Mr. Vijaykumar V. Iyer . Vs. Chowgule SBD Private Limited and Ors. - Once moratorium is imposed in terms of Sections 14 or 33(5) of the IBC as the case may be, the respondent authority only has a limited jurisdiction to assess/determine the quantum of customs duty and other levies. The respondent authority does not have the power to initiate recovery of dues by means of sale/confiscation, as provided under the Customs Act.

NCLT Mumbai-1 (24.01.2023) In Mr. Vijaykumar V. Iyer . Vs. Chowgule SBD Private Limited and Ors.   [IA No. 1772/MB/C-I/2022 and  IA No. 167/MB/C-I/2022 and IA No. 2164/ MB/C-I/ 2021  In C.P (IB) No. 292/MB/C-I/2017 ] held that;

• From the above discussion, we hold that the respondent could  only initiate assessment or re-assessment of the duties and other levies.  They cannot transgress such boundary and proceed to initiate  recovery in violation of Sections 14 or 33(5) of the IBC.

• Once moratorium is imposed in terms of Sections 14 or 33(5) of the  IBC as the case may be, the respondent authority only has a limited  jurisdiction to assess/determine the quantum of customs duty and  other levies. The respondent authority does not have the power to  initiate recovery of dues by means of sale/confiscation, as provided  under the Customs Act.  

• After such assessment, the respondent authority has to submit its  claims (concerning customs dues/operational debt) in terms of the procedure laid down, in strict compliance of the time periods  prescribed under the IBC, before the adjudicating authority.  

• In any case, the IRP/RP/liquidator can immediately secure goods  from the respondent authority to be dealt with appropriately, in terms  of the IBC.

• The said sale consideration shall be distributed by the Liquidator in terms  of Section 53 of the Code. Further, as on the date of approval by the  Adjudicating Authority, all such claims which are not a part of statement  of claims, shall stand extinguished and no person will be entitled to  initiate or continue any proceedings in respect to a claim which is not a  part of the statement of claims.

Excerpts of the order; 

1. This Court convened through video conferencing.  

Backdrop of facts 

2. The Corporate Debtor was Liquidated vide Order dated 14.01.2019,  pursuant to which the Mr. Vijaykumar Iyer was appointed as the  Liquidator. The aforesaid Order was assailed before the Hon’ble  NCLAT wherein it was directed that the Liquidator must ensure that the  Corporate Debtor remains a going concern and conclude the process  under Section 230 of the Companies Act. Since, no compliant scheme  was received by the Liquidator, the Liquidator issued a public  announcement for submission of Expression of Interest issued in 6  newspapers.  

3. Accordingly, the Liquidator filed IA No. 3702 of 2019 for Liquidation of  the Corporate Debtor by sale of assets, collectively as a yard, in parcel of  assets, or each asset on standalone basis. This Tribunal passed an Order dated 18.12.2020 directing the Liquidator to take appropriate steps for  liquidation of the Corporate debtor, including sale of assets collectively  or in parcels or individually. 

4. It is submitted that in view of the Order dated 18.12.2020, the Liquidator  undertook all the measures to sell the Corporate Debtor as a going  concern basis, however, despite several rounds of e-auctions conducted  from time to time, the assets stored at the Leased Premises are yet to be  sold. 

5. The Order dated 18.12.2020 was challenged before the Hon’ble NCLAT  in three appeals being Company Appeal (AT)(Ins) 140 of 2021,  Company Appeal (AT)(Ins) 165 of 2021, Company Appeal (AT)(Ins)  243 of 2021 by various aggrieved parties. The said appeals were  dismissed by the common Order dated 08.12.2021 with directions to the  Liquidator to try and Liquidate the Corporate Debtor within 6 weeks  from date of the Judgment. 

IA 1772 of 2022 

Submissions made by the Applicant 

6. The reliefs sought by the Applicant are as follows: 

• i. Direction to the secured creditors to provide to the Bidder,  upon issuance of Sale Certificate by the  Liquidator/Applicant, all the necessary documents for release of charges including duly executed charge release  forms and to handover the originals of all title documents/  deeds that were deposited with them by the Corporate  Debtor or its shareholders in connection with the  Mangalore Shipyard Assets deleting all  encumbrances/charges mentioned in the assets secured to  them. 

• ii. Direction that, from the date of the Sale Certificate, all  encumbrances, attachments, liens, charges, security  interests, liabilities, claims and obligations in relation to the  Mangalore Shipyard Assets shall stand released irrevocably,  without any obligation on the Bidder and from the date of  Sale Certificate, the Mangalore Shipyard Assets shall vest  with the Bidder free from any security interest,  encumbrance, lien, attachment, claim, counter claim, or  charge whatsoever. 

• iii. Direction that, from the date of the sale certificate, any and  all the legal proceedings (including any show cause, notice,  adjudication proceedings, assessment proceedings,  regulatory orders etc.), arbitration or other legal, judicial,  regulatory or administrative proceedings, in relation to the Mangalore Shipyard Assets, initiated before any court,  tribunal or authority by or on behalf of any creditor or  governmental authorities, to enforce any rights or claims  against the company shall be withdrawn, abated, settled  and/ or extinguished with effect from the date of the Sale  Certificate and the Bidder shall no longer be required to  make any payments in relation to such  litigations/proceedings. Further direction to all the  stakeholders of the company (including creditors and  governmental authorities), for not pursuing such  litigations/ proceedings after the issuance of Sale Certificate  and withdrawing all existing litigations/proceedings,  wherever pending. 

• iv. Direction that, from the date of the sale certificate, all claims  by any government authority or department (including but  not limited to the customs department, Department of Ports and Inland Water Transport, Government of Karnataka)  pertaining to Mangalore Shipyard assets or any liabilities or  obligations owed or payable by the Company to any  government authority or department (including but not  limited to taxes, liabilities, interest, penalties, duties, etc.), whether direct or indirect, whether admitted or not, due or  contingent, asserted or un-asserted, crystallized or un crystallized, known or unknown, secured or unsecured,  disputed or undisputed, in relation to any period prior to the  date of Sale Certificate, shall stand permanently  extinguished and no such claim, liability etc. shall be  recoverable in any form or manner whatsoever from the  Bidder and the payment of Sale consideration by the Bidder  into the liquidation account is a full and final settlement by  the bidder towards such claims, liabilities etc. 

• v. Direction that, from the date of the sale certificate, all the  governmental and regulatory departments providing essential services to the Mangalore Shipyard Assets, such as  electricity, water, port authorities, etc. and all the critical  suppliers and vendors shall continue to give full support to  the Bidder without arm twisting the Bidder for any liabilities  of the Company Pertaining to the period prior to the date of  the sale certificate. 

• vi. Direction to the relevant governmental and regulatory  departments that the environmental clearances and the  electricity connection/permissions obtained for the Mangalore shipyard assets shall be transferred in the name  of the bidder without any demand for the liabilities of the  Company pertaining to the period prior to the date of the  sale certificate. 

• vii. Direction that, from the date of the Sale Certificate, the  Bidder shall be entitled to the benefit of Section 32A of the  Code and all the actions taken against the Mangalore  Shipyard Assets for an offence committed prior to the  commencement of its corporate insolvency resolution  process of the Company, shall cease and the Bidder shall not be prosecuted for such an offence. Further, no action  shall be taken or continued against the Mangalore Shipyard  Assets in relation to any offence committed prior to the  commencement of the corporate insolvency resolution  process of the Company. 

• viii. Direction to the Karnataka Maritime Board / Department  of Ports and Inland Water Transport, Government of  Karnataka, (i) that with effect from the Transfer Date, the  lease deed(s) for the Mangalore shipyard Land shall not be  terminated or cancelled on account of any non-compliance  or breach of the terms of the lease deed by the Company, pertaining to the period prior to the Transfer Date, and (ii)  that the leasehold rights in the Mangalore Shipyard land  shall be transferred to the Bidder with the lease rentals in  accordance with the Guidelines / Notifications framed by  the Government of Karnataka. 

• ix. Direction to the Customs Department, Mangalore that the  Mangalore Shipyard be de-bonded and custody /  attachment of the Confiscated Assets on account of  liabilities of Company pertaining to the period prior to the  Transfer Date, be released and the Bidder be allowed  peaceful possession of the Confiscated Assets. 

7. The Applicant submits he conducted multiple rounds of e auction  pertaining to sale of the Corporate Debtor as a going concern basis and  set of assets of the Corporate Debtor. The details of sale of parcel of assets  of the Corporate Debtor are as follows:

Date of Public   announcement	Date of e-auction	Description of Parcel  Sold
10.08.2021	06.09.2021	Kolkata Shipyard
21.09.2021	26.10.2021	Assets located at  Bhandarli and Ghodbunder yard
01.11.2021	24.11.2021	Assets located in Goa

8. The Applicant submits that the Order dated 18.12.2020 passed by this  Tribunal in IA No. 3702 of 2019 was challenged before the Hon’ble  NCLAT in Company Appeal (AT)(Ins) No. 140 of 2021, Company  Appeal (AT)(Ins) No. 165 of 2021, Company Appeal (AT)(Ins) No. 243  of 2021. The said Appeals were disposed off by the Appellate Tribunal  vide its Judgement dated 08.12.2021 while granting a total of 6 weeks to  the Applicant for sale of the Corporate Debtor as a going concern.  

9. The Applicant submits that no proposal was received for the acquisition  of the Corporate Debtor after expiration of 6 weeks. Hence, the  Applicant proceeded to conduct the liquidation process by way of private  sale of assets of the Corporate Debtor. 

10. Pursuant thereto, the Applicant proceeded with issuance of a public  announcement for conduct of private sale process on 09.02.2022.  However, on account of failure of the said round of private sale process,  the Applicant issued public announcement on 21.03.2022 for inviting  bids for the Corporate Debtor as a whole on going concern basis  (excluding parcels of assets of already sold) and for remaining shipyards  individually, including all the Corporate Debtor’s assets, rights and privileges and duties etc. associated with such shipyard in parcels i.e., the  Parcel 2 (Dabhol yard), Parcel 3 (Ratnagiri Yard) and Parcel 4  (Mangalore Yard).  

11. As per the EOI the interested bidders were required to submit the EOI  on or before 08.04.2022 and submit a binding and unconditional EMD  on or before 20.05.2022. The sale was to be governed in term of the  process document dated 21.03.2022. 

12. The Respondent No.1 herein submitted its EOI on 04.04.2022 along  with necessary documents as stipulated in the process document. The  Respondent No.1 was granted access to virtual data room.  

13. The Respondent submitted its bid on 20.05.2022 for the Parcel 4 assets  of the Corporate Debtor i.e. Mangalore Shipyard including leasehold  interest pertaining to leasehold land, sheds, warehouse and hull shops,  plant and machinery, inventory and other movable items on an ‘as is  where is basis’ (“Mangalore Shipyard Assets”). The said bid was  accompanied by the EMD by way of Bank Guarantee. 

14. The Applicant and the Private Sale Committee invited the Respondent  to present the details of its proposal before it on 23.05.2022, pursuant to  said presentation made before the private sale committee several rounds  of negotiations were undertaken with the Respondent whereby the  Respondent offered to submit its revised bid. It is noted that final bid was submitted by the Respondent on 08.06.2022  

15. The Liquidator, in consultation with and after seeking inputs from the  stakeholders, considered the bid dated 20.05.2022 and subsequently  amended and submitted on 08.06.2022, for an amount of  Rs.75,00,06,000/- (Rupees Seventy Five Crore and Six Thousand Only) towards purchase of Parcel 4 (the “Final Bid”). 

16. The Respondent was declared as the successful bidder as per the process  documents for Parcel 4 i.e. Mangalore Shipyard. Subsequently, the  Letter of Intent (“LOI”) was issued to the Respondent on 11.06.2022 for  successful acceptance of the bid for Parcel 4 of the assets of the Corporate  Debtor. The said LOI was accepted and counter signed by the  Respondent. 

17. In terms of the proposed payment schedule, the Respondent is now  required to infuse partial sale consideration of Rs.7,50,00,000/- (Rupees  Seven Crore Fifty Lakh Only) within a period of 30 days from the date  of issuance of LOI, into the escrow account. After, the Respondent has  taken all the necessary steps outlined in the Final Bid, the said sum of  Rs.7,50,00,000/- shall be transferred into the Liquidation Account and  the balance consideration of Rs.67,50,06,000/- into the Liquidation  Account. 

18. The Applicant submits that the Respondent has deposited Rs. 7,50,00,000/- out of the total sale consideration into the escrow account  as proposed in the Final Bid.

Submissions made by the Respondent No.1: 

19. At the outset, it is submitted that the Respondent supports the present  Application. The Respondent further submits that all the  reliefs/concessions/waivers sought in the Application are necessary for  effective sale and transfer of Mangalore Shipyard.  

20. The reliefs are sought by the Respondent for acquisition of the Parcel 4  of the Corporate Debtor on a clean slate basis.  

Submissions made by the Respondent No.2: 

21. It is submitted that Parcel 4 was sold to the Respondent No.1 on  04.04.2022 which is 15 months after the Order Terminating the lease was  issued by the Respondent No.3. The said Termination Order was  communicated on 15.01.2021. 

22. Further, it is contended that the present sale of Parcel 4 is a lot wise sale  and not sale as a going concern or business of the Corporate debtor being  sold as going concern. Hence, the Applicant’s averment of clean slate  basis is misplaced as the sale is on “as is where is basis”. 

23. Moreover, it is submitted that reliefs sought are merely to evade the  contractual liabilities, liabilities towards payment of insolvency  resolution costs and liquidation process costs and obligations towards 

Respondent No.2 and 4.  

24. Regulation 32 and Regulation 33 read with Schedule I (Mode of Sale),  clause 12 of Insolvency and Bankruptcy Board of India (Liquidation  Process) Regulations, 2016 lays down that a successful bidder to pay the  sale consideration within 90 days from being declared as the highest  bidder while any payment made after 30 days from such declaration up  to the period of 90 days shall attract 12% interest.  

25. We have considered the para-wise reply of Respondent No.2 to the reliefs  sought by the Respondent No.1 qua the sale of Parcel 4 i.e. Mangalore  Shipyard. 

IA 167 of 2022 

26. The Government of Karnataka vide Order No. PWD 16 PSP 2008, dated  10 May 2010 has sanctioned 20.94 acres of Port land for 30 years for the  construction of ship building yard at Mangalore Port Limits as per Sl.  No.7 of schedule F" at INR 15/- per 10 square meters per month, as per  the Rules ("Land B") (Land A and Land B are collectively referred to as  "Leased Premises"). While allotment of Land B was done, no lease deed  was entered into for Land B. It is pertinent to note that while the lease  agreement was not executed for Land B, the lease rent was paid for both  the land parcels A and B upto 2013 and for part of the CIRP period. 

27. After commencement of Liquidation, the Liquidator had issued public announcement on 19.01.2019 inviting creditors to file their claim within  30 days from liquidation commencement date.  

28. Accordingly, the Respondent No.2 herein filed its claim form dated  04.02.2019 with the Liquidator on 05.02.2019 to an extent of  Rs.21,03,55,543/- (Rupees Twenty-One Crore Three Lakh Fifty Five  Lakh and Five Hundred and Forty Three Only) towards lease rentals  under License No. 166 and 167. The Applicant vide its email dated  09.03.2019 had communicated to the Respondent No.2 inadequacies in  claim form and the proofs submitted. 

29. The Respondent has not provided the necessary proof to substantiate its  claim and hence the Liquidator is unable to verify the claim in full.  30. The Liquidator vide email dated 26.03.2019 addressed to the Respondent  No.2 stated that since the documents were not sufficient, claim to the  extent of Rs.11,05,95,499/- is admitted and the balance amount of  Rs.9,97,60,044/- has not been verified as the working calculation of rent  and penalty for both license number 166 and 167 was not provided to the  Liquidator with necessary documents. 

31. Further, the Respondent No.2 vide notice dated 14.10.2020 requested  the Applicant to admit the additional claim of Rs.9,97,60,044/-. The  Applicant on 13.01.2021 inter alia apprised the Respondent No.2 that  dues admitted prior to the Liquidation commencement date will be addressed in terms of Section 53 of the Code and the amount that become  due during the Liquidation period will be treated as CIRP costs and paid  in priority. 

32. The Respondent No.2 vide its letter dated 20.01.2021 (hereinafter  referred to as Impugned Notice) along with the Order passed by  Government of Karnataka cancelled the lease sanctioned with respect to  leased Premises, to the extent of 49.31acres with immediate effect for  non-payment of lease rent and the leased premises for not being utilized. 

33. Moreover, the Applicant also explained the provisions of Section 33(5)  of the Code stating that the section bars any suit or legal proceeding to  be instituted by or against the Corporate Debtor on account of  commencement of liquidation process. 

34. It is submitted that the institution of proceedings against the Corporate  Debtor by the Respondent No.1 during the pendency of Liquidation  period itself is not permissible as per Section 33(5) of the Code given the  moratorium. 

35. Accordingly, the present Application is filed by the Liquidator seeking  the following reliefs: 

• i. Set aside the Impugned Order dated i.e. order of Government of  Karnataka dated 14.12.2020. 

• ii. Set aside the impugned notice dated 20.01.2021 issued by the Respondent No.2 i.e. the Port Officer Mangalore Port. 

36. The Respondent No.2 submits that out of the entire claim of  Rs.18,88,22,584/- pertains to the CIRP and Liquidation period. The  Applicant has only released an amount of Rs.51,34,122/-. The  Respondent No.2 states that these due are outstanding since 01.05.2013. 

37. The Applicant has erred in rejecting the partial claim to the extent of  Rs.9,97,60,044/- on the ground of “without adequate details as  prescribed under the Liquidation Regulations”. The Respondent vide  emails dated 14.10.2020 and 01.06.2021 has provided the working  calculation of rent and penalty for both license numbers 166 and 167.  

38. The Respondent submits that it is well within its powers to terminate the  lease and evict the Applicant on clear failure to pay the dues in terms of  Section 53 of the Code 

IA. No. 2164 of 2021 

39. This Application filed by the Port Authority, Mangalore as a counter to  IA No. 167 of 2022 seeking directions against Liquidator and admission  of claim filed by the Port Authorities in its entirety and vacation of port  land in view of the Order dated 14.12.2020. In alternative, if the  occupation of port land is permitted then the Liquidator ought to release  the CIRP Costs and Liquidation Costs in terms of Section 53 of Code. 

Findings and Directions:  

40. We have perused records and heard the submissions made by the parties. 41. Considering the facts and submissions made in IA No. 1772 of 2022, IA  No. 167 of 2022 and IA No. 2164 of 2021, we note that land on which  Mangalore Shipyard is built was leased premises and owing to non - payment of lease rentals vide Order dated 14.12.2020 the said lease was  terminated. 

42. The Successful Bidder i.e. Chowgule SBD Private Limited submits that  the reliefs enumerated in clauses viii and ix in paragraph 6 hereinabove, are central for the purpose of reviving and restarting its operations for  shipbuilding work of the Port. Further, it is submitted that the  implementation of the bid is conditional upon the grant of above stated  reliefs under clause viii and ix. 

43. The Relief sought at clause viii pertains to transfer leasehold rights of the  Corporate Debtor to the Successful Bidder in Mangalore Shipyard Land.  The Liquidator has filed an Application bearing IA No. 167 of 2022  wherein he has challenged the Termination Order of Government of  Karnataka dated 14.12.2020 and Notice dated 20.01.2021. As a counter  to the aforesaid Application, the Port Officer, Mangalore Port has filed  an Application bearing IA. No. 2164 of 2022. 

44. The relief at clause ix relates to release of assets of the Corporate Debtor in the custody/attachment of the customs department, Mangalore by  way of confiscation.  

45. Considering the inter related facts and circumstances and in the interest  of maximization of the value of the stakeholders of the Corporate  Debtor, this bench vide Order 14.11.2022 had directed the Successful  Bidder and Ld. Counsel appearing for the Mangalore Port Trust to try  and arrive at an amicable solution.  

46. In view of the aforesaid direction, the Successful Bidder i.e. Chowgule  SBD Private Limited vide affidavit dated 28.11.2022 submits that it is  ready and willing to enter into a fresh lease deed with the Government  of Karnataka as per applicable rates under the “The Karnataka  Ports(Landing and Shipping Fees)(Amendment) Rules, 2022” and the  Mangalore Port Trust has vide affidavit dated 28.11.2022 stated that it  would extend necessary support and the fresh lease shall be in terms of  Karnataka Minor Port Land Allotment Guidelines-2020 and The  Karnataka Ports(Landing and Shipping Fees)(Amendment) Rules, 2022.  

47. The above stated affidavits are taken on record and the parties have  amongst themselves carved out a solution with respect to the aforesaid  issue of transfer of lease in favour of the Successful Bidder. Accordingly,  the relief claimed in Clause (viii) in paragraph 6 hereinabove is rendered  infructuous. 

48. As far as reliefs enumerated in clause (ix) is concerned the Hon’ble  Supreme Court in the matter of Sundaresh Bhatt, Liquidator of ABG  Shipyard vs Central Board of Indirect taxes and Customs has held as under: 

• “45. From the above discussion, we hold that the respondent could  only initiate assessment or re-assessment of the duties and other levies.  They cannot transgress such boundary and proceed to initiate  recovery in violation of Sections 14 or 33(5) of the IBC. The interim  resolution professional, resolution professional or the liquidator, as  the case may be, has an obligation to ensure that assessment is legal  and he has been provided with sufficient power to question any  assessment, if he finds the same to be excessive.  

• 54. On the basis of the above discussions, following are our  conclusions:  

• i. Once moratorium is imposed in terms of Sections 14 or 33(5) of the  IBC as the case may be, the respondent authority only has a limited  jurisdiction to assess/determine the quantum of customs duty and  other levies. The respondent authority does not have the power to  initiate recovery of dues by means of sale/confiscation, as provided  under the Customs Act.  

• ii. After such assessment, the respondent authority has to submit its  claims (concerning customs dues/operational debt) in terms of the procedure laid down, in strict compliance of the time periods  prescribed under the IBC, before the adjudicating authority.  

• iii. In any case, the IRP/RP/liquidator can immediately secure goods  from the respondent authority to be dealt with appropriately, in terms  of the IBC.” 

49. In view of the law laid down in the aforesaid Judgement we hereby direct  the customs department to release the confiscated assets of the Corporate  Debtor at Mangalore Shipyard.  

50. The LOI dated 11.06.2022 was issued to the Successful Bidder i.e.  Chowgule SBD Private Limited for “Category B-Parcel 4: Set of assets  pertaining to Mangalore Shipyard on ‘as is where is basis’, ‘as is what is’, ‘as is  how is’ and ‘without any recourse basis’, with financial proposal submitted for  INR 75,00,06,000/-.” It is evident that the said sale was in terms of  Regulation 32(d) of the Insolvency and Bankruptcy Board of India  (Liquidation Process) Regulations, 2016 which deals with sale of assets  in parcels.  

51. We note that the Successful Bidder i.e. Chowgule SBD Private Limited has deposited an amount of Rs.7,50,00,000/- out of the total bid amount  of Rs. 75,00,06,000/- (Rupees Seventy-Five Crore and Six Thousand  Only). The LOI was issued by the Liquidator on 11.06.2022. In terms of  Schedule 1 Clause 12 of the Liquidation Regulations, the highest bidder shall be invited to provide balance sale consideration within 90 days from  such demand and payments made after 30 days shall attract interest at  the rate of 12%. 

52. We direct the Successful Bidder to deposit the balance sale consideration  within 30 (Thirty) days from date of this order. Failure, if any on part of  the Successful Bidder to deposit the balance sale consideration within 30  days shall result in forfeiture of the EMD and cancellation of sale of the  Corporate Debtor. Further, the Successful Bidder shall be liable to  deposit the balance sale consideration along with 12% p.a. interest  onwards 11.07.2022 (after 30 days of date of issuance of demand letter  dated 11.06.2022) in accordance with Schedule 1 Regulation 12 of the  Liquidation Regulations. 

53. The said sale consideration shall be distributed by the Liquidator in terms  of Section 53 of the Code. Further, as on the date of approval by the  Adjudicating Authority, all such claims which are not a part of statement  of claims, shall stand extinguished and no person will be entitled to  initiate or continue any proceedings in respect to a claim which is not a  part of the statement of claims.  

54. For the sake of convenience, the reliefs sought are tabulated hereinbelow:

Sr. No.	Particulars of the reliefs and  concessions	Remarks
i.	Direction to the secured creditors  to provide to the Bidder, upon  issuance of Sale Certificate by the  Liquidator/Applicant, all the  necessary documents for release of  charges including duly executed  charge release forms and to  handover the originals of all title  documents/ deeds that were  deposited with them by the  Corporate Debtor or its  shareholders in connection with  the Mangalore Shipyard Assets  deleting all encumbrances/ charges  mentioned in the assets secured to  them.	Granted. The dues of  the creditors shall be  distributed in terms of  Section 53 of the Code  and hence the  liabilities shall stand  extinguished qua the  Mangalore Shipyard.  Consequently, upon  issuance of Sale  Certificate the  documents/ deeds shall be provided to the  bidder
ii.	Direction that, from the date of the  Sale Certificate, all encumbrances, attachments, liens, charges,  security interests, liabilities, claims  and obligations in relation to the  Mangalore Shipyard Assets shall  stand released irrevocably, without  any obligation on the Bidder and  from the date of Sale Certificate,  the Mangalore Shipyard Assets  shall vest with the Bidder free from  any security interest,  encumbrance, lien, attachment,  claim, counter claim, or charge  whatsoever.	Granted. Since the  applicant should not be saddled with the  liability prior to the  issue of sale certificate.
iii.	Direction that, from the date of the  sale certificate, any and all the  legal proceedings (including any  show cause, notice, adjudication  proceedings, assessment  proceedings, regulatory orders  etc.), arbitration or other legal, judicial, regulatory or  administrative proceedings, in  relation to the Mangalore  Shipyard Assets, initiated before  any court, tribunal or authority by  or on behalf of any creditor or  governmental authorities, to  enforce any rights or claims against  the company shall be withdrawn,  abated, settled and/ or  extinguished with effect from the  date of the Sale Certificate and the  Bidder shall no longer be required  to make any payments in relation  to such litigations/proceedings.  Further direction to all the  stakeholders of the company  (including creditors and  governmental authorities), for not  pursuing such litigations/ proceedings after the issuance of  Sale Certificate and withdrawing  all existing  litigations/proceedings, wherever  pending.	Granted. Since the  applicant should not  be saddled with the  liabilities prior to the  issue of sale certificate.
iv	Direction that, from the date of the  sale certificate, all claims by any  government authority or  department (including but not  limited to the customs department,  Department of Ports and Inland  Water Transport, Government of  Karnataka pertaining to  Mangalore Shipyard assets or any  liabilities or obligations owed or  payable by the Company to any  government authority or  department (including but not  limited to taxes, liabilities, interest,  penalties, duties, etc.), whether proceedings after the issuance of  Sale Certificate and withdrawing  all existing  litigations/proceedings, wherever  pending.direct or indirect, whether  admitted or not, due or contigent,  asserted or un-asserted,  crystallized or un-crystallized,  known or unknown, secured or  unsecured, disputed or  undisputed, in relation to any  period prior to the date of Sale  Certificate, shall stand  permanently extinguished and no  such claim, liability etc. shall be  recoverable in any form or manner  whatsoever from the Bidder and  the payment of Sale consideration  by the Bidder into the liquidation  account is a full and final  settlement by the bidder towards  such claims, liabilities etc.	Granted. The claims of  the creditors shall be  distributed in terms of  Section 53 of the Code.
v.	Direction that, from the date of the  sale certificate, all the governmental and regulatory  departments providing essential  services to the Mangalore  Shipyard Assets, such as  electricity, water, port authorities,  etc. and all the critical suppliers  and vendors shall continue to give  full support to the Bidder without  arm twisting the Bidder for any  liabilities of the Company  Pertaining to the period prior to  the date of the sale certificate	The Successful Bidder  can apply for grant of essentials services to  the relevant regulatory  authorities. The  regulatory authorities  may consider the  same.
vi.	Direction to the relevant  governmental and regulatory  departments that the  environmental clearances and the  electricity connection/permissions  obtained for the Mangalore  shipyard assets shall be transferred  in the name of the bidder without any demand for the liabilities of  the Company pertaining to the  period prior to the date of the sale  certificate	The Successful Bidder  can apply for grant of  essentials services to  the relevant regulatory  authorities. The  regulatory authorities  may consider the  same.
vii.	Direction that, from the date of the  Sale Certificate, the Bidder shall be  entitled to the benefit of Section  32A of the Code and all the actions  taken against the Mangalore  Shipyard Assets for an offence  committed prior to the  commencement of its corporate  insolvency resolution process of  the Company, shall cease and the  Bidder shall not be prosecuted for  such an offence. Further, no action  shall be taken or continued against  the Mangalore Shipyard Assets in  relation to any offence committed  prior to the commencement of the corporate insolvency resolution  process of the Company.	Section 32(1)A  pertains to waivers under Resolution Plan  and not Sale of Assets  under Liquidation  Proceedings. The  present Application is  for sale of assets in  parcels.
viii	Direction to the Karnataka  Maritime Board / Department of  Ports and Inland Water Transport,  Government of Karnataka (i) that  with effect from the Transfer Date,  the lease deed(s) for the Mangalore  shipyard Land shall not be  terminated or cancelled on account  of any non-compliance or breach  of the terms of the lease deed by the  Company, pertaining to the period  prior to the Transfer Date, and (ii)  that the leasehold rights in the  Mangalore Shipyard land shall be  transferred to the Bidder with the  lease rentals in accordance with the  Guidelines / Notifications framed  by the Government of Karnataka.	Rendered Infructuous  in view of settlement  arrived at by the  Successful Bidder and  Mangalore Port.
ix.	Direction to the Customs Department, Mangalore that the  Mangalore Shipyard be de-bonded  and custody / attachment of the  Confiscated Assets on account of  liabilities of Company pertaining  to the period prior to the Transfer  Date, be released and the Bidder be  allowed peaceful possession of the  Confiscated Assets.	Granted in view of law aid down by the  Hon’ble Apex Court in  Sundaresh Bhatt,  Liquidator of ABG  Shipyard vs Central  Board of Indirect taxes  and Customs.

55. With the aforesaid observation present IA No. 1772 of 2022 In C.P (IB)  No. 292/MB/C-I/2017 stands disposed of as allowed in above terms.  

56. In view of the understanding arrived at between the Successful Bidder  and the Mangalore Port Trust vide affidavits dated 28.11.2022 IA No.  167 of 2022 and IA No. 2164 of 2021 stands disposed of. 

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M/s. Vistra ITCL (India) Ltd. & Ors. Vs. Mr. Dinkar Venkatasubramanian & Anr. - 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.

 Supreme Court (04.05.2023) In M/s. Vistra ITCL (India) Ltd. & Ors. Vs. Mr. Dinkar Venkatasubramanian & Anr. [Civil Appeal No..3606 of 2020] held that;

• The person is whose favour the security interest is created need not be the creditor who avails the credit facility, and can be a third person. Security interest can be created for credit facilities/loan advanced to another person.

• The law of pledge contemplates special rights for the pawnee in the goods pledged, i.e., the right to possession of the security, and in case of default, the right to bring a suit against the pawnor, as well as the right to sell the goods after giving reasonable notice to the pawnor. The general rights or ownership rights in the property remain with the pawnor, and wholly reverts to him on discharge of the debt or performance of the promise. In other words, the right to property vests in the pawnee only as far as it is necessary to secure the debt.

• In terms of Section 52 of the Code, a secured creditor in liquidation proceedings has the right to relinquish its security interest to the liquidation estate and receive proceeds from the sale of assets by the liquidator in the manner specified under Section 53 of the Code. 

• The second option given to the secured creditor is to realise the security interest in the  manner specified in aforesaid Section. Rule 21­A of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 20168 deals with the presumption of security interest, which we need not elaborate for the present decision.

• 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.

Excerpts of the order; 

# 1. Feeling aggrieved and dissatisfied with the impugned judgment and order dated 24.08.2020 passed by the National Company Law Appellate Tribunal (NCLT) passed in Company Appeal (AT) (Insolvency) No.703 of 2020 by which the NCLAT has dismissed the said appeal and has confirmed the order passed by the NCLAT passed in IA No.62/2020 in CP (IB) 42/Chd./Hry.2017 preferred by the appellant herein, the original applicant has preferred the present appeal.

# 2. The facts leading to the present appeal in a nutshell are as under:

2.1 That one Amtek Auto Limited (hereinafter referred to as Corporate Debtor) approached appellant nos. 2 and 3 to extend a short-­term loan facility of INR 500 crores to its group companies i.e. Brassco Engineers Ltd. and WLD Investments Pvt. Ltd. for the 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 (Pledged Shares). A Security Trustee Agreement was executed between the appellant no.1 and WLD for an amount of Rs.150,00,00,000/­ on 28.12.2015. 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.

2.2 IDBI Bank issued NOC stating that they had no objection to the proceeds of sale of assets to the extent of a maximum of INR 450,00,00,000 being used to first settle all the dues under the Security Trustee Agreement STFs issued by AAL. The Security Trustee Agreement was executed between the appellant no.1 and Brassco for an amount of Rs.150,00,00,000/­. That thereafter pursuant to the resolution passed on 23.12.2015, the Corporate Debtor’s board of directors passed Board Resolutions whereby the board of directors paid security towards shares. That thereafter one another Security Trustee Agreement was executed between the appellant no.1 and Brassco for an amount of Rs.200,00,00,000/­. That thereafter the Corporate Debtor, WLD, BRASSCO and Vistra executed an amended and re­instated pledge agreement on 05.07.2016 and the Corporate Debtor pledged 66.77% of its shareholding in JMT Auto Limited to secure the term loan facilities availed by WLD and Brassco from KKR and L&T. That thereafter 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 24.07.2017. The respondent herein ­ Mr. Dinkar T. Venkatasubramanian was appointed as the interim resolution professional which came to be later confirmed as the resolution professional.

2.3 That on 02.11.2017 the appellant no.1 filed its claim as a secured creditor of the Corporate Debtor and submitted Form C claiming a principal amount of INR 500 crores. However, the claim by the appellants – secured creditors was rejected by the Resolution Professional in 2017, which order was not challenged by the appellants. Resolution Professional received two resolution plans from only 2 resolution applicants being Liberty House Group Pvt. Ltd. (LHG) and Deccan Value Investors (DVI). DVI withdrew its Resolution Plan so the revised plan by M/s LHG was considered by the Committee of Creditors (CoC) which approved the plan on 02.04.2018 with majority voting shares of 94.20%. The Resolution plan submitted by the LHG was approved by the Adjudicating Authority vide order dated 25.07.2018. However, thereafter as the LHG did not fulfil its commitment the Adjudicating Authority passed an order directing reconsideration of the CoC for consideration of DVI’s plan. Thereafter further proceedings were initiated before the NCLAT by the CoC etc. (which are not relevant for the issue involved in the present appeal).

2.4 That thereafter the appellants filed another application under Section 60(5) of the IBC being I.A. No.62/2020 claiming the right on the basis of the pledged shares. This Court passed an order dated 08.06.2020 directing the Adjudicating Authority to decide the resolution plan and all pending applications and pass appropriate orders within 15 days. The Resolution Professional filed I.A. No.225 of 2020 before the Adjudicating Authority on 12.06.2020 seeking approval of the resolution plan. The Adjudicating Authority dismissed the application filed by the appellants being I.A. No.62 of 2020. The order passed by the Adjudicating Authority dated 09.07.2020 passed in I.A. No.62 of 2020 was the subject matter of appeal before the NCLAT. By the impugned judgment and order the NCLAT has dismissed the said appeal by observing that the appellant no.1’s claim in purported capacity of ‘Secured Financial Creditor’ has been rejected way back in the year 2017 and the decision in this regard has not been called in question and therefore it is not open for the appellants to raise the same issue in 2020 by filing I.A. No.62 of 2020. The NCLAT has also observed that the appellants have not lent any money to the Corporate Debtor and the Corporate Debtor did not owe any financial debt to the appellants except the pledge of shares was to be executed. Therefore, the NCLT observed that the appellants not having advanced any money to the Corporate Debtor as a financial debt would not be coming within the purview of financial creditor of the Corporate Debtor. Making above observations, the NCLAT has dismissed the appeal.

2.5 Feeling aggrieved and dissatisfied with the impugned judgment and order passed by the NCLAT dismissing the appeal and confirming the appeal passed by the Revenue dismissing I.A.No.62 of 2020, the original applicants – M/s Vistra and others have preferred the present appeal.

# 5. The issue and legal question are partly covered by two decisions of this Court namely, Anuj Jain (supra) and Phoenix ARC Private Limited (supra). We will first examine the decisions in these two cases and then advert to the contention of the Appellant No. 1 – M/s Vistra ITCL that these decisions are distinguishable from the facts of the instant case.

5.1 In Anuj Jain (supra), the issue was whether the lenders of Jaypee Associates Limited (JAL), the holding company of Jaypee Infratech Limited (JIL), the Corporate Debtor, hold the status of ‘financial creditors’ of JIL within the meaning of Section 5(7) of the Insolvency and Bankruptcy Code, 20163 read with expression ‘financial debt’ as defined in Section 5(8) of the Code. This issue had arisen as JIL had mortgaged certain land with the creditors of JAL.4 Highlighting and expounding the unique status of the financial creditors in the context of Corporate Insolvency Resolution Process5 under the Code, and that the legislature has assigned them a specific role to ensure that the Corporate Debtor is, if possible, revived, rejuvenated, and resuscitated, it was held that the financial creditors are the only stakeholders who would be obviously concerned and concomitant to the resurgence and restructuring of the Corporate Debtor. A secured creditor may only have an interest in realising the value of its security and, therefore, will not have stake or interest in Corporate Debtor’s revival or equitable liquidation, while a financial creditor, apart from looking for safeguards of its own interests, will also be simultaneously interested in the revival and growth of the Corporate Debtor. Therefore, a person only having a security interest in the assets of the Corporate Debtor, even if falling in the description of ‘secured creditor’ by virtue of collateral security extended by the Corporate Debtor, would nevertheless stand outside the sect of the ‘financial creditors’, and consequently outside the CoC as well. The aforesaid decision is also based upon the meaning assigned to the term ‘financial debt’ under Section 5(8) of the Code, which, in the context of the present decision, need not be elaborated.

5.2 In Phoenix ARC (supra), the Corporate Debtor, namely Doshion Veolia Water Solutions Private Limited (Doshion Veolia), had pledged 40,160 shares of Gondwana Engineers Limited as a security to L&T Infrastructure Finance Company Limited (L&T). A deed of undertaking was also executed by Doshion Veolia in favour of L&T. However, the main and principal transaction was between L&T, which had advanced financial facility, to and with Doshion Limited of Rs.40 crores, pursuant to which specific agreements were executed. For clarity, we may state that L&T had subsequently assigned the debt to Phoenix ARC (P) Ltd., who were the appellants before this Court.

5.3 A three judges’ bench of this Court in Phoenix ARC (supra) observed that the pledge agreement was in respect of 40,160 shares of Doshion Veolia, which were pledged to L&T as security, thereby restricting the liability of Doshion Veolia, albeit, this cannot constitute ‘financial debt’ as defined in Section 5(8) of the Code and, therefore, the appellant would not be a financial creditor of the corporate debtor.

5.4 Phoenix ARC (supra) also refers to Chapter VIII of the Indian Contract Act, 1872 which deals with the definition of ‘indemnity’ and ‘guarantee’ under Sections 124 and 126 therein. It was observed:

“25. As is clear from the definition a “contract of guarantee” is a contract to perform the promise, or discharge the liability, of a third person in case of his default. The present is not a case where the corporate debtor has entered into a contract to perform the promise, or discharge the liability of borrower in case of his default. The pledge agreement is limited to pledge 40,160 shares as security. The corporate debtor has never promised to discharge the liability of the borrower. The facility agreement under which the borrower was bound by the terms and conditions and containing his obligation to repay the loan security for performance are all contained in the facility agreement. A contract of guarantee contains a guarantee “to perform the promise or discharge the liability of third person in case of his default”. Thus, key words in Section 126 are contract “to perform the promise”, or “discharge the liability”, of a third person. Both the expressions “perform the promise” or “discharge the liability” relate to “a third person”.

Reference is made to the expression ‘pledge’ as defined in Section 172 of the Contract Act and it has been held:

“26. …..The pledge agreement dated 10­-1-­2012 does not contain any contract that the corporate debtor has contracted to perform the promise, or discharge the liability of the third person…….

30. The words “guarantee” and “indemnity” as occurring in Section 5(8) (i) has not been defined in the Code. Section 3 clause (37) of the Code provides that words and expressions used but not defined in the Code but defined in the Contract Act, 1872 shall have the meanings respectively assigned to them.”

5.5 The decision in Phoenix ARC (supra) has also relied upon and reproduced paragraphs 46-­50.2 of the decision in Anuj Jain (supra) (referred to as Jaypee Infratech Interim Resolution Professional v. Axis Bank in the aforesaid judgment), and thereupon observes:

“36. This Court held that a person having only security interest over the assets of corporate debtor, even if falling within the description of “secured creditor” by virtue of collateral security extended by the corporate debtor, would not be covered by the financial creditors as per definitions contained in clauses (7) and (8) of Section 5. What has been held by this Court as noted above is fully attracted in the present case where corporate debtor has only extended a security by pledging 40,160 shares of GEL. The appellant at best will be secured debtor qua above security but shall not be a financial creditor within the meaning of Section 5 clauses (7) and (8).

37. Mr Vishwanathan tried to distinguish the judgment of this Court in Jaypee Infratech Ltd. [Jaypee Infratech Ltd. Interim Resolution Professional v. Axis Bank Ltd., (2020) 8 SCC 401] by contending that the above judgment has been rendered in the specific facts scenario which does not apply to the present case at all. Shri Vishwanathan submits that in Jaypee Infratech Ltd. [Jaypee Infratech Ltd. Interim Resolution Professional v. Axis Bank Ltd., (2020) 8 SCC 401] corporate debtor had created mortgage for the loan obtained by the parent Company and no benefit of such loan has been received by the corporate debtor whereas in the present case corporate debtor has been the direct and real beneficiary of the loan advanced by assignor to the parent Company of the corporate debtor.”

5.6 We have specifically quoted paragraph 37 in the decision of Phoenix ARC (supra) as the counsel for the appellant therein, had also argued before us to distinguish the decisions of Anuj Jain (supra) and Phoenix ARC (supra) from the instant case, on the ground that the Short Term Loan Facilities (STL Facilities) advanced by the Appellant No. 1 ­- Vistra in the present case to the group companies of the Corporate Debtor – Amtek Auto Limited (Amtek) i.e., Brassco Engineering Limited (Brassco) and WLD Investments Private Limited (WLD) vide Facility Agreement dated 30.06.2016 (Facility Agreement), was in fact for the end­use and benefit of the Corporate Debtor – Amtek. The said reasoning does not appeal to us for the reason that the liability to repay the STL Facilities advanced to Brassco and WLD is that of the said companies, and that not of the Corporate Debtor ­ Amtek, even if the latter was, as per the terms of the Facility Agreement, the ultimate beneficiary of the amount disbursed through the STL Facilities. The aforesaid decisions cannot be distinguished on the ground that the loans were not for the end use and benefit of JIL or Doshion Veolia. The Corporate Debtor – Amtek was not liable to repay the loans advanced by the predecessor-­in-­interest of the appellant ­Vistra, in respect of which there were detailed and separate agreements executed by the lenders with Brassco and WLD.

# 6. It was submitted before us that the Amended and Restated Pledge Agreement dated 5.07.2016 between the corporate debtor – Amtek and the IL&FS Trust Company Limited, the predecessor-in-­interest of the Appellant No. 1 -­ Vistra (Pledge Agreement) inter alia provides that the Corporate Debtor ­ Amtek is the guarantor of the entire loan amount, for which reliance was placed upon clause 2.1.2 of the Pledge Agreement. This contention is liable to be rejected, for the Pledge Agreement specifically restricts and limits the liability of the Corporate Debtor to the extent of the pledged shares vide clause 2.1.1, which reads as under:

“2.1.1.­ Pursuant to the Financing Documents and in consideration of the Identified Lenders having entered into and/or agreed to enter into the Financing Documents in respect of each of the Facilities, the Pledgor covenants and agrees with the Identified Lenders that it shall comply with the provisions of the Financing Documents in relation to each of the Facilities and shall repay, pay and/or discharge the Outstanding Amounts in relation to the Identified Debt in accordance with the terms set out herein and therein. Provided that the Pledgor shall not be required to pay to any Finance Party any amount in excess of the aggregate amount realized by the Trustee pursuant to an enforcement of the Security Interest over the Pledged Shares in accordance with the terms of this Pledge Agreement.”

(Emphasis supplied)

6.1 Similarly, reliance has also been placed by the Corporate Debtor – Amtek on certain communications issued by the IDBI Bank, the lead bank of the Joint Lenders Forum, which now constitutes the majority of the CoC of the corporate debtor – Amtek, permitting the pledge of shares etc. We observe that these communications have to be read and understood in the context in which they were written. It was clear and understood by the financial creditors of the corporate debtor – Amtek that the corporate debtor – Amtek is not to bear any additional financial liability by a security or charge of its assets for the STL Facilities, and the loans were being procured and taken by Brassco and WLD from the Appellant Nos. 2 and 3, namely, KKR India Financial Services Limited and L&T Finance Limited. It was stipulated that the assets of the Corporate Debtor – Amtek would not be encumbered in anyway, and except for shares given as security, and the burden to repay/discharge the loan was/is upon Brassco and WLD. IDBI Bank had only permitted the corporate debtor – Amtek to pledge the shares in question, and to this extent, they did not have any objection.

However, there is another aspect of the matter.

# 7. Appellant No. 1 ­- Vistra is a secured creditor to the extent of the shares pledged to it by the Corporate Debtor ­ Amtek. It holds the first right in pledge on 66.77% shareholding in JMT Auto Limited. The expression ‘security interest’ as defined in Section 3(31) of the Code states that it means right, title, interest or a claim to a property created in favour, or provided for a secured creditor by a transaction which secures payment or performance of an obligation and includes, mortgage, charge, hypothecation, assignment and encumbrance, or any other agreement or arrangement for securing payment or performance of any obligation of any person. The person is whose favour the security interest is created need not be the creditor who avails the credit facility, and can be a third person. Security interest can be created for credit facilities/loan advanced to another person. It is accepted and admitted that the Appellant No. 1 – Vistra has security interest in the pledged shares. In order to examine the nature of the said interest, we must first understand what constitutes ‘pledge’ in law.

7.1 The concept of ‘pledge’ has been elucidated by this Bench in PTC India Financial Services Limited v. Venkateswarlu Kari and Another,6 with reference to the provisions of contract of bailment and specific provisions concerning the pledge, a subset of bailments, in the following manner:- . . . . . .

7.2 The law of pledge contemplates special rights for the pawnee in the goods pledged, i.e., the right to possession of the security, and in case of default, the right to bring a suit against the pawnor, as well as the right to sell the goods after giving reasonable notice to the pawnor. The general rights or ownership rights in the property remain with the pawnor, and wholly reverts to him on discharge of the debt or performance of the promise. In other words, the right to property vests in the pawnee only as far as it is necessary to secure the debt. We need not refer to other portions of the said judgment which relate to right of redemption till ‘actual sale’, etc.

# 8. In light of the aforesaid exposition, the second issue which arises for consideration is whether the resolution plan can dilute, negate, or override the pledge agreement because a resolution plan to this effect has been approved by the CoC. Revisiting this issue is important, as Anuj Jain (supra) had interpreted the provisions as they existed prior to substitutions of several provisions of the Code by Act No. 26 of 2018 with retrospective effect from 6.06.2018 and Act No. 26 of 2019 with effect from 16.08.2019. In particular, we would like to make reference to the amended Section 30(2) of the Code, which post the substitution by Act No. 26 of 2019, reads as under:

“30. Submission of Resolution plan. —

(2) The resolution professional shall examine each resolution plan received by him to confirm that each resolution plan —

(a) provides for the payment of insolvency resolution process costs in a manner specified by the Board in priority to the payment of other debts of the corporate debtor;

(b) provides for the payment of debts of operational creditors in such manner as may be specified by the Board which shall not be less than—

(i) the amount to be paid to such creditors in the event of a liquidation of the corporate debtor under Section 53; or

(ii) the amount that would have been paid to such creditors, if the amount to be distributed under the resolution plan had been distributed in accordance with the order of priority in sub-­section (1) of Section 53,

whichever is higher, and provides for the payment of debts of financial creditors, who do not vote in favour of the resolution plan, in such manner as may be specified by the Board, which shall not be less than the amount to be paid to such creditors in accordance with sub-­section (1) of Section 53 in the event of a liquidation of the corporate debtor.

Explanation 1.—For the removal of doubts, it is hereby clarified that a distribution in accordance with the provisions of this clause shall be fair and equitable to such creditors.

Explanation 2.—For the purposes of this clause, it is hereby declared that on and from the date of commencement of the Insolvency and Bankruptcy Code (Amendment) Act, 2019, the provisions of this clause shall also apply to the corporate insolvency resolution process of a corporate debtor—

(i) where a resolution plan has not been approved or rejected by the Adjudicating Authority;

(ii) where an appeal has been preferred under Section 61 or Section 62 or such an appeal is not time barred under any provision of law for the time being in force; or

(iii) where a legal proceeding has been initiated in any court against the decision of the Adjudicating Authority in respect of a resolution plan;

(c) provides for the management of the affairs of the corporate debtor after approval of the resolution plan;

(d) the implementation and supervision of the resolution plan;

(e) does not contravene any of the provisions of the law for the time being in force;

(f) conforms to such other requirements as may be specified by the Board.

Explanation.—For the purposes of clause (e), if any approval of shareholders is required under the Companies Act, 2013 (18 of 2013) or any other law for the time being in force for the implementation of actions under the resolution plan, such approval shall be deemed to have been given and it shall not be a contravention of that Act or law.”

8.1 The amendment introduced by Act No. 26 of 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. In other words, the amount payable under the resolution plan to the operational creditors should not be less than the amount payable to them under Section 53 of the Code, in the event of liquidation of the Corporate Debtor. The amended provision also provides that the financial creditors who have not voted in favour of the resolution plan shall be paid not less than the amount which would be paid to them in accordance with sub-section (1) to Section 53 of the Code, in the event of liquidation of the corporate debtor. Explanation (1) to clause (b) of the 30(2) of the Code, for the removal of doubts, states and clarifies that the distribution in accordance with this clause shall be fair and equitable to such creditors.

8.2 It is also the mandate of Section 31 of the Code7 that the adjudicating authority should be satisfied that the resolution plan, as approved by the CoC under sub­-section (4) of Section 30 meets with the requirement as referred to in sub-­section (2) of Section 30. Only then, the adjudicating authority shall approve the resolution plan, which shall  then be binding on the Corporate Debtor and its employees, members, creditors, guarantors and other stakeholders involved in the resolution plan.

8.3 Section 30(2)(e) also requires the resolution professional to examine each resolution plan received by him/her and confirm that it does not contravene any provisions of law for the time being in force. Thus, the amended Section 30(2) read with Section 31 of the Code, enunciates the manner in which the interests of the creditors who are not included in the CoC i.e., the operational creditors and the financial creditors who have not voted in favour of the resolution plan, must be protected in the resolution plan by the resolution professional and the adjudicating authority.

8.4 It is in this context that the Appellant No. 1 ­- Vistra submits that the resolution plan in question does not meet the requirements of the Code, as it extinguishes and vaporises the pledge created in favour of the Appellant No. 1 – Vistra, and thereby, Appellant No. 1 – Vistra, a secured creditor, viz, the pledged shares, is left remediless and worse off than the dissenting financial creditors, or even the operational creditors.

8.5 The difficulty which arises in the present case is that, in terms of the decision of this Court in Anuj Jain (supra) and Phoenix ARC (supra), Appellant No. 1 -­ Vistra is to be treated as a secured creditor, but would not fall under the category of financial creditors or operational creditors. Therefore, they would be denied the benefit of the amendments to Section 30(2) of the Code made vide Act No. 26 of 2019, or for that matter Act No. 26 of 2018. Consequently, a very odd and a peculiar situation is created where a 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. In terms of Section 52 of the Code, a secured creditor in liquidation proceedings has the right to relinquish its security interest to the liquidation estate and receive proceeds from the sale of assets by the liquidator in the manner specified under Section 53 of the Code. The second option given to the secured creditor is to realise the security interest in the manner specified in aforesaid Section. Rule 21­A of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 20168 deals with the presumption of security interest, which we need not elaborate for the present decision. If the secured creditor relinquishes the security interest, it is then entitled to priority in payment under clause (b) to sub-­section (1) to Section 53 of the Code. The debts owed to the secured creditor in such event, rank pari passu with the workmen’s dues for the period 24 months preceding the liquidation commencement date. As per Section 52(9) of the Code, where the proceeds on realisation of secured assets are not adequate to repay the debts due to the secured creditors who have exercised the option to realise the security interest, the unpaid dues of such secured creditors are to be paid by the liquidator in terms of clause (e) of sub-­section (1) of Section 53 of the Code.

# 9. Thus, we are presented with a difficult situation, wherein, Appellant No.1 – Vistra, a secured creditor, is being denied the rights under Section 52 as well as Section 53 of the Code in respect of the pledged shares, whereas, the intent of the amended Section 30(2) read with Section 31 of the Code is too contrary, as it recognises and protects the interests of other creditors who are outside the purview of the CoC. To our mind, the answer to this tricky problem is two fold. First is to treat the secured creditor as a financial creditor of the Corporate Debtor to the extent of the estimated value of the pledged share on the date of commencement of the CIRP. This would make it a member of the CoC and give it voting rights, equivalent to the estimated value of the pledged shares. However, this may require re-consideration of the dictum and ratio of Anuj Jain (supra) and Phoenix ARC (supra), which would entail reference to a larger bench. In the context of the present case, the said solution may not be viable as the resolution plan has already been approved by the CoC without Appellant No. 1 -­ Vistra being a member of the CoC. Therefore, we would opt for the second option. 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. In other words, 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 second recourse available, would be almost equivalent in monetary terms for the Appellant No. 1 -­ Vistra, who is treated it 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 Code. This to our mind would be a fair and just solution to the legal conundrum and issue highlighted before us.

9.1 We wish to clarify that the directions given by us 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 us. The reason is simple. 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.

# 10. In the end, we must meet the argument raised by the Respondent No. 1 – Dinkar Venkatasubramanian, resolution professional for the Corporate Debtor – Amtek and the Respondent No. 2 – the CoC of the Corporate Debtor – Amtek, that the present plea of the Appellant No.1 – Vistra to be treated as a financial creditor of the Corporate Debtor ­ Amtek should be dismissed on the grounds of delay, laches and acquiescence. The submission is that the Appellant No. 1 ­- Vistra had not objected to the resolution plan submitted by the erstwhile resolution applicant ­ LHG and, as a sequitur, its non-­classification as a financial creditor in the CoC of the Corporate Debtor ­ Amtek. Though this argument had appealed and had weighed with the NCLAT, in our opinion is untenable since the resolution plan submitted by erstwhile resolution applicant ­ LHG did not in any way affect the rights or interests of the Appellant No. 1 – Vistra as a secured creditor in respect of the pledged shares. Appellant No. 1 – Vistra has elaborately explained that LHG etc. were in negotiations with them so as to redeem the pledge and acquire the shares.

# 11. In view of our aforesaid findings, the impugned judgment of the NCLAT affirming the view taken by the NCLT is partly modified in terms of our directions holding that appellant no.1 – M/s. Vistra ITCL (India) Limited would be treated as a secured creditor, who would be entitled to all rights and obligations as applicable to a secured creditor in terms of Sections 52 and 53 of the Code, and in accordance with the pledge agreement dated 05.07.2016.

Present appeal is disposed of in the above terms without any order as to costs.

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Canara Bank Vs Commercial Tax Department Circle 09, - The delay in filing the Appeal under Section 42 is clearly condonable while exercising the power under Section 5 of the Limitation Act.

 NCLAT (22.05.2023) In Canara Bank Vs Commercial Tax Department Circle 09, [Company Appeal (AT) (Insolvency) No. 655 of 2023] held that;

• The delay in filing the Appeal under Section 42 is clearly condonable while exercising the power under Section 5 of the Limitation Act.

Excerpts of the order; 

22.05.2023: Heard Learned Counsel for the parties.

# 2. This Appeal has been filed against the Judgement and Order dated 21.04.2023 by which the Adjudicating Authority has allowed IA/69(MP)2023 directing the Liquidator to accept the full claim as was filed by the Respondent No. 1.

# 3. In the Corporate Insolvency Resolution Process, claim was filed by the Commercial Tax Department Circle 09, Indore which was admitted. Liquidation Process began and thereafter the Liquidator invited claims which was to be filed by 04.09.2022. The Respondent No.1 filed its claim in Form-C on 23.09.2022. Liquidator sent an email rejecting the claim filed in Form-C on the ground that it is filed long after limitation expired for filing the claim. The Liquidator however admitted the claim to the extent of 23,05,11,486/- which was admitted in the CIRP process. The Respondent No.1 preferred an Appeal styled as I.A. No. Company Appeal (AT) Ins. No. 655 of 2023 69(MP)2023 on 27.02.2023 praying that entire claim of the Respondent be accepted. Liquidator filed its Reply and Adjudicating Authority by the impugned order has accepted I.A.69(MP)2023 and directed the Liquidator to reconsider the claim submitted in Form-C.

# 4. Canara Bank aggrieved by the aforesaid order, has come up in this Appeal challenging the direction issued by the Adjudicating Authority to the Liquidator.

# 5. Learned Counsel for the Appellant submits that there was no reason given for condonation of delay in filing the Appeal under Section 42 and the Adjudicating Authority erred in relying on the Judgement of the Hon’ble Supreme Court in State of Bihar & Ors. vs. Kameshwar Prasad Singh, SLP (C) No. 10653 of 1998. Learned Counsel has relied on the Judgement of the Hon’ble Supreme Court in State of Madhya Pradesh & Ors. Vs. Bherulal, (2020) 10 SCC 654 and submits that in view of the Judgment inordinate delay by Government or State Authority does not deserve condonation.

# 6. We have heard Learned Counsel for the Appellant and perused the record.

# 7. The Judgement which has been relied by Learned Counsel for the Appellant i.e. State of MP & Ors. Vs. Bherulal was a case where SLP was filed with delay of 663 days. The observations of the Hon’ble Supreme Court came in wake of the aforesaid facts of the case where the Hon’ble Supreme Court deprecated the approach of the government authority relying on judicial pronouncement for a period of time where technology had now been advanced and ground were given by the government.

# 8. Be that as it may, the said judgement of the Hon’ble Supreme Court which has been relied by Learned Counsel for the Appellant was a case where delay of 663 days was in filing the Appeal. The present is a case where the claim was filed with 19 days delay and after not acceptance of the claim by the Liquidator, Appeal was filed with delay of 111 days. It is submitted that the time for filing the Appeal under Section 42 is 14 days only. The present is a case where claim was admitted in the CIRP Process and when Liquidation commenced the claim was filed of the same amount with interest claim hence we are of the view that in the interest claim, the rejection on the ground that it is filed with the delay was not correct and has already been set aside by the Adjudicating Authority. The delay in filing the Appeal under Section 42 is clearly condonable while exercising the power under Section 5 of the Limitation Act.

# 9. Learned Counsel for the Appellant submits that there is no ground given in the Application for condonation of delay but in the facts of the present case, sequence of the events and facts of the case itself indicate that the filing of the claim with interest can not be said to with any laches or any inordinate delay and ought to have been rejected. In the facts of the present case, the Adjudicating Authority has rightly condoned the delay and directed the Liquidator to consider the said claim in Form C. We do not find any merit in the Appeal, the Appeal is dismissed.

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