Pledged Shares Held By Corporate Debtor In Subsidiary Are Its Assets, Can't Be Invoked During CIRP Due To Moratorium: NCLT Mumbai

The National Company Law Tribunal (NCLT), Mumbai Bench of Lakshmi Gurung (Judicial Member) and Hariharan Neelakanta Iyer (Technical Member) has held that pledged shares held by the Corporate Debtor in its subsidiary company are assets of the Corporate Debtor and, therefore, cannot be invoked by the pledgee during the Corporate Insolvency Resolution Process due to the bar under Section 14 of the IBC. The Interlocutory Application has been filed by Asset Reconstruction Company (India) Limited (Applicant) under section 60(5) of the Insolvency and Bankruptcy Code, 2016 (Code) read with Rule 11 of the National Company Law Tribunal Rules, 2016 (NCLT Rules) seeking to exclude the pledged shares from the assets of the Corporate Debtor. The Applicant submitted that in view of the moratorium imposed under section 14 of the Code, the Applicant is unable to enforce the pledge created by the Corporate Debtor as the pledged shares being part of the assets of the Corporate Debtor are covered under the moratorium. It was further submitted that the said pledge is exclusively for the benefit of the Applicants and other lenders of the Corporate Debtor have no right, title or interest in the pledged shares. Per contra, the Respondent submitted that since the beneficial ownership continues with the corporate debtor, they must be included in the Information Memorandum and Resolution Plan. The Applicant has no locus to seek the exclusion of the shares from the assets pool of the Corporate Debtor. The Tribunal observed that the Supreme Court in a catena of Judgments has held that a pledgee is a secured creditor under sections 52 and 53 of the IBC though not a Financial or Operational creditor as envisaged under section 30 of the IBC. Therefore, the submission of the Applicant that it is not a creditor of the corporate debtor cannot be accepted. It further observed that however invocation of pledge is not required for submission of claim as held by the Supreme Court in China Development Bank vs. Doha Bank Q.P.S.C. & Ors.. As per section 3(6) of the IBC, a claim exists if there is a right to payment regardless of enforceability due to operation of moratorium. Therefore, the RP's argument that the Applicant cannot make a claim against the corporate debtor is liable to be rejected. The Tribunal further observed that since pledge was not invoked before the commencement of the CIRP, the corporate debtor continues to be the owner of the shares. It is the duty of the RP under section 18 of the IBC to take custody of all the assets of the Corporate Debtor including shares held in a Subsidiary Company. It held that therefore, the pledged shares being assets of the Corporate Debtor were rightly included in the Information Memorandum. The Applicant is barred from invoking the pledge due to moratorium under section 14 of the IBC therefore the Applicant's prayer to invoke the pledge deserves to be rejected. It held that “the Code has the power to override all other law including an instrument in case of inconsistency. The term 'Instrument' includes an 'Agreement' and as such any Agreement Page that is inconsistent with the provisions of the Code will be overridden to the extent of the inconsistency.” Accordingly, the present application was disposed of. Case Title:Asset Reconstruction Company (India) Limited Versus Mrs. Bhanu Navin Nisar Case Number: I.A. No. 1161/2022 In CP No. 4359/2019 Judgment Date: 04/07/2025 Click Here To Read/Download The Order

Pledged Shares Held By Corporate Debtor In Subsidiary Are Its Assets, Can't Be Invoked During CIRP Due To Moratorium: NCLT Mumbai

Mohd Malik Chauhan

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