NATIONAL COMPANY LAW APPELLATE TRIBUNAL,

PRINCIPAL BENCH, NEW DELHI

Company Appeal (AT) (Insolvency) No.517 & 518 of 2023

[Arising out of orders dated 31.03.2023 passed by the Adjudicating Authority

(National Company Law Tribunal), Mumbai Bench in LA. No.1311/2022 and
I.A. No. 1143/2022 in C.P No. 2915/IBC/MB/2019]

IN THE MATTER OF:

Edelweiss Asset Reconstruction Company Ltd.

Having its office address at
Edelweiss House, Off CST Road,
Kalina, Mumbai- 400098.
...Appellant
Vs.

Mr. Anuj Jain, Resolution Professional

Of Ballarpur Industries Ltd.
8th Floor, Building No. 10.
DLF Cyber City, Phase II,
Gurgaon, Haryana- 122002.

Committee of Creditors
Of Ballarpur Industries Ltd.
Through IDBI Bank
IDBI Tower, World Trade Centre Complex,
Cuffe Parade, Colaba, Mumbai- 400005.

Finquest Financial Solutions Private Limited

Having its registered office at
02, Boston House, 6th Floor,
Suren Road, Andheri (E),
Mumbai 400093.
...Respondents
Present:
For Appellant: Mr. Arun Kathpalia & Mr. Krishnendu Dutta, Sr.
Advocates with Mr. Aditya Vashisth, Mr. Atul
Sharma, Mr. Anand Singh Senger, Advocates.
For Respondents: Mr. Ashish Dholakia, Sr. Advocate, Mr. Ramakant
Rai, Mr. Somesh Srivastava, Mr. Yashish Chandra,
Advocates for R-1.
Mr. Ankur Mittal, Mr. Ateendra Saumya Singh,
Advocates for COC/ R-2.
Mr. Krishnan Venugopal, Sr. Advocate with Ms.
Supriya Majumdar, Ms. Kirti Gupta, Mr. Kaustubh
Prakash, Advocates for SRA/R-3.

Cont’d…/
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JUDGMENT

ASHOK BHUSHAN, J.

The Appellants by these two Appeals have challenged two orders passed

by the Adjudicating Authority (National Company Law Tribunal), Mumbai

Bench, Court-III dated 31.03.2023. By first order dated 31.03.2023, I.A. No.

1311/2022 filed by the Appellant in C.P No. 2915/IBC/MB/2019 has been

rejected and by the second order of the same date i.e. 31.03.2023, I.A. No.

1143/2022 filed by the Resolution Professional for approval of the Resolution

Plan has been approved and the Resolution Plan submitted by Respondent

No.3 has been approved by the Adjudicating Authority. Appellant aggrieved

by the aforesaid orders has come up in these Appeals. The brief facts of the

case giving rise to these Appeals are:

i. Yes Bank Ltd. Granted a term loan of INR 150 Crores (Term Loan

- I) to BILT Graphic Paper Products Ltd. (BGPPL/Principal

Borrower) on 01.09.2015. A second term loan of INR 250 Crore

(Term Loan - II) was granted to BGPPL on 04.05.2016.

ii. Security for the loans was entrusted in favour of the Security

Trustee namely Vistara ITCL (India) Ltd. Ballarpur Industries

Limited (Corporate Debtor) in order to secure the loan facility

availed by BGPPL created a mortgage with exclusive charge in

favour of the Security Trustee on Industrial Complex and Land

admeasuring 621 acres situated at Choudwar, Orissa.

Company Appeal (AT) Insolvency No. 517 & 518 of 2023

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iii. MOU on 22.06.2016 for Term Loan-II was executed. The

Corporate Debtor - Ballarpur Industries Limited also executed

Corporate Guarantee by Guarantee Agreement dated 22.06.2016

in favour of the Security Trustee for due repayment in respect of

Term Loan- II for an amount of INR 250 Crores.

iv. On 30.09.2016, Yes Bank assigned its debt and underlying

securities in respect of the BGPPL in favour of Edelweiss Asset

Reconstruction Company Ltd. (EARCL).

v. On an application filed under Section 7 by Finquest Financial

Solutions Pvt. Ltd., CIRP was initiated by the Adjudicating

Authority vide order dated 17.01.2020 against the Corporate

Debtor.

vi. On 23.01.2020, public announcement was made by the IRP

inviting claims from the creditors.

vii. On 05.02.2020, Appellant filed its claim in Form C as a Secured

Financial Creditor claiming an amount of INR 133,24,05,045/-.

The claim filed by the Appellant relate to Term Loan-II of INR 250

Crores. Corporate Guarantee dated 22.06.2016 was relied in the

claim form. Details of securities charged were also mentioned in

the form.

viii. On 19.10.2020, the Resolution Professional rejected the claim of

the Appellant informing that there is no default by the Principal

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Borrower i.e. BGPPL, hence, claim of the Appellant was placed in

the category of ‘Other Creditors’ being a Secured Creditor.

ix. On 24.12.2020, final list of creditors was issued, under which

against the claimed amount of INR 133,24,05,045/-, claim filed

by the Appellant was classified as ‘Other Creditors’ at notional

value of INR 1.

x. The Appellant neither challenged the rejection of claim as

Financial Creditor nor challenged the notional value of Re.1

allotted to the claim.

xi. In the CIRP process of the Corporate Debtor, Resolution Plan

submitted by Respondent No.3 was approved on 14.04.2022 with

88% voting share of the CoC.

xii. The Resolution Professional filed an I.A. No. 1143 of 2022 before

the Adjudicating Authority seeking approval of the Resolution

Plan.

xiii. On 03.05.2022, public notice was issued by the Resolution

Professional placing the contents of the Resolution Plan of the

Corporate Debtor with respect to treatment of land admeasuring

621 acres situated at Choudwar, District Cuttack, Orissa.

xiv. The notice mentioned that Finquest Financial Solutions Pvt. Ltd.

has emerged as Successful Resolution Applicant of the Corporate

Debtor, whose Resolution Plan envisages sale of this land and

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proceeds shall be provided to the Financial Creditors – members

of the CoC of the Corporate Debtor. The Appellant who has

secured interest in the aforesaid asset and who had already filed

a claim in the CIRP and his claim was admitted in the category of

‘Other Creditors’ with nominal value of Re.1, filed an I.A. No. 1131

of 2022 praying for rejection of the revised Resolution Plan

submitted by Finquest Financial Solutions Pvt. Ltd. with other

prayers.

xv. The Adjudicating Authority issued notice on the application filed

by the Appellant. A reply was filed by the Resolution Professional

to the I.A. No. 1131 of 2022 refuting the claim of the

Appellant/Applicant. In the reply, the Resolution Professional

submitted that object of the IBC is to promote the resolution and

not liquidation of the Corporate Debtor. In the reply filing of claim

of the Appellant in Form C was mentioned. It was submitted that

there was not default of BGPPL and the claim of the Appellant

was admitted at notional value of Re.1 in the category of ‘Other

Creditors’. The Corporate Guarantee given by the Corporate

Guarantor has not been invoked. Reply further states that

revised Resolution Plan seeks to extinguish the security interest

of the Appellant in the immovable asset.

xvi. The Adjudicating Authority after hearing the parties, by order

dated 31.03.2023 rejected the I.A. No. 1131 of 2022 filed by the

Appellant and by another order of the same date allowed I.A. No.

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1143 of 2022 filed by the Resolution Professional and approved

the Resolution Plan. Aggrieved by the aforesaid two orders these

Appeals have been filed.

2. We have heard Shri Arun Kathpalia, learned senior counsel for the

Appellant, Shri Ashish Dholakia, learned counsel appearing for Respondent

No.1 – Resolution Professional, Shri Ankur Mittal, learned counsel for the

Respondent No.2 – CoC and Shri Krishnan Venugopal, learned senior counsel

appearing for the Respondent No.3 – Successful Resolution Applicant.

3. Shri Arun Kathpalia, learned counsel appearing for the Appellant

submits that the Appellant having security interest in the immovable asst of

the Corporate Debtor i.e. Choudwar Lad, Orissa, the said land cannot be sold

extinguishing the security interest of the Appellant by the Resolution Plan.

The Corporate Debtor has given Corporate Guarantee for Term Loan-II. Shri

Kathpalia submitted that the claim of the Appellant as Secured Creditor is

fully covered by the judgment of Hon’ble Supreme Court in “(2022) 1 SCC

401, Jaypee Kensington Boulevard Apartments Welfare Association and

Ors. vs. NBCC (India) Ltd. & Ors.” where the Hon’ble Supreme Court held

that the security interest held by a third-party creditor cannot be set aside

through the ipse dixit of a Resolution Applicant. It is submitted that the

Resolution Plan in the aforesaid case, which extinguished the security interest

for the land of 100 acres was disapproved by the Supreme Court and

extinguishment of security interest was set aside. The claim of the Appellant

is fully covered by the said judgment. The Adjudicating Authority committed

error in dismissing the I.A. No. 1311 of 2022 filed by the Appellant. The case

Company Appeal (AT) Insolvency No. 517 & 518 of 2023

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of “Jaypee Kensington” is identical to the facts of the present case. The

judgment of “Jaypee Kensington” is complete answer to every issue raised

before the Adjudicating Authority. The security interest of the Appellant has

to be protected. In event, the security interest of the Appellant is auctioned,

the protections of the Appellant shall come to an end. The security interest

of the Appellant has not been discharged in any know process of law. The

Appellant has right to realize its security. Learned counsel for the Appellant

although submitted that as on date no default has been committed by the

Principal Borrower i.e. BGPPL in repayment of loan, default may come in

future leaving the Appellant unprotected. Learned counsel for the Appellant

has placed reliance on judgment of Hon’ble Supreme Court in “M/s. Vistra

ITCL (India) Ltd. and Ors. vs. Mr. Dinkar Venkatasubramanian and Anr.,

Civil Appeal No. 3606 of 2020, decided on 04.05.2023”. Learned counsel

submit that “Vistra ITCL (India) Ltd.” was a case where security interest of

the Appellant – M/s Vistra ITCL (India) Ltd. was sought to be relinquished.

The Hon'ble Supreme Court held that the Appellant shall be entitled to be

treated as a secured creditor and directed the Successful Resolution Applicant

to protect the security interest of Vistra ITCL over the pledged shares under

Section 52 of the Code. It is submitted that the case of “Vistra ITCL (India)

Ltd.” fully support the submission of the Appellant.

4. Shri Ashish Dholakia, learned senior counsel appearing for the

Resolution Professional refuting the submission of learned counsel of the

Appellant contends that the case of the Appellant is clearly distinguishable

from the judgment of Hon’ble Supreme Court in “Jaypee Kensington”

Company Appeal (AT) Insolvency No. 517 & 518 of 2023

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(Supra). It is submitted that in the present case, Appellant has filed its claim

in Form ‘C’ as Financial Creditor which was rejected by the Resolution

Professional. The Corporate Debtor has given corporate guarantee for loan

which was advanced by Yes Bank to the Corporate Debtor and there is no

default in the repayment of loan by the Principal Borrower i.e. BGPPL, hence,

the Resolution Professional has assigned the notional value of Re.1 only. The

security interest of the Appellant can very well be modified and all assets of

the Corporate Debtor can be sold whether subject to any security interest or

not. Relying on Regulation 37 of IBBI (Insolvency Resolution Process for

Corporate Persons) Regulations, 2016 (hereinafter referred to as ‘CIRP

Regulation, 2016’), it is submitted that there is no distinction under

Regulation 37 with regard to Financial Creditor and Secured Creditor. If the

argument of the Appellant is accepted, the security interest of the Financial

Creditor can be sold but the security interest of the Appellant cannot be sold,

which cannot be the intent of the process of the I&B Code. Appellant can have

no higher rights than the Financial Creditors. The Financial Creditors in the

Resolution Plan takes a haircut whereas the Appellant is contending that he

may be given full value of security interest, which is impermissible. Judgment

of “Jaypee Kensington” (Supra) is not an authority for the purpose that the

security interest cannot be extinguished for the third-party security holder.

The judgment of “Vistra ITCL (India) Ltd.” (supra) relied by the Appellant is

the judgment where the Hon’ble Supreme Court has exercised its jurisdiction

under Article 142 of the Constitution and said judgment cannot be said to be

a judgment laying down law under Article 141 of the Constitution. The

Company Appeal (AT) Insolvency No. 517 & 518 of 2023

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Appellant never challenged the allocation of notional value of Re.1 to the claim

of the Appellant nor it challenged rejection of the claim as Financial Creditor.

5. Shri Ankur Mittal, learned counsel for appearing for the CoC

submits that with regard to Term Loan-I, no claim was filed by the Appellant

and Appellant had filed claim only with regard to Term Loan-II on 19.10.2022.

The Resolution Professional rejected the claim of the Appellant as Financial

Creditor which rejection was never challenged. The Resolution Professional

allocated notional value of Re.1 to the Appellant, which also was never

challenged. In “Vistra ITCL (India) Ltd.” case, which has been relied by the

Appellant, there is challenge to non-inclusion of Appellant in the CoC.

6. Shri Krishnan Venugopal, learned senior counsel appearing for the

Successful Resolution Applicant refuting the submission of learned counsel

for the Appellant contends that the Code permit resolution of the Corporate

Debtor. The Appellant only having a security interest is not interested in

resolution of the Corporate Debtor. There is no default committed by the

Principal Borrower, the Appellant cannot be permitted to secure himself in

unlikely default of the Principal Borrower. Acceptance of argument of the

Appellant shall lead to hydra head propping which is not permissible. The

provisions of Section 52 and 53 of the I&B Code cannot be dragged in CIRP

process. Even the Financial Creditor is not entitled of full value of its security

but only full value of its debt. Shri Venugopal has also referred to various

clauses of UNCITRAL Guidelines. Appellants are contending that their

security interest be kept out of the CIRP and they may be allowed to realize

their entire security interest, which is not in accordance with the Scheme of

Company Appeal (AT) Insolvency No. 517 & 518 of 2023

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I&B Code. The judgment of “Vistra ITCL (India) Ltd.” (supra) was a case

where the Hon’ble Supreme Court has exercised its jurisdiction under Article

142. The Appellants are claiming status higher than Financial Creditor.

Appellant cannot be held to be Financial Creditor in the light of judgment of

the Hon’ble Supreme Court in “Anuj Jain, Interim Resolution Professional

for Jaypee Infratech Ltd. vs. Axis Bank Ltd. & Ors., (2020) 8 SCC 401”.

The court does not differentiate between security interest of secured Financial

Creditor or third party Secured Creditor. Learned senior counsel has also

placed reliance on Regulation 37. He has also relied on Section 14(1)(c) of the

Code and submitted that under Section 14(1)(c), the expression used is “any

security interest”, which is not qualified by any words. Therefore, any security

interest being of Secured Financial Creditor or third party Secured Creditor

cannot be enforced. It cannot be said that a third-party security holder shall

remain out of CIRP. A third party Secured Creditor cannot say that he is not

bound by the plan. The Code does not recognize any separate right of third

party Secured Creditor. If the Appellant is allowed to realize its security, it

shall be against the Code. The Principal Borrower is a profit bearing company

and it is serving its loan, Yes Bank or its Assignee can ask BGPPL for

additional security as has been rightly observed by the Adjudicating

Authority. The Appellants are fully protected.

7. Shri Arun Kathpalia, learned counsel for the Appellant, in his

rejoinder reiterated his submissions. It is submitted that the judgment of

Hon’ble Supreme Court in “Jaypee Kensington” is identical on facts. It is

further submitted that judgment of Hon’ble Supreme Court in “Vistra ITCL

Company Appeal (AT) Insolvency No. 517 & 518 of 2023

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(India) Ltd.” is judgment not in exercise of Article 142 of Constitution of India.

The security interest of the Appellant has to be protected. Appellant has right

to realize its security. The security interest of the Appellant cannot be lost.

There is no unjust enrichment on the part of the Appellant. Clause 11 of the

Loan Agreement gives additional right to the Lender but it does not affect any

security.

8. We have considered the submissions of learned counsel for the

parties and perused the record.

9. Before we proceed to consider the rival submissions of counsel for

the parties, it is necessary to notice few provisions of the I&B Code and CIRP

Regulations, 2016, which delineates the Scheme of the Code. Section 3(31)

of the Code defines ‘security interest’ in following words:

“3(31). "security interest" means right, title or interest

or a claim to property, created in favour of, or provided
for a secured creditor by a transaction which secures
payment or performance of an obligation and includes
mortgage, charge, hypothecation, assignment and
encumbrance or any other agreement or arrangement
securing payment or performance of any obligation of
any person:

Provided that security interest shall not include a

performance guarantee;”

10. After admission of application under Section 7, moratorium is

declared under Section 13. Section 14 Sub-section (1) Sub-clause (c) which

is relevant in the present case, is as follows:

Company Appeal (AT) Insolvency No. 517 & 518 of 2023

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“14. (1) Subject to provisions of sub-sections (2) and (3),

on the insolvency commencement date, the
Adjudicating Authority shall by order declare
moratorium for prohibiting all of the following,
namely:—

x..x..x

(c) any action to foreclose, recover or enforce any

security interest created by the corporate debtor
in respect of its property including any action
under the Securitisation and Reconstruction of
Financial Assets and Enforcement of Security
Interest Act, 2002;”

11. Section 18 deals with ‘duties of the Resolution Professional. In

duties of the Resolution Professional under Section 18 Sub-section (1) IRP has

to take control and custody of any asset over which the Corporate Debtor has

ownership rights. Section 18(f), which is relevant, is as follows:

“18. The interim resolution professional shall perform

the following duties, namely:—

x..x..x

(f) take control and custody of any asset over which

the corporate debtor has ownership rights as
recorded in the balance sheet of the corporate
debtor, or with information utility or the
depository of securities or any other registry that
records the ownership of assets including—

(i) assets over which the corporate debtor has

ownership rights which may be located in a
foreign country;

Company Appeal (AT) Insolvency No. 517 & 518 of 2023

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(ii) assets that may or may not be in possession

of the corporate debtor;

(iii) tangible assets, whether movable or

immovable;

(iv) intangible assets including intellectual

property;

(v) securities including shares held in any

subsidiary of the corporate debtor, financial
instruments, insurance policies;

(vi) assets subject to the determination of

ownership by a court or authority;”

12. Section 52 provides for Secured Creditor in liquidation proceedings,

which is to the following effect:

“52. (1) A secured creditor in the liquidation

proceedings may—

(a) relinquish its security interest to the liquidation

estate and receive proceeds from the sale of
assets by the liquidator in the manner specified in
section 53; or

(b) realise its security interest in the manner

specified in this section.”

13. Section 53 provides for ‘distribution of asset’. CIRP Regulation

2016 provides for mode and manner of filing claims by Financial Creditor,

Operational Creditor and Other Creditors. Regulation 37 deals with

‘Resolution Plan’ which we shall notice hereinafter.

Company Appeal (AT) Insolvency No. 517 & 518 of 2023

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14. From the submissions of the parties and materials on record

following facts are undisputed:

(i) The Term Loan facility was extended by Yes Bank to BGPPL, the

Principal Borrower. The Corporate Debtor created a charge on its

immovable property by mortgaging the immovable property at

Choudwar, Orissa for securing Term Loan-I and Term Loan-II. A

corporate guarantee was also executed by the Corporate Debtor

to secure Term Loan-II on 22.06.2016.

(ii) The Principal Borrower has not committed any default in

repayment of its loan to the Financial Creditor.

(iii) In response to the public announcement by the IRP, the Appellant

filed its claim on 05.02.2020 in Form ‘C’ for an amount of INR

133,24,05,045/-. The Resolution Professional on 19.10.2020

communicated to the Appellant that since there is no default by

Principal Borrower, the Appellant’s claim cannot be accepted as

Financial Creditor and Appellant’s claim is categorized in the

category of ‘Other Creditors’.

(iv) In the final list of creditors issued on 24.12.2020, Appellant was

placed in the category of ‘Other Creditors’ and against the claim

of INR 133,24,05,045/-, a notional value of Re.1 was allocated to

the Appellant.

(v) Appellant never challenged the rejection of its claim as Financial

Creditor and categorisation of Appellant as ‘Other Creditors’ with

notional value of Re.1.

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(vi) The Appellant’s security was taken cognizance in the CIRP

process and the list of creditors published by the Resolution

Professional indicated the security of Appellant and also allocated

notional value of Re.1 against the claim.

15. Appellant filed I.A. No. 1311 of 2022 after the public notice issued

by Resolution Professional dated 03.05.2022, which made public the contents

of the Resolution Plan that Choudwar land of 621 acres is proposed to be sold

under Resolution Plan. In I.A. No. 1311 of 2022 prayers made by the

Appellant are as follows:

“PRAYER

In light of the above facts and circumstances, this

Hon'ble Tribunal may kindly be pleased to:

(a) Pass ad-interim ex-parte order staying the

proceedings in respect of approval of Revised
Resolution Plan submitted by Finquest u/S.30(1)
of IBC and the sale of the Immovable Asset
exclusively charged in favour of the Applicant/
Secured Creditor, until adjudication of the present
Application;
(b) Pass necessary orders rejecting the revised
resolution plan submitted by Finquest Financial
Solutions Private Limited by declaring Finquest
Financial Solutions Private Limited to be ineligible
to be the Resolution Applicant of the Corporate
Debtor in terms of Section 29A of the IBC and the
said Resolution Plan is contrary to the provisions
of IBC;

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(c) Pass necessary orders prohibiting the sale of the

Immovable Asset exclusively charged in favour of
the Applicant/ Secured Creditor sitting outside
the CoC, as per the terms of the Resolution Plan,
in view of the Hon'ble Supreme Court judgment in
the matter of Jaypee Kensington Boulevard
Apartments Welfare Association & Ors. vs.
NBCC (India) Ltd. & Ors. (Civil Appeal No.
3395 of 2020);
(d) Pass necessary orders allowing the Applicant
/Secured Creditor to enforce its exclusively
charged security interest on the Immovable Asset
outside the CIRP of the Corporate Debtor, as the
same cannot be annulled/extinguished or
included in terms of the Resolution Plan of the
Corporate Debtor to the detriment of the
Applicant/ Secured Creditor, as per the
observations and findings of the Hon'ble Supreme
Court in the matter of Jaypee Kensington
Boulevard Apartments Welfare Association
& Ors. vs. NBCC (India) Ltd. & Ors, (Civil
Appeal No. 3395 of 2020);
(e) Direct the initiation of Liquidation proceedings of
the Corporate Debtor in terms of the IBC in view
of the order allowing prayer (b);
(f) Pass any such other or further orders as this
Hon'ble Tribunal may deem fit and proper in the
interest of justice.”

16. The Resolution Professional did not accept the claim of Appellant

as Financial Creditor rightly. Law in this context is well settled. We may refer

to judgment of Hon’ble Supreme Court in “Anuj Jain, Interim Resolution

Company Appeal (AT) Insolvency No. 517 & 518 of 2023

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Professional for Jaypee Infratech Ltd. vs. Axis Bank Ltd. & Ors., (2020)

8 SCC 401” where the Hon’ble Supreme Court had occasion to consider the

role and status of Financial Creditor and a Creditor who has only security

interest. Para 50, 50.1, 50.2 and 51 are as follows:

“50. A conjoint reading of the statutory provisions with

the enunciation of this Court in Swiss Ribbons (supra),
leaves nothing to doubt that in the scheme of the IBC,
what is intended by the expression ‘financial creditor’
is a person who has direct engagement in the
functioning of the corporate debtor; who is involved
right from the beginning while assessing the viability
of the corporate debtor; who would engage in
restructuring of the loan as well as in reorganisation of
the corporate debtor’s business when there is financial
stress. In other words, the financial creditor, by its own
direct involvement in a functional existence of
corporate debtor, acquires unique position, who could
be entrusted with the task of ensuring the sustenance
and growth of the corporate debtor, akin to that of a
guardian. In the context of insolvency resolution
process, this class of stakeholders namely, financial
creditors, is entrusted by the legislature with such a
role that it would look forward to ensure that the
corporate debtor is rejuvenated and gets back to its
wheels with reasonable capacity of repaying its debts
and to attend on its other obligations. Protection of the
rights of all other stakeholders, including other
creditors, would obviously be concomitant of such
resurgence of the corporate debtor.

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50.1. Keeping the objectives of the Code in view, the

position and role of a person having only security
interest over the assets of the corporate debtor could
easily be contrasted with the role of a financial creditor
because the former shall have only the interest of
realising the value of its security (there being no other
stakes involved and least any stake in the corporate
debtor’s growth or equitable liquidation) while the
latter would, apart from looking at safeguards of its
own interests, would also and simultaneously be
interested in rejuvenation, revival and growth of the
corporate debtor. Thus understood, it is clear that if the
former i.e., a person having only security interest over
the assets of the corporate debtor is also included as a
financial creditor and thereby allowed to have its say
in the processes contemplated by Part II of the Code,
the growth and revival of the corporate debtor may be
the casualty. Such result would defeat the very
objective and purpose of the Code, particularly of the
provisions aimed at corporate insolvency resolution.

50.2. Therefore, we have no hesitation in saying that a

person having only security interest over the assets of
corporate debtor (like the instant third party securities),
even if falling within the description of ‘secured
creditor’ by virtue of collateral security extended by the
corporate debtor, would nevertheless stand outside the
sect of ‘financial creditors’ as per the definitions
contained in subsections (7) and (8) of Section 5 of the
Code. Differently put, if a corporate debtor has given
its property in mortgage to secure the debts of a third
party, it may lead to a mortgage debt and, therefore, it
may fall within the definition of ‘debt’ under Section

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3(10) of the Code. However, it would remain a debt

alone and cannot partake the character of a ‘financial
debt’ within the meaning of Section 5(8) of the Code.

The respondent mortgagees are not the financial

creditors of corporate debtor JIL

51. Indisputably, the debts in question are in the form

of third party security; said to have been given by the
corporate debtor JIL so as to secure the
loans/advances/facilities obtained by JAL from the
respondent-lenders. Such a ‘debt’ is not and cannot be
a ‘financial debt’ within the meaning of Section 5(8) of
the Code; and hence, the respondent-lenders, the
mortgagees, are not the ‘financial creditors’ of the
corporate debtor JIL.”

17. A Financial Creditor who is part of the CoC has important role to

play in the reorganisation and insolvency resolution of the Corporate Debtor.

The Creditor who has only security interest is only interested in his security

interest and have no interest in revival of the Corporate Debtor. The aforesaid

is clear from the prayers made in I.A. No. 1311 of 2022, where one of the

prayers made by the Appellant is to put the Corporate Debtor into liquidation.

18. When we look into the Scheme of I&B Code, after moratorium is

declared, there is prohibition on enforcement of any security interest created

by the Corporate Debtor in respect of its property. The prohibition from

enforcement of any security interest by one or other creditor including

Secured Financial Creditor or third party Secured Creditor is for a purpose

and object. Unless the prohibition is imposed, all assets of the Corporate

Debtor shall not be available for revival and maximisation of the value of the

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Corporate Debtor, which is principal/primary objective of the I&B Code.

Financial Creditor who is part of the CoC is prohibited from enforcing any

security interest. A third-party security holder like Appellant is equally bound

by the provision of Section 14(1)(c) and cannot claim any enforcement of

security interest in the CIRP.

19. The Hon’ble Supreme Court in “Committee of Creditors of Essar

Steel India Limited Through Authorised Signatory vs. Satish Kumar

Gupta & Ors., (2020) 8 SCC 531” while considering the provisions of Section

30, 50, 52 and 53 of the Code has held that provision of Section 53 cannot be

applicable in the insolvency resolution process and the said provision is

applicable only during liquidation. Equally Section 52 of the Code is

applicable only in the liquidation proceeding. In Para 145 of the judgment

following was held:

“145. The other argument of Shri Sibal that Section

53 of the Code would be applicable only during
liquidation and not at the stage of resolving insolvency
is correct. Section 30(2)(b) of the Code refers
to Section 53 not in the context of priority of payment
of creditors, but only to provide for a minimum payment
to operational creditors. However, this again does not
in any manner limit the Committee of Creditors from
classifying creditors as financial or operational and as
secured or unsecured. Full freedom and discretion has
been given, as has been seen hereinabove, to the
Committee of Creditors to so classify creditors and to
pay secured creditors amounts which can be based
upon the value of their security, which they would

Company Appeal (AT) Insolvency No. 517 & 518 of 2023

 -21-

otherwise be able to realise outside the process of the

Code, thereby stymying the corporate resolution
process itself.”

20. We may also notice, at this stage, the provisions of Regulation 37

of the CIRP Regulation, 2016, which provides as follows:

“37. Resolution plan. – A resolution plan shall

provide for the measures, as may be necessary, for
insolvency resolution of the corporate debtor for
maximization of value of its assets, including but not
limited to the following:-

(a) transfer of all or part of the assets of the

corporate debtor to one or more persons;

(b) sale of all or part of the assets whether subject

to any security interest or not;

[(ba) restructuring of the corporate debtor, by way of

merger, amalgamation and demerger;]

(c) the substantial acquisition of shares of the

corporate debtor, or the merger or consolidation
of the corporate debtor with one or more
persons;

[(ca) cancellation or delisting of any shares of the

corporate debtor, if applicable;]

(d) satisfaction or modification of any security

interest;

(e) curing or waiving of any breach of the terms of

any debt due from the corporate debtor;

(f) reduction in the amount payable to the

creditors;

Company Appeal (AT) Insolvency No. 517 & 518 of 2023

 -22-

(g) extension of a maturity date or a change in

interest rate or other terms of a debt due from
the corporate debtor;

(h) amendment of the constitutional documents of

the corporate debtor;

(i) issuance of securities of the corporate debtor,

for cash, property, securities, or in exchange for
claims or interests, or other appropriate
purpose;

(j) change in portfolio of goods or services

produced or rendered by the corporate debtor;

(k) change in technology used by the corporate

debtor; and

(l) obtaining necessary approvals from the Central

and State Governments and other authorities.]

[(m) sale of one or more assets of corporate debtor

to one or more successful resolution applicants
submitting resolution plans for such assets;
and manner of dealing with remaining assets.]”

21. The regulations are framed under Section 240 of the Code which

are consistent with the Code to carry out the provisions of the Code.

Regulation 37, thus, is provision of the Code which is consistent to the Code

and to carry out the provision of the Code. Regulation 37 Sub-clause (b)

indicate that resolution plan shall provide for sale of all or part of the assets

whether subject to any security interest or not. The use of expression ‘subject

to any security interest or not’ makes it clear that the assets of the Corporate

Debtor can be dealt with in the resolution plan whether it is subject to any

Company Appeal (AT) Insolvency No. 517 & 518 of 2023

 -23-

security interest or not. The existence of security interest in assets of

Corporate Debtor does not preclude the assets to be dealt with or sold in the

resolution plan. The argument of the Appellant that security interest

contained by the Appellant in the asset of the Corporate Debtor cannot be

dealt with in the plan is clearly contrary to the scheme delineated under

Regulation 37. Further, Sub-clause (d) permit the resolution plan to contain

provision for satisfaction or modification of any security interest. Thus, as

per scheme of Regulation 37, security interest in assets of the Corporate

Debtor can be dealt with, modified, satisfied and there is no exclusion to the

resolution plan with regard to dealing of the security interest.

22. The above can be explained by taking example of a Financial

Creditor. Financial Creditors may also have security interest in the assets of

the Corporate Debtor. Section 30 of the Code, as amended from time to time,

provides for payment to Operational Creditor(s) as well as dissenting Financial

Creditor(s), which payment shall not be less than the amount which they are

entitled to receive under Sub-section (1) of Section 53 in event of liquidation

of the Corporate Debtor. Insolvency resolution process and liquidation are

two different concepts with two different consequences. When in the

insolvency resolution process claim of Financial Creditors are dealt with, there

is no cap to the effect that they are entitled to receive the amount equivalent

to their debt which is owed by the Corporate Debtor. Thus, despite Financial

Creditor having security interest in the assets of the Corporate Debtor, they

can be dealt with in the resolution plan in any manner as per the commercial

wisdom of the CoC. When the security interest of Financial Creditor can be

Company Appeal (AT) Insolvency No. 517 & 518 of 2023

 -24-

dealt with in the resolution plan in any manner, we fail to see that how a third

party having security interest in the assets of the Corporate Debtor can claim

any higher status or different status from the Financial Creditor.

23. Now we come to the judgment of Hon’ble Supreme Court in “(2022)

1 SCC 401, Jaypee Kensington Boulevard Apartments Welfare

Association and Ors. vs. NBCC (India) Ltd. & Ors.”, which is the sheet

anchor of the argument of learned counsel for the Appellant. Brief outline

and sketch of the case in “Jaypee Kensington” has been noticed in Para 5

and its various sub-paragraphs. The Corporate Debtor – ‘JIL’ had executed

mortgage on its land to secure the loan extended by Lender to ‘JAL’. In the

insolvency resolution process of ‘JIL’, Lender filed claim as Financial Creditor

which was not accepted. The Lender have also mortgage of land equivalent

to 100 acres which mortgage was created by ‘JIL’, the Corporate Debtor to

secure the loan extended to ‘JAL’. In the above factual situation, resolution

plan in the aforesaid case was approved, where plan contemplate

extinguishment of security interest of lender in 100 acres land. Plan approval

order was challenged by the Lender and ultimately matter came before the

Hon’ble Supreme Court. In Para 16, the grounds of challenge by the Lender

being ICICI Bank have been noticed, which are to the following effect:

“16. The directions issued by NCLT in modification

of the resolution plan in regard to the claim of this bank
for payment, in its capacity as the dissenting financial
creditor of JIL, is one of the major grounds of challenge
by the persons/entities standing in favour of the
resolution plan in question. This bank has also

Company Appeal (AT) Insolvency No. 517 & 518 of 2023

 -25-

objected to the clauses in the resolution plan in regard

to the treatment of the said sum of INR 750 crores. In
its another capacity as the lender of JAL and having
mortgage over the land of JIL in security of such
lending to JAL, this bank has levied another challenge
to the resolution plan in regard to the release of its
security interest. This bank had challenged the said
order dated 03.03.2020 before NCLAT in Company
Appeal (AT) (Insolvency) Diary No. 21936 of 2020 and
has moved Transfer Petition (C) Diary No. 20274 of
2020 in this Court, seeking transfer of its appeal before
NCLAT for analogous hearing with the present batch of
matters.”

24. Points of determination have been framed by the Hon’ble Supreme

Court in Para 18. In Para 18.11(K)(i) following issue was noticed:

“18.11(K) (i) As to whether Clause 23 of Schedule 3

of the resolution plan providing for extinguishment of
security interest of lenders of JAL could not have been
approved by the Adjudicating Authority?”

25. Point (K) was dealt by the Hon’ble Supreme Court in Paras 248 to

261, which discussion is relevant in the present case. Several paragraphs

with regard to discussion on point (K) have been relied by learned counsel for

both the parties in the present case. In Para 251 of the judgment, the Hon’ble

Supreme Court noticed the relevant Clause 23 of Schedule 3 in the plan,

which is to the following effect:

“251. In the resolution plan, apart from various

stipulations in regard to the land of JIL and creation of

Company Appeal (AT) Insolvency No. 517 & 518 of 2023

 -26-

two SPVs with transfer of certain parcels of land, the

resolution applicant stated in Clause 23 of Schedule 3
relating to ‘reliefs and concessions’ as under: -

“23. The JAL Lenders Mortgaged Land shall

continue to be vested in the Corporate Debtor
free of any mortgage, charge and
encumbrance.””

26. The Hon’ble Supreme Court has further held that with regard to

mortgage of 100 acres, the Adjudicating Authority does not render any specific

decision, which has been noticed in Para 253 in following words:

“253. To put it in clear terms, the net outcome of the

propositions, proceedings and findings noticed in the
preceding paragraphs is as follows: 858 acres of JIL’s
land was mortgaged with the lenders of JAL; in the
resolution plan, NBCC sought the relief that such land
shall continue to remain vested in the corporate debtor
JIL free from any mortgage, charge and encumbrance;
758 acres, out of this 858 acres, of land got released
from mortgage in terms of the judgment in Anuj Jain
(supra); 100 acres of land, being ‘Tappal Property 1’,
however, continued to remain under mortgage with
ICICI Bank; and, as regards this mortgage, ICICI Bank
was not recognised as a financial creditor of JIL even
if falling in the category of secured creditors; the
Adjudicating Authority has not rendered any specific
decision as regards such mortgaged land and as
regards the relief claimed by the resolution applicant
while assuming that the entire matter stands
concluded with the judgment of this Court dated
26.02.2020 in Anuj Jain (supra).”

Company Appeal (AT) Insolvency No. 517 & 518 of 2023

 -27-

27. The Hon’ble Supreme Court held that even though the Lender

cannot be treated as a Financial Creditor, they are holder of security in form

of mortgage cannot be denied. In Para 259.3, the Hon’ble Supreme Court

held that security created over the land could not have been annulled in the

manner as suggested in the plan. Paras 259.1, 259.2, 259.3, 260 and 261

are as follows:

“259.1. This bank appears right in its contention that

when the security in question was not even taken up
as a part of the resolution process, it could not have
been extinguished on the ipse dixit of the resolution
applicant. Unfortunately, Adjudicating Authority
totally missed out the real issue before it in regard to
this mortgage transaction because, in the order as
originally passed on 03.03.2020, the Adjudicating
Authority assumed that all the mortgages in favour of
the lenders of JAL (covering the entire 858 acres of JIL
land) were annulled by this Court in Anuj Jain (supra)
as avoidance transactions. Of course, in the
corrigendum dated 17.03.2020, the Adjudicating
Authority rectified the error of the figure ‘858’, as
occurring in paragraph 128 of the original order dated
03.03.2020, and corrected it to ‘758’ but, did not
examine the consequences thereof. In other words,
while making the correction on 17.03.2020, the
Adjudicating Authority failed to advert to the relevant
question as to what would be the proper order as
regards the remaining 100 acres of land, if only 758
acres was released in terms of the judgment in Anuj
Jain (supra).

Company Appeal (AT) Insolvency No. 517 & 518 of 2023

 -28-

259.2. The fact that the Adjudicating Authority dealt

with this segment rather cursorily is yet further seen
from the part of the table reproduced hereinabove
where, while making reference to the mortgages in
favour of the lenders of JAL, an incorrect cross-
reference was made to Clause 1 of Schedule 3 of the
resolution plan. This error was also corrected in the
order dated 17.03.2020 and correct reference was
made to Clause 23 of Schedule 3 but, again, the
implication of this correction totally escaped the
attention of the Adjudicating Authority.

259.3. As noticed, in the said Clause 23, a fleeting

suggestion on the part of the resolution applicant had
been that ‘JAL lenders mortgaged land shall continue
to be vested in the corporate debtor free from any
mortgage, charge and encumbrance’. The Adjudicating
Authority dealt with the said clause of the resolution
plan in an equally cursory manner by observing that
the point was not clear but, if it was referring to the
land mortgaged with the lenders of JAL, the issue had
already been decided by the Supreme Court and need
not be reiterated. In this entire process of
mistakes/errors (might be accidental) and corrections
as also cursory observations, the Adjudicating
Authority totally missed out that one transaction
relating to 100 acres of land, being ‘Tappal Property 1’,
remained unaffected by the judgment in Anuj Jain
(supra); and that the security creating over this land
could not have been annulled in the manner suggested
in the plan.

260. It cannot be denied that the claim of ICICI Bank

pertaining to the said mortgage over 100 acres of land

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 -29-

was not reckoned in the CIRP of JIL and without any

specific provision in that regard, the resolution
applicant merely suggested by way of the Clause 23 of
Schedule 3 as if such mortgage shall stand annulled
and the land shall vest in the corporate debtor free
from any encumbrances. To say the least, the said
Clause 23 does not appear to be standing in conformity
with any principal of law for discharge of a security
interest, particularly of a third party who is not
included in the insolvency resolution process of a
corporate debtor. We would hasten to make it clear that
the capacity of ICICI Bank in relation to the said
mortgage of 100 acres of land of ‘Tappal Property 1’ is
entirely different than its status as the dissenting
financial creditor of JIL, to the extent JIL directly owed
a financial debt to it. Those aspects pertaining to its
capacity as dissenting financial creditor, to the extent
of its share of financial debt, have already been
discussed in Point D hereinbefore.

261. For what has been discussed above, neither the

said Clause 23 of Schedule 3 of the resolution plan
relating to ‘reliefs and concessions’ could be approved
nor the order of the Adjudicating Authority in this
regard.”

28. Learned counsel for the Respondent submitted that the case of the

Supreme Court in “Jaypee Kensington” is clearly distinguishable from the

present case. In the above case, the security interest was not taken as part

of the resolution process. Learned counsel for the Respondent referred to

Para 259.1, where it was noted that security in question was not taken as

part of the resolution process. It is submitted that since the security interest

Company Appeal (AT) Insolvency No. 517 & 518 of 2023

 -30-

was not taken as part of the resolution process, it could not have been

extinguished. Whereas in the present case, security interest of the Appellant

was part of the resolution process, hence, can very well be extinguished.

29. From the facts of the present case, it is clearly noticeable that

security interest of the Appellant was part of the CIRP process since the

Appellant has filed its claim on 05.02.2020 in Form ‘C’ and its claim although

was rejected as Financial Creditor but was accepted as ‘Other Creditor’ with

notional value of Re.1. The Resolution Professional has communicated to the

Appellant on 19.10.2020 that since no default has been committed by the

Principal Borrower against its claim of Rs.133 Crore and odd, nominal value

of Re.1 only is admitted. It is also noticeable that the Appellant at no point of

time challenged the admission of its claim by Resolution Professional as

‘Other Creditor’. The main distinguishing feature of present case with that of

“Jaypee Kensington” is that in “Jaypee Kensington” security interest of

the Lender of that case was not part of the CIPR process but in the present

case same was part of the CIRP process.

30. When any asset including security interest in the asset is part of

the CIRP process, there is no constraint or prohibition in I&B Code or

Regulations to deal with the said asset including a security interest. The

observation of the Hon’ble Supreme Court in “Jaypee Kensington” was

observation in the facts of that case. In the aforesaid background the Hon’ble

Supreme Court held that security created in the land could not have been

annulled in the manner suggested in the plan. The plan in the aforesaid case

in Clause 23 of Schedule 3 provided that the mortgaged land shall continue

Company Appeal (AT) Insolvency No. 517 & 518 of 2023

 -31-

to be vested in the Corporate Debtor free of any mortgage or charge or

encumbrance.

31. As noted above, in the present case, the Appellant filed its claim

and their claim came to be dealt with in the Resolution Plan. In the Jaypee

Kensington’s case Lenders were outside the CIRP. In Para 259.1, as noted

above following was held by the Hon’ble Supreme Court:

“This bank appears right in its contention that when

the security in question was not even taken up as a
part of the resolution process, it could not have been
extinguished on the ipse dixit of the resolution
applicant.”

32. Thus, basis of the judgment is when security interest is not part of

the CIRP it could not have been extinguished. As noted above, in the present

case, claim was filed by the Appellant and Appellant was part of the CIRP

process, hence, their security interest can very well be dealt with in the

resolution plan. The scheme as delineated by Regulation 37 of CIRP

Regulations, 2016 fully support our view.

33. The Appellant has next relied Hon’ble Supreme Court judgment in

“Vistra ITCL (India) Ltd.” (supra). In the above case also Amtek Auto

Limited (Corporate Debtor) has pledged its shares for loan facility availed by

two group companies i.e. Brassco Engineers Ltd. and WLD Investments Pvt.

Ltd. In the insolvency proceeding of the Corporate Debtor, claim was filed by

M/s Vistra ITCL (India) Ltd., the Security Trustee in Form ‘C’, which claim

was rejected. Resolution Plan was approved. Thereafter, an application was

Company Appeal (AT) Insolvency No. 517 & 518 of 2023

 -32-

filed claiming right on the basis of pledged shares. I.A. No. 62 of 2020 as well

as Appeal having been dismissed, Appeal was filed before the Hon’ble

Supreme Court. Hon’ble Supreme Court in the above case, noticed the

judgment of “Anuj Jain vs. Axis Bank Ltd.” (supra). Hon’ble Supreme

Court in Para 9 noticed the issues raised and observed that two-fold answers

can be given to the problem. First was to treat the Secured Creditor as a

Financial Creditor, which according to the judgment of the Hon’ble Supreme

Court may require reference to a larger bench. Hence, the Hon’ble Supreme

Court proceeded to the Second option under which the Hon’ble Supreme

Court held that Appellant was entitled to retain the security interest in the

pledged shares, which means was entitled to retain the security proceeds on

the sale of the said pledged shares. In Para 9 following was held:

“9. Thus, we are presented with a difficult situation,

wherein, Appellant No.1 – Vistra, a secured creditor, is
being denied the rights under Section 52 as well as
Section 53 of the Code in respect of the pledged shares,
whereas, the intent of the amended Section
30(2) read with Section 31 of the Code is too contrary,
as it recognises and protects the interests of other
creditors who are outside the purview of the CoC. To
our mind, the answer to this tricky problem is twofold.
First is to treat the secured creditor as a financial
creditor of the Corporate Debtor to the extent of the
estimated value of the pledged share on the date of
commencement of the CIRP. This would make it a
member of the CoC and give it voting rights, equivalent
to the estimated value of the pledged shares. However,
this may require re consideration of the dictum and

Company Appeal (AT) Insolvency No. 517 & 518 of 2023

 -33-

ratio of Anuj Jain (supra) and Phoenix ARC (supra),

which would entail reference to a larger bench. In the
context of the present case, the said solution may not
be viable as the resolution plan has already been
approved by the CoC without Appellant No. 1 Vistra
being a member of the CoC. Therefore, we would opt
for the second option. The second option is to treat the
Appellant No. 1 – Vistra as a secured creditor in terms
of Section 52 read with Section 53 of the Code. In
other words, we give the option to the successful
resolution applicant – DVI (Deccan Value Investors) to
treat the Appellant No.1 – Vistra as a secured creditor,
who will be entitled to retain the security interest in the
pledged shares, and in terms thereof, would be entitled
to retain the security proceeds on the sale of the said
pledged shares under Section 52 of the Code read with
Rule 21A of the Liquidation Process Regulations. The
second recourse available, would be almost equivalent
in monetary terms for the Appellant No. 1 Vistra, who
is treated it as a secured creditor and is held entitled
to all rights and obligations as applicable to a secured
creditor under Section 52 and 53 of the Code. This to
our mind would be a fair and just solution to the legal
conundrum and issue highlighted before us.”

34. In the aforesaid judgment the Hon’ble Supreme Court has noticed

provisions of Section 52, Section 53 and Section 30 of the Code. The

submission which has been pressed by learned counsel for the Respondent is

that the judgment of the Hon’ble Supreme Court in “Vistra ITCL (India) Ltd.”

is judgment of the Supreme Court where Hon’ble Supreme Court has

exercised its jurisdiction under Article 142 of the Constitution. Observation

Company Appeal (AT) Insolvency No. 517 & 518 of 2023

 -34-

of the Hon’ble Supreme Court in Para 9 that “This to our mind would be a fair

and just solution to the legal conundrum and issue highlighted before us.”,

indicate that the solution which was followed by Supreme Court was in the

facts of the said case and observation of the Hon’ble Supreme Court in Para

9 cannot be read as laying law within meaning of Article 141.

35. A third-party security interest holder is entitled to retain the

security proceeds on the land of security interest under Section 52 of the

Code. As noted above, Section 52 and 53 becomes applicable only in

Liquidation Proceeding and reference of Section 53 under Section 30(2) is for

the purpose of computing the payment to Operational Creditors and

dissenting Financial Creditors to which they may be entitled under Section

53.

36. We, thus, accept the submission of learned counsel for the

Respondent that judgment of Hon’ble Supreme Court in “Vistra ITCL (India)

Ltd.” and direction issued in Para 9 have been in exercise of Article 142.

Learned counsel for the Respondent has placed reliance on judgment of

Hon’ble Supreme Court in “State of Pujab & Ors. vs. Rafiq Masih, (2014)

8 SCC 883”, where Hon’ble Supreme Court dealing with Article 141 and 142

of the Constitution of India enumerated the principles in Paras 8 and 11,

which are to the following effect:

“8. In our view, the law laid down in Chandi Prasad

Uniyal's case, no way conflicts with the observations
made by this Court in the other two cases. In those
decisions, directions were issued in exercise of the

Company Appeal (AT) Insolvency No. 517 & 518 of 2023

 -35-

powers of this Court under Article 142 of the

Constitution, but in the subsequent decision this Court
under Article 136 of the Constitution, in laying down
the law had dismissed the petition of the employee.
This Court in a number of cases had battled with
tracing the contours of the provision in Article
136 and 142 of the Constitution of India.
Distinctively, although the words employed under the
two aforesaid provision speak of the powers of this
Court, the former vest a plenary jurisdiction in supreme
court in the matter of entertaining and hearing of
appeals by granting special leave against any
judgment or order made by a Court or Tribunal in any
cause or matter. The powers are plenary to the extent
that they are paramount to the limitations under the
specific provisions for appeal contained in the
Constitution or other laws. Article 142 of the
Constitution of India, on the other hand is a step ahead
of the powers envisaged under Article 136 of the
Constitution of India. It is the exercise of jurisdiction to
pass such enforceable decree or order as is necessary
for doing ‘complete justice’ in any cause or matter.

11. Article 136 of the Constitution of India was

legislatively intended to be exercised by the Highest
Court of the Land, with scrupulous adherence to the
settled judicial principle well established by
precedents in our jurisprudence. Article 136 of the
Constitution is a corrective jurisdiction that vest a
discretion in the Supreme Court to settle the law clear
and as forthrightly forwarded in the case of Union of
India v. Karnail Singh, it makes the law operational to
make it a binding precedent for the future instead of

Company Appeal (AT) Insolvency No. 517 & 518 of 2023

 -36-

keeping it vague. In short, it declares the law, as

under Article 141 of the Constitution.”

37. It has categorically held by the Hon’ble Supreme Court in the above

judgment that Article 142 of the Constitution is supplementary in nature and

cannot supplant the substantive provisions, though they are not limited by

the substantive provisions in the statute. It is a power that gives preference

to equity over law. Differentiation in Article 141 and 142 has been noticed.

Following has been observed in Para 12:

“12. ….This Court on the qui vive has expanded the

horizons of Article 142 of the Constitution by keeping
it outside the purview of Article 141 of the
Constitution and by declaring it a direction of the Court
that changes its complexion with the peculiarity in the
facts and circumstances of the case.”

38. We, thus, are of the view that judgment of Hon’ble Supreme Court

in “Vistra ITCL (India) Ltd.” is in facts of the said case. The Appellant in the

present case cannot rely on the said judgment as a declaration of law within

the meaning of Article 141 of the Constitution of India.

39. Learned counsel for the Respondent has relied on the Loan

Agreement dated 04.05.2016, where Clause 11 provides as follows:

“11. If at any time the value of the said securities falls

so as to create a deficiency in the margin requirement
specified by the Bank from time to time or if there is an
excess over the Loan amount, the Borrower shall
within seven days of notice from the Bank, deposit

Company Appeal (AT) Insolvency No. 517 & 518 of 2023

 -37-

with the Bank additional security in the form of cash

or such other securities which may be acceptable to the
Bank, failing which the Bank may at its discretion sell,
dispose off or realise any or all of the said securities
without being liable for any loss or damage or
diminution in value sustained thereby."

40. Said clause has been provided in the Agreement to protect the

Lender in case of security falls so as to create a deficiency in the margin

requirement specified by the Bank from time to time. A case where security

is lost or extinguished is also a case where right given to the Lender under

Clause 11 can be exercised. More so, when there is no default by the Principal

Borrower in the present case and there is no actual loss suffered by the

Appellant in any manner, in the present case when security interest of the

Appellant has been extinguished by the Resolution Plan it was always open

for the Appellant to ask the Principal Borrower to furnish additional security

to protect the interest of the Lender. Clause 11 can very well be utilized by

the Appellant to protect their interest. The Adjudicating Authority by passing

the impugned order did not commit any error in rejecting I.A. No. 1311 of

2022. None of the reliefs claimed in the I.A. could have been granted to the

Appellant as per the scheme of the I&B Code. The Adjudicating Authority has

rightly held that for extinguishment of security interest of the Appellant no

prior consent of the Appellant was required. We, thus, do not find any error

in the order of the adjudicating Authority rejecting I.A. No. 1311 of 2022.

41. When we uphold the order dated 31.03.2023 rejecting objection

raised by the Appellant by I.A. No. 1311 of 2022, there is no other ground

Company Appeal (AT) Insolvency No. 517 & 518 of 2023

 -38-

urged in the present Appeals to interfere with order dated 31.03.2023

approving the Resolution Plan of Respondent No.3. The order dated

31.03.2023 of the Adjudicating Authority approving the Resolution Plan is

also to be upheld.

42. In view of the foregoing discussion, in conclusion, we do not find

any error in the impugned orders passed by the Adjudicating Authority. There

are no merit in both the Appeals. Both the Appeals are dismissed.

[Justice Ashok Bhushan]

Chairperson

[Naresh Salecha]
Member (Technical)

NEW DELHI

4th July, 2023

Archana

Company Appeal (AT) Insolvency No. 517 & 518 of 2023