Citation-2023 SCC OnLine SC 570

VISTRA ITCL (INDIA) LIMITED AND OTHERS Versus DINKAR

VENKATASUBRAMANIAN AND ANOTHER ,

Civil Appeal No. 3606 of 2020*,

Decided on May 4, 2023

Background of facts to initiate the CIRP PROCESS

Amtek Auto Ltd., referred to as the "corporate debtor," sought a short-term loan facility of INR
500 crores from Appellants 2 and 3 for its group companies, Brassco Engineers Ltd. and WLD
Investments Pvt. Ltd., with the understanding that the corporate debtor would pledge
16,82,06,100 equity shares of JMT Auto Ltd. as security. A security trustee agreement was
signed between Appellant 1 and WLD for INR 150,00,00,000. The corporate debtor's Board of
Directors passed resolutions to create security over the JMT Auto Ltd. shares. IDBI Bank issued
a No Objection Certificate (NOC) allowing the sale proceeds of assets to settle dues under the
security trustee agreement. Another security trustee agreement was executed between Appellant
1 and Brassco for INR 150,00,00,000, followed by another for INR 200,00,00,000.
Subsequently, the corporate debtor, WLD, Brassco, and Vistra entered into an amended and
reinstated pledge agreement on 5-7-2016, pledging 66.77% of its shareholding in JMT Auto Ltd.
to secure term loan facilities from KKR and L&T.

An application under Section 7 of the Insolvency & Bankruptcy Code, 2016 (hereinafter referred
to as “IBC/Code”) was admitted against the corporate debtor/AAL on 24-7-2017.

CIRP PROCESS STAGES

Date Event
24.07.2017 Corporation Bank Versus Amtek Auto Limited
(An Application CP (IB) No.42/Chd/Hry/2017 Under Section 7 of IBC,2016
filed Under Section 1. The petition, CP (IB) No. 42/Chd/Hry/2017, is filed by
7 of IBC,2016) Corporation Bank, a financial creditor, under Section 7 of the
Insolvency and Bankruptcy Code, 2016 (IBC), against Amtek
Auto Limited, the corporate debtor, for defaulting on financial
 debt, falling within the jurisdiction of the National Company Law
Tribunal (NCLT) in Chandigarh.
2. The application is filed through a circular resolution by
Corporation Bank authorizing certain officials to initiate the
insolvency resolution process. It is submitted in the prescribed
format with supporting affidavits, including one from Mr.
Raveesha Nayak B.C., the authorized representative.
3. The notice to Amtek Auto Limited regarding the initiation of
insolvency proceedings by Corporation Bank was dispatched by
Speed Post on 28.06.2017. The notice was delivered at the
Registered Office of the Corporate Debtor on 30.06.2017, as
confirmed by the track report Annexure ‘A’ attached to the
affidavit filed by the authorized representative of the Financial
Creditor. The matter was listed for the first time before the
National Company Law Tribunal on 10.07.2017
4. The proceedings involve a case under the Insolvency and
Bankruptcy Code. Mr. Puneet Singh Bindra, Advocate, represents
the petitioner, stating that the Board Meeting held on 22.07.2017
authorized certain individuals to represent the company in the
case.
5. The petitioner, a Financial Creditor, claims a debt of
₹841,70,00,000 granted to the Corporate Debtor, citing overdue
facilities and default notices. They provide details of loan
agreements, default amounts, and securities held. Submissions
include documents such as the Working Capital Consortium
Agreement and recall notices.
6. The petitioner asserts that the facilities availed by the Corporate
Debtor are overdue, leading to default. To support this claim, the
petitioner provides specific information regarding the date of
default and the amount overdue for various types of loans,
including Term Loans, Working Capital Demand Loan (WCDL),
 and Cash Credit Limit.
The details are as follows:
 Term Loan: The amount overdue is ₹59,75,41,373, with a total
loan amount of ₹57 crores.
 Term Loan: The amount overdue is ₹11,22,00,338, with a total
loan amount of ₹210.41 crores.
 WCDL: The amount overdue is ₹380,14,47,535, with a total loan
amount of ₹365 crores.
 Cash Credit: The amount overdue is ₹23,72,88,49,240, with a
total loan amount of ₹365 crores.
7. The respondent, the Corporate Debtor, does not oppose the
appointment of the Interim Resolution Professional. However,
they provide additional details which are-
 The Corporate Debtor indicates that they
are under the overall supervision of the
Joint Lenders Forum, comprising various
banks, as per the guidelines outlined in the
RBI Guidelines for Revitalising Distressed
Assets in the Economy.
 On April 20, 2017, the Monitoring
Committee and the Joint Lender Forum, led
by IDBI Bank, appointed IDBI Capital
Markets & Securities Limited (IDBI
Capital) and SBI Capital Markets Limited
(SBI Cap) as joint advisors. The Corporate
Debtor agreed to this appointment on April
21, 2017.
 Following the appointment of IDBI Capital
and SBI Cap as advisors, efforts were made
to identify potential investors for the
acquisition of securities in the Corporate
 Debtor or its affiliate companies. This
included advertising invitations for
expressions of interest from investors with
sufficient financial capability.
Order
The Court finds the application complete, with no defects, and admits it.
The moratorium is declared and included the following restrictions:
 Institution of suits or continuation of pending suits or
proceedings against the Corporate Debtor, including
execution of any judgment, decree, or order in any court,
tribunal, arbitration panel, or other authority.
 Transferring, encumbering, alienating, or disposing of any
assets or legal rights of the Corporate Debtor.
 Taking any action to foreclose, recover, or enforce any
security interest created by the Corporate Debtor in
respect of its property, including actions under the
Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002.
 Recovery of any property by an owner or lessor if the
property is occupied by or in the possession of the
Corporate Debtor.
8. The order directed that the supply of essential goods or services to
the Corporate Debtor, as specified by the Insolvency and
Bankruptcy Board of India, shall not be terminated, suspended, or
interrupted during the moratorium period, except for transactions
notified by the Central Government under Section 14(2) of the
Code. The moratorium was effective from 24.07.2017 until the
completion of the Corporate Insolvency Process. The matter was
adjourned to 27.07.2017 for the formal appointment of the Interim
Insolvency Resolution Professional and further directions .
 Corporation Bank. Versus. Amtek Auto Limited.
And
In the matter of:
Order delivered on
Mr.dinkar T.Venkatsubramanian Resolution
13.10.2017
Professional Versus. Indian overseas bank
CA No.142/2017 IN CP (IB) No.42/Chd/Hry/2017
The case involves CA No.142/2017 in CP (IB) No.42/Chd/Hry/2017,
heard in the National Company Law Tribunal, Chandigarh Bench,
Chandigarh, concerning the Insolvency and Bankruptcy Code, 2016. The
petition was filed by Corporation Bank (Financial Creditor) against
Amtek Auto Limited (Corporate Debtor), and Mr. Dinkar T.
Venkatsubramanian was appointed as Interim Resolution Professional
(IRP). The moratorium was declared under Section 14(1) of the Code.
The IRP now functions as the Resolution Professional.
Facts
The petitioner requested Indian Overseas Bank (respondent), a financial
institution of the Corporate Debtor, to freeze debit transactions and
transfer funds to the Corporate Debtor's account. However, the bank
appropriated funds towards the Corporate Debtor's dues, citing a set-off
right. The petitioner demanded the bank refund the amount and follow
instructions, alleging a violation of the moratorium. The petitioner sought
action against bank officials under Section 74(2) of the Code.
Contention
The respondent bank in this case argued that the Corporate Debtor had
opened a current account without the bank's knowledge, concealing its
existing credit facilities. The bank claimed the right to set off funds from
this account towards the Corporate Debtor's dues. They also stated that
the amount in the account was not a security interest or asset of the
Corporate Debtor. The bank contended that it didn't violate any
provisions of the Insolvency and Bankruptcy Code (IBC) and was a
secured financial creditor.
 Order
The court observed that the Corporate Debtor had withdrawn a substantial
amount from the account despite the appointment of the Interim
Resolution Professional (IRP) and the moratorium imposed by the IBC.
The court noted that the bank's appropriation of funds contradicted the
IRP's instructions to freeze the account. The court highlighted the bank's
duty to comply with the IRP's directives regarding the Corporate Debtor's
accounts.
The court ruled in favor of the resolution professional, directing the bank
to deposit the amount from the Corporate Debtor's account into the
Corporation Bank account as per the IRP's instructions. The court also
allowed the resolution professional to take action against the Corporate
Debtor's key managerial persons and instructed the bank to investigate the
Corporate Debtor's actions. The bank was given fifteen days to comply
with the court's order.

Indian Overseas Bank Vs. Mr. Dinkar T. Venkatsubramaniam

Company Appeal (AT) (Insolvency) No. 267 of 2017
15.11.2017 This case has been appealed before NCLAT against the order dated
13.10.2017 CA No.142/2017 IN CP (IB) No.42/Chd/Hry/2017.
The case involves an appeal by Indian Overseas Bank against an order
directing it to transfer funds to the Corporation Bank, which holds the
account of the Corporate Debtor, Amtek Auto Ltd, during the Corporate
Insolvency Resolution Process (CIRP). The bank argued that the funds in
the Corporate Debtor's account were neither a security interest nor an
asset of the Debtor, and thus, it should not be obligated to transfer the
funds.
Order
The court rejected the bank's argument, stating that during the
moratorium period declared under Section 14(1) of the Insolvency and
 Bankruptcy Code (IBC), no party, including financial creditors, can
recover funds from the Corporate Debtor's account or appropriate any
amount towards their own dues.
The court emphasized that if Indian Overseas Bank believes it is a
financial creditor, it should file its claim before the Interim Resolution
Professional (IRP) to be considered for inclusion in the Committee of
Creditors. The court directed the bank to transfer the funds to Corporation
Bank as instructed and granted liberty to the bank to raise its claim before
the IRP and request membership in the Creditors Committee

2.11.2017 Vistra (ITCL )Pvt. Limited filed its claim as a secured financial creditor
of the Corporate Debtor for a principal amount of INR 500 Crores.
However, the aforesaid claim was rejected by the Respondent No. 1 in
2017 and such rejection was not challenged by the Appellants before the
National Company Law Tribunal, Chandigarh .
17.01.2018 Period of CIRP has been extended vide order CA No.08/2018
The initial period of 180 days as provided in sub-section (1) of Section 12
of the Code for completion of the insolvency resolution process was
expiring on 19.01.2018 and on the basis of decision of the COC, the
period for completion of insolvency resolution process was extended by
90 days vide order dated 17.01.2018 passed in CA No.08/2018 in terms of
sub-section (3) of Section 12 of the Code. As such, the total period of
CIRP process would have expired in the middle of April, 2018.

02.04.18 LHG resolution plan was approved by the CoC of the Corporate Debtor,
with majority voting shares of 94.20%. Thereafter, the aforesaid
resolution plan submitted by LHG was approved by the Adjudicating
Authority. However, thereafter, LHG failed to fulfil its obligations as
committed in terms of the approved resolution plan and the Adjudicating
Authority passed an order directing the CoC to reconsider the resolution
plan of DVI.
25.07.2018 In the matter of CA Nos.114/2018, 112/2018 & 140/2018 in CP (IB)
No.42/Chd/Hry/2017, the parties involved are as follows:
CA No.114/2018:
Petitioner-Financial Creditor: Corporation Bank
Respondent-Corporate Debtor: Amtek Auto Limited
Resolution Professional: Mr. Dinkar T. Venkatasubramanian
Resolution Applicant: Liberty House Group PTE Ltd
The Resolution Professional accepted the claim to the tune of ₹139.66
crores, with a total financial debt of ₹12,604.60 crores. The resolution
plan submitted by LHG Pte Limited was found to be in conformity with
the Code, and it was approved with certain modifications.

CA No.112/2018:
Applicant: Resolution Professional
Respondents: Liberty House Group PTE Ltd & Others
This application was filed for seeking clarification from the Tribunal
regarding the eligibility of the Resolution Applicant to furnish the
resolution plan. The non-disclosures of the associate companies by the
Resolution Applicant were not found to be fatal to the validity of the
resolution plan and its implementation.

CA No.140/2018:
Applicants: DVI and DVI PE (Mauritius) Limited
DVI and its associate filed this application under certain sections of the
Code. The application highlighted the participation in the resolution
process and the submission of a resolution plan, which was ultimately not
selected due to higher scores given to another plan.

2020 The CoC approved a resolution plan submitted by Deccan Value

Investors (“DVI”) and the RP filed an application before the NCLT
 seeking its approval for DVI’s resolution plan. DVI’s resolution plan
negated the Pledge.
09.07.2020 'M/s. Vistara (ITCL) Ltd. filed the application under Section 60(5) IBC
I.A. 62 of 2020 in
in question had been filed against the Resolution Professional and the
CP (IB) No.
42/Chd./Hry./2017 Committee of Creditors of the Corporate Debtor - 'M/s. Amtek Auto
Limited' under Section 60(5) of the I&B Code on 11 th February, 2020
praying for a direction in the name of Resolution Professional to include
the Appellant No. 1 in the Committee of Creditors as a secured financial
creditor and extend all benefits of a secured financial creditor to it.

.The Adjudicating Authority(NCLT) noted that the claim of the

Appellants as secured financial creditor was rejected by the Resolution
Professional in 2017 which had not been challenged.

On consideration of the matter, the Adjudicating Authority, while

approving the resolution plan of resolution applicant - 'Duccan Value
Investor' (DVI), dismissed I.A. No. 62 of 2020 in terms of the same order
which has been impugned in this appeal.

This application dismissed as the Adjudicating Authority was of the

opinion that the Appellants have not lent any money to the Corporate
Debtor and they cannot be treated as the Financial Creditor of the
Corporate Debtor

25.08.2020 Appellant had appealed against the order I.A. 62 of 2020 in CP (IB) No.
CP (AT)
42/Chd./Hry./2017 before the NCLAT In, the claim of Appellant No. 1 as
(Insolvency) No.
703 of 2020 a 'Secured Financial Creditor' was rejected in 2017, and this decision was
not challenged. The attempt to raise the same issue in 2020 through I.A.
No. 62 of 2020 is deemed inappropriate. The explanation provided by the
appellants, citing reliance on the 'Liberty House Group' Resolution Plan,
is deemed unreasonable and insufficient to justify the delayed filing. The
 appellants did not directly lend money to the Corporate Debtor, and the
creation of a pledge of shares does not constitute a financial debt. As
such, the appeal lacks merit and is dismissed outright.

Contention of appellant

 The appellants' Senior Counsel argues that the NCLT/NCLAT made a significant error in
considering the claim by Appellant 1 as a secured financial creditor belated. They argue
that it was a case of continuing cause of action, and there's no limitation prescribed for
objecting to the categorization of creditors under IBC.
 The limitation is connected with the principle of cause of action, and it's a case of
continuous cause of action since various parties involved in the resolution process need to
consider the correct categorization of claimants.
 The CIRP commenced on 24-7-2017, and the resolution plan was submitted for voting by
the CoC from 7-2-2020 to 11-2-2020, approved by the adjudicating authority on 9-7-
2020, almost 3 years since the start of the CIRP. The appellants challenged their non-
inclusion as a financial secured creditor in the CoC on 11-2-2020, five months before the
resolution plan was approved.
 The appellants argue that since the CIRP process carried on for three years, well beyond
the timeline of 330 days as set out under IBC, neither delay on the part of the appellants
nor delay on the part of CoC and resolution professional can be justified.
 On merits, the counsel contends that previous court decisions Jaypee Infratech Ltd.
(Interim Resolution Professional) v. Axis Bank Ltd." and "Phoenix ARC (P) Ltd. v.
Ketulbhai Ramubhai Patel" are distinguishable and not applicable to the current case.
 It is argued that there is a creditor-debtor relationship between the appellants and Amtek
Auto Ltd. Various documents are cited to establish this relationship, indicating that
Amtek obtained loans from the appellants when it was in financial distress, with the
knowledge of the banks. The pledge of shares is emphasized as constituting financial debt
under section 3(31)of IBC.

Contention of the respondent

  The appellant filed its claim with the resolution professional on 2-11-2017, which
was rejected and duly reflected in the list of creditors published on the corporate
debtor's website. The rejection was never contested by the appellant.
 Throughout various communications, Appellant 1 did not challenge the non-
acceptance of its claim but instead requested that the pledged shares not be dealt with
without its prior written consent.
 The appellant filed an application before the NCLT on 2020, not challenging the
rejection of its claim but seeking admission into the CoC. This application was filed
and rightly rejected by the NCLT, a decision confirmed by the NCLAT.
 It is argued that the appellants do not qualify as financial creditors of the corporate
debtor since there is only third-party security in the form of pledged shares for the
amounts advanced to affiliates of the corporate debtor. Thus, the appellants cannot be
considered financial creditors of the corporate debtor.

Analysis

The court examined Appellant 1's argument that the loans it provided to the group companies of
the corporate debtor were for the end-use and benefit of the corporate debtor, thus distinguishing
it from the scenarios in Anuj Jain and Phoenix ARC.

However, the court rejected this argument, stating that the liability to repay the loans advanced to
the group companies lies with those companies, not with the corporate debtor. Even if the
corporate debtor was the ultimate beneficiary of the loans, it was not directly liable for their
repayment.

The court's analyzed two significant cases: Anuj Jain and Phoenix ARC, and the contention
made by Appellant 1 (M/s Vistra ITCL) that these decisions are distinguishable from the facts of
the present case.

Anuj Jain Case:

The court in Anuj Jain case dealt with the question of whether lenders of Jaypee Associates Ltd.
(JAL), the holding company of Jaypee Infratech Ltd. (JIL), the corporate debtor, qualify as
"financial creditors" of JIL under the Insolvency and Bankruptcy Code (IBC). This issue arose
because JIL had mortgaged certain land with JAL's creditors.

The court highlighted the unique role of financial creditors in the Corporate Insolvency
Resolution Process (CIRP) under the IBC. It emphasized that financial creditors play a crucial
role in the revival and restructuring of the corporate debtor, unlike secured creditors who may
only be interested in realizing the value of their security.

Therefore, the court concluded that a person having only a security interest in the assets of
the corporate debtor, even if categorized as a "secured creditor," would stand outside the
realm of "financial creditors" and thus outside the Committee of Creditors (CoC).

Phoenix ARC Case:

In the Phoenix ARC case, the corporate debtor, Doshion Veolia Water Solutions Pvt. Ltd.
(Doshion Veolia), had pledged shares as security to L&T Infrastructure Finance Company Ltd.
The appellant, Phoenix ARC (P) Ltd., claimed to be a financial creditor based on this security
interest.

However, the court held that the pledge of shares, although providing security, does not
constitute "financial debt" under the IBC. Therefore, the appellant could not be
considered a financial creditor of the corporate debtor.

The court concluded that the loans were not the liability of the corporate debtor-Amtek, and thus
the decisions in Anuj Jain and Phoenix ARC were applicable despite the loans benefiting the
corporate debtor indirectly.Thus, the court upheld the principles established in the Anuj Jain and
Phoenix ARC cases, emphasizing the distinction between secured creditors and financial
creditors under the IBC. It rejected the appellant's attempt to distinguish the cases based on the
end-use of the loans, reaffirming that the direct liability for repayment determines the creditor's
status under the IBC.

It is submitted before the court pertains to the Amended and Restated pledge agreement dated
5-7-2016 between the corporate debtor, Amtek, and IL&FS Trust Company Ltd., the
predecessor-in-interest of Appellant 1, Vistra. It was argued that Clause 2.1.2 of the pledge
agreement establishes the corporate debtor, Amtek, as the guarantor of the entire loan amount.
However, this argument is countered by the pledge agreement itself, which explicitly limits the
liability of the corporate debtor to the extent of the pledged shares, as stated in Clause 2.1.1. This
clause specifies that the corporate debtor agrees to comply with the provisions of the financing
documents and repay the outstanding amounts related to the identified debt only up to the
aggregate amount realized by the Trustee through enforcement of the security interest over the
pledged shares. Therefore, the contention that the corporate debtor is the guarantor of the entire
loan amount is rejected based on the specific language and limitations outlined in the pledge
agreement.

The Supreme Court then scrutinized whether a resolution plan could nullify or undermine the
Pledge Agreement, especially considering the approval of such a plan by the Committee of
Creditors (CoC). The Court noted amendments to Section 30(2) of the Insolvency and
Bankruptcy Code (IBC) aimed at safeguarding the interests of operational creditors and
dissenting financial creditors. However, it pointed out a peculiar situation for creditors like
Appellant No. 1, who are secured but do not fall under the categories of financial or operational
creditors. Such creditors would face a dilemma as they would not benefit from the provisions
designed for financial or operational creditors.

The Supreme Court explored two potential solutions. The first involved treating the secured
creditor as a financial creditor of the Corporate Debtor based on the estimated value of the
pledged shares at the initiation of the Corporate Insolvency Resolution Process (CIRP).
However, this option would require revisiting prior judgments and possibly involving a larger
bench of the Supreme Court. Consequently, the Court deemed this solution impractical.

Secondly, to treat Vistra as a secured creditor of Amtek in terms of Section 52 read with Section
53 of IBC.

Therefore, the Supreme Court opted to treat Appellant No. 1 as a secured creditor under Sections
52 and 53 of the IBC. It granted DVI the option to recognize Appellant No. 1 as a secured
creditor, allowing them to maintain their security interest in the pledged shares and retain the
proceeds from their sale as per the relevant provisions of the IBC and associated regulations.In
addition, the Court clarified that this directive wouldn't justify DVI withdrawing the already
approved resolution plan.