title of a
contract. He submitted that the rights flow from the contents of the
document. He submitted that as held by this Court in the case of
Union of India v. D.N. Revri & Co. and Ors.8, a contract must be
interpreted in such a manner so as to give efficacy to the contract
between the parties rather than to invalidate the same. Moreover,
a contract must be read as a whole and attempts should be made
to harmonise the terms. He submitted that as held in the case of
Maharashtra State Electricity Distribution Company Limited v.
Maharashtra Electricity Regulatory Commission & Ors.9, the
Court should not rewrite a contract in the guise of interpreting the
terms thereof.
21. In reference to the argument regarding the extinguishment of the
claim of the appellant due to the moratorium under Section 14 of the
IBC, he submitted that Section 14 does not extinguish any right. The
learned senior counsel also relied upon a decision of this Court in
the case of Committee of Creditors of Essar Steel India Limited
v. Satish Kumar Gupta & Ors.10 He submitted that the provisions
of the IBC ensure that successful resolution applicant starts running
the business of the Corporate Debtors on a fresh slate.

7 2008 INSC 208 : (2008) 4 SCC 451
8 1976 INSC 208 : (1976) 4 SCC 147
9 2021 INSC 644 : (2022) 4 SCC 657
10 2019 INSC 1256 : (2020) 8 SCC 531
2054 [2024] 12 S.C.R.

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22. The learned senior counsel also refuted 1st respondent’s submission
that Clause 5(iii) of the DoH becomes an impossibility since
moratorium prohibits enforcement of security interest under the DoH.
He submitted that the guarantee under clause 5(iii) of the DoH is not
contingent upon the enforcement of the security interest.
23. In the alternative, the learned counsel submitted that in any event,
the appellant is entitled to retain the security interest and be classified
as a secured creditor. He submitted that in the Resolution Plan,
other creditors include those creditors who have a claim against the
Corporate Debtor but are neither Financial Creditors nor Operational
Creditors. He submitted that while voting in favour of the Resolution
Plan, the appellant made it clear that its approval was subject to
the appellants being considered as Financial Creditors. Even while
approving the Resolution Plan, the NCLT permitted the distribution
of the payment to the Financial Creditors including the appellants
and stated that the same shall abide by and subject to the outcome
of the application filed by the 1st Respondent.
24. The learned senior counsel also relied upon the decision of this Court
in the case of Vistra ITCL (India) Ltd.6 to contend that IBC recognises
the rights of secured creditors. He submitted that the requirement to
relinquish the security interest is only during the liquidation process
and not during the CIRP. Therefore, the question of whether the
appellant has relinquished its security interest does not arise.

Submissions in Civil Appeal no. 7328 of 2022
25. The learned counsel appearing for the appellant in Civil Appeal No.
7328 of 2022 also made detailed submissions which are similar to
the submissions made in Civil Appeal No. 7407 of 2022.

Submissions of 1st to 4th Respondents
26. On behalf of 1st to 4th respondents, it was submitted by the learned
senior counsel that the DoH is only a simple document hypothecating
certain properties of the borrowers (RCom entities) in favour of the
appellants/third party lenders represented by the Security Trustee.
The learned senior counsel submitted that in the present case, the
DoH has only two parties: the Chargor (including the Corporate
Debtor and three other RCom entities) and the Security Trustee. He
submitted that without the presence of the three parties, namely the
[2024] 12 S.C.R. 2055

China Development Bank v. Doha Bank Q.P.S.C. & Ors.

Guarantor, Principal Debtor and Creditor, a guarantee could not come
into existence. Therefore, the DoH does not meet the requirement of
Section 126 of the Contract Act. Reliance was placed on the decision
of this Court in the case of Phoenix ARC Pvt. Ltd. v. Ketulbhai
Ramubhai Patel.11
27. Our attention was invited to clause 5(iii) of the DoH. The learned
senior counsel submitted that it only contains the process of
enforcement of security by the Security Trustee. He submitted
that the relevant part of clause 5(iii) of the DoH means that the
Chargors have agreed to accept the Security Trustee’s accounts
of sales, realisation and expenses. The Chargors have agreed that
upon demand of the Security Trustee, they will pay such shortfall or
deficiency in the expenses. The learned senior counsel urged that
the effect of a contract means as it reads, and it is not open for a
Court to supplement or add to a contract since a contract is entered
into on the basis of commercial decisions of the parties.
28. The learned counsel submitted that even assuming that a portion
of clause 5(iii) of the DoH is a separate agreement, it is manifestly
a contingent contract as per Section 32 of the Contract Act. The
contingency would have arisen only when the hypothecated properties
were sold, expenses were incurred, and there was a shortfall in
realisation. He relied upon a decision of the Bombay High Court in the
case of Western Coalfields Limited & Anr. v. Rajesh s/o Nandlal
Biyani.12 His submission is that the contingent contract ceased to
exist when the moratorium was declared under Section 14 of the
IBC with effect from 15th May 2018, since after the moratorium,
hypothecated property could not be sold either in fact or in law. As
the hypothecated property could not be sold, there was no question
of sale or realisation. As there would not be a shortfall, the question
of meeting the shortfall would not arise.
29. The learned counsel further submitted that the enforcement of
security is left out of the domain of CIRP as it focuses on revival of a
Corporate Debtor as opposed to the process of liquidation. After the
moratorium applies, the enforcement of security becomes impossible.

11 2021 INSC 59 : (2021) 2 SCC 799
12 2011 SCC OnLine Bom 1217 : (2012) 2 Mah LJ 394
2056 [2024] 12 S.C.R.

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30. The learned senior counsel submitted that the DoH does not contain
any promise by the Corporate Debtor to discharge the liability of any
of the borrowers to any other lender. As there are no third parties
to the document, it cannot be termed as a guarantee. He submitted
that clause 5(iii) of the DoH is found in every standard draft of a
deed of hypothecation.
31. He submitted that there are other clauses in the DoH, such as clauses
2, 3, 5 and 9, which indicate that the Corporate Debtor has merely
created a security in favour of the Security Trustee, which represents
the lenders. The Corporate Debtor has not agreed to discharge the
obligations of any borrower. The mere security interest created by
hypothecation or mortgage does not constitute a financial debt as
held by this Court in the case of Anuj Jain, Interim Resolution
Professional for Jaypee Infratech Limited v. Axis Bank Limited
& Ors.13
32. The learned counsel submitted that when financial debt is intact,
a lender would remain a Financial Creditor and can make a claim
before the RP. However, when the claim made by the Financial
Creditor is based on a contingent event, a lender cannot become a
Financial Creditor until the contingent event has happened and the
debt is crystalised/accrued. In the facts of the case, a contingent
event has never happened, and therefore, financial debt has not
been crystallised.
33. He submitted that MSTA did not require a guarantee to be executed
in favour of the Security Trustee. In fact, the recitals in the MSTA
clearly indicate that the requirement on Obligors was to hypothecate
property as security for due repayment of the secured facilities availed
by each Obligor. It was submitted that the appellants are contract
lenders of the three RCom entities and not the Corporate Debtor
since the Corporate Debtor has not availed any loans or facilities
from the appellants.
34. The learned senior counsel submitted that the Corporate Debtor
in its financial statement before and after commencement of the
CIRP had not treated the MSTA and the DoH as a guarantee. It is
submitted that the Corporate Debtor had not provided any guarantee

13 2020 INSC 227 : (2020) 8 SCC 401
[2024] 12 S.C.R. 2057

China Development Bank v. Doha Bank Q.P.S.C. & Ors.

under the MSTA or the DoH. The learned senior counsel submitted
that a perusal of Form-C filled in by the appellants shows that no
guarantee was provided to the appellants/third party lenders. This
position was further clarified in the minutes of the CoC meeting dated
2nd August 2019. Even the RP accepted that there was no deed of
guarantee. The learned senior counsel submitted that the IBC cannot
be used for recovery as it is a mechanism to rehabilitate and revive
the Corporate Debtor. He urged that the appellants are attempting to
use the CIRP as a mode of recovery of their loans from the RCom
entities. He submitted that if the DoH is treated as a guarantee, all
such hypothecation deeds creating security interest will have to be
construed as a guarantee in order to qualify as financial debt.
35. He submitted that the Resolution Plan has been passed in compliance
with Sections 13(2) and 13(4) of the IBC and once a Resolution Plan
is approved, it cannot be challenged before the forum.
36. The appellants voted and approved the Resolution Plan which
extinguished their security while their status as Financial Creditors
was under challenge in the pending application filed by the 1 st
Respondent-Doha Bank. Now, the appellants cannot be permitted
to turn back and rewrite the Resolution Plan. The learned senior
counsel urged that allowing any member of the CoC to agree to the
Resolution Plan by unilaterally reserving its right to seek amendment,
would run contrary to fundamental principles of the IBC and set a
dangerous precedent.
37. The learned senior counsel submitted that even if the CoC accepts
the appellants as Financial Creditors, the same would have no
consequence on the CIRP of the Corporate Debtor or the Resolution
Plan since the plan has been duly approved by 100 per cent majority
of the CoC in conformity with Section 30(2) of the IBC. The learned
senior counsel submitted that once the Resolution Plan has been
approved by this Court, the appellants cannot be allowed to challenge
the same. He submitted that while voting in favour of the Resolution
Plan, the appellants opted to take an approach of forgoing the benefit
of their security.
38. The learned senior counsel dealt with the submission of the appellant in
Civil Appeal No. 7298 of 2022 that the Resolution Plan was approved
by the CoC with pay outs to be made to secured Financial Creditors
and there was no separate clause of secured creditors at the stage of
2058 [2024] 12 S.C.R.

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approval by the CoC. He submitted that the said argument is suggestio
falsi. He submitted that the appellant in Civil Appeal No. 7298 of 2022
exercised its commercial wisdom and was conscious of the fact that
it was forgoing its security as the Financial Creditor and this would
tantamount to forgoing security even as a Secured Creditor. It was
submitted that if the appellants’ right to revise the agreed Resolution
Plan was recognised, it would lead to another classification of the
secured and unsecured Financial Creditors. The appellants voted and
approved the Resolution Plan based on the pari passu distribution to
the Financial Creditors, which extinguished its security. In fact, the
CoC, in its commercial wisdom, made a conscious decision not to
distinguish between the secured and the unsecured Financial Creditors
of the Corporate Debtor with the objective of reviving the Corporate
Debtor. The learned counsel for the respondents submitted that the
appeals, therefore, are required to be dismissed.

CONSIDERATION OF SUBMISSIONS
39. The entire controversy revolves around the DoH. Before we deal
with DoH, it is necessary to consider the relevant clauses of MSTA.

MASTER SECURITY TRUSTEE AGREEMENT (MSTA)
40. The DoH has been executed by the Security Trustee acting on behalf
of the Appellants, by the authority vested in it by MSTA. Therefore,
before coming to the DoH, we must consider the MSTA executed
on 4th March 2011 by and between the RCom entities described
therein as “Original Obligors”, “Original Lenders” and the Security
Trustee. The MSTA defines “Original Lenders” as collectively the
persons listed in Schedule I. The appellants are the Original Lenders.
Under the agreement, an “Acceding Lender” is defined as a person
who accedes to the MSTA by way of the lender’s deed of accession.
“Secured Lenders” are defined as collectively the Original Lenders
and each acceding lender or syndicate of the lenders. Therefore, all
the Original Lenders are described as Secured Lenders, and each
acceding lender becomes a Secured Lender.
41. Clause 2.1 of the MSTA provides that each Original Obligor appoints
the Security Trustee who acts as a trustee for the benefit of the secured
parties and their permitted successors, etc. “Secured Parties” are
defined to include the Security Trustee, Secured Lenders and any
[2024] 12 S.C.R. 2059

China Development Bank v. Doha Bank Q.P.S.C. & Ors.

other persons named as Secured Parties. Therefore, the Security
Trustee is appointed by each original Obligor, the RCom entities, to
act for the benefit of the Secured Parties, the appellants.
42. Clause 2.2 of the MSTA is relevant. Under the said clause, the Secured
Lenders authorised and directed the Security Trustee to act for the
benefit of the secured parties, including the Secured Lenders. The
authority conferred by clause 2.2 includes the authority to execute
and take delivery of the secured documents and to accept the security
and all related deeds and documents. It also authorises the Security
Trustee to enforce the security in accordance with the provisions of
the MSTA. To that extent, the Security Trustee acts on behalf of the
appellants, who are Original Lenders.

DEEDS OF HYPOTHECATION (DOH)
43. Then comes the DoH, to which RCom entities are shown as
“Chargors”. The Chargors have executed the DoH in favour of the
Security Trustee. The DoH refers to the entities availing the secured
facilities mentioned in Schedule I as “Obligors” for that specific
secured facility. The recitals mention that the Obligors have availed
of the security facilities mentioned in Schedule I. There are sixteen
security facilities mentioned therein, out of which eleven have been
availed by RCom, one by RTL and four by RITL-Corporate Debtor.
As mentioned in Schedule-I, one of the facilities was extended to
RCom by the appellant in Civil Appeal No. 7298 of 2022.
44. Clause 2 of the DoH provides that each of the Chargors covenanted
with Security Trustee that each Obligor (RCom entities) shall repay
the secured facilities availed by it together with the interest, liquidated
damages, premia of prepayment, etc. In pursuance of the aforesaid,
Clause 3 of the agreement provides for hypothecation of the Chargors’
assets for the purpose of securing the facilities. The relevant part
of Clause 3 read thus:
“3. Charge
In pursuance of the aforesaid, each of the Chargors does
hereby hypothecate as he by way of a first ranking pari
passu charge to the Security Trustee, acting in trust for
and for the benefit of the Secured Parties, for the purpose
of securing the due discharge by the Obligors of all their
2060 [2024] 12 S.C.R.

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obligations in connection with the Secured Facilities, all
of its following assets: .. .. .. .. .. .. ..”
The properties hypothecated by Chargors have been described
as “charged properties”.
45. Clause 5 contains the Chargor’s covenants, representations and
warranties. Sub-clause (iii) of Clause 5 is material, which reads thus:
“5. Chargor’s Covenants, Representations and
Warranties
.. .. .. . .. .. .. .. .. .. .. . … .. .. .. .. .. . .. . .
(iii) In the event that an Event of Default has
occurred under a Facility Document the Security Trustee
or its nominees shall, on receiving instructions from the
Secured Lender/s, in accordance with Section 4 of the
Security Trustee Agreement and after providing 7 (seven)
Business Days notice to any of the Chargors and without
assigning any reasons and at the risk and expense of
the Chargors and if necessary as attorney for and in the
name of the Chargors, be entitled to take charge and/
or possession of, seize, recover, receive and remove
them and/or sell by public auction or by private contract,
dispatch or consign for realisation or otherwise dispose of
or deal with all or any part of the Hypothecated Property
(including by way or through the exercise of its powers
and rights specified in Section 6 hereof) and to enforce,
realise, settle, compromise and deal with any rights or
claims relating thereto, without being bound to exercise
any of these powers or be liable for any losses in the
exercise or non-exercise thereof and without prejudice
to the Security Trustee’s rights and remedies of suit or
otherwise. Notwithstanding any pending suit or other
proceeding, each of the Chargors undertakes to give
possession to the Security Trustee or its nominees or the
Receiver within 7 (seven) Business Days of a notice of
demand from the Security Trustee and/ or the Receiver the
Charged Property and to transfer and to deliver to Security
Trustee and/ or the Receiver all related bills, contracts
and securities. Each of the Chargors further agrees to
[2024] 12 S.C.R. 2061

China Development Bank v. Doha Bank Q.P.S.C. & Ors.

accept the Security Trustee’s account of sales and
realisations as sufficient proof of amounts realised
and relative expenses and to pay on demand by the
Security Trustee and/ or the Receiver any shortfall or
deficiency thereby shown.
Provided however, the Security Trustee Or the Receiver
shall not be in any way liable or responsible for any loss,
damage or depreciation that the Hypothecated Property
may suffer or sustain on any account whatsoever whilst
the same are in possession of the Security Trustee or
the Receiver or by reason of exercise or non-exercise of
rights and remedies available to the Security Trustee or
the Receiver as aforesaid and that all such loss, damage
or depreciation shall be wholly debited to the account of
the relevant Chargor howsoever the same may have been
caused, except where such loss, damage or depreciation is
caused by any negligence or wilful default of the Security
Trustee or the Receiver.”
(emphasis added)

In these appeals, we are called upon to interpret clause 5(iii) of the
DoH and decide whether the clause creates any guarantee in favour
of the appellants. Therefore, we need to analyse the said clause.

GUARANTEE AS FINANCIAL DEBT
46. The question is whether the Corporate Debtor is a guarantor who
has guaranteed the repayment of the loan amount by the borrowers
of the appellant. As far as the appellant -China Development Bank
is concerned, under five different agreements, it has advanced
financial facilities to RCom and RTL. So far as the appellant, Asset
Care and Reconstruction Enterprises Limited, is concerned, there is
one agreement under which finance has been extended to RCom.
The same is the case with Shubh Holdings Pte. Ltd. Regarding the
Export Import Bank of China, four agreements were executed under
which facilities were granted to RCom. In the case of the Industrial
Commercial Bank of China, there is one agreement under which
finance was provided to RCom. The appellants have not advanced
any facilities to the Corporate Debtor.
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47. The answer to the question of whether the appellants are the Financial
Creditors depends upon the answer to the question of whether the
appellants are the guarantors. Therefore, we are adverting to the
relevant provisions of IBC. Sub-section (6) of Section 3 of the IBC
defines “claim” which reads thus:
“3. Definitions:-
.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
(6) “claim” means – (a) a right to payment, whether or
not such right is reduced to judgment, fixed, disputed,
undisputed, legal, equitable, secured, or unsecured; (b)
right to remedy for breach of contract under any law for the
time being in force, if such breach gives rise to a right to
payment, whether or not such right is reduced to judgment,
fixed, matured, unmatured, disputed, undisputed, secured
or unsecured;”
Sub-section (11) of Section 3 of the IBC defines “debt” which
reads thus:
“3. Definitions:-
.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
(11) “debt” means a liability or obligation in respect of a
claim which is due from any person and includes a financial
debt and operational debt;”
48. It is necessary to refer to the definitions of ‘Financial Creditor’ and
‘financial debt’ under sub-sections (7) and (8) of Section 5 of the
IBC respectively, which read thus:
“5.Definitions:-
.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
(7) “Financial Creditor” means any person to whom a
financial debt is owed and includes a person to whom
such debt has been legally assigned or transferred to;
(8) “financial debt” means a debt alongwith interest, if any,
which is disbursed against the consideration for the time
value of money and includes–
(a) money borrowed against the payment of
interest;
[2024] 12 S.C.R. 2063

China Development Bank v. Doha Bank Q.P.S.C. & Ors.

(b) any amount raised by acceptance under any
acceptance credit facility or its dematerialised
equivalent;
(c) any amount raised pursuant to any note purchase
facility or the issue of bonds, notes, debentures, loan
stock or any similar instrument;
(d) the amount of any liability in respect of any lease
or hire purchase contract which is deemed as a
finance or capital lease under the Indian Accounting
Standards or such other accounting standards as
may be prescribed;
(e) receivables sold or discounted other than any
receivables sold on non-recourse basis;
(f) any amount raised under any other transaction,
including any forward sale or purchase agreement,
having the commercial effect of a borrowing;
Explanation. -For the purposes of this sub-clause,-
(i) any amount raised from an allottee under
a real estate project shall be deemed to be
an amount having the commercial effect
of a borrowing; and
(ii) the expressions, “allottee” and “real
estate project” shall have the meanings
respectively assigned to them in clauses
(d) and (zn) of section 2 of the Real Estate
(Regulation and Development) Act, 2016
(16 of 2016);
(g) any derivative transaction entered into in
connection with protection against or benefit from
fluctuation in any rate or price and for calculating the
value of any derivative transaction, only the market
value of such transaction shall be taken into account;
(h) any counter-indemnity obligation in respect of a
guarantee, indemnity, bond, documentary letter of
credit or any other instrument issued by a bank or
financial institution;
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(i) the amount of any liability in respect of
any of the guarantee or indemnity for any
of the items referred to in sub-clause (a) to
(h) of this clause.”
(emphasis added)

In terms of sub-section (11) of Section 3, debt is a liability or obligation
in respect of a claim which is due from any person and includes
a financial debt or operational debt. As noted earlier, a claim is a
right to payment whether or not, such right is reduced to judgment
and whether it is disputed or undisputed. The right to payment can
be legal, equitable, secured or unsecured. Therefore, if there is a
liability or obligation in respect of a payment which is disputed, it still
becomes a claim. Once there is a liability or obligation in respect of a
claim, it becomes a debt. Once there is a financial debt, the person
to whom a debt is owed, becomes a Financial Creditor.
49. The appellants are claiming that their case is covered by clause (i) of
sub-section (8) of Section 5 of the IBC. Under clause (i), the amount
of any liability in respect of any guarantee of the items referred to in
clauses (a) to (h) becomes a financial debt. Therefore, when clause
(i) of Section 5(8) is applicable, it is not necessary that the Financial
Creditor actually tenders any amount to the Corporate Debtor. In this
case, the appellants are claiming that the amount of liability covered
by clause (i) is in respect of money borrowed by the RCom entities
(excluding the Corporate Debtor) against payment of interest under
the facility agreements. There is no dispute that facilities were granted
by the appellants to RCom entities. The amount of any liability in
respect of any of the guarantees for money borrowed against the
payment of interest is a financial debt under Section 5(8) of the IBC.
50. “Guarantee” is defined under Section 126 of the Contract Act, which
reads thus:
“126. “Contract of guarantee”, “surety”, “principal
debtor” and “creditor”.—A “contract of guarantee” is a
contract to perform the promise, or 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 called the
“principal debtor”, and the person to whom the guarantee
[2024] 12 S.C.R. 2065

China Development Bank v. Doha Bank Q.P.S.C. & Ors.

is given is called the “creditor”. A guarantee may be either
oral or written.”
A contract becomes a guarantee when the contract is to perform
the promise or discharge the liability of a third person in case of
default. Thus, when a person enters into a contract to perform or
discharge the liability of a third party, the contract becomes a contract
of guarantee.
51. Section 127 of the Contract Act reads thus:
“127. Consideration for guarantee.-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.
Hence, any promise made or anything done for the benefit of
principal debtor may be sufficient consideration to the surety
for giving guarantee.

EFFECT OF CLAUSE 5(iii) OF DOH READ WITH MSTA
Relevance of nomenclature of DoH
52. If we go by the title, DoH is a Document creating hypothecation.
In short, hypothecation means the process of using an asset as
collateral for a loan. It acts as a protection to the lender when the
borrower does not repay the loan.
53. Only the title of a document cannot be a decisive factor in deciding the
nature of the document or the transactions affected by the document.
In the case of C.C., C.E. and S.T. Bangalore (Adjudication) & Ors.
v. Northern Operating Systems Pvt. Ltd.,14 in paragraphs 53 to
55, this Court held thus:
“53. From the above discussion, it is evident, that prior
to July 2012, what had to be seen was whether a (a)
person provided service, (b) directly or indirectly, (c) in
any manner for recruitment or supply of manpower, (d)
temporarily or otherwise. After the amendment, all activities
carried out by one person for another, for a consideration,

14 2022 INSC 598 : AIR 2022 SC 2450
2066 [2024] 12 S.C.R.

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are deemed services, except certain specified excluded
categories. One of the excluded category is the provision
of service by an employee to the employer in relation to
his employment.
54. One of the cardinal principles of interpretation of
documents, is that the nomenclature of any contract,
or document, is not decisive of its nature. An overall
reading of the document, and its effect, is to be seen
by the courts. Thus, in State of Orissa v. Titaghur Paper
Mills Co. Ltd. [State of Orissa v. Titaghur Paper Mills Co.
Ltd., 1985 Supp SCC 280] it was held as follows : (SCC
p. 371, para 120)
“120. It is true that the nomenclature and description
given to a contract is not determinative of the
real nature of the document or of the transaction
thereunder. These, however, have to be determined
from all the terms and clauses of the document and
all the rights and results flowing therefrom and not by
picking and choosing certain clauses and the ultimate
effect or result as the Court did in the Orient Paper
Mills case [State of M.P. v. Orient Paper Mills Ltd.,
(1977) 2 SCC 77].”
This principle was reiterated in Prakash Roadlines (P) Ltd.
v. Oriental Fire & General Insurance Co. Ltd. [Prakash
Roadlines (P) Ltd. v. Oriental Fire & General Insurance
Co. Ltd., (2000) 10 SCC 64]
55. The task of this Court, therefore is to, upon an overall
reading of the materials presented by the parties, discern
the true nature of the relationship between the seconded
employees and the assessee, and the nature of the service
provided — in that context — by the overseas group
company to the assessee.”
(emphasis added)

As held in the case of B.K. Muniraju v. State of Karnataka & Ors.,7
a sentence or a term in a contract does not determine the real nature
[2024] 12 S.C.R. 2067

China Development Bank v. Doha Bank Q.P.S.C. & Ors.

of the contract. It is true that the Courts should not rewrite the contract
while making an attempt to interpret it. However, in the case of D.N.
Revri & Co.,8 in paragraph 7, this Court held thus:
“7. It must be remembered that a contract is a commercial
document between the parties and it must be interpreted
in such a manner as to give efficacy to the contract rather
than to invalidate it. It would not be right while interpreting
a contract, entered into between two lay parties, to apply
strict rules of construction which are ordinarily applicable to
a conveyance and other formal documents. The meaning
of such a contract must be gathered by adopting a
common sense approach and it must not be allowed
to be thwarted by a narrow, pedantic and legalistic
interpretation.
.. .. .. .. .. .. .. .. .. .. .. . .. .. .. . .. … . .. .. .. .. .. .. .. .. .. .. ..”
(emphasis added)

Therefore, the name of the document is not a decisive factor. Only
because the title of the document contains the word hypothecation,
we cannot conclude that guarantee is not a part of this document.

Parties to the DoH
54. Before we go to the clauses in the DoH, we must again go back
to the MSTA. Under the said agreement, the Security Trustee has
been appointed to act as trustee for the benefit of secured parties
which include Secured Lenders. Under clause 2.2.1 of the MSTA, the
Secured Lenders have authorised and directed the Security Trustee
to execute and deliver security documents to which, the Security
Trustee is to be a party and to accept the security, all related deeds
and documents as may be required to be submitted by the Obligors
for the benefit of secured parties. Under sub-clause (c) of clause
2.2.1 of MSTA, it is the duty of the Security Trustee to enforce the
security in accordance with the provisions of the agreement and
to receive and apply all money in accordance with the security
documents. Therefore, the Secured Lenders have authorised the
Security Trustee to accept the security on their behalf.
55. In light of this discussion, we turn to the DoH. We have already quoted
the relevant portion of the DoH. The RCom entities, including RITL-
2068 [2024] 12 S.C.R.

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Corporate Debtor, are described as Chargors in the DoH. Clause 2
of the DoH reads thus:
“2. Covenant to Pay:
In pursuance of the Secured Facilities and the Facility
Documents and in consideration of the Secured Lenders
having made available the Secured Facilities to the
Obligors for the purposes and subject to the terms and
conditions set out in the Facility Documents and/or the
other Security Documents, each of the Chargors does
hereby covenant with the Security Trustee that each
Obligor shall repay the Secured Facilities availed by it
together with interest, liquidated damages, premia on
prepayment, financing charges, remuneration payable to
the Security Trustee, fees payable to any Secured Party,
costs, charges expenses and all other monies stipulated
in the relevant Facility Documents in the manner set out
therein and shall duly observe and perform all the terms
and conditions of the relevant Facility Documents and/or
the other Security Documents.”
Clause 2 refers to Secured Lenders and Obligors. As noted earlier,
the appellants are Secured Lenders within the meaning of the
MSTA. The two RCom entities, namely RCom and RTL, are the
obligors being the borrowers of the appellants. Therefore, as per
clause 2, the appellants had made available the secured facilities
to RCom and RTL, who undertook to repay the secured facilities
availed by it together with the interest, liquidated damages, premia
of prepayment, financing charges, etc., including the remuneration
payable to the Security Trustee. As noted earlier, the appellants
are Secured Lenders within the meaning of the MSTA. Therefore,
as per clause 2, Secured Lenders had made available the secured
facilities to the Obligors. It provides that Obligors shall repay the
secured facilities availed by it together with the interest, liquidated
damages, premia of prepayment, financing charges, etc., including
the remuneration payable to the Security Trustee. As stated earlier,
two RCom entities, namely RCom and RTL, are the borrowers of the
appellants. Thus, these two companies are Obligors who covenanted
to repay the secured facilities availed by it together with interest,
liquidated damages, etc.
[2024] 12 S.C.R. 2069

China Development Bank v. Doha Bank Q.P.S.C. & Ors.

56. We have already quoted the first part of clause 5(iii) of the DoH. The
effect of the clause is that all the four RCom entities, including the
Corporate Debtor, hypothecated their assets by way of first ranking
pari passu charge to the Security Trustee, who was acting in trust
and for the benefit of the secured parties for the purpose of securing
due discharge of the Obligor’s obligations in connection with secured
facilities. The Security Trustee acted on behalf of the appellants by
accepting the security of hypothecation. Therefore, the DoH is a
document executed on behalf of the appellants. The effect of clause
5(iii) is that for the discharge of liabilities of the RCom entities, all four
RCom entities hypothecated their properties for securing repayment of
the facilities extended by the appellants to RCom and RTL. In short,
the parties to the DoH are Security Trustees acting on behalf of the
present appellants, the Corporate Debtor who is not the borrower of
the appellants and the other three RCom entities. Therefore, there
are three parties to the DoH.

Promise to discharge the Liability of third party
57. Sub-clause (i) of clause 3 of the DoH is a clause which is normally
found in hypothecation agreements. Then comes sub-clause (iii) of
clause 5 of the DoH, which we have already quoted. It provides that
in the event of default committed by the borrowers (in the case of the
appellants, the borrowers are RCom and RTL), the Security Trustee
is entitled to take charge and/or possession of, seize, recover, receive
and remove the hypothecated goods and/or sell by public auction
or private contract, dispatch or consign for realisation or otherwise
dispose of or deal with any part of the hypothecated property. It is
obvious that this action of realisation is to be done by the Security
Trustee in terms of sub-clause (c) of clause 2.2.1 of the MSTA.
Thus, the security of hypothecation can be enforced by the Security
Trustee on behalf of the appellants.
58. Sub-clause (iii) of clause 5 of the DoH further provides that each
of the Chargors agree to accept the Security Trustee’s account of
sales and realisation as sufficient proof of the amount realised and
relative expenses and to pay on demand by the Security Trustee
and/or receiver any shortfall or deficiency thereby shown. Under
the DoH, even the Corporate Debtor hypothecated its goods. The
last part of sub-clause (iii) of clause 5 means that if after the sale
of hypothecated assets, there is any shortfall in the discharge of
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the liabilities of RCom or RTL, the Corporate Debtor is under an
obligation to pay the shortfall or deficiency. Therefore, the latter part
of clause 5(iii) of the DoH indicates that RITL-Corporate Debtor, who
is not the borrower of the appellants, agreed to discharge the liability
of the third parties (RCom and RTL) to the appellants in the case
of default of RCom or RTL. Therefore, the second part of clause
5(iii) of the DoH amounts to a guarantee provided by the Corporate
Debtor to the appellants in terms of Section 126 of the Contract Act.
59. In the case of Phoenix ARC Pvt. Ltd.11, in paragraphs 24 and 25,
this Court held thus:
“24. Chapter VIII of the Contract Act, 1872 deals with “Of
Indemnity and Guarantee”. Section 124 defines “Contract
of indemnity” and Section 126 defines “Contract of
guarantee”. Section 126 which is relevant for the present
case is as follows:
“126. “Contract of guarantee”, “surety”, “principal
debtor” and “creditor”.—A “contract of guarantee”
is a contract to perform the promise, or 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 called the “principal debtor”,
and the person to whom the guarantee is given is
called the “creditor”. A guarantee may be either oral
or written.”
25. As is clear from the definition a “contract of guarantee”
is a contract to perform the promise, or discharge the
liability, of a third person in case of his default. The present
is not a case where the corporate debtor has entered into
a contract to perform the promise, or discharge the liability
of borrower in case of his default. The pledge agreement is
limited to pledge 40,160 shares as security. The corporate
debtor has never promised to discharge the liability of the
borrower. The facility agreement under which the borrower
was bound by the terms and conditions and containing
his obligation to repay the loan security for performance
are all contained in the facility agreement. A contract of
guarantee contains a guarantee “to perform the promise or
[2024] 12 S.C.R. 2071

China Development Bank v. Doha Bank Q.P.S.C. & Ors.

discharge the liability of third person in case of his default”.
Thus, key words in Section 126 are contract “to perform
the promise”, or “discharge the liability”, of a third person.
Both the expressions “perform the promise” or “discharge
the liability” relate to “a third person”.”
In this case, from the last part of clause 5(iii) of the DoH, it is very
clear that the Corporate Debtor has undertaken to discharge the
liability of the RCom and RTL, the borrowers of the appellants. RCom
and RTL are third parties as far as Corporate Debtor is concerned.
60. Reliance was placed on the formats of hypothecation provided in the
books authored by M.Tijoriwala and J.M. Diwekar by contending that
clause 3 of the DoH is a regular boilerplate clause. These formats
provided in the books have no relevance as we have to interpret
clause 5(iii) of the DoH as it is.

REQUIREMENT OF OCCURRENCE OF ‘DEFAULT’
61. There is an argument canvassed before us that default under the
DoH has not occurred. We have already quoted the definition of
‘financial debt’ under Section 5(8) of the IBC. There is no requirement
incorporated therein that a debt becomes financial debt only when
default occurs. Under Section 5(7) of the IBC, any person to whom
financial debt is owed becomes a Financial Creditor even if there is
no default in payment of debt. Therefore, this argument deserves
to be rejected.
62. On this aspect, we may also note that under Section 3(12), ‘default’
has been defined. This definition of ‘default’ becomes relevant only
while invoking the provisions of Section 7(1) of the IBC when the
CIRP is sought to be initiated by the Financial Creditor. Section
7(1) provides that a Financial Creditor can initiate CIRP against the
Corporate Debtor when there is a default on the part of the Corporate
Debtor. There is no requirement under Section 5(8) of the IBC that
there can be a debt only when there is a default. The moment it is
established that the financial debt is owed to any person, he/she
becomes a Financial Creditor. In this case, we are concerned with
the claim made by the appellants. A public announcement of CIRP
under Section 15(1) must contain the last date of submission of
claims as may be specified. Thus, if a person has a claim within the
meaning of Section 3(6), he can submit it on public announcement
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contemplated by Section 15 being made. A Financial Creditor has
a claim as explained earlier. Therefore, for submitting the claim by
a Financial Creditor, there is no requirement of actual default.

EXTINGUISHMENT OF CONTINGENT CLAIM ON IMPOSITION
OF MORATORIUM
63. Arguments have been canvassed that clause 5(iii) of the DoH is
a contingent contract wherein the contingent event is the shortfall
between realisation and expenses. The clause applies to the shortfall
in the total liability of the borrower after necessary amount is realised
from the hypothecated assets. It is contended that the contract has
become impossible, since owing to the moratorium imposed, the
hypothecated properties could not be sold and the shortfall could
not arise. Reliance is placed on Section 14(1) of the IBC, which
reads thus:
“14. Moratorium.— (1) Subject to provisions of sub-
sections (2) and (3), on the insolvency commencement
date, the Adjudicating Authority shall by order declare
moratorium for prohibiting all of the following, namely:
(a) the institution of suits or continuation of pending suits
or proceedings against the corporate debtor including
execution of any judgment, decree or order in any court
of law, tribunal, arbitration panel or other authority;
(b) transferring, encumbering, alienating or disposing of
by the corporate debtor any of its assets or any legal right
or beneficial interest therein;
(c) any action to foreclose, recover or enforce any security
interest created by the corporate debtor in respect of its
property including any action under the Securitisation and
Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002 (54 of 2002);
(d) the recovery of any property by an owner or lessor
where such property is occupied by or in the possession
of the corporate debtor.
Explanation.—For the purposes of this sub-section, it is
hereby clarified that notwithstanding anything contained
[2024] 12 S.C.R. 2073

China Development Bank v. Doha Bank Q.P.S.C. & Ors.

in any other law for the time being in force, a license,
permit, registration, quota, concession, clearances or a
similar grant or right given by the Central Government,
State Government, local authority, sectoral regulator or
any other authority constituted under any other law for the
time being in force, shall not be suspended or terminated
on the grounds of insolvency, subject to the condition that
there is no default in payment of current dues arising for
the use or continuation of the license, permit, registration,
quota, concession, clearances or a similar grant or right
during the moratorium period;”
Section 14(1) imposes an embargo or prohibition on certain acts.
However, it does extinguish the claim. If the argument that the claims
of all the creditors of the Corporate Debtor are extinguished once
the moratorium comes into force is accepted, no creditor would be
able to file a claim. For example, if money advanced is secured by
a promissory note or a negotiable instrument, a suit for recovery
based on the said documents will not lie once a moratorium comes
into force. But, the liability under the documents will continue to
exist. In fact, after moratorium, no creditor can recover any dues
from the Corporate Debtor. But still, there is a provision for making
a claim. Hence, the argument based on moratorium deserves to be
rejected. The DoH will continue to be valid. However, on the basis
of the DoH, something which is prohibited by Section 14, cannot
be done. Therefore, Section 14 will be of no assistance to the 1st
respondent-Doha Bank.
64. When we are on the interpretation of DoH, we must refer to sub-
clause (vi) of clause 16 of the DoH, which provides that every
provision contained in the deed shall be severable and distinct from
every other such provision. It goes to the extent of stating that if
any one or more of the provisions of the DoH are invalid, illegal and
unenforceable, the same will not affect the remaining provisions.
Therefore, the last part of clause 5(iii) of the DoH is severable from
the main transaction of the hypothecation.
65. Another argument was canvassed based on the definition of ‘claim’
under Section 3(6) of the IBC. If the right to payment exists or if a
breach of contract gives rise to a right to payment, the definition of
‘claim’ is attracted. Even if that right cannot be enforced by reason of
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the applicability of the moratorium, the claim will still exist. Therefore,
whether the cause of action for invoking the guarantee has arisen
or not is not relevant for considering the definition of ‘claim’.
66. Much capital was made of the fact that the CoC, including the
appellants as well as the third-party lenders, have voted for the
Resolution Plan. At this stage, we may note that the NCLAT has
not held against the appellants on the ground that if the case of the
appellants is accepted, it will amount to modification of the Resolution
Plan. We may note here that in Company Appeal (AT) (Insolvency)
No.19 of 2021 by the order dated 19th January 2021, the NCLAT,
while deciding the challenge to the Resolution Plan, noted that the
application challenging the status of the appeals made by the 1st
respondent-Doha Bank was pending. The NCLAT observed that the
Resolution Plan was rightly approved, subject to the disposal of the
pending application. In fact, in paragraph 7, the NCLAT observed that
depending upon the outcome of the applications, if the Resolution
Plan requires to be reconsidered, the adjudicating authority will do
so after hearing the parties. This order has become final.
67. As we have accepted the main contention of the appellants, the
alternative contention of the appellants becoming secured creditors
is not gone into.

CONCLUSION
68. The sum and substance of the above discussion is that the impugned
judgment and order dated 9th September 2022 passed by the NCLAT
cannot be sustained, and the order dated 2nd March 2021 of the
NCLT deserves to be upheld. Accordingly, the impugned order of the
NCLAT is quashed and set aside, and the order dated 2nd March
2021 passed by the NCLT, Mumbai Bench (adjudicating authority)
is restored. The appeals are, accordingly, allowed.

Result of the Case: Appeals allowed.

†
Headnotes prepared by: Nidhi Jain