In its ruling dated November 29, 2021 ("Judgement") in the case of Hubtown Limited v. GVFL Trustee Company Private Limited [M.A. 2411/2019 IN C.P. 4128/I&B/MB/2018 and others], the National Company Law Tribunal in Mumbai ("NCLT") found that shareholders are distinct from lenders..
In the instant case titled GVFL Trustee Company Private Limited v. Hubtown limited, the issue raised for clarification before the NCLT was:
If shareholders are lenders, then GVFL is a financial creditor, and the alleged debt is a financial debt?
With regard to this issue, The NCLT stated that it was necessary to determine whether GVFL's claim as a shareholder of HBT Mehsana using its "put option" amounted to a financial liability. The NCLT noted that "financial creditor" and "financial debt" were the appropriate definitions under the IBC to analyse the aforementioned issue. According to the NCLT, the IBC defines a financial creditor as any person who is owed a financial debt, including a person to whom the debt has been properly assigned or transferred. The NCLT also highlighted that, in accordance with Section 5(8) of the IBC, "financial debt" was defined as "a debt together with interest, if any, which is dispensed against the consideration for the time the obligation is incurred." The NCLT further noted that GVFL invested in HBT Mehsana by purchasing shares of ILFS group, in accordance with the SHA, and concluded that this could not be characterised as GVFL borrowing money to make an investment. The money spent by GVFL to purchase the HBT Mehsana shares cannot be interpreted as a consideration for time value of money; rather, it was used exclusively to purchase the HBT Mehsana shares that the ILFS group owned in order to become a shareholder in the company.
The NCLT also observed that the SPA and SHA are both agreements pertaining to the purchase of equity shares in HBT Mehsana by GVFL. Additionally, as stated in the SHA, GVFL had acquired the aforementioned rights among others. NCLT was well aware that under the IBC, "Financial Creditors" never acquire the power to vote in any AGM or EGM. Since stock is not a debt, the rights that GVFL enjoys in HBT Mehsana, such as casting votes at AGMs and EGMs, are normally those of a shareholder and not a "Financial Creditor."
According to the NCLT, the SPA that GVFL entered into for the purchase of shares in HBT Mehsana with an exit option, including a "Annual Put Option," cannot be viewed as a debt that is disbursed taking time value for money into account. IRR and interest payments cannot be compared, according to the NCLT.
As a shareholder of HBT Mehsana, the NCLT believed that GVFL may be entitled to this claim under the SHA. However, the NCLT was certain that the claim of GVFL could not be classified as a "financial debt" as defined by the IBC. A stockholder is distinct from a lender, the NCLT noted.
As a result, the NCLT approved the other application that contested the maintainability of the petition submitted in accordance with Section 7 of the IBC. As a result, the NCLT rejected the Section 7 application, finding that it was not maintainable in accordance with IBC rules. Similar to how other miscellaneous applications about the maintainability of other company petitions were approved based on the aforementioned findings, the other company petitions were afterwards rejected as unmaintainable.
The NCLAT categorically stated that,
"The Bench is of the view that the GVFL may be entitled to this claim under the SHA as a Shareholder of HBT Mehsana. However, the Bench has no doubt that the claim of GVFL cannot be termed as a Financial Debt as contemplated under IBC. Therefore, the MA 2412/2019 regarding maintainability of CP(IB)-4129/2018 is “Allowed” and CP No. CP(IB)-4129/2018 is not maintainable under Section 7 of IBC and therefore is “dismissed”.