2023 (5) TMI 303 - SC - Insolvency and Bankruptcy

SC Affirms NCLAT: Appellants Can't Join CoC, Not Financial Creditors; Can Retain Proceeds as Secured Creditors.

M/s VISTRA ITCL (INDIA) LTD & ORS. Versus MR. DINKAR VENKATASUBRAMANIAN & ANR.

M/s VISTRA ITCL (INDIA) LTD & ORS. Versus MR. DINKAR VENKATASUBRAMANIAN & ANR. - (2023) 7 SCC 324 Issues Involved:1. Whether the appellants' claim as a secured financial creditor was belated.2. Whether the appellants qualify as financial creditors of the Corporate Debtor.3. The applicability of the decisions in Anuj Jain and Phoenix ARC cases.4. The rights of the appellants as secured creditors under the pledge agreement.5. The impact of the resolution plan on the appellants' rights.Summary:Issue 1: Belated Claim as Secured Financial CreditorThe appellants argued that their claim as a secured financial creditor was not belated, asserting a continuous cause of action. They contended that there is no prescribed limitation under the Insolvency and Bankruptcy Code (IBC) for objecting to creditor categorization. However, the NCLAT dismissed their appeal, noting that their claim had been rejected in 2017 and was not challenged then. The Supreme Court upheld this view, stating that the appellants did not challenge the rejection of their claim in 2017 and only sought inclusion in the Committee of Creditors (CoC) in 2020.Issue 2: Qualification as Financial CreditorsThe appellants claimed a creditor-debtor relationship with the Corporate Debtor, Amtek Auto Limited, based on loans extended to its group companies for the ultimate benefit of Amtek. They argued that the pledge of shares constituted financial debt under the IBC. However, the Supreme Court referred to the decisions in Anuj Jain and Phoenix ARC, which held that a person with only a security interest in the assets of the Corporate Debtor does not qualify as a financial creditor. The Court found that the appellants did not lend money directly to the Corporate Debtor and thus did not qualify as financial creditors.Issue 3: Applicability of Anuj Jain and Phoenix ARC CasesThe Supreme Court examined the decisions in Anuj Jain and Phoenix ARC, which dealt with the status of financial creditors in the context of collateral security and pledged shares. The Court noted that in both cases, the entities holding security interests were not considered financial creditors. The Court found that these decisions were applicable to the present case, as the appellants' security interest in the pledged shares did not make them financial creditors.Issue 4: Rights as Secured Creditors under Pledge AgreementThe appellants argued that the Pledge Agreement made the Corporate Debtor a guarantor for the loan amount. However, the Supreme Court rejected this contention, noting that the Pledge Agreement limited the Corporate Debtor's liability to the extent of the pledged shares. The Court emphasized that the appellants were secured creditors to the extent of the pledged shares and had the right to retain the security proceeds from the sale of the pledged shares under Section 52 of the IBC.Issue 5: Impact of Resolution Plan on Appellants' RightsThe Supreme Court addressed the issue of whether the resolution plan could override the pledge agreement. The Court noted that the amendments to Section 30(2) of the IBC aimed to protect the interests of creditors, including secured creditors, who are not part of the CoC. The Court held that the resolution plan must meet the requirements of the IBC and protect the rights of secured creditors. The Court directed that the appellants be treated as secured creditors under Sections 52 and 53 of the IBC, allowing them to retain the security interest in the pledged shares and receive proceeds from their sale.Conclusion:The Supreme Court modified the impugned judgment of the NCLAT, holding that the appellants are to be treated as secured creditors entitled to all rights and obligations under Sections 52 and 53 of the IBC, in accordance with the pledge agreement. The appeal was disposed of without any order as to costs.