Third Party Security: Pledgees Not Financial Creditors

In Anuj Jain, Interim Resolution Professional for Jaypee Infratech Limited v. Axis Bank Etc ¹, the Supreme Court held that a mortgagee is not a financial creditor of a corporate debtor who has merely created a mortgage to secure the loan advanced by the mortgagee to a third party. In Phoenix Arc Pvt Ltd v Ketulbhai Ramubhai Patel², the Supreme Court was called upon to decide on a similar issue- whether a pledgee would be a financial creditor of the pledgor company being the corporate debtor when the pledge was created to secure loan advanced by the pledgee to a third party. We analyse the recent judgment of the Hon'ble Supreme Court of India in this matter.

Facts:

• By and under a facility agreement dated 12^th May 2011 (“Facility Agreement”), Doshion Limited (“Borrower”) availed a financial facility from L&T Infrastructure Finance Company Limited (“Lender” / “L&T”) for an amount of Rs. 40,00,00,000/- (Rupees Forty Crores only) (“Facility”).