Vistra ITCL (India) Ltd. & Ors VS. Mr. Dinkar Venkatasubramanian & Anr (Case Summary )

The Supreme Court in  Vistra ITCL (India) Ltd.  Vs. Mr. Dinkar Venkatasubramanian & Anr (Civil Appeal No. 3606 of 2020)   has granted  Vistra (ITCL) Ltd.  (herein after “Vistra”)  all rights and obligations given under Section 52 and Section 53  of Insolvency and Bankruptcy Code, 2016  to secured creditors during CIRP, which are otherwise available to secured creditors during liquidation. Thus, this judgment has done equitable interpretation of the Insolvency and Bankruptcy Code, 2016 and to some extent has diluted commercial wisdom principle propounded by the Supreme Court catena of judgments

Facts

Vistra has extended  loan facilities to  Brassco Engineering Ltd. and WLD Investment Pvt. Ltd. which were group companies of Amtek Auto Ltd (Corporate Debtor). Amtek Auto Ltd. (Corporate Debtor)  has pledged 16,82,06,100/- equity shares of face value of Rs. 2/- each of JMT Auto Ltd. held by the Corporate Debtor to Vistra.  Thus,  there has no disbursement of loan to Corporate Debtor neither any guarantee has been given by the Corporate Debtor to repay the loan amount. As such, the Vistra was although a secured creditor, it was not a financial creditor.

Finding of the Supreme Court

The Supreme Court relying on Anuj Jain   Interim   Resolution   Professional   for Jaypee   Infratech   Limited   vs.   Axis   Bank Limited   etc.   etc.  (2020) 8 SCC 401) and Phoenix   ARC   Private Limited   vs.   Ketulbhai   Ramubhai   Patel   (2021) 2 SCC 799  observed that Vistra does not fall either in the category of Financial Creditor or Operational Creditor.

The Supreme Court further observed that although Vistra does not fall in the category of operational creditor or financial creditor, Vistra is secured creditor as shares of the Corporate Debtor are pledged with it.  As Vistra does not fall under financial creditor or operational creditor, Vistra will not be able to take benefit of  Section 30 (2) whereunder operational creditor and financial creditor cannot be paid less amount than they will be paid in event of liquidation.

The Supreme Court noted that a very odd and a peculiar situation is created where Vistra as secured creditor is denied the benefit of the secured interest i.e. the right to exercise the sale of the secured interest yet not be treated as either a financial creditor or an operational creditor.

The Supreme Court observed that it has only two options. The first option is to treat the secured creditor as financial creditor, which will give voting rights to the secured creditor in the Committee of Creditors. But this will require reconsideration of judgments of Supreme Court in Anuj Jain and Phoenix Arc, for which reference to larger bench will be required. The second option is to treat the Appellant as secured creditor under Section 52 and 53 of the Code. The Supreme Court proceeded with the second option and gave the option to the successful resolution applicant – DVI (Deccan Value Investors) to treat the pledged shares and in terms thereof , would be entitled to retain the security proceeds on the Sale of said pledged shares under Section 52 of the Code read with Rule 21A of the Liquidation Process Regulations.

Thus, in this matter the Supreme Court has done equitable interpretation and allowed application of provisions of Liquidation Proceedings during CIRP.

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