TaxTMI 
TaxTMI 
2018 (7) TMI 2271
X X X X Extracts X X X X
X X X X Extracts X X X X
....the applicant in the Committee of Creditors and excluding 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 triggerin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....igation: In terms of Article 2.3 of the Bridge Loan Agreement, interest on the Bridge Loan was payable on a monthly 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 Bri....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t; nor has realised any value against the shares till date. Needless to say, as and when PFS would sell the shares, it will do so after complying with applicable provisions 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 sha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....td., formed the Committee of Creditors. 29. The rejection of the claim of the PTC India Financial Services Ltd., by the RP is invalid and arbitrary. 30. It is stated that PTC India Financial Services Ltd., 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 th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e pledged shares only to avoid the liability as guarantor or borrower under the Bridge Loan Agreement by MHPL and corporate debtor respectively. 41. It is pleaded by the applicant(PFS) that Section 18(1)(b) of the Code only authorises the Resolution Professional to 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 furt....
X X X X Extracts X X X X
X X X X Extracts X X X X
....PL during November 2014, percentage of shares pledged with PFS was reduced to 14.98% from the 26%. 58. In June 2013 PFS has sanctioned additional long-term loan of Rs. 150 Crores and it is considered as part of the total debt. 59. PFS in terms of its rights, available under the Deed of Pledge, has invoked the pledge created by 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 NE....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Private Limited (MHPL) is against the same debt due from the corporate debtor. 78. It is claimed by the MHPL that it has pledged 31,80,678 shares of NSL Energy Ventures Private Limited to the applicant as security for the loans availed by the corporate debtor and as the corporate debtor defaulted in repayment of loans availed by it from the applicant, the applicant has invoked 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 fo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t Act, the right of the pawnor i.e. MHPL has not been extinguished over the pledged shares. In support of his contentions, learned senior counsel for PFS relied upon the following decisions:- i) The decision of the Supreme Court in CA No. 4803 of 1984 decided on 12.02.1985 - reported in (1985) 2 Supreme Court cases 167 Balkrishan Gupta and others .Appellants 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 ... &nbs....
X X X X Extracts X X X X
X X X X Extracts X X X X
....peal No.83 of 2010 decided on 11.03.2011 between - Liquid Holdings Private Limited . .. Appellant vs The Securities and Exchange Board of India .. . Respondent In that decision it is held that the shares acquired by Banks ceased to be the security for the loans 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 stan....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Agreement, PFS invoked the pledge on 16.01.2018 as per clause-6.1 of the Pledge Deed. 102. Admittedly, pledged shares were transferred to the PPS. Clause-2.3 of the Pledged Deed read with letter of PPS, dated 23.01.2018, makes it clear that with effect from 16.01.2018 all rights in the pledged 31,80,678 shares including but not limited to the right to attend general meeting of the members and exercise voting right, the right to receive dividends and other distributions amongst others vest in PPS. 103. In the letter, dated 23.01.2018, addressed by PFS to MHPL, PFS has reserved its right to sell shares 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 pled....
X X X X Extracts X X X X
X X X X Extracts X X X X
....) Cash paid, payable or otherwise distributed in respect of principal of, or any buy-back of, or in exchange for, any Pledged Shares, Shall(whether or not an Event of Default or a Potential Event of Default shall have occurred and be continuing) be forthwith delivered in the same form as received (with any necessary endorsement) to the Bridge Loan Lender to hold as part of the Pledged Shares and shall, if received by the Pledgor, be received and held by the Pledgor in trust for the Bridge Loan Lender and shall be segregated from the other property and funds of the such Pledgor. (B) Upon the occurrence of and during the continuance of an Event of Default or a Potential 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 suc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....celled by the depository without prior concurrence of the pledgee. (7) The depository on the cancellation of the entry of pledge shall inform the participant of the pledger. (8) Subject to the provisions of the pledge document, the pledgee may invoke the pledge and on such invocation, the depository shall register the pledgee as beneficial owner of such securities and amend its records accordingly. (9) After amending its records under sub-regulation (8) the depository shall immediately inform the participants of the pledger and pledgee of the change who in turn shall make the necessary changes in their records and inform the pledger and pledgee respectively. (10) (a) If a beneficial owner intends to create 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 no....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r the valuation report given by Axis Capital and when the PFS choose to invoke the shares and when shares were transferred in the name of PFS and when PFS become beneficial owners and when PFS has got right to sell shares they cannot be treated as financial creditors in respect of corporate debtor atleast to the extent of the amount that is going to be realised by PFS towards sale of pledged shares. 123. No doubt, Sec. 176 of the Contract Act recognises the right of the pawnor to redeem the pledged shares before sale to third party but here, in the case on hand, the pledged shares were got transferred to the pawnee himself and he became the beneficial owner of the pledged shares. 124. It is not known to the MHPL/pawnor when the Pledgee (PPS) is going to sell the shares after 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 cas....