2nd SMT.

NIRMALA DEVI MEMORIAL MOOT COURT

COMPETITION

BEFORE
THE HON’BLE SUPREME COURT OF MALTA

In the matter of

TED AIRWAYS PVT. LIMITED____________________________THE PETITONER

STATE BANK OF MALTA _______________________________THE RESPONDENT

SHAWN’S AND MAC’S ENTERPRISES

SPECIAL LEAVE PETITION NO. ****/2020

ON SUBMISSION TO THE HON’BLE SC OF MALTA

UNDER ARTICLE 136 OF THE CONSTITUTION OF MALTA

WRITTEN SUBMISSION ON BEHALF OF THE PETITONER

TED AIRWAYS PVT. LIMITED

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 TABLE OF CONTENTS

1. LIST OF ABBREVIATIONS…………………………………………………………

2. INDEX OF

AUTHORITIES…………………………………………………………..

3. INDEX OF

AUTHORITIES…………………………………………………………..

4. STATEMENT OF

JURISDICTION………………………………………………….

5. STATEMENT OF

FACTS…………………………………………………………….

6. ISSUES FOR

CONSIDERATION……………………………………………………

A) WHETHER THE PETITION FILLED UNDER ARTICLE 136 IN SUPREME

COURT IS MAINTAINABLE OR

NOT?..................................................................

B) WHETHER THE APPLICATION FILLED IN NCLT IS MAINTAINABLE OR

NOT?..........................................................................................................................

C) WHETHER THE COMMON LOAN AGREEMENT WAS A LOAN OR AN

INVESTMENT?........................................................................................................

7. SUMMARY OF

ARGUMENTS………………………………………………………

8. PRAYER……………………………………………………………………………….

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 LIST OF ABBREVIATIONS

SHORT FORMS FULL FORMS

SC Supreme Court

AIR All India Report

& And

ACC According

PVT Private

HON’BLE Honourable

SEC Section

LTD Limited

ORS Others

CORP Corporation

CO Company

HC High Court

IBC Insolvency and Bankruptcy Code

NCLT National Company Law Tribunal

3
 NCLAT National Company Law and Appellate
Tribunal

DBT Debt Recovery Tribunal

SARFESI Securitization and Reconstruction of

Financial Assets and Enforcement Act

ICA Indian Companies Act

ART Article

STATEMENT OF JURISDICTION

The Counsel on the behalf of the petitioner humbly submits the memorandum of petitioner
under Article 136 of Indian Constitution to the Hon’ble Court of Judicature at Malta.

4
 STATEMENT OF FACTS

BACKGROUND
Malta is a vast country which possess a rich heritage, diversity in religions, industrial sector,
aviation sector and a significant destination for Tourism. With the wake in the Liberalization,
the aviation sector of Malta got a big leap. The decision was taken considering the private
sector and gain in the Foreign Exchange Reserves. The Malta Government a new initiative
called ‘NAMH-NIRMAN’ to increase its airport capacity to handle over a billion trips a year.
It has also made certain legislations to get protected by NPAs like Recovery of Debts Due to
Bank and Financial Institutions 1993 and The Securitization and Reconstruction of Financial
Assets and Enforcement of Security Interest Act, 2002. With the failure of both the acts, the
Malta Government has introduced Insolvency and Bankruptcy Code, 2016.

PARTIES TO THE DISPUTE

a) Lilip Thomas was the recipient of several and leadership awards, was a general sales
agent for the Zebanese International Airlines. He formed his own airline company Ted
Airways in 1974. He with the opportunity started commencing its commercial
operations in 1993. Ted Airways has proved itself successful as it was one of the very
few survivors since deregulation.
b) State Bank of Malta was a public financial institution which has given a loan of 2000
crores. Shawn and Mac are other two financial creditors, who has given loan amounted
1000 crores to Ted Airways. They suggested to keep the properties of Ted Airways as
mortgage for Common Loan Agreement.

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 c) Ted Airways had also availed goods and services from various operational creditors
mounted to 1000 crores.

CONDITIONS FOR COMMON LOAN AGREEMENT

15. Bank the Financial Creditor and various other lenders of the Corporate Debtor executed
Common Loan Agreement on 11.2.2005. The financial exposure of the financial creditor
to the corporate debtor under CLA stood at 3000 crores. Ted and bank entered into a loan
agreement with security documents including guarantees and other securities inter alia
agreed.The rate of interest was decided to be @ 12.25% p.a. in respect of Terms Loan
account compoundable with monthly rate plus 2% penal interest p.a. for period of default.
Additional interest of 1% p.a. was also agreed in case of non-creation of security. Ted
airways agreed to repay the said loan in 98 monthly instalments. It has also been agreed
that if there is a dispute the matter should go for the arbitration, and the mater shall be
decided by the arbitral tribunal, which shall be appointed by the Mr. Lilip Thomas. Ted
airways also executed an undertaking for non-disposal of shareholding, over run, and
non-withdrawal of the secured loans and agreed not to transfer or sale the shares of the
Ted Airways. The financial assistance was secured by the creation of equitable mortgage
by memorandum of deposits of title deeds with the Bank.

JOURNEY OF TED AIRWAYS

Lilip Thomas bought Qahara a year later for Rs 1,600 crores. Ted Airways fulfilled its
desire to be the only private Maltaian carrier to fly abroad in 2006. Ted Airways went
into losses after acquiring the Qahara. Ted was doing better at the International Front than
at Domestic Front. Lilip Thomas entered into an operational tie-up with Peter Malaya
TingTisher airways. Due to the merger of the Ted Airways with TingTisher the Ted
Airways has gone into a loss of 1400 Crore. Overall, Ted Airways was going through its
bad phase and seeking support from the creditors.

DISPUTE AND CLAIM

Financial creditors and operational creditor thereafter filed an application under Section 7
and 9 respectively of the Insolvency and Bankruptcy Act, 2016, (IBC) with the bench of
the National Corporate Law Tribunal showing a cumulative default of Rs. 1400 crores.
State Bank of Malta, Shawn’s and Macs Enterprises were represented by the same
counsel.After hearing the counsel for the creditors, the NCLT was pleased to issue notice

6
to the corporate debtor. State Bank of Malta contended that the application is
maintainable. It was further contended that the estimated loss of Rs. 1000 crore was
claimed. Additionally, State Bank of Malta the loss of business revenue also which was
the partake character of a “financial debt.”
Ted Airways contended that there is a breach of the contract, that first the mater should be
gone for arbitration. Therefore, even in this case, this Tribunal would have no
jurisdiction. Furthermore, application filed by the operational creditor deserves to the
dismissed for existence of dispute over the amount of debtor claimed by such creditor.
State Bank of Malta on the other hand contended that the application was maintainable,
under Section 4 of the IBC. According to State Bank of Malta, the investment represented
a loan and the promised rate of 2% returns were an assured return on investment which
represented the “time value of money” and therefore, qualified as a financial debt under
section 5(8) of the IBC.

The NCLT considered both the submissions and reserved the matter for orders. In the
matter that was taken up subsequently that day, the application under section 7 & 9 by the
financial and operational creditors, the NCLT pronounced that both matters were
admitted and the resolution professional named in the petition filed by the Financial
Creditors under Section 7, so Mr. Tucker was appointed for Interim Resolution
Professional for Ted airways and he was directed to initiate necessary steps to conduct
the corporate insolvency resolution process. The NCLT also declared moratorium under
section 14 of the Code thereby staying all the suits and proceedings including arbitration
if any, filed or pending against the corporate debtor and also staying any alienation of the
property of the corporate Debtor. That “the recovery of any property by an owner or
lessor where such property is occupied by or in possession of the Ted Airways”.

Against this order of the NCLAT, Mr. Lilip Thomas preferred Special Leave Petitions
under Article 136 of the Constitution of Malta and leave was granted. Notice was issued
to the respondents, State Bank of Malta, Shawn’s and Macs Enterprises. The appeals are
now listed for hearing before the Hon’ble Supreme Court of Malta.

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 ISSUES FOR CONSIDERATION

ISSUE 1: WHETHER THE SPECIAL LEAVE PETITION UNDER ARTICLE 136 IS

MAINTAINABLE IN THE SUPREME COURT OR NOT?

The counsel on the behalf of the petitioner contends that the special leave petition filed under
Article 136 of the Indian Constitution is maintainable in the Supreme Court of Malta. The
Petitioner always had the right to approach Supreme Court.

ISSUE 2: WHETHER THE COMMON LOAN AGREEMENT WAS AN

INVESTMENT, AND NOT A LOAN?

The counsel on the behalf of the petitioner contends that the financial debt claimed by the
respondent from the petitioner, Ted Airways was not a loan, but an investment.

ISSUE 3: WHETHER THE APPLICATIONS FILED IN NCLT AND NCLAT WERE

MAINTAINABLE?

The counsel on the behalf of the petitioner submits that the applications filed in NCLT and
NCLAT are non-maintainable. The NCLT and NCLAT had no jurisdiction to carry out the
proceedings.

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 ARGUMENTS ADVANCED

ISSUE 1: WETHER THE PETITION FILED UNDER SECTION 136 (SPECIAL

LEAVE PETITION) IS MAINTAINABLE IN SUPREME COURT OR NOT?
The counsel on the behalf of the Petitioner contends that the petition under Article 136 is
maintainable in the Supreme Court of Malta. Following sections and case laws will prove
the same in the Honourable Supreme Court of Malta.

1.1. APPEAL TO SUPREME COURT

The Counsel humbly submits before the Honourable Court that the section 62 under
Insolvency and Bankruptcy Code, 2016 make sure that the process of resolution and
liquidation does not suffer the trauma of never-ending litigation. It provides that an appeal
from the order of National Company Law Appellate Tribunal on a question of law shall
lie before the Supreme Court.

(A) Section 62 of Insolvency and Bankruptcy Code 20161clearly states that:

(1) Any person aggrieved by an order of the National Company Law Appellate Tribunal
may file an appeal to the Supreme Court on a question of law arising out of such order
under this code within forty-five days from the date of receipt of such order.

1
Section 62 of Insolvency and Bankruptcy Code 2016

9
 (2) The Supreme Court may, if it is satisfied that a person was prevented by sufficient
cause from filling an appeal within forty-five days, allow the appeal to be filled within
a further period not exceeding fifteen days.

As the facts of the case site that NCLAT accepted the findings of the NCLT and does not
warranty any interference. The aggrieved party Ted Airways preferred to go to the highest
authority i.e. Supreme Court to seek justice. In the judgement of M/S. Innoventive
Industries Ltd vs Icici Bank2it was laid down that the code provides a three-tier
mechanism namely:

a. the NCLT, which is the Adjudicating Authority,

b. the NCLAT which is the appellate authority and,
c. this court as the final authority, for dealing with all issues that may arise in relation to
the reorganisation and insolvency resolution of corporate persons.

d. Any order passed by the NCLT is appealable to NCLAT under Section 61 of the IBC,
2016 and the orders of the NCLAT are amenable to the appellate jurisdiction of the
Supreme court under Section 623.

Hence Ted Airways had a right to move to the Supreme Court and thus the
maintainability of the petition can’t be in question. The special circumstances make it
exigent that the petition be filled under Article 136 of the Constitution of India.

(B) CONDITIONS LAID DOWN IN ARTICLE 136 OF THE INDIAN

CONSTITUTION
The counsel humbly submits before this Honourable Court that the Article 136 in the
Indian Constitution has special and residuary powers which are exercisable outside the
purview of ordinary law, in cases where the needs of justice demand interference by the
Supreme Court of the land. The article itself is worded in the widest terms
possible.4Article 136 of Indian Constitution5states Special leave to appeal by the
Supreme Court:

2
M/S. Innoventive Industries Ltd vs Icici Bank on 31 August, 2017
3
Municipal Corporation Of Greater vs Abhilash Lal on 15 November, 2019
4
Durga Shankar Mehta vs Thakur Raghuraj Singh And Others on 19 May, 1954

5
Article 136 of Indian Constitution

10
 (1) Notwithstanding anything in this Chapter, the Supreme Court may, in its discretion,
grant special leave to appeal from any judgment, decree, determination, sentence or order
in any cause or matter passed or made by any court or tribunal in the territory of India.

(2) Nothing in clause (1) shall apply to any judgment, determination, sentence or order
passed or made by any court or tribunal constituted by or under any law relating to the
Armed Forces.
TheArticle of the Constitution clearly lays down the conditions to invoke the same, this
conforms to the facts of the case as Ted Airways filed the petition after the judgement
given by the National Company Law Appellate Tribunal. And the case of Bharat Bank
Ltd. v. Employees of the Bharat Bank Ltd 6, it was laid downthat the expression
"Tribunal" as used in article 136 does not mean the same thing as "Court" but includes,
within its ambit, all adjudicating bodies, provided they are constituted by the State and are
invested with judicial as distinguished from purely administrative or executive functions.
Hence, the counsel contends that the petition is maintainable.7

1.2. SPECIAL CIRCUMSTANCES TO FILE SPECIAL LEAVE PETITION

The Counsel humbly submits before the court that the case has certain
specialcircumstances in the case which makes it worthy to be filled under article 136 of
theIndian Constitution.
(A) WIDE DISCRETIONARY POWER OF THE COURT
"On a careful examination of Article 136 along with the preceding article, it seems clear
that the wide discretionary power with which this Court is invested under it is to be
exercised sparingly and in exceptional cases only, and as far as possible a more or less
uniform standard should be adopted in granting special leave in the wide range of matters
which can come up before it under this article. By virtue of this article, we can grant
special leave in civil cases, in criminal cases, in income tax cases, in cases which come up
before different kinds of tribunals and in a variety of other cases. The only uniform
standard which in our opinion can be laid down in the circumstances is that the Court
should grant special leave to appeal only in those cases where special circumstances are
shown to exist.” This Judgement was laid down in Pritam Singh V States8.

6
Bharat Bank Ltd. v. Employees of the Bharat Bank Ltd
7
Municipal Corporation Of Greater vs Abhilash Lal on 15 November, 2019

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 This clearly says that the jurisdiction of the Supreme Court is not at all in the question. As
this power is discretionary in nature, and the court can entertain this appeal as this has
come from the Tribunal. Ted Airways filled the petition after NCLAT gave its findings
and the position of the Ted Airways remained the same.
"It is not possible to define with any precision the limitations on the exercise of the
discretionary jurisdiction vested in this Court by the constitutional provision made in
Article 136.” And the special circumstances of the case need to be taken in consideration
while accepting the petition given in Dhakeswari Cotton Mills Ltd. v. Commissioner of
income Tax9
The facts of the case put the Corporate Debtor (Ted Airways) at a detriment as the
aviation company went into losses after acquiring Qahara Airways and the merger with
Ting Tisher, and was in need of capital infusion from the creditors.
Every case has certain special elements in itself, which makes it different from another
one. This case too has a lot of elements which are exceptional in itself and makes it
worthy to be filed as Special Leave Petition.
2. WHETHER THE COMMON LOAN AGREEMENT WAS AN INSTRUMENT OF
INVESTMENT, AND NOT A LOAN?
The given sequence of the facts in the proposition brings one to the conclusion that the
creditors had an intention to become investors in order to gain proportionate profit while the
company continues to grow. To obtain a deeper understanding of the said fact, one should be
clear with the difference between an investor and a creditor. Both of them are in a position of
helping and supporting a business or enterprise by contributing additional money or assets to
the business. An investor contributes in the form of equity, while a creditor contributes in the
form of debt. However, these two are very different from each other.  An investor invests
money to an investee in order to make profit through profit sharing (investment income or
dividend), while a creditor lends money to a debtor in order to make profit through interest
income and other credit fees on the loan. Here the respondent creditors, though depicted as
proclaimed Financial creditors from the start, have exhibited behaviour that presents them as
operational creditors that is more or less like investors.10

8
Pritam Singh V States
9
Dhakeswari Cotton Mills Ltd. v. Commissioner of income Tax.
10

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2.1 Shawn and Mac filed the application in the capacity of an Operational Creditor
and not a Financial Creditor.
As mentioned above, there have been instances where the financial creditors have
manifested themselves as operational creditors. The council for the appellant will prove
the same citing evidences, one of which being the filling of application under NCLT in
the name of operational creditor, while being a financial creditor in reality. S & M
Enterprises have been mentioned previously in the proposition as financial creditors and
should have filed the application u/s 7 of IBC, but interestingly the application filed and
entertained by the adjudicating and appellate authority u/s 9 of the IBC, which is
supposed to be concerned with operational creditors.
According to the general understanding of the Bankruptcy Law , the difference between a
financial creditor and an operational creditor is that a financial creditor is an individual
whose relationship with the entity is solely based on financial contracts, such as a loan or
debt security. Whereas, an operational creditor is an individual whose liabilities from the
entity comes in the form of future payments in exchange for goods or services already
delivered. Here is where the question of intent comes into play. financial creditors and
operational creditors have their respective advantages under different situations,-For
example a financial creditor gets an upper hand in the liquidation process of the company
whereas operational creditors’ profit lies in the continuation of company in order to
receive future advantages which are proportionate to those of the company’s. But a key
feature of the Insolvency and Bankruptcy Code (IBC), 2016, is that operational creditors
— which include employees, suppliers, and consumers — do not participate in the voting
process that determines a debtor corporation’s future while the financial creditors do ,
which is very well the case here. The explicit exclusion of this group of creditors from
bankruptcy negotiation leads to concerns about S & M Enterprises filing application u/s 9
instead of section 7 of the IBC.
In the case of CoC of Essar Steel v. Satish Kumar Gupta , the court held that the rights
of FCs will prevail over the OCs in the distribution of the funds received from the
insolvency proceeds. The court held that the FCs are the primary investors and capita-
providers for the company whereas, OCs are secondary beneficiaries from the amount
lent by the FCs. The apex court also held that the adjudicating authority i.e. NCLT under
Section 30 (2) and the appellate authority i.e. NCLAT under Section 32 read with Section
61 (3), cannot interfere with the decision and the framework decided by the CoC. The

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authorities, however, have the right to make their recommendations for proper
enforcement of the plan.
Therefore, we go into assuming that S & M being as a giant entity as it is, should have
known the merits of financial creditors over operational creditors and knowing this should
not have filed the application u/s 9 of IBC, which shows that their status as financial
creditors is in doubt. As stated previously, investors are entitled to a proportionate share
in the present profits and future endeavours of the company. Although they don’t come
under the ambit of secured creditors but are at a very higher pedestal if the company is
working properly and profiting in a compound manner.

2.2 Registration of the Common Loan Agreement under the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security Interest Act,
2002.
The intention of the creditors again stands questioned with respect to their application
filed in NCLT, while the charges over security were created and the Common Loan
Agreement signed between the creditors and the corporate debtor was registered with
ROC and with Central Registry of Securitization Assets Reconstruction and Security
Interest of Malta. Had the intention of the creditors been the payment of the debts, they
could have easily enforced the security, with respect to Section 13(4) of the Securitisation
and Reconstruction of Financial Assets and Enforcement of Security Interest Act which
states,
In case the borrower fails to discharge his liability in full within the period specified in
sub-section (2), the secured creditor may take recourse to one or more of the following
measures to recover his secured debt, namely:--
(a) Take possession of the secured assets of the borrower including the right to transfer
by way of lease, assignment or sale for realising the secured asset;
(b) Take over the management of the business of the borrower including the right to
transfer by way of lease, assignment or sale for realising the secured asset: PROVIDED
that the right to transfer by way of lease, assignment or sale shall be exercised only
where the substantial part of the business of the borrower is held as security for the debt:
PROVIDED FURTHER that where the management of whole of the business or part of
the business is severable, the secured creditor shall take over the management of such
business of the borrower which is relatable to the security for the debt

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 (c) Appoint any person (hereafter referred to as the manager), to manage the secured
assets the possession of which has been taken over by the secured creditor.
(d) Require at any time by notice in writing, any person who has acquired any of the
secured assets from the borrower and from whom any money is due or may become due
to the borrower, to pay the secured creditor, so much of the money as is sufficient to pay
the secured debt,
And gotten relief under any of the provisions mentioned above. An argument in support for
going into liquidation for the redressal of the pending debts can be sought under the
objectives of the SARFEISI Act,2002. This is a legislation that aids financial institutions and
banks to recover bad loans by auctioning or selling both the commercial and residential
property of the defaulter, which implies that the act was clearly drafted to curb the menace of
the NPAs. Also, as per mentioned in the proposition the act was brought in force to encounter
the problems arising due to NPAs. A more interesting point in here is the Act that the
creditors referred in order to seek justice, that is the Insolvency and Bankruptcy Code, was
widely criticized in the legal world due to its inconsistencies. But going with the object of
SARFEISI, it would have helped them to facilitate recovery of their dues, while enforcing
their security interests without being required to move to a court or tribunal for that reason.
Had they wanted the company to become insolvent, SARFEISI would have been a much
more viable option but that was not preferred by them. This clearly shows their intent to
become investors in a company by converting their debt into equity. My client too was under
the impression that the investors are satisfied by the logical end of the contract, wherein the
debt has been converted into equity and he is consequently discharged of the same.,-I would
further request the honourable court to refer this matter to arbitration as it should have been
ideally in the first place, due to the presence of an arbitration agreement.
2.1 The possession of shares with the intention taking risk.
The Counsel contends that the banks possess the shares with the intention of taking risk
or with the intention of investing in a company. As Banks grant loans and advances
against shares, statutory provisions contain in section 19(2) and 19(3) of the Banking
Regulation Act 1949 should be strictly observed.

a)State Bank Of Malta had substantial interest in Ted Airways.

Section 5(ne) (ii) of The Banking Regulation Act, 1949 states that in relation to a firm,
means the beneficial interest held therein by an individual or his spouse or minor child,

15
whether singly or taken together, which represents more than ten percent of the total
capital subscribed by all the partners of the said firm.
This clearly states that more than ten percent of the shares in any company proves the
substantial interest in the company by the Financial Institutions. Here in our case, we can
reasonably presume that State Bank of Malta had more than ten percent of shares in the
Ted Airways which proves its substantial interest.

b)Reserve Bank Of India Master Circular on loans and advances- Statutory And
Other Restrictions.
As per the guidelines released by Reserve Bank of India every year regarding loans,
advances, statutory and other restrictions. Banks conform with the rules and regulations
while advancing their functions. Paragraph No. 2.2.3.18 in the RBI Master Circular,
clearly states the General Guidelines applicable to advance against shares/ debentures/
bonds2.2.3.18.iv) Banks should satisfy themselves about the marketability of the shares/
debentures and the net-worth and the working of the company whose shares/ debentures/
bonds are offered as security.
Here it is clearly written that Banks should certify the net worth of the shares offered as
security (when properties mortgaged are of low value) prior to advancing the loan to the
company. The State Bank of Malta should have satisfied itself with the market value of
the properties and the net worth of the shares offered as security by the Ted Airways.
The Counsel now contends that the State Bank of Malta already knew the market value of
the property as lower than required. Also, SBM was aware of the marketability of the
shares offered by the Ted Airways. In this case, State Bank of Malta took the shares with
the intention of Investing in Ted Airways. Thus, took the risk of taking shares in place of
the Properties as securities.

c)Advances to other borrowers against Shares/ Debentures/ Bonds.

Paragraph No. 2.3.1.8 ii of Reserve Bank of India Master Circular On Loans and
Advances- Statutory and other Restrictions says that in the course of setting up of
working capital required by units other than NBFCs, there may be situations where such
borrowers are not able to find the required funds towards margin, pending mobilization of
long term resources. In such cases, there would be no objections to banks obtaining
collateral security of shares and debentures by way of margin. Such arrangements would
be of a temporary nature and may not be continued beyond a period of one year. Banks

16
 have to satisfy themselves regarding the capacity of the borrowers to raise the required
funds and to repay the advance within the stipulated period.
This clearly states that there would be no objections to banks obtaining collateral security
of shares, but the banks need to satisfy themselves regarding the capacity of the
borrowers to raise the required funds and to repay the advance within the stipulated
period. In this case the State Bank of Malta should have satisfied the capacity of the Ted
Airways at the time of advancing loans. Not informing Ted Airways about the properties
( which were of low market value) and advancing the loan in terms of shares as collateral
security clearly proves the intention of The State Bank of Malta to become an Investor
than a Lender. This means that SBM took a calculated risk, hence if that risk gets
executed, Ted Airways can’t be made liable.

ISSUE 3: WHETHER THE APPLICATION FILED IN NCLT AND NCLAT IS

MAINTAINABLE OR NOT?
The counsel humbly pleads before this Hon’ble court that the application filed in NCLT
and subsequently appealed in NCLAT as per the Insolvency and Bankruptcy code, 2016
was not maintainable.

3.1. NCLT had no jurisdiction over the issue.

The counsel humbly submits before this Hon’ble court that NCLT had no jurisdiction to
admit the claim by the financial creditors against the petitioner Ted Airways.

 Debt to equity conversion.

The counsel contends that, in the instant case, that petitioner, Ted Airways, executed an
undertaking for non-disposal of shareholding, over run and non-withdrawal of the secured
loans and agreed not to transfer or sell the shares of the Ted Airways11. Therefore, besides
the properties kept as securities (which were later found to have very low market value)
rest of the loan amount was secured by means of Shares.

The IPO valuation determines the market position of a company in monetary terms. In the
given case, the facts do not mention the IPO valuation, hence the market value of Ted
Airways is not known. Similar to the present case is the example of WeWorks- an

11
Paragraph 17, Moot Proposition.

17
 American real-estate company, where it announced to delay the IPO12, just like Ted
Airways.

According to the facts of the given case, Malta Airways was the only profitable privately
owned airline in Malta around that time13. Also, when Ted Airways approached State
Bank of Malta, it was in desperate need of loans and finances14. It could, thus, be logically
deduced that the market value of the shares of Ted Airways, during the time of pledging
them as security against loan, would not be very high.

As per the facts and figures of the given case, the total amount payable at the end of 98
months, including 12.25 per cent interest is Rs 5,500 Crore. According to the concept of
Equitable Mortgage, it is a standard practice for financial institutions to have the market
value of securities more than the amount of loan they grant. In exchange of the total loan
amount of Rs 5,500 Crore, the bank must have secured enough shares which must have
made it the controlling stake owner in Ted Airways.

The default in payment of the loan, consequently led to State Bank of Malta, owning the
shares of Ted Airways, kept as security, according to Section 62(3) of the Companies
Act, 201315.

This conversion of Debt to Equity leads to two scenarios.

a) State Bank of Malta became the owner of Ted Airways.

The first scenario, which is also themost likely situation, the secured shares that are now
owned by the financial creditors, has led them to become majority shareholders. The
shareholders are the owners of a company16. Therefore, State Bank of Malta, by owning a
considerable number of shares of Ted Airways, has thus become the owner of the
company.

Section 5 of the Insolvency and Bankruptcy Rules17 says, no corporate insolvency

resolution process shall be initiated against a financial service provider which has

12
Wework-the Ipo That Shouldn't?
https://hbswk.hbs.edu/item/wework-the-ipo-that-shouldn-t
13
Paragraph 10, Moot Proposition
14
Paragraph 13, Moot Proposition.
15
Section 62(3), Companies Act, 2013.
16
Section 55, Companies Act, 2013.
17
Section 5, Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers
and Application to Adjudicating Authority) Rules, 2019.

18
 committed a default under section 4, except upon an application made by the appropriate
regulator in accordance with rule 6.

Section 227 of the IBC18 says, Notwithstanding anything to the contrary examined in this
Code or any other law for the time being in force, the Central Government may, if it
considers necessary, in consultation with the appropriate financial sector regulators,
notify financial service providers or categories of financial service providers for the
purpose of their insolvency and liquidation proceedings, which may be conducted under
this Code, in such manner as may be prescribe

These sections read together, clearly indicate that no financial service provider, can
initiate Corporate Insolvency Resolution Process against itself. Since, State Bank of
Malta is the owner of Ted Airways, at the same time, a financial service provider, it
cannot initiate proceedings against itself.

b) State Bank of Malta invested in Ted Airways.

Section 5(7) of Insolvency and Bankruptcy Code19 defines Financial Creditor as- any
person to whom financial debt is owned and includes a person to whom such debt has
been legally assigned or transferred to.
Section 5(8) of Insolvency and Bankruptcy Code20 defines Financial Debt as a debt along
with interest, if any which is disbursed against the consideration for the time value of
money with certain inclusions.
As per these definitions given in the code, we can conclude that Financial Creditors are
not meant to invest in the companies. They provide loans to the creditors with interest
tares. In the judgement of Pioneer Urban Land and V. Union of India 21that in order to be
a “debt” there ought to be a liability or obligation in respect of a “claim” which is due
from any person.
Whereas on the other hand, in the fact sheet of the case paragraph 23, it is clearly written
that State Bank of Malta was a Financial Creditor, since Investment in Ted Airways, was
above the required threshold. As per Section 186 of Companies Act 2013 22the following
will not be counted as investments: -
• Making of Loans or advances
18
Section 227, Insolvency and Bankruptcy Code, 2016.
19
Section 5(7) of Insolvency and Bankruptcy Code.
20
Section 5(8) of Insolvency and Bankruptcy Code.
21
Section 5(8) of Insolvency and Bankruptcy Code.
22
Section 5(8) of Insolvency and Bankruptcy Code.

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• Any other financial transactions such as lease, purchase of receivables, orother credit
facilities.
As the State Bank of Malta claim 1000 crores after investing above the required
threshold. Here in the Companies Act, it is clearly written that Loans cannot be classified
as Investment. Hence, the Application for Repayment of Loan is not maintainable in
National Company Law Tribunal.
 The application is maintainable neither u/s 7 nor u/s 9.

According to the given proposition Ted Airways has the application filed against it by
two of its financial creditors, State Bank of Malta and Shawn and Mac enterprises,
both of which filed their application u/s 7 and u/s 9 respectively. The counsel humbly
submits to the honorable court that pleas of both the applicants stand non
maintainable under either of the sections.
In light of the arguments stated in issue 2.3 and issue 3.1.1, it can be well concluded
that the amount of money that was lent was not a loan and hence not a financial debt
u/s 9 but capital in the form of investment. The acquisition of shares having the
knowledge of the low value of the property (as stated in the issues above), very well
proves how both the intention and actions of the bank result in it becoming share
holders and investors of the company and not the financial creditors. The power to file
an application u/s 7 of IBC lies with the financial creditors, the debt being protected
under the definition of financial debt u/s 5(8) of IBC.
According to what is stated in the proposition, one of the claims made by the bank is,
that the promised rate of 2% returns were an assured return on investment which
represented the “time value of money”. Time value of money denotes consistent
application of interest on an amount such that the amount increases with time
uniformly, and this has been put under the ambit of financial debt by the court in
various cases. But the claim made by the bank stating that the 2% returns were an
assured return on investment does not hold water because the stated 2% was a penal
interest which is applied when a debtor defaults and not on the prescribed time period
within which the loan has to be repayed. Therefore due to the actions of the bank
depicting it as an investor, which also include converting debt into equity, the amount
cannot be termed as financial debt, but an investment instrument.
In the case of Neelkanth Township & Construction Pvt. Ltd. v. Urban Infrastructure
Trustees Ltd , that the holder of the instrument would benefit from being in a position

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 of a creditor till such time that the OCDs were converted into equity. Therefore, it can
be safely concluded that since the debt had already been converted into equity, and
thus this investment does not represent the time value of money, hence not a financial
debt.
Both the conditions don’t seem to find approval in the stated proposition. Therefore,
the application filed by the State Bank of Malta should have been rejected due to its
non-maintainability.
The court held in the case of Shwetha Vishwanath Shirke v. The Committee of
Creditors held that promoters and other shareholders of corporate debtor can settle the
insolvency and file an application under Section 12A of the Insolvency and
Bankruptcy Code, 2016 (“IBC”) for withdrawal of application made for corporate
insolvency resolution process under Sections 7,9 or 10 of the IBC.
The claim filed u/s 9 of IBC by Shawn and Mac Enterprises, claiming to be
operational creditors also stands un-entertained since it always claimed to be a
financial creditor and not an operational creditor, as stated in the 12th paragraph of
the proposition as, “Ted airways has the corporate office in Sian of (Borland) where
he approached for a loan of 1000 crore from Shawn’s enterprises and Macs enterprise
are two other financing creditors.” Therefore it can be safely concluded that the
creditors opted to file the application y/s 9 in the NCLT for the sole purpose of speedy
release of interest.
In the case of Polymers Vs. Kanodia Technoplast Limited-NCLAT, The application
was pursued for realization of the interest amount, which, according to us is against
the principle of the Code, as it should be treated to be an application pursued by the
Applicant with malicious intent (to realize only Interest) for any purpose other than
for the Resolution of Insolvency, or Liquidation of the ‘Corporate Debtor’ and which
is barred in view of Section 65 of the Code.
In the case of K. Kishan vs. M/S Vijay Nirman Company Pvt. Ltd., the Supreme
Court held that: operational creditors cannot use the Insolvency Code either
prematurely or for extraneous considerations or as a substitute for debt enforcement
procedures. Such a company would be well within its rights to state that it is
challenging the Arbitral Award passed against it, and the mere factum of challenge
would be sufficient to state that it disputes the Award.

 The intention to approach NCLT after conversion of shares remains exploitative.

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The counsel humbly submits, with reference to the calculations in the previous argument,
the total amount payablewas Rs 5,500 Crore. The amount duly paid by Ted Airways for
56 months was Rs 3,100 Crore. Thus, the actual amount of default was Rs 2,400 Crore.
However, the Financial Creditors claimed an amount of Rs 1,000 Crores from the
petitioner, Ted Airways.

Thus, it becomes conclusive that the remaining amount of Rs 1,400 Crores was recovered
by means of the securities, which were mostly shares as contended in previous arguments,
kept by Ted Airways. The remainder of the defaulted amount, which was essentially a
loss due to risk involved in investing in shares, cannot be recovered by initiating
bankruptcy proceedings against the petitioner.

Here, the State Bank of Malta intends to exploit Ted Airways. It converted a major
proportion of the shares of Ted Airways into its own, thereafter, initiating a proceeding
against the petitioner. As majority of shares are now being owned by State Bank of Mata.
Because of this possibility, Ted Airways cannot offer the IPOs of 25 per cent of shares
which they had intended to.

3.2. The existence of a dispute prior to the proceedings in NCLT and NCLAT.
In Mobilox Innovations v. Kirusa Software, the conditions were laid down as Questions
to be seen by the Adjudicating Authority while examining any application under Section
9 of the Insolvency & Bankruptcy Code are as follows:
a) Whether there is an operational debt of more than One Lakh?
b) Whether the documentary evidence provided with the application shows the debt is due
and payable and has not yet been paid?
c) Whether there is an existence of a dispute between the concerned parties or any record
of pendency of suit or arbitration proceeding filed before the receipt of Demand Notice?
If any one of the conditions is not satisfied, NCLT must reject the application. Here the
first two conditions are satisfied but the third condition does not seem to be satisfied.

It was also held in the same case that While opining that a spurious defense which is mere
bluster should be rejected, the Supreme Court adds a word of caution – while determining
whether dispute exists or not, the NCLT is not required to satisfy itself that the defense is
likely to succeed or to examine the merits of the dispute. So long as a dispute truly exists

22
in fact and is not spurious, hypothetical or illusory, the application of an operational
creditor must be rejected by the NCLT.
This clearly states that as long as a dispute exists in between the two parties, the NCLT is
supposed to reject the application by either of the parties. Dispute under Section 5(6) of
IBC defines ‘dispute’ as:
“……. (6) ‘dispute’ includes a suit or arbitration proceedings relating to:
(a)the existence of the amount of debt;
(b)the quality of goods or service; and
(c)the breach of a representation and warranty;……”
In the instant case, NCLAT was of the view that the definition of the term ‘dispute’ is
inclusive and not exhaustive. The term ‘dispute’ has to be given a wider meaning
provided it is relatable to the existence of the amount of debt, quality of goods or service,
or breach of representation or warranty.
Various benches of NCLT have had contradictory views on interpretation of the
term‘dispute’. The Delhi bench of NCLT, in the matter of One Coat Plaster, Shivam
Construction Company v. Ambience Private Limited held that the term ‘dispute’ needs to
have a broad and inclusive definition. The Delhi bench further held that it is not
mandatory on part of the debtor to have initiated a suit or arbitration proceeding prior to
the receipt of demand notice to assert the existence of a dispute. Mere response to the
demand notice showcasing existence of a bona fide dispute shall suffice. The NCLAT
affirmed these views in the Kirusa case.
In the Kirusa case, the order stated that if the legislative intent was to determine a dispute
by showing a record of a pending suit or arbitration proceedings, the term ‘dispute’ would
have been defined in such restrictive manner in the Code.
In the given proposition, the creditors have filed an application under section 7 and 9 after
issuing a demand notice under sec 8 of IBC but nowhere has been mentioned the date of
issuing the demand notice. This date here becomes significantly relevant since the debtor
is required to reply to the notice within 10 days of its issuance. According to the above-
mentioned case, if the debtor replies to the notice within the stipulated time span. This
amounts to a dispute which bars the NCLT to accept the application. The absence of the
said fact regarding the date of issuance tends to show this in favour of the appellant Ted
Airways as after the notice issued by the NCLT, one of its objections raised were
concerning a “dispute” in the amount claimed as debt. There can be two possible
outcomes of the given situation. The first being that the time given to Ted before filing of

23
the application in NCLT, that is the time gap between issuing the notice and filing the
application, was not enough or in other words less than 10 days and the second scenario
could possibly be that Ted’s reply was ignored and not brought into notice of NCLT. The
question of “dispute” and “response” becomes more important in here because the onus
of proving the “dispute” bona fide or mala fide, but here it was nowhere even brought up
before the NCLT to decide and the sudden argument of dispute from the side of the
appellant cannot be ignored.

3.3 Doubts against the credibility of the company.

The counsel, in light of the arguments made, humbly submits to the honorable court that
the application filed by both the financial creditors, under section 7 and 9 of IBC, clearly
contain the motive of rapid release of interests which is maligning the image of the
company. The petitioner Ted Airways has defaulted the installments for almost three
months, and this can be interpreted fairly that is has all the intentions to pay them at the
earliest. The company, unlike as stated by the creditors is not in the condition to be
declared as insolvent but carry on its ventures.
The financial security was secured in nature and contracted 1% interest in case of its
withdrawal, and the fact, that this security was never withdrawn by Ted airways, shows
the financial stability of the company. Also the company had taken a loan of Rs 1,000
Crores from a separate Operational Creditor, which is nowhere seen to be seen filing a
complaint against it in the proposition. The proposition states that there were two
applications filed against Ted airways, both of which were provided with a slot after the
preliminary hearing; sl 40 for SBM while sl 60 for Shawn and Mac Enterprises. Therefore
the doubts raised against the credibility of the company stand void and hence it is proved
that the company is in a stable financial condition.

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