/2023 INSC 0394/
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
                                                                         
CIVIL APPEAL NO.3606 of 2020
M/S VISTRA ITCL (INDIA) LTD & ORS. ..Appellants
Versus
MR. DINKAR VENKATASUBRAMANIAN 
& ANR.                                    ..Respondents
J U D G M E N T
M. R. Shah, J.
1. Feeling   aggrieved   and   dissatisfied   with   the
impugned   judgment   and   order   dated   24.08.2020
passed   by   the   National   Company   Law   Appellate
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43

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 short­term 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
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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
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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,
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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
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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
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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.
3. Shri Rakesh Dwivedi, learned Senior Advocate has
appeared   on   behalf   of   the   appellant   in   C.A.
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No.3606   of   2020   and   Shri   Shyam   Divan,   learned
Senior   Advocate   has   appeared   on   behalf   of   the
appellant   in   C.A.   No.6372­73   of   2021.     Shri
Tushar   Mehta,   learned   Solicitor   General   has
appeared on behalf of the respondent no.1 – CoC.
3.1 Learned   Senior   Counsel   appearing   on   behalf   of
the appellants have vehemently submitted that in
the   facts   and   circumstances   of   the   case   the
NCLT/NCLAT   have   materially   erred   in   observing
that   the   claim   made   by   the   appellant   no.1   as   a
secured   financial   creditor   was   belated.     It   is
submitted   on   behalf   of   the   appellants   that   both
the   NCLT   as   well   as   NCLAT   have   not   properly
appreciated   the   fact   that   it   was   a   continuing
cause   of   action.     So,   it   was   a   case   of   continuing
cause   of   action.     It   is   submitted   under   the   IBC
that there is no limitation prescribed for objecting
to the categorization of the creditors in a wrongful
category.
3.2 It   is   submitted   that   the   ratio   of   the   limitation   is
connected with the principle of cause of action.
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3.3 It   is   submitted   that   it   is   a   case   of   continuous
cause   of   action   as   resolution   professional,   CoC,
Resolution   Applicant   and   the   Adjudicating
Authority   are   all   required   to   consider   the   correct
categorization of the claimants.
3.4 It   is   submitted   that   in   the   present   case,   the
corporate   insolvency   resolution   process   (“CIRP”)
commenced   on   24.07.2017   and   the   present
resolution   plan   (which   as   per   the   Adjudicating
Authority’s   order   dated   09.07.2020)   was
submitted for voting by the CoC from 07.02.2020
to   11.02.2020;   which   was   only   approved   by   the
Adjudicating Authority on 09.07.2020 i.e., almost
3   years   since   the   start   of   the   CIRP.     The
Appellants   had   already   challenged   the   non­
inclusion of the Appellants as a financial secured
creditor   in   the   CoC   on   11.02.2020,   which   was   5
months   before   the   resolution   plan   was   approved
by   the   Adjudicating   Authority.     Therefore,   the
question   of   delay   on   the   part   of   the   Appellants
does   not   arise   and   neither   can   delay   be   agitated
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by the Respondents since the CIRP process under
the supervision of the Resolution Professional and
CoC itself carried on for 3 years, which 3 years is
well   beyond   the   timeline   of   330   days   as   set   out
under   the   IBC.     Therefore,   the   CoC   and
Resolution   Professional   cannot   justify   their   delay
on one hand and then seek to erode the rights of
the Appellants by relying on delay.
3.5 On merits learned counsel appearing on behalf of
the   appellants   have   vehemently   submitted   that
the   decisions   of   this   Court   in   the   case   of   Anuj
Jain   Interim   Resolution   Professional   for
Jaypee   Infratech   Limited   vs.   Axis   Bank
Limited   etc.   etc. 1
  and   Phoenix   ARC   Private
Limited   vs.   Ketulbhai   Ramubhai   Patel, 2
  are
distinguishable and shall not be applicable to the
facts of the case on hand.  
3.6 It   is   submitted   that   there   is   creditor­debtor
relationship   between   the   appellants   and   the
1  (2020) 8 SCC 401.
2  (2021) 2 SCC 799.
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Amtek   Auto   Limited.     It   is   submitted   that   WLD
and   Brassco   took   loans   from   the   appellant   nos.2
and 3 through appellant no.1 for the end use and
ultimate benefit of the Corporate Debtor.  In order
to   establish   a   direct   debtor­creditor   relationship,
reliance   is   placed   on   the   Board   Resolution   of
Amtek   Auto   dated   13.06.2016;   no   objection
certificate   requested   by   Amtek   Auto   on
23.12.2015;   no   objection   certificate   requested   by
Amtek   Auto   on   26.03.2016   from   IDBI;   No
objection certificate issued by IDBI Bank to Vistra
ITCL etc.  It is submitted that from the aforesaid it
is   clear   that   Amtek   obtained   monies   from
Appellant   Nos.2   &   3   when   it   was   in   financial
distress, which fact the banks were aware of since
the   reason   for   obtaining   these   loans   was   to
‘standardize’   Amtek’s   loan   account   with   the
banks.
3.7 It   is   vehemently   submitted   that   the   pledge   of
shares   constituted   as   financial   debt   under   the
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IBC   is   defined   as   Security   Interest   under   Section
3(31) of the IBC.
4. Shri   Tushar   Mehta,   learned   Solicitor   General
appearing   on   behalf   of   respondent   no.2   has
vehemently submitted that the appellant had filed
its   claim   with   the   Resolution   Professional   on
02.11.2017 which was rejected and the same was
duly reflected in the list of creditors published on
the   website   of   the   Corporate   Debtor.     It   is
submitted   that   the   said   rejection   has   never   been
challenged by the  appellant.    It is submitted that
even   in   various   communications   exchanged,   the
appellant   no.1   raised   no   challenge   to   non­
acceptance   of   its   claim   but   rather   put   forth   an
absurd   request   to   the   Resolution   Professional   to
ensure that the pledged shares are not to be dealt
with   in   any   manner   without   the   prior   written
consent of the appellant no.1.  It is submitted that
therefore   the   appellant   on   11.02.2020   had   filed
an   application   before   the   NCLT   that   too   not   in
challenge   to   its   claim   rejection   but   for   seeking
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admission   into   the   CoC.     It   is   submitted   that
since   the   said   application   was   filed   belatedly   the
same is rightly rejected by the NCLT and is rightly
confirmed by the NCLAT.
4.1 Shri  Mehta,   learned  Solicitor   General  has  further
submitted   that   the   issue   involved   in   the   present
appeal   is   squarely   covered   by   this   Court   in   the
case   of   Anuj   Jain   (supra)   and   Phoenix   ARC
Private Limited (supra) .  It is submitted that the
appellants   could   not   qualify   to   be   financial
creditors of the Corporate Debtor.  It is submitted
that   there   is   only   a   third­party   security   given   in
form   of   pledged   shares   with   respect   to   the
amounts   advanced   by   the   appellants   to   affiliates
of   the   Corporate   Debtor.     Thus,   the   appellants
cannot   be   considered   as   financial   creditor   of   the
Corporate Debtor.
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
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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,   2016 3
  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 Process 5
  under the Code, and that the
legislature   has   assigned   them   a   specific   role   to
3   For short, Code. 
4   The mortgage by JIL in favour of creditors of JAL were, in fact, set aside in terms of
Section   43   of   the   Code,   albeit   this   Court   had   opined   on   the   legal   issue   on   the
assumption even if the mortgage was valid.
5   For short, CIRP. 
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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
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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
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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
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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
1­2012   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.”
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5.5 The   decision   in   Phoenix   ARC   (supra)   has   also
relied   upon   and   reproduced   paragraphs   46­50.2
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
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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
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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
predecessor­in­interest of the appellant ­Vistra, in
respect of which there were detailed and separate
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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
in­interest   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
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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
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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
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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.
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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: 
“18 .   As   per   Section   151,   a   bailee   is
bound to take as much care of the goods
bailed   to   him   as   a   man   of   ordinary
prudence   would,   under   similar
circumstances,   take   of   his   goods   of   the
same   bulk,   quality   and   value   as   the
goods   bailed.   Section   152   states   that   a
bailee,   in   the   absence   of   a   special
contract,   will   not   be   liable   for   any   loss,
destruction, or deterioration of the bailed
goods   if   he   acts   in   conformity   with
Section   151.   As   per   Section   153,   a
contract   for   bailment   is   voidable   at   the
option of the bailor if the bailee does any
act   with   regard   to   the   goods   bailed,
inconsistent   with   the   conditions   of   the
bailment. Section 154 lays down that the
bailee   shall   be   liable   for   damage   arising
from   unauthorised   use   of   the   bailed
goods.   The   bailee,   with   the   consent   of
6   (2022) 9 SCC 704. 
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the bailor, can mix the goods bailed with
his own goods, in which event, the bailor
and   the   bailee   will   have   interest   in
proportion   to   their   respective   shares   in
the mixture. [ Section 155, Contract Act.]
However,   if   the   bailee,   without   the
bailor's   consent,   mixes   the   bailed   goods
with   his   own,   and   the   goods   can   be
separated or divided, the property in the
goods   remain   with   the   parties
respectively. [ Section 156, Contract Act.]
Further,   the   bailee   is   bound   to   bear   the
expense   of   separation   or   division   of   the
goods,   as   well   as   any   damage   arising
from   the   mixture.   Section   157   provides
that   when   the   goods   are   so   mixed
without   the   bailor's   consent   and   cannot
be   separated,   the   bailor   is   liable   to   be
compensated, and the bailee is liable for
the loss.
19 .   Under Section 160, the bailee has to
return   or   deliver,   as   per   the   bailor's
directions,   the   goods,   without   demand,
as  soon   as  the   time  for  which  they  were
bailed   has   expired   or   the   purpose   for
which   they   were   bailed   has   been
accomplished.   Section   161   states   that   if
there   is   a   default   by   the   bailee   and   the
goods   are   not   returned,   delivered,   or
tendered at the proper time, the bailee is
responsible   to   the   bailor   for   any   loss,
destruction, or deterioration of the goods
from   that   time.   As   per   Section   163,   in
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the   absence   of   any   contract   to   the
contrary, the bailee is bound to deliver to
the   bailor,   or   in   accordance   with   his
directions,   any   increase   or   profit   that
may accrue from the goods bailed.
20 .   Section   172   of   the   Contract   Act   is
reproduced as under:
“172.   “Pledge”,   “pawnor”   and   “pawnee”
defined.—The   bailment   of   goods   as
security   for   payment   of   a   debt   or   the
performance   of   the   promise,   is   called   a
“pledge”. The bailor is in this case called
the   “pawnor”.   The   bailee   is   called   the
“pawnee”.”
As   per   Section   172,   creating   a   valid
pledge   requires   delivery   of   the
possession of goods by the pawnor to the
pawnee   by   way   of   security   upon   the
promise   of   repayment   of   a   debt   or   the
performance   of   a   promise,   thereby,
creating   an   estate   that   vests   with   the
pawnee.
22 .   As   per   Section   176,   when   a   pawnor
makes   a   default   in   payment   of   debt   or
performance   of   a   promise,   the   pawnee
may   bring   a   suit   against   the   pawnor
upon   such   debt   or   promise   and   retain
the   goods   pledged   as   collateral   security,
or   he   may   sell   the   goods   pledged   upon
giving   the   pawnor   reasonable   notice   of
the   sale.   If   the   pledged   goods   are   sold,
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and   the   proceeds   of   such   sale   are   less
than   the   amount   due   in   respect   of   the
debt or promise, the pawnor is still liable
to   pay   the   balance   amount   to   the
pawnee.   If   the   proceeds   of   such   sale
exceed  the  amount due, the  pawnee  will
be   liable   to   pay   the   surplus   to   the
pawnor.
23 .   Section   177   gives   statutory   right   to
the pawnor, who is at default in payment
of   the   debt   or   performance   of   the
promise, to redeem the pledged goods at
any   time   before   “actual   sale”   by   the
pawnee.   However,   in   such   cases,   the
pawnor   must   pay   in   addition   the
expenses   that   have   arisen   from   his
default.   Section   179   states   that   the
limited interest that a pawnor has in the
goods can be validly pledged.”
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
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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:
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“ 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 sub­section (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
sub­section (1) of Section 53 in the event
of a liquidation of the corporate debtor.
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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;
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(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
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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   Code 7
that the adjudicating authority should be satisfied
that the resolution plan, as approved by the  CoC
under sub­section (4) of Section 30 meets with the
requirement   as   referred   to   in   sub­section   (2)   of
Section 30. Only  then, the adjudicating  authority
shall   approve   the   resolution   plan,   which   shall
7   31 . Approval of resolution plan.— (1) If the Adjudicating Authority is satisfied that the
resolution   plan   as   approved   by   the   committee   of   creditors   under   sub-section   (4)   of
Section 30 meets the  requirements as  referred to  in  sub-section  (2) of Section 30,  it
shall   by   order   approve   the   resolution   plan   which   shall   be   binding   on   the   corporate
debtor and its employees, members, creditors, including the Central Government, any
State Government or any local authority to whom a debt in respect of the payment of
dues   arising   under  any   law   for   the   time   being   in   force,   such   as   authorities  to   whom
statutory dues are owed, guarantors and other stakeholders involved in the resolution
plan:
Provided   that   the   Adjudicating   Authority   shall,   before   passing   an   order   for
approval of resolution plan under this sub-section, satisfy that the resolution plan has
provisions for its effective implementation.
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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,
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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
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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,   2016 8
  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 sub­section (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
8  For short, Liquidation Process Regulations. 
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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 sub­section (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 two­fold. 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,
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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
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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
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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
non­classification   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
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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.  
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Present   appeal   is   disposed   of   in   the   above   terms
without any order as to costs.
                                                            
……………………………J.
             (M. R. SHAH)
……………………………J.
                                (SANJIV KHANNA)
New Delhi, 
May 4, 2023.
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