Lotus temple, Baháʼí house of worship in New Delhi, India

New Delhi, May 14 The Supreme Court has said that an operational creditor must be treated as a secured creditor in terms of Section 52 read with Section 53 of the Insolvency & Bankruptcy Code (IBC) and entitled to retain the security interest in the pledged shares.A bench comprising Justices M.R. Shah and Sanjiv Khanna said: "The second option is to treat the appellant No. 1 - Vistra as a secured creditor in terms of Section 52 read with Section 53 of the Code".The bench said, "We give the option to the successful resolution applicant DVI (Deccan Value Investors) to treat the appellant No.1 Vistra as a secured creditor, who will be entitled to retain the security interest in the pledged shares, and in terms thereof, would be entitled to retain the security proceeds on the sale of the said pledged shares under Section 52 of the Code read with Rule 21A of the Liquidation Process Regulations."The bench said the recourse available, would be almost equivalent in monetary terms for the Appellant No. 1 Vistra, who is treated as a secured creditor and is held entitled to all rights and obligations as applicable to a secured creditor under Section 52 and 53 of the IBC. "This to our mind would be a fair and just solution to the legal conundrum and issue highlighted before us," it said.The bench clarified that the directions given by it would not be a ground for the successful resolution applicant DVI to withdraw the resolution plan which has already been approved by the NCLAT and by it."Any resolution plan must meet with the requirements/provisions of the Code and any provisions of law for the time being in force. What we have directed and the option given by us ensures that the resolution plan meets the mandate of the Code and does not violate the rights given to the secured creditor, who cannot be treated as worse off/inferior in its claim and rights, viz, an operational creditor or a dissenting financial creditor," said the bench.The top court judgment came on an appeal challenging the order of National Company Law Appellate Tribunal (NCLAT), wherein the Vistra Itcl (India) Ltd plea to be deemed as 'secured financial creditor' in the case was rejected. The apex court accepted Vistra's plea and modified the NCLAT's judgment.The apex court held that the appellant would be treated as a secured creditor, who would be entitled to all rights and obligations applicable to the secured creditor under Section 52 and 53 of the IBC.Amtek Auto Limited (corporate debtor) approached appellants to extend a short-term loan facility of Rs 500 crore to its group companies, i.e., Brassco Engineers Ltd. and WLD Investments Pvt. Ltd. for ultimate end use of the corporate debtor.According to the appellants it was an understanding that the corporate debtor will create a first ranking exclusive security by way of pledge over 16,82,06,100 equity shares of face value of Rs 2/- each of JMT Auto Ltd held by the corporate debtor.A Security Trustee Agreement was executed between the appellant No.1 (Vistra) and WLD for an amount of Rs 1,50,00,00,000 on December 28, 2015. The corporate debtor's board of directors passed Board Resolutions whereby the board of directors resolved to create security over the shares of JMT Auto Ltd.Thereafter, another security trustee agreement was executed between the appellant No. 1 (Vistra) and Brassco for Rs 2,00,00,00,000. Later, an application under Section 7 of the Insolvency Bankruptcy Code 2016 ('IBC') against the Corporate Debtor on 24-07-2017 and respondent (Dinkar T. Venkatasubramanian) was appointed as the resolution professional.On November 2, 2017, Vistra filed its claim as secured creditor of the corporate debtor and submitted Form C claiming a principal amount of Rs 500 crore.However, the appellant's claim was rejected by the resolution professional.A plea was moved before the NCLAT, which was dismissed by observing that the appellant's claim in purported capacity of 'secured financial creditor' was rejected way back in 2017.The apex court noted that the amendment introduced in 2019 ensures that the operational creditors under the resolution plan should be paid the amount equivalent to the amount which they would have been entitled to, in the event of liquidation of the corporate debtor under Section 53 of the Code.Disclaimer: This post has been auto-published from an agency feed without any modifications to the text and has not been reviewed by an editor

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