May 6, 2023 In Uncategorized


In a recent case of M/S. Vistra ITCL (India) & Ors. Vs. Mr. Dinkar Venkatasubramanian & Anr. Civil Appeal No. 3606 of 2020, a two Judge Bench of the Supreme Court comprising of Justice M.R. Shah and Justice Sanjiv Khanna passed a Judgment dated 04-05-2023 and observed that the Appellant No. 1 – Secured Creditor would be entitled to retain the sale proceeds in respect of its security interest i.e. shares pledged in its favor by the Corporate Debtor-Amtek Auto Limited under the Insolvency and Bankruptcy Code 2016 (IBC/Code).


1) In the present case, one, Amtek Auto Limited (Corporate Debtor) approached two creditors, namely, KKR India Financial Services Ltd., the Appellant No. 2-Creditor and L&T Finance Limited, the Appellant No. 3-Creditor seeking loan of INR 500 Crores (Loan) for the Corporate Debtor’s Group Companies, i.e. Brassco Engineers Ltd. (Brassco) and WLD Investments Pvt. Ltd. (WLD).

2) The Appellants No. 2 and 3- Creditors agreed to extend the Loan on the understanding that the Corporate Debtor would create a first-ranking exclusive security by way of pledge of over 16,82,06,100 equity shares of face value of Rs. 2/- each held by the Corporate Debtor in one, JMT Auto Ltd.

3) Thereafter, a Security Trustee Agreement dated 28.12.2015 was executed between one, M/S. Vistra ITCL (India) Ltd. (Vistra), the Appellant No. 1, a Corporate Trustee and WLD Investment Ltd. for an amount of Rs. 150,00,00,000/- (Rupees One Hundred and Fifty Crores only) and thereby, appointed Vistra-Trustee as the Security Trustee which will hold the secured properties / pledged shares in trust.

4) Similarly, a Security Trustee Agreement was executed between the Appellant No. 1-Trustee and Brassco for an amount of Rs. 200,00,00,000/- (Rupees Two Hundred Crores only).

5) Furthermore, in order to secure the Term Loan facilities availed by the Group Companies- WLD and Brassco from the Appellants No. 2 and 3- Creditors, a Pledge Agreement dated 05.07.2016 was executed between the Corporate Debtor and its Group Companies with Vistra-Trustee, whereby, the Corporate Debtor pledged 66.77% of its shareholding held in JMT Auto Ltd.

6) However, around a year later, an Application under Section 7 of IBC (Initiation of corporate insolvency resolution process by financial creditor) was admitted against the Corporate Debtor on 24.07.2017 by the Ld. National Company Law Tribunal, Chandigarh (NCLT) in CP (IB) 42/Chd./Hry/2017. The Appellants – Secured Creditors filed a Proof of Claim before the Resolution Professional, which was rejected in 2017. The Resolution plan submitted by the Liberty House Group (LHG) was approved by the NCLT, vide Order dated 25.07.2018. However, subsequently, the NCLT passed an Order directing reconsideration of the Committee of Creditors (CoC) for consideration of the resolution plan submitted by another applicant, namely, Deccan Value Investors (DVI). Eventually, DVI was held as the Successful Resolution Applicant.

7) Thereafter, the Appellants- Creditors filed an A. No.62/2020 under Section 60(5) of the IBC (Adjudicating Authority for corporate persons) claiming their right(s) as secured creditors on the basis of the shares pledged by the Corporate Debtor in their favor. The NCLT dismissed the said Application, vide Order dated 09.07.2020.

8) Aggrieved by the NCLT Order dated 09.07.2020, the Appellants- Creditors filed Company Appeal (AT) (Insolvency) No.703 of 2020 before the Ld. National Company Law Appellate Tribunal (NCLAT), which was dismissed, vide Order dated 24.08.2020.

Supreme Court Observations:

Aggrieved by the NCLAT Order dated 24.08.2020, the Appellants- Creditors filed Civil Appeal No. 3606 of 2020 before the Supreme Court. The Apex Court passed a Judgment dated 04-05-2023 and made the following observations:

(i) That Appellant No. 1 – Vistra is a secured creditor with the first right in pledge on 66.77% shareholding in JMT Auto Limited, which was pledged in its favor by the Corporate Debtor.

(ii) That the term ‘security interest’ is defined in Section 3(31) of the Code and refers to the right, title, interest, or claim to a property created in favour of a secured creditor by a transaction that secures payment or performance of an obligation. The person in whose favour the security interest is created need not be the creditor who avails the credit facility and can be a third party.

(iii) That the Amendment introduced to IBC in 2019 ensures that operational creditors should be paid the same amount under a resolution plan that they would have otherwise received in the event of liquidation of the Corporate Debtor under Section 53 of IBC. Similarly, financial creditors, who have not voted in favour of the resolution plan, should also receive an amount not less than the amount payable to them under Section 53(1) of the IBC.

(iv) Further, the Explanation (1) to clause (b) of Section 30(2) of IBC clarifies that distribution in accordance with this clause shall be fair and equitable to such creditors. It is also the mandate of Section 31 of IBC that the NCLT should be satisfied that the resolution plan, as approved by the CoC under sub­section (4) of Section 30 IBC meets the requirements as referred to in sub­section (2) of Section 30 and only in such cases, the NCLT shall approve the resolution plan, which shall then be binding on the corporate debtor and its employees, members, creditors, guarantors and other stakeholders involved in the resolution plan.

(v) Furthermore, Section 30(2)(e) requires the resolution professional to confirm that the resolution plan doesn’t violate any laws.

(vi) That the amended Section 30(2) and Section 31 IBC ensure that the resolution plan protects the interests of creditors who are not part of the CoC, such as operational and financial creditors who didn’t vote for the plan.

(vii) That in the present case, it is established that the Appellant No.1 – Vistra has a security interest in the pledged shares. Hence, it is a secured creditor in terms of IBC. But the Resolution Plan did not consider the Appellant No. 1- Vistra as a financial creditor.

(viii) That Section 52 of the IBC allows a secured creditor in liquidation proceedings to either relinquish its security interest to the liquidation estate and receive proceeds from the sale of assets by the liquidator under Section 53 IBC. If the secured creditor relinquishes the security interest, it is entitled to priority in payment under clause (b) to sub-section (1) to Section 53 of the Code.

(ix) Further, as per Section 52(9) of the Code, where the proceeds on realisation of secured assets are not adequate to repay the debts due to the secured creditors who have exercised the option to realise the security interest, the unpaid dues of such secured creditors are to be paid by the liquidator in terms of clause (e) of sub-section (1) of Section 53 of the IBC/Code.

(x) The secured creditor has a second option i.e. to realize the security interest as per Section 52 of IBC.

(xi) In the present case, despite being a secured creditor, the Appellant No.1- Vistra has been wrongly denied the right to sell their secured interest i.e. in respect of pledged shares under Sections 52 and 53 of IBC, which conflicts with the amended Sections 30(2) and 31 of the Code that provides that it has to be ensured that the resolution plan protects the interests of creditors who are not part of the CoC.

(xii) Thus, the solution is to either treat the Appellant No. 1- Secured Creditor as a financial creditor to the extent of the pledged share’s estimated value or treat it as a secured creditor under Sections 52 and 53 of the Code.

(xiii) In the present case, as the Resolution Plan had already been approved by the COC without the Appellant No. 1-Vistra being a part of the COC, thus, the Bench chose the second option i.e. to treat the Appellant No. 1 as a secured creditor in terms of Sections 52 and 53 of the Code and allow it to retain the security interest in the pledged shares and retain the proceeds on the sale of pledged shares.


Thus, based on the aforesaid observations, the Supreme Court held that the Appellant No. 1- Vistra is entitled to retain the sale proceeds in respect of the pledged shares under Section 52 of IBC. As a result, the Appeal was allowed and the NCLAT Order dated 24.08.2020 was set aside.

Udit Krishna


The Indian Lawyer

Leave a Reply