TaxTMI 
TaxTMI 
2018 (7) TMI 2271
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....g Mandava Holdings Private Limited(MHPL) from the Committee of Creditors. b. To direct the Resolution Professional to admit the financial claim of INR 169,19,17,637 filed by the applicant by setting aside the impugned decision of the RP rejecting Form-C dated 10.02.2018 submitted by the applicant. c. To substitute RP selected by a lawfully constituted Committee of Creditors that includes applicant/ financial creditor. 2. I.A. 71/2018 is also filed by financial creditor Mandava Holdings Private Ltd. (MHPL) for the following reliefs:- a. Reconstitution of the Committee of Creditors in accordance with the Insolvency and Bankruptcy Code, 2016 by including the applicant. b. To direct the RP to admit the financial claim of INR 319 crores of the application vide Form C dated 06.02.2018. 3. The facts in brief, that are germane for the disposal of both the applications, wherein the prayers are almost similar in nature, are as follows:- 4. NSL Nagapatnam Power and Infratech Ltd. filed C.P.(IB) 306/ 10/HDB/2017 before the Adjudicating Authority(NCLT, Hyd.) for triggering Corporate Insolvency Resolution Process in respect of NSL Nagapatnam Power and Infratech....
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....thly basis commencing from April 1, 2014, as more particularly described in Schedule VI to the Bridge Loan Agreement. 12. PTC India Financial Services Ltd. vide its letter, dated 06.11.2015, rescheduled the repayment period by pushing the date of the first quarterly repayment from 01.07.2015 provided in Schedule-IV to the Bridge Loan Agreement to 01.10.2016 along with a shift in the targeted Commercial Operation Date of the Project from July, 2016 to March, 2019. 13. Accordingly, the terms of the Bridge Loan Agreement were also amended on 28.12.2015 by way of an amendment. 14. The Bridge Loan amount was fully disbursed by the PTC India Financial Services Ltd., to the Corporate Debtor by March, 2014. 15. As security for Bridge Loan, the Corporate Debtor created security interest in favour of the applicant by way of, inter alia, mortgage of immovable property, hypothecation of movable property, pledge of shares, corporate guarantee and Directors personal guarantee. 16. To secure the payment obligations of the Corporate Debtor under the Bridge Loan Agreement, MHPL also executed the NEVPL Deed of Pledge, dated 10.03.2014, in favour of the applicant and the same is confirmed by the....
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....sions of law and would then reduce the amount of its claim by the amount which is realised. The pledged shares are still being retained by PFS as security for the Financial Debt and in case, MHPL or the borrower wants to redeem the said shares, they can do so after discharging the debt owed by them to PPS. The financial debt of PFS as stated in Form C submitted by it has therefore not been discharged as on the insolvency commencement date i.e., January 18, 2018, and continues to remain outstanding as on date." b) "Amount as claimed by PFS in Form C remains valid and outstanding. PPS has not realised any value by mere invocation of pledge. It is also not possible to determine value of the said shares on date of invocation of the shares since the latest financial information of NEVPL are neither available with the Registrar of Companies nor have been provided to PFS despite PFS repeatedly asking for the same. It may further be noted that the shares of NEVPL are not traded shares nor are these shares readily marketable." c) "Without prejudice to the said position, it is submitted that the Book Value as per share of the shares of NEVPL (calculated as on 31.03.2016) is only ....
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....has not realized any amount from invoking the pledged shares since the shares have not been sold to any third party. 31. It is stated that the pawnee's has right to sell the pledged goods for recovery of its debts. However, till such sale takes place, the pawnor is entitled to redeem the goods on payment of debt. Therefore, the pawnee can sue on the debt while retaining the pledged goods as collateral security. 32. According to PTC India Financial Services Ltd., till the sale of shares takes place, it can proceed with its financial claim under the ongoing CIRP process against the Corporate Debtor. 33. In case MHPL wishes to redeem the pledged shares, it can pay the PTC India Financial Services Ltd., its admitted dues. 34. It is stated by PFS that MHPL is the ultimate holding of the Corporate Debtor and under law, a related party. 35. It is also stated by the applicant that Section 21 (2) of the Code restricted a related party's involvement in the entire insolvency process. 36. The rejection of the claim of the applicant on the basis of false and frivolous statements made by a related party of the corporate debtor, the Resolution Professional ignored the mandate ....
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....receive and collect all the claims submitted by the creditors but not to adjudicate upon the claims and counter claims. 42. It is stated by the applicant(PFS), applicant although invoked the pledged shares, pledged by MHPL as security, it has not transferred the same to any third party and has not realised even a single rupee. 43. Realisation of value is contingent on sale of pledged shares as and when PPS is able to realise value by sale of such shares, it will reduce its claim by that amount. 44. According to the applicant(PFS), till such time the entire claim of the applicant as submitted in Form C is valid. 45. According to the applicant(PFS) if it is not included in the COC, its rightful place amongst the members of the COC would be affected. 46. According to the applicant(PFS) it would suffer irretrievable injury in the event the COC formed by the Resolution Professional is allowed to proceed further without including the applicant. 47. The facts in brief relating to IA 71/2018 filed by MHPL is as follows:- 48. MHPL filed this application assailing the decision of the IRP vide an email dated 19.02.2018 in not including MHPL in the list of creditors and in the coc. 49.....
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....MHPL in favour of PPS, by way of transfer of 31 pledged shares to the Depository Participant Account of PPS from the Depository Participant Account of the MHPL on 16.01.2018. 60. This invocation was made just two days prior to admission of the corporate debtor to CIRP process. 61. PFS issued notice, dated 28.12.2017, about the default of corporate debtor and about its rights under the pledged deed. 62. PPS further called upon the MHPL-Pledgors to create pledge on remaining shares, in case the liabilities in respect of defaults under the Bridge loan Agreement are not discharged within the time period, as specified in the said Notice. 63. PFS in exercise of its right under clause-6.1 of the Pledge Deed has transferred in its name in respect of 31,80,678 pledged shares on 16.01.2018. 64. Thereby the shareholding of the MHPL in NEVPL has reduced by 31,80,678 shares and PPS has become shareholder of NEVPL to that extent. 65. The value of the pledged shares is valued of Rs.319 crores by Axis Capital and the same is recorded in the Annual reports of MHPL. 66. In the Annual report for the FY 2012-13, NEVPL valuation is mentioned as Rs. 1,229.66 Crores as at 31.03.2013 wi....
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....ed the shares pledged by MHPL. 79. According to MHPL the value of 31,80,678 pledged shares of NSL Energ.r Ventures Private Limited is Rs.319 Crores and therefore MHPL should be treated as Financial Creditor. 80. The Applicant-MHPL has relied upon the valuation report from Axis Capital. The applicant(PFS) relied upon the valuation report from Raj Har Gopal & Co. wherein, it is stated that the value of one share of NSL Energy Ventures Private Limited with share value of Rs. 10 as on 31.03.2016 is Rs. 58.97. 81. The Resolution Professional has not relied upon the valuation report given by Axis Capital furnished by MHPL or the valuation report given by Raj Har Gopal & Co. furnished by the PFS. 82. The Resolution Professional without including MHPL and the PPS in the COC constituted the COC with the following persons on 20.02.2018 and intimated the same to NCLT on 21.02.2018: a. Indian Overseas Bank (Financial Creditor) b. Mr. Taranand Pathak (Operational Creditor who has a right to attend meeting but does not have voting rights) c. Mr. Dinesh Kumar Jain(Operational Creditor who has a right to attend meeting but does not have voting rights). 83. Resolution Professional in the....
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....p; vs Swadeshi Polytex Ltd. and Another ...Respondents ii) The decision of the Hon'ble High Court of Delhi in IA No. 11586/2011 in CS(OS) No.1771/2011 decided on 29.08.2011 between- GTL Limited ... Plaintiff vs IFCI Ltd. & Ors. ... &n....
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....ns as the Banks had become the beneficial owners thereof as their names were entered into the records of the depository. 95. It is the contention of the learned Counsel appearing for the MHPL that the shares in NEVPL were pledged with PFS and PPS has invoked the shares pursuant to the Pledge Agreement. 96. It is also contended that the invocation of pledged shares and transfer of shares took place as per the provisions of Sec.28 of the Depositors Act and Sec.32 of the Security Exchange Board of India Act, 1932 and therefore PFS became a registered owner of the shares and the name of the PPS appears in the depository and the beneficial ownership stand transfer to PFS. 97. Learned counsel contended that the valuation given by the Axis Capital is based upon the Annual accounts of the MHPL and therefore it merits acceptance by the Resolution Professional and in case if it is taken into consideration, the debt due by the corporate debtor to the PFS is cleared and the MHPL steps into the shoes of PPS. 98. In that view of the matter, MHPL claimed as financial creditor for the value of the shares pledged basing upon the valuation report given. 99. Keeping in mind the rival contentions....
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....es for value after providing five days notice, as required under Clause-6.2 of the Pledge Deed and under Section 176 of the Indian Contract Act. 104. From the above said facts, it is clear that there is no sale of pledged shares but PFS (pawnee) has invoked the pledged shares and the name of PFS is recorded in the register members of NEVPL in the place of MHPL. 105. It is pertinent to refer to certain clauses of NEVPL Deed of Pledge, dated 10.03.2014, relating to voting rights and dividends of the PFS and MHPL. 106. In respect of voting rights and dividends relating to pledged shares, the relevant clauses are 2.3(A) and 2.3(B). a. 2.3(A) deals with voting rights and dividends so long as no event of default occurred. b. 2.3(B) deals with voting rights and dividends upon the occurrence of event of default. 107. For the sake of ready reference, the above said clauses are reproduced. 2.3 Voting Rights and Dividends (A) So long as no Event of Default or Potential Event of Default has occurred and is continuing, subject to the provisions of the Transaction Documents: i) The Pledgor shall be entitled to exercise any and all voting and other consensual rights pertaining t....
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....ential Event of Default: i) The rights of the Pledgor, o exercise or refrain from existing the voing and other consensual rights and the right to receive dividends and other distributions that it would otherwise be entitled to exercise or receive and retain pursuant to Section 2.3 (A) above shall cease, and all such rights shall be vested in the Bridge Loan Lender or any of its nominees as the Bridge Loan Lender shall direct, who shall thereupon have the sole right to exercise or refrain from exercising such voting and other consensual rights and for this purpose, to attend any general meeting of members or meeting of any class of members of NEVPL, and to receive such dividends and distributions in respect of the Pledged Shares. ii) All dividends received by the Pledgor, if any, contrary to the provisions of this Section 2.3(B) shall be held by such Pledgor upon trust for the benefit of the Bridge Loan Lender, and shall be kept segregated from other funds of the Pledgor and shall be made over to the Bridge Loan Lender in the same form as received (with any necessary endorsement). 108. In fact, there is no controversy regarding invocation of the pledged shares. Such right....
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....te a hypothecation on a security owned by him he may do so in accordance with the provisions of sub-regulations (1) to (9). (b) The provisions of sub-regulations (1) to (9) shall mutatis mutandis apply in such cases of hypothecation: Provided that the depository before registering the hypothecatee as a beneficial owner shall obtain the prior concurrence of the hypothecator. (11) No transfer of security in respect of which a notice or entry of pledge or hypothecation is in force shall be effected by a participant without the concurrence of the pledgee or the hypothecatee, as the case may be. 111. Regulation 58(8) of the Regulation gives right to the Pledgee to invoke the pledge subject to the provisions of the pledge document. 112. In the case on hand, in view of the provisions of the pledged document and in view of the regulation 58(8) Pledgee is entitled to invoke the pledge. 113. Regulation 58(8) further says that on invocation of the pledge, the depository shall register the Pledgee as beneficial owner of shares and amend its records accordingly. 114. No doubt, Section 176 of the Contract Act gives pawnee, right to sell the pledged shares after giving reasonable notice....
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....r giving notice to the pawnor i.e. MHPL. 125. MHPL become the financial creditor of the corporate debtor atleast to the extent of the value of the pledged shares. 126. Therefore, the fair value of the pledged shares as on the date of invocation of pledge i.e. 16.01.2018 is crucial for determining to what extent PFS and MHPL are the financial creditors in respect of the corporate debtor. 127. In case if the value of the pledged shares as on the date of invocation is less than the amount due to the PFS from the corporate debtor for that difference amount PFS would become the financial creditor and there upon PFS is entitled to be a member of the COC. In case if the fair market value of pledged shares that are invoked is in excess of the debt due to PFS from corporate debtor, then PFS cannot be treated as financial creditor. 128. Coming to MHPL, when the PFS has got a right to sell the shares and realise certain amount to that extent MHPL being guarantor to corporate debtor is entitled to recover the same from the corporate debtor and therefore to that extent MHPL would become financial creditor. Further in case of MHPL intends to redeem the pledged shares, MHPL has to clear the ....