Case Analysis - M - S Vistra ITCL (India) Ltd. Vs Dinkar Venkatasubramanian And Another (Civil Appeal No. 3606 Of 2020)

Author: LawSphereX

Category: General Law

Published: 2026-08-23T18:40:43.966Z

Updated: 2026-08-30T07:05:25.662Z

CASE

ANALYSIS

M/S VISTRA ITCL (INDIA) LTD. VS DINKAR VENKATASUBRAMANIAN AND ANOTHER (CIVIL APPEAL NO. 3606 OF 2020) Amrutha Pushpan, LL.M. (Corporate Law), Vivekananda School of Law and Legal Studies

1. Background

of Insolvency and Bankruptcy Code, 2016 The Insolvency and Bankruptcy Code was introduced in the year 2016 in order to administer and govern the insolvency and bankruptcy laws in India. This Code applies to companies, firms, limited liability entities and individuals and are not applied to financial service providers. The main purpose of bringing this Code in force was to consolidate all the existing framework in one single law. It has played a major role in protecting the rights of the secured creditors and providing them necessary relief in case of infringement of their legal rights. All the professionals, adjudicating authorities are required to comply with all the procedures laid down in the Code. The National Company Law Tribunal (NCLAT) is the appellate body who hears the appeal related to insolvency and bankruptcy cases.

An Interim Resolution Professional is appointed by The National Company Law Tribunal (NCLAT) a person who is appointed to manage the affairs of the company and to keep an eye that all the individuals as well as the corporate entities are abiding the procedure of Resolution Process or not.

2. Sections of Insolvency and Bankruptcy Code, 2016 which is referred in the case law

Ø Section 7 – Initiation of Corporate Insolvency Resolution Process by the Financial Creditors Under Section 7 of Insolvency and Bankruptcy Code, 2016, it explains the process of Corporate Insolvency Resolution Process (CIRP) when it is initiated by the financial creditor. As per this section, the financial creditor have to adhere to the requirements and procedures which are enumerated under this section. This section not only provides the resolution process but also states the eligibility of the financial creditor and also enlists the power of the adjudicating authority.

Ø Section 52- Secured Creditor in Liquidation Proceedings Under Section 52 of The Insolvency and Bankruptcy Code, 2016, it states the rights of a secured creditor in liquidation process. It allows the secured creditor to relinquish the security interest or realize it independently by selling the secured assets in order to recover their debts. They are provided an option to either participate in the overall liquidation process or control their secured assets to recover their dues. Ø Section 53 – Distribution Of Assets Under Section 53 of The Insolvency and Bankruptcy Code, 2016, it states the distribution of proceeds from the sale of assets during the liquidation process. This section is regarded as the “waterfall mechanism”.

3. Overview of the Case Law

This case law embarks the protection of the secured creditors and had clarified the rights of the secured creditors within the Corporate Insolvency Resolution Process (CIRP) under The Insolvency And Bankruptcy Code, 2016. The Supreme Court in this case is able to highlight the status of the financial debt in cases of pledge agreement. The Hon’ble Court through this case was able to identify a unique class of secured creditors i.e. The Indirect Creditors who lend their money to the third party. With the help of certain case laws and relevant provisions of The Insolvency And Bankruptcy Code, 2016 which was referred in this present case – The Hon’ble Court was able to prove that the secured creditor will fall within the ambit of financial creditor in cases of pledge agreement.

4. Facts

The brief facts of the case are that the corporate debtor of Amtek Auto Limited have approached the appellants to extend their short-term loan facility for two companies i.e. Brassco Engineers Limited and WLD Investments Private Limited. The appellants that that time thought that the corporate debtor will pledge over 16,82,06,100 equity shares on the face value of Rs. 2/- each. At that time, three Security Trustee Agreements between the appellants were executed in the following manner.

Serial Security Trustee Valuation of the Equity Number Agreements/Pledge Agreements Shares 1. Security Trustee Agreement – I Rs. 450,00,000/- (Rs. Four Crores And Fifty (Agreement between Vistra Limited Lakhs) And WLD Investments Private Limited) 2. Security Trustee Agreement – II Rs. 150,00,000/- (Rs. One Fifty Crores) (Agreement between Vistra Limited And Brassco Engineers Limited) 3. Security Trustee Agreement – III Rs. 200,00,000/- (Rs. Two Hundred Crores) (Agreement between Vistra Limited And Brassco Engineers Limited) The Board of Directors have passed the Board Resolutions in lieu of these pledge agreements. The Industrial Development Bank Of India (IDBI) Bank stated to these companies that they are to settle all the dues in order to receive No-Objection Certificate (NOC) from the Bank.

The appellants have cleared all the dues and the IDBI Bank have issued No-Objection Certificate (NOC) to them. All the four companies have re-instated their pledge agreement on

05.07.2016. At that time, the Corporate Debtor pledged over 66.77 % of its shareholding in

Amtek Auto Limited. Aggrieved by this act of the Corporate Debtor, the appellants have filed an application under Section 7 of The Insolvency And Bankruptcy Code, 2016 in order to claim their rights under the pledge agreements. In the year 2017, Mr. Dinkar Subramanian who was the Interim Resolution Professional rejected their application on the ground of delay in filing the application and there was no sufficient ground to accept their application. In the year 2020, the appellants again filed another application under Section 60(5) of The Insolvency And Bankruptcy Code, 2016. The Court directed the Adjudicating Authority to look into the matter to decide the resolution plan of the appellants and directed them that they shall pass the appropriate orders within the period of 15 days.

After the Adjudicating Authority rejected their application, then they filed an application before the National Company Law Appellant Tribunal (NCLAT) in 2020. After evaluating their claims, the Tribunal rejected their application on the ground that appellants have not lended any amount to the corporate debtor. Any the corporate debtor didn’t owe any financial debt towards the appellants so, they fall outside the ambit of financial creditors. Aggrieved by the judgement of the Tribunal in 2020, the appellants filed an appeal before the Hon’ble Supreme Court in 2023.

5. Decision of the National Company Law Appellant Tribunal (NCLAT) in 2020

After the Adjudicating Authority had rejected the application which was filed by the appellants under Section 60(5) of The Insolvency And Bankruptcy Code, 2016 in the year 2020. The Appellants moved an application under The National Company Law Appellant Tribunal (NCLAT) in order to claim their rights on the basis of the pledged shares as per their pledge agreements. When the Tribunal looked into the matter, it dismissed their appeal on the basis that the claim of the appellants in the capacity of the secured financial creditor was already rejected in 2017 by the Resolution Professional and same issue cannot be raised in the year

2020. The Tribunal observed that the appellants have not lent any money to the corporate debtor

and as a result, the corporate debtor did not owe any financial debt to the appellants. The Tribunal stated that since the appellants didn’t advance any money to the corporate debtor so, the appellants will not come under the purview of the financial creditor under The Insolvency And Bankruptcy Code, 2016.

6. Appeal Filed by the Aggrieved Parties To Supreme Court Of India in 2023

Ø ISSUES a. Whether the Appellant should be considered as the financial creditor or operational creditor of the corporate debtor. b. Whether the Resolution Plan can dilute, negate or override the pledge agreement, as the resolution plan has been already approved by the Committee of Creditors (COC). Ø CONTENTIONS OF THE APPELLANT Following are the contentions given by the Appellant before the Hon’ble Supreme Court in 2023. a. They stated that the present resolution plan was approved by the Adjudicating Authority on 09. 07. 2020 which was three years prior to the commencement of the Corporate Insolvency Resolution Process (CIRP) i. e. on 24. 07. 2017. b. The Resolution Professional namely, Mr.

Dinkar Subramanian cannot reject the application on the basis of delay in filing the application and he is not empowered to erode the rights of the appellant in the application which was rejected by him in the year 2017. c. There exist a Creditor-Debtor relationship between the Appellant (Vistra Ltd. ) and Amtek Auto Ltd. and they stated that they have received a No-Objection Certificate from the IDBI Bank in lieu of their pledge agreements. d. Pledge of the shares should be constituted as financial debt under Insolvency and Bankruptcy Code, 2016 as the financial debt is defined as the security interest under Section 3(31) of the Insolvency and Bankruptcy Code, 2016. e.

Although the claim of the appellant was rejected by the Resolution Professional in the year 2017 and another application which was filed under Section 60(5) of the Insolvency and Bankruptcy Code, 2016 in the year 2020 which was again rejected by the Adjudicating Authority. The rejected claim was also reflected in the list of the creditors which was published on the website of the Corporate Debtor and was never challenged by the Appellant. Ø OBSERVATIONS OF THE APEX COURT The observations of the Apex Court in this case are : a. The Apex Court has referred to the following cases in order to elucidate whether the corporate debtor will fall within the definition of “financial creditor”. i. Anuj Jain Interim Resolution Professional for Jaypee Infratech Limited Vs Axis Bank Limited (2020) 8 S. C. R.

291 The Court observed in this case that the financial creditors are only the stakeholders who are only concerned with the restructuring of the corporate debtor. The secured creditor have an interest in realising the value and have no stake in the corporate debtor’s revival. A person who is having security interest in the assets of the corporate debtor will come under the definition of financial creditor even when the interest is obtained by the virtue of collateral security. ii. Phoenix ARC Private Limited Vs Spade Financial Services Limited (2021) 15 S. C. R. The Court observed in this case that the appellant would not be considered as a financial creditor of the corporate debtor as the securities were pledged by the company. In this case, the corporate debtor has no liability as there was no financial debt constituted as per Section 5(8) of the Insolvency and Bankruptcy Code, 2016.

The court looked at the definition of pledge under Section 172 of the Indian Contract Act, 1872 which states that pledge means a contract for the payment of the debt or the performance of a promise. In this case, there was no contract undertaken by the corporate debtor in order to perform his promise or discharge the liability towards the third party. b. The Hon’ble Supreme Court have referred to the amended provision of Section 30(2) of the Insolvency and Bankruptcy Code, 2016. This section provides that the amount payable to the operational creditor under the resolution plan should not be less than the amount payable in case of liquidation of the corporate debtor under Section 53 of the Insolvency and Bankruptcy Code, 2016.

In order to determine the amount payable to the creditor, the interim resolution professional have to look whether the amount paid to the creditor in case of liquidation of the assets of the corporate debtor under Section 53 and an amount distributed under the resolution plan whichever is higher, will be the amount payable to the creditor. c. The Hon’ble Supreme Court have directed the Resolution Professional and Adjudicatory Authority are bound to protect the interests of the operational creditors. d. The Apex Court have proposed two solutions in this case. i. The Court proposed that the Appellant should be treated as a financial creditor of the Corporate Debtor which didn’t prove to be a feasible solution as the Resolution Plan had already been approved by the Committee of Creditors (COC). ii.

The Court proposed the second solution that the appellant must be treated as a secured creditor as per Section 52 and Section 53 of The Insolvency And Bankruptcy Code,

2016. The Court referred Section 52 of The Insolvency And Bankruptcy Code, 2016

along with Rule 2A of The Liquidation Process Regulation, 2016 which states that the appellant may retain the security interest in the pledged shares and shall receive the proceeds from the sale of the shares. e. The Hon’ble Supreme Court directed that the Resolution Plan should adhere to the requirements of The Insolvency And Bankruptcy Code, 2016 and should not infringe the rights of the secured creditors.

7. Case Analysis

After the Apex Court gave its verdict, the rights of the secured creditors were duly recognized and the security interest is a key to empower the lenders in the financial transaction to seek their rights as a secured creditor in the case of corporate resolution process of a pledge agreement. Main emphasis was given to the secured creditors and ensured them that they have a legal right to participate in the corporate resolution process and thereby safeguarding their financial stakes. The Apex Court proposed that the indirect secured creditors should be treated as the financial creditors of corporate sector and they are eligible to become a member of the Committee of Creditors (COC) and providing them equal voting rights.

The indirect creditors are entitled to submit their dues in Form F where the claims of the creditors are entertained under the head “Other Creditors” and the rights of the secured creditors are protected and they are able to recover their amount arising from the pledge agreement. I would conclude by stating that this case embarks the protection of the rights of the secured creditors under Insolvency and Bankruptcy Code, 2016.