Security trustees of pledged shares are not financial creditor under IBC: NCLAT

The National Company Appellate Tribunal (NCLAT) has dismissed a plea seeking to make the security trustee holding pledged shares of the corporate debtor as secured financial creditor.

Dismissing the plea of Vistara ITCL India Limited, the security trustee company which held the pledged shares of corporate debtor Amtek Auto on behalf of creditors like KKR Indian Financial Services and L&T Finance, the NCLAT said that the appellant (Vistara ITCL) has not lent any money directly to the corporate debtor and the corporate debtor did not owe any financial debt to the appellant except that the pledge of shares was to be executed. Therefore, the appellant not having advanced any money directly to the Corporate Debtor as a financial debt, it could not be coming within the purview of financial creditor of the Corporate Debtor.

“The debt along with interest disbursed against time value of money constitute the basic ingredients of the financial debt as defined in Insolvency and Bankruptcy Code (IBC) and since the same is lacking as regards any transaction between the appellant and the Corporate Debtor, pledge of shares would not fall within the concept of guarantee and indemnity so as to bring it within the meaning of financial debt,” says the appellate tribunal.

The NCLAT further argues that Vistara ITCL’s claim as secured creditor was rejected way back in 2017 and decision in this regard has not been called in question. It is not open to the appellant to raise the same issue in 2020.

The appellate tribunal also finds ‘queer’ the appellants explanation that rejection of its claim as Financial Creditor went un-assailed under the belief that the interest of appellant’s would be taken care of under the resolution plan submitted by the ‘Liberty House Group’. It says that such explanation deserves to be noticed only for being rejecting.

The case pertains to various security trustee agreements signed between Amtek Auto promoter Arvind Dham and financial creditors like KKR India Financial Services and L&T Financials. Under the agreement, Amtek Auto had raised short-term loans for a couple of group companies from the financial creditors against pledge of shares which were being held by Vistara ICTL in capacity of Security Trustee.

It must also be mentioned here that Amtek Auto was earlier acquired by Liberty House Group through an insolvency process but it failed to pay the creditors and forcing the banks and financial institutions to again initiate insolvency proceedings.

According to Vistara ICTL, the resolution plan of Liberty House Group had promised to preserve the pledge of shares on its behalf. However, under the new plan presented by Deccan Value Investors its interest are not protected.