NCLT dismisses JC Flowers’ claim against HDIL, stating collateral does not meet IBC standards


NCLT Dismisses Liability Claim by JC Flowers ARC Pvt Ltd Against HDIL: Debt Not Considered Financial Under IBC

The National Company Law Tribunal (NCLT) recently made a significant ruling in a case involving JC Flowers ARC Pvt Ltd and Housing Development & Infrastructure Ltd. (HDIL), setting a precedent for lenders with similar claims under the Insolvency and Bankruptcy Code (IBC).

In this case, Yes Bank had extended a loan to Carnival Films, with HDIL providing collateral in the form of three multiplex properties. Yes Bank later assigned the loan to JC Flowers ARC, which then filed a liability claim against HDIL. However, the NCLT dismissed the claim, stating that the debt did not qualify as a “financial debt” under the IBC.

The tribunal emphasized that a financial debt must involve disbursed funds to the corporate debtor or a guarantee issued on its behalf, neither of which applied to HDIL in this case. The ruling clarified that mere mortgage or collateral arrangements do not automatically translate to financial debt under the IBC.

The decision highlighted the importance of claim timing and nature, reminding lenders that only debts due at the time of insolvency commencement will be admitted into the CIRP process. The ruling also underscored the limitations in pursuing collateral-based claims within the insolvency framework when the collateral provider is not a direct beneficiary of the loan.

Faiza Dhanani, a partner at Cue Legal, commented on the ruling, stating that it would likely impact how secured lenders approach third-party collateral in insolvency cases. She emphasized the need for creditors to ensure compliance with IBC requirements, as collateral arrangements alone will not suffice for financial debt classification.

Overall, the NCLT’s decision in this case serves as a crucial reminder for lenders and creditors to carefully assess their claims and ensure they meet the necessary criteria under the IBC.

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