Analysis of SC judgment- Phoenix Arc Private Limited Vs. Spade Financial Services Limited & Ors.

By Editor2 Corporate Law Judiciary February 1, 2021 1 comment

TaxGuru Citation: 2021 taxguru.in 169
Case Name: Phoenix Arc Private Limited Vs Spade Financial Services Limited (Supreme Court)
Appeal Number: Only available for paid members
Date of Judgement/Order: Only available for paid members
Courts: Supreme Court of India

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Insolvency and Bankruptcy Board of India
7th Floor, Mayur Bhawan, Connaught Place, New Delhi -110001

3rd February, 2021

Subject: Judgment¹ dated 1^st February, 2021 of the Hon’ble Supreme Court of India in the matter of Phoenix Arc Private Limited Vs. Spade Financial Services Limited & Ors. [Civil Appeal No. 2842 of 2020 with Civil Appeal No. 3063 of 2020]

While disposing of the appeal against the Order dated 27^th January, 2020 of the NCLAT, the Hon’ble Supreme held as under:

Sl. No.

Issue / Theme

Held

Para / Page No.

Res judicata

The NCLT, vide an order on 31^st May, 2018, allowed AAA Landmark Private Limited (AAA) and Spade Financial Services Private Limited (Spade) to submit their claims as financial creditors (FCs) with a direction to the IRP to consider the claims. However, on subsequent applications by two FCs, (Phoenix and YES Bank) seeking exclusion of AAA and Spade from the committee of creditors (CoC) on the ground that they were related parties, the National Company law Tribunal (NCLT) held that Spade and AAA did not qualify to be considered as FCs. In this backdrop, the order of the NCLT dated 31^st May, 2018 will not operate as res judicata, as it was passed without hearing FCs such as Phoenix and YES Bank.

30/21

Remanding the proceeding for reconsideration

An order of remand cannot be passed in a routine manner, and it should be passed only if a re-consideration is necessary. An unwarranted order of remand does not serve the cause of justice and merely extends the life of litigation. Remands in commercial matters should not become a ruse to subserve litigation luxuries.

39/27

Real nature of transaction

Money advanced as debt should be in the receipt of the borrower. The borrower is obligated to return the money or its equivalent along with the consideration for a time value of money, which is the compensation or price payable for the period of time for which the money is lent. A transaction which is sham or collusive would only create an illusion that money has been disbursed to a borrower with the object of receiving consideration in the form of time value of money, when in fact the parties have entered into the transaction with a different or an ulterior motive. In other words, the real agreement between the parties is something other than advancing a financial debt.