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M/S Vistra ITCL (India) Limited & Ors. vs. Mr. Dinkar Venkatasubramanian & Anr.

Civil Appeal · 2023 INSC 500Decided 4 May 2023
Civil Appeal No. 3606 of 2020
M.R. Shah · Sanjiv Khanna · C.T. Ravikumar

Background

Amtek Auto Ltd (the Corporate Debtor) had pledged a large block of its shares in JMT Auto Ltd to secure loans taken by its group companies, with Vistra ITCL acting as security trustee for lenders including KKR and L&T. When insolvency proceedings began against Amtek Auto in 2017, Vistra filed a claim as a secured financial creditor for Rs. 500 crore, but the Resolution Professional rejected this claim and Vistra did not challenge that rejection at the time. Years later, after a resolution plan was approved and litigation over competing resolution applicants (Liberty House Group and Deccan Value Investors) had played out, Vistra sought recognition of its rights over the pledged shares, but both the NCLT and NCLAT rejected its application, reasoning that Vistra had never actually lent money to Amtek and so could not be treated as a financial creditor.

Decision Breakdown

The Supreme Court agreed that Vistra could not, at this late stage, be recognised as a financial creditor with CoC voting rights (which would have required revisiting the Court's earlier rulings in Anuj Jain and Phoenix ARC, and would have disturbed an already-approved resolution plan). However, it held that leaving Vistra with no rights at all, neither as a financial/operational creditor nor as a secured creditor able to realise its security, created an unfair and anomalous situation, since a secured creditor's rights under Sections 52 and 53 of the IBC (to relinquish or realise security interest) are separate from and not contingent on financial-creditor status. As a "fair and just solution," the Court directed that Vistra be treated as a secured creditor under Sections 52 and 53 in respect of the pledged shares, entitled to retain or realise the security interest per the 2016 pledge agreement, while clarifying this could not be used by the resolution applicant to withdraw its already-approved resolution plan. It also rejected the argument that delay/laches barred Vistra's claim, since Vistra's inaction on the earlier resolution plan had not affected its rights as a secured creditor.

Lesson Learnt

Under the IBC, being denied "financial creditor" status in a company's insolvency does not automatically strip a secured lender of its independent statutory rights to realise or retain its security interest: the Code protects secured-creditor rights (Sections 52-53) separately from creditor-committee voting rights, and courts will craft practical remedies to prevent a secured creditor from being left with no recourse at all.

Official source (sci.gov.in)View Judgment (PDF)

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