When Entire Liability Is Not Discharged After Selling Pledged Shares, Application U/S 7 IBC Can Be Filed To Claim Remaining Amount: NCLAT

The NCLAT New Delhi bench of Justice Ashok Bhushan (Judicial Member), Mr. Barun Mitra (Technical Member) and Mr. Arun Baroka (Technical Member) has held that when the entire liability of the corporate debtor after selling the pledged shares is not discharged, an application under section 7 of the IBC can be filed for claiming the remaining amount. Brief Facts: The present appeal has been filed by the suspended director of the corporate debtor against an order passed by the NCLT by which an application under section 7 of the code was admitted. The Respondent sanctioned a working facility loan for which a master facility agreement was also executed. Thereafter, the financial creditor issued a recall notice claiming the due amount and section 7 application was also filed. During the pendency of the application, an MOU was entered into between the parties under which shares were pledged in favor of the financial creditor. An IA was filed by the corporate debtor seeking dismissal of the section 7 application which came to be rejected by the NCLT leading to admission of the application. Contentions: The appellant submitted that shares agreed to be transferred in favor of the financial creditor were sufficient to discharge the entire liability but they were sold at a lesser value for which the CD cannot be faulted. Refuting the submissions, the respondent submitted that after selling the shares, the value that the financial creditor fetched was lesser than the due amount therefore the CD was still in default. Observations: The tribunal while noticing the observations made by the Adjudicating Authority observed that it is not disputed that the liability of the CD was not completely discharged as the CD tried to settle the matter even after the shares were pledged in favor of the financial creditor indicating that there was a debt and default. The tribunal rejected the submission of the appellant that had the shares been sold when the share pledge agreement was entered into, the entire liability of the CD would have been discharged. It observed that as per the MOU, it was the discretion of the financial creditor when to invoke the pledged shares therefore the value fetched from the shares was not sufficient to discharge the entire liability. The tribunal concluded that since no settlement of record was shown indicating that the matter has been settled between the parties, the Adjudicating Authority did not commit any error in admitting the application under section 7 of the code. The tribunal also observed that in case a settlement is reached between the parties, an application for withdrawal of the CIRP application can be filed as per the law settled by the Supreme Court in GLASTrust Company v, BYJU Raveendran and Ors. (2024). Case Title: Amit Yogesh Satwara Versus Incred Financial Services Limited Case Number: Company Appeal (AT) (Insolvency) No.1584 of 2024 Judgment Date: 15/01/2025 For Appellant : Mr. Abhijeet Sinha, Sr. Advocate with Ms. Pallavi Pratap, Mr. Pushkraj, Mr. Rohan Marathe, Ms. Yashvi Aswani and Mr. Amjid Maqbool, Advocates. For Respondent : Ms. Smriti Churiwal and Mr. Jaiveer Kant, Advocates Click Here To Read/Download The Order

When Entire Liability Is Not Discharged After Selling Pledged Shares, Application U/S 7 IBC Can Be Filed To Claim Remaining Amount: NCLAT

Mohd Malik Chauhan

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