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Considering a group of transactions, the rule of separability as a principle which can be applied only if it does not affect the main aim and intention of the transaction and only if the objectionable part can be severed without affecting the validity of the remaining part, was considered by the NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH, NEW DELHI, before a bench consisting of Justice Ashok Bhushan, Chairperson; and Dr. Ashok Kumar Mishra, Member (Technical), in the matter of S.A.R.E Public Company Limited vs. SARE Gurugram Pvt. Ltd. and Ors. [Company Appeal (AT) (Insolvency) No. 359 of 2021], on 24.01.22.

The present appeal was filed against order dated 09.03.2021 passed by National Company Law Tribunal, New Delhi, Principal bench admitting the Company Petition filed by Respondent No.2-Asset Care and Reconstruction Enterprises Ltd. under Section 7 of the Insolvency and Bankruptcy Code, 2016 (‘Code’). The appellant had filed an IA for intervention, which application was dismissed by admitting the Company Petition filed by Respondent No.2.

The facts of the case are that the appellant S.A.R.E Public Company Limited is a Company existing under the laws of Cyprus. One Wafra Capital Partners L.P (Wafra) a Cayman Islands Limited Partnership having its office at New York, United States of America. In the year 2011 Wafra had invested US$ 50 million in convertible bonds issued by S.A.R.E Public and a Purchase Agreement dated 28.04.2011 was entered between Wafra and Appellant. Several other supporting/ ancillary agreements forming part of the composite transaction were also entered. SARE Gurugram Pvt. Ltd., the Corporate Debtor in order to obtain funds entered into Debenture Trust Deed, and subsequently, a Facility Agreement was also entered into pursuant to which loan facility was being advanced.

On 30.06.2018 an amount of US $ 60,162,463 was due and payable by SARE Public to Wafra on account of outstanding Bonds. Due to repeated defaults of SARE Public, Wafra had exercised its right to appoint a Receiver as per the terms of the Debenture Deed dated 28.04.2011 and had appointed Mr. Augoustinos Papathomas as Receiver and Manager on all secured assets of SARE Public on 10.08.2018. Receiver issued letters to SARE Public and subsidiaries of SARE Public informing about his appointment as Receiver / Manager of SARE Public. Wafra had initiated proceedings against SARE Public before the Hon’ble Supreme Court of the State of New York, claiming a sum of USD 64,064,696 and seeking restraint order from transferring, converting, encumbering, selling, assigning, withdrawing, perfecting etc. the assets of SARE Public. Hon’ble Supreme Court of the State of New York, County of New York passed order dated 13.08.2018 granting temporary injunction as prayed for. The SARE Public through its Receiver had filed Civil Suit in the High Court of Delhi through its Receiver Mr. Augoustinos Papathomas seeking inter alia declaration that all securities such as power of attorney, Non Disposable Undertaking, charge on assets/ encumbrances/lien/ pledge of shares etc., already created or sought to be created by the companies forming part of the SARE Group in favour of KKR and Altico in furtherance of a Facility Agreement dated 14.05.2018 are non-est, null and void. On 07.01.2020, ACRE filed an Application under Section 7 of the Code against SARE Gurugram. The Adjudicating Authority vide its order dated 09.03.2021 admitted Section 7 petition filed by Respondent No.2 and rejected the Intervention Application filed by the Appellant. Aggrieved against the order dated 09.03.2021, this Appeal has been filed by SARE Public.

The Tribunal, upon a thorough perusal of the facts, documents, evidence, arguments presented, and precedents cited; held that severability which takes in the rule of separability is a principle which can be applied only if it does not affect the main aim and intention of the transaction and only if the objectionable part can be severed without affecting the validity of the remaining part. It noted that the test therefore is whether the transaction evidenced by the particular instrument is single and indivisible, or whether it really evidences two transactions which can be severed from each other. The tribunal was, thus, of the view that the three loans which were assigned by Altico in favour of Respondent No.2 were severable and even if the Facility Agreement dated 14th May, 2018, which was sought to be given effect to be excluded from consideration, the assignment cannot be held to be illegal with regard to other two transactions that is Debenture Trust Deeds dated 04.12.2015 and 24.11.2016. There being default under the above two transactions being INR 111,55,88,511 + INR 2,73,76,59,666 as mentioned in Column 2 of Part-IV of the Section 7 Application and default being more than Rs.1 crore, the Application has rightly been admitted by the Adjudicating Authority. We, thus, are of the view that no error has been committed by the Adjudicating Authority in admitting the Section 7 Application.

Click here to read the judgement.

Judgement reviewed by Bhargavi