2019 (8) TMI 1305 - AT - Insolvency and Bankruptcy

Appellant's Debt Settlement via Share Transfer Upheld by Tribunal

The Tribunal held that the Appellant effectively settled the debt by transferring the pledged shares to its name, regardless of whether the shares were ... Initiation of CIRP - Owner of shares or not - whether the Appellant can be held to be a ‘Financial Creditor’, who claimed to be a ‘Financial Creditor’ for accepting its claim? - HELD THAT:- It is accepted that the Appellant invoked Clause 6.1 and after service of notice on occurrence of default issued by the ‘Bridge Loan Lender’ (Appellant herein), the ‘Bridge Loan Lender’ transferred the shares in its name. By letter dated 23rd January, 2018 written to the ‘Corporate Debtor’, Appellant have already intimated the ‘Corporate Debtor’ that the Appellant has transferred 31,80,678 shares of ‘NEVPL’ and thereby the Appellant have become the 100% owner of the shares. By the said letter dated 23rd January, 2018, the Appellant (PFS) having already intimated that the rights applicable to the shareholder of NEVPL has been transferred in its favour, we hold that the Appellant settled the dues in full or part by way of transfer of shares. Now it is for the Appellant to transfer the shares in accordance with law but it cannot be denied that the Appellant is the owner of the shares. The Appellant became the shareholder in terms of Clause 6 of the ‘Pledge Deed’ dated 10th March, 2014, the Appellant cannot take the advantage of Section 176 of the Contract Act. Section 176 of the Contract Act also cannot be taken into consideration for the purpose of collating the claim of any claimant (creditor) by the ‘Resolution Professional’ under Section 18 of the I&B Code. It is settled law that the ‘Resolution Professional’ can collate the claim and may accept full or part of the claim but has no power to determine the claim or reject, which power is only vested with the ‘Liquidator’. Appeal dismissed. Issues Involved:1. Whether the Appellant can be held to be a 'Financial Creditor'.2. Validity of the rejection of the Appellant's claim by the Resolution Professional.3. Application of Section 176 of the Indian Contract Act, 1872.4. Rights and obligations under the 'Deed of Pledge of Shares'.5. Authority of the Resolution Professional in collating claims.Issue-wise Detailed Analysis:1. Whether the Appellant can be held to be a 'Financial Creditor':The Appellant, PTC India Financial Services Ltd. (PFS), filed a claim under the Corporate Insolvency Resolution Process (CIRP) against NSL Nagapatnam Power and Infratech Ltd. (NPIL). The claim was based on a 'Bridge Loan Agreement' dated 10th March 2014, wherein PFS disbursed Rs. 125 Crores to NPIL for setting up a thermal power project. The debt was secured by a 'Deed of Pledge' of shares owned by Mandava Holdings Private Limited (MHPL) in NSL Energy Ventures Private Limited (NEVPL). Upon default by NPIL, PFS issued a loan recall notice and later filed a claim for financial debt. The Resolution Professional rejected this claim, leading to the present appeal.2. Validity of the rejection of the Appellant's claim by the Resolution Professional:The Resolution Professional rejected the claim on the grounds that the financial debt was satisfied by the invocation of pledged shares. PFS argued that the debt remained outstanding as the pledged shares were retained as security and not sold or appropriated. The Resolution Professional maintained that the transfer of shares to PFS constituted satisfaction of the debt. The Adjudicating Authority upheld this decision, leading to the present appeal.3. Application of Section 176 of the Indian Contract Act, 1872:PFS contended that under Section 176, notice must be given to the pledgor before any sale of pledged shares, and without such notice, the debt cannot be considered discharged. The Appellant cited judicial precedents emphasizing the mandatory nature of Section 176. However, the Tribunal held that Section 176 does not apply to the collation of claims by the Resolution Professional under Section 18 of the I&B Code. The Resolution Professional's role is limited to collating claims, not determining or rejecting them, which is the Liquidator's prerogative.4. Rights and obligations under the 'Deed of Pledge of Shares':Key clauses of the Deed of Pledge were examined:- Clause 5.1(m) ensured the pledgor remained the beneficial owner of the pledged shares until repayment.- Clause 6.1 allowed the Bridge Loan Lender to transfer pledged shares upon default.- Clause 6.2 provided for the sale of pledged shares after giving notice.- Clause 11 detailed the appropriation of payments from the sale of pledged shares.- Clause 14.1 stated the Deed of Pledge would terminate upon repayment or sale of all pledged shares.- Clause 17.4 provided that statements of outstanding amounts signed by the lender were conclusive evidence of debt.The Tribunal noted that PFS had invoked Clause 6.1 and transferred the shares to its name, effectively becoming the owner of the shares. This transfer was deemed sufficient to settle the debt, regardless of whether the shares were sold.5. Authority of the Resolution Professional in collating claims:The Tribunal clarified that the Resolution Professional's authority is limited to collating claims and does not extend to determining or rejecting claims, which is the Liquidator's function. The Tribunal affirmed that the Resolution Professional acted within his authority by rejecting the claim based on the transfer of shares.Conclusion:The Tribunal held that the Appellant, having transferred the pledged shares to its name, effectively settled the debt. Section 176 of the Indian Contract Act was not applicable for the purpose of collating claims under the I&B Code. The Resolution Professional's rejection of the claim was upheld, and the appeal was dismissed.