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Substance over Form: Supreme Court Interprets Contemporaneous Agreements in IL&FS – HDFC Dispute


Recently in the case of IL&FS Ltd. v. HDFC Bank Ltd. & Anr.[i], the Hon'ble Supreme Court ('the SC') guided how contemporaneous agreements should be read together to discern the true intent of the parties executing such agreements. The SC clarified the nature of Lease Rental Discounting (‘LRD’) arrangements and the assignment of receivables involved in such financial transactions.


  • The appellant had availed financial assistance of Rs. 400 crores from HDFC, which was provided vide sanction letter dated 22.06.2018. On 25.06.2018, a Master Facility Agreement (‘MFA’) and an Assignment Agreement (‘AA’) were executed between the parties wherein though the term LRD was not used, rights over lease rental receivables were assigned to the lender.

  • A dispute arose regarding the ownership and appropriation of funds in the escrow account involving various documents executed by IL&FS in which rents were assigned to the lender/HDFC and whether the same was outside the scope of an asset and security freeze.

  • On 01.10.2018, the National Company Law Tribunal (‘NCLT’) ordered to supersede the existing board of directors of IL&FS in a petition filed by the Union of India under ss. 241 and 242 of the Companies Act, 2013. In the same month, the NCLT also declined to issue a moratorium sought for IL&FS and its 348 group companies, leading to appeals filed before the National Company Law Appellate Tribunal (‘NCLAT’).

  • Vide interim order dated 15.10.2018, the NCLAT stayed various actions, including suits, proceedings, foreclosure actions, and financial facilities for IL&FS and its group companies and held that as per the AA, part of the receivables deposited in the escrow account were sufficient to meet IL&FS’s principal and interest that was assigned to HDFC. However, when IL&FS informed the escrow bank about the interim order, HDFC instructed the escrow bank to transfer the monthly instalments from the escrow account to the lender's account.

  • On 27.10.2018, IL&FS called upon HDFC to reverse the debit of Rs. 6.24 crores and credit the amount back into the borrower’s account. Again on 04.01.2019, IL&FS called upon HDFC to reverse the amount debited by the escrow bank in the escrow accounts. But the lender responded to the borrower through a letter stating that the receivable (i.e., rent) in respect of the secured asset had been assigned by the borrower in favour of the lender and the asset no longer belonged to the borrower.

  • In February 2019, the NCLAT directed the parties to approach Justice (Retd.) D. K. Jain for consent to supervise the resolution process and later on 08.08.2019, directed IL&FS to bring to Justice Jain any debits by banks in violation of the NCLAT order with the potential for contempt of court. The NCLAT had rejected IL&FS’s argument that there was no assignment and only the creation of a security interest and therefore, did not negate the AA which led to HDFC retaining property rights over the lease rental receivables.


  • The SC while affirming NCLAT’s order observed that although the term LRD was not used in the documents executed between the parties, the contents thereof unequivocally assigned rents to HDFC under a LRD arrangement. The intention of the parties was an assignment of the debt, i.e., the rent payable. The SC held that the rents payable by tenants, lessees and licensees of the borrower are debt, that can be transferred to the lender and that the same was deemed an assignment and not a pledge.

  • The SC examined the provisions of the Transfer of Property Act, 1882 (‘TPA’) and clarified that there can be a transfer of debts, which are defined as actionable claims, including rents, under the said statute.


This decision of the SC affirms the importance of substance over form in interpreting agreements executed between parties, rather than relying solely on the labels of such documents. In this manner, the SC provided much-needed guidance on how contemporaneous agreements should be read together to discern the true intent of the parties involved. While clarifying the nature of LRD arrangements and the assignment of receivables in such financial transactions, the SC also reinforced the permissibility of transferring actionable claims, including debts, under the provisions of the TPA.

End Notes

[i] 2023 SCC OnLine SC 1371

Authored by Manmohan Bhola, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion.


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