An indemnity of obligation under agreement doesn’t constitute ‘Financial Debt’

Axix Bank Limited Vs Nageswara Rao (NCLT Mumbai)

NCLT Mumbai held that obligations under the Undertaking do not attract the definition of ‘financial debt’. A fortiori, an indemnity of the obligations under the Agreement will equally not constitute a ‘financial debt’ under Section 5(8) of the Code.

Facts-

Applicant (Axis Bank Limited) agreed to subscribe to the Commercial Papers issued by M/s. Reliance Home Finance Limited (RHFL). In order to protect its interest, the Applicant got a tripartite Obligor Undertaking dated April 10, 2019 (Obligor Undertaking) executed by Reliance Capital Ltd. (CD) and RHFL to ensure that any dilution of CD’s stake (Stake Sale) in Reliance Nippon Life Asset Management Limited (Reliance Nippon) would be utilized towards the payment due under the Commercial Papers.

Due to non-payment, the applicant issued a legal notice to CD and RHFL for payment of an amount of approx. INR 120 Crore pursuant to their obligation under the Obligor Undertaking.

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