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TMI Blog2019 (8) TMI 1305X X X X Extracts X X X X X X X X Extracts X X X X ..... ad Bench, Hyderabad, which also rejected the application filed by the Appellant by impugned order dated 6th July, 2018 in I.A. No. 48 of 2018 and I.A. No. 71 of 2018. 2. The question arises for consideration is whether the Appellant can be held to be a 'Financial Creditor', who claimed to be a 'Financial Creditor' for accepting its claim. 3. The case of the Appellant is as follows. The 'Bridge Loan Agreement' was reached on 10th March, 2014 between 'NSL Nagapatnam Power and Infratech Limited' (Corporate Debtor) and the Appellant - 'PTC India Financial Services Limited' pursuant to which a sum of Rs. 125 Crores was disbursed to the 'Corporate Debtor' on the terms and conditions as set out in the agreement, for setting up a 1320 MW coal based thermal power project (super-critical) at Tentulei Village, Talcher Taluk, District Angul, Odisha. 4. The aforesaid 'debt' was secured by a 'Deed of Pledge' of shares dated 10th March, 2014 owned by 'Mandava Holdings Private Limited ('MHPL' for short) in 'NSL Energy Ventures Private Limited' ('NEVPL', for short). 5. On 3rd June, 2016, the 'Corporate Debtor' defaulted in its payment, both principal and interest - under the 'Bridge Loan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alled upon the Appellant (PFS) to justify, inter alia, the reason why its claim as a 'Financial Creditor' be not rejected on account of satisfaction of its 'financial debt' by invocation of the 'Pledged Shares'. 11. Pursuant to such letter, the Appellant (PFS) responded to 'Interim Resolution Professional' on 16th February, 2018 by email dated 14th February, 2018 stating, inter alia, as follows: "Pertinently, PFS has not sold the shares to any third party as yet; nor has realised any value against the shares till date... The Pledged Shares are still being retained by PFS as security for the Financial Debt and in case, MHPL or the Borrower wants to redeem the said shares they can do so after discharging the debt owed by them to PFS. The financial debt of PFS as stated in Form C submitted by it has therefore not been discharged as on the insolvency commencement date i.e. January 18, 2018 and continues to remain outstanding as on date;" (Emphasis added) 12. It was further informed that 'MHPL', being a related party to the 'Corporate Debtor' (ultimate holding company of the 'Corporate Debtor') cannot be allowed to participate or exercise voting rights in the 'Committee of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being fully satisfied on account of invocation of the 'Pledged Shares'. This was confirmed by the Adjudicating Authority by impugned order dated 6th July, 2018. 19. Learned counsel appearing on behalf of the Appellant submitted that in terms of Clause 6.1, though transfer amount has not been transferred in favour of the Appellant (PFS) and the pledged shares are still being retained by PFS as security for the 'financial debt' and 'MHPL' redeemed the said share, they can do so after discharging the same to the 'MHPL'. 20. According to the learned counsel for the Appellant as a matter of law, transfer of ownership of pledged shares cannot take place without complying with requirement of clause 6.1 of the 'Pledge Deed. The Appellant has not caused the sale including the sale to itself or appropriation or transfer of ownership. It is submitted that the 'debt' is set off only when sale of shares takes place and not on transfer of pledged shares. The law of pledged shares is not supplanted by the Depositories Act, 1996. Therefore, setting off debt on mere 'transfer' of pledged shares would have disastrous consequences. 21. Referring to Section 176 of the Contract, Act, 1872, it wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the valuation of the pledged shares transferred to the Appellant in its account without valuation, its claim or claim of 'MHPL' cannot be crystalized or accepted. 25. For deciding the issue, it is desirable to notice the important clause of 'Deed of Pledge of Shares' of 10th march, 2014. Clause 5.1(m) is a 'Pledgor's Undertaking, which reads as follows: "The Pledgor's Undertakings: The Pledgor assures, undertakes and agrees with the Bridge Loan Lender that throughout the continuance of the pledge created pursuant to this Deed of Pledge and until the repayment of the Amounts Outstanding in full under the Transaction Documents, the Pledgor: (m) remain the sole beneficial owner at all times of the Pledged shares except on a sale by the Bridge Loan Lender of the Pledged Shares" (Emphasis supplied) Clause 6.1 is a 'Registration in the name of the Bridge Loan Lender', relevant portion of which is as follows: "Registration in the Name of the Bridge Loan Lender: The Pledgor agrees that, upon the receipt of a notice of occurrence of Event of Default issued by the Bridge Loan Lender, the Bridge Loan Lender shall have the right to have the Pledged Shares transferred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , be conclusive evidence of the amount so due shall be binding on the Pledgor." 26. It is not disputed that the Appellant issued a letter to 'MHPL' on 23rd January, 2018 intimating that the Appellant (PFS) had exercised its rights under Clause 6.1 of the 'Pledge Deed' on 16th January, 2018 and it is informed that the Appellant had specifically reserved its right to transfer and sell the pledged shares. Relevant thereof is reproduced hereunder: "This intimation is being issued for your information and is without prejudice to any rights or remedies available to PFS in terms of the Pledge Deed, Bridge Loan Agreement and/or the security documents executed In pursuance to the Bridge Loan Agreement. PFS expressly reserves its right to transfer and sell shares for value after providing five day notice as required under Clause 6.2 of the Pledge Deed and under Section 176 of the Indian Contract Act, 1872." 27. It is a different thing that in terms of Clause 6.2 of the 'Deed of Pledge' or Section 176 of the Contract Act, 1872, the Appellant has not transferred the shares. However, it is accepted that the Appellant invoked Clause 6.1 and after service of notice on occurrence of default ..... X X X X Extracts X X X X X X X X Extracts X X X X
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