Case Number: Civil Appeal No. 3606 of 2020 

Judges Name: Hon’ble Judges Mr. M.R. Shah, Mr. C.T. Ravikumar

Order dated: 04.05.2023

Facts of the Case:

1. M/s. Amtek Auto Limited approached the Appellants to extend a short-term loan facility of Rs. 500 crores to its group companies, M/s. Brassco Engineers Ltd. (“Brassco”) and M/s. WLD Investments Pvt. Ltd., (“WLD”) with the understanding that the Corporate Debtor would provide first-ranking exclusive security in the form of a pledge over its equity shares in M/s. JMT Auto Ltd. (“JMT”) 
2. Several security trustee agreements were executed between the Appellants and the group companies for different amounts. 
3. Subsequently, an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (“IBC”) was filed against the Corporate Debtor, and a Resolution Professional was appointed. 
4. The Appellants filed a claim as a secured creditor of the Corporate Debtor, but their claim was rejected by the Resolution Professional. 
5. The Appellants then filed another application claiming rights based on the pledged shares under Section 60(5) of the IBC. 
6. The Resolution Professional filed an application before the Adjudicating Authority seeking approval of the Resolution Plan. 
7. However, the Appellants’ application before the Adjudicating Authority was dismissed. The Appellants appealed to the National Company Law Appellate Tribunal (“NCLAT”), but the appeal was dismissed on the grounds that their claim as a secured financial creditor had been previously rejected. 
8. The NCLAT ruled that since the Appellants had not provided any financial debt to the Corporate Debtor, they did not fall within the purview of the Corporate Debtor. 
9. Dissatisfied with the NCLAT’s decision, the Appellants filed an appeal before the Supreme Court.

Hon’ble Supreme Court Observed/ Held as Follows:

• That The Corporate Debtor was not liable to repay loans advanced by the Appellant’s predecessor-in-interest. 
• The liability of the Corporate Debtor was limited to the extent of the pledged shares as specified in the Pledge Agreement. 
• It was understood that the Corporate Debtor would not bear any additional financial liability for loans taken by Brassco and WLD. The burden to repay the loan rested with Brassco and WLD. 
• The Appellant was recognized as a secured creditor with the first right in pledge on 66.77% shareholding in JMT Auto Limited. 
• The definition of ‘security interest’ under Section 3(31) of the IBC was considered, along with the nature of the pledge agreement. 
• The Resolution Plan should ensure that operational creditors are paid an amount not less than what they would receive under Section 53 of IBC, 2016 in case of liquidation. 
• Section 31 of the IBC, 2016 requires the Adjudicating Authority to protect the interests of creditors who are not part of the Committee of Creditors. 
• The Appellant was treated as a secured creditor under Sections 52 and 53 of the IBC, entitled to retain the security interest in the pledged shares and receive the proceeds from their sale. 
• The judgment of the NCLAT was partly modified by the SC to recognize the Appellant’s rights and obligations as a secured creditor under Sections 52 and 53 of the IBC.