The National Company Law Appellate Tribunal ( NCLAT ) New Delhi bench 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.
Amit Yogesh Satwara, the suspended director of the corporate debtor, has filed the current appeal against an NCLT ruling that admitted an application under section 7 of the code. A master facility agreement was also signed for a working facility loan that the respondent approved. A section 7 application was also submitted, and the financial creditor sent out a recall notice demanding the outstanding balance. Shares were pledged in favor of the financial creditor as part of an MOU signed between the parties while the application was pending.
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The corporate debtor filed an IA to have the section 7 application dismissed, but the NCLT denied it, so the case was admitted. The appellant argued that although the shares agreed to be transferred in the financial creditor’s favor were enough to settle the entire debt, they were sold for less, and the CD cannot be held accountable for this.The respondent refuted the submissions, arguing that the CD remained in default because the value the financial creditor obtained after selling the shares was less than the amount owed.
The Adjudicating Authority’s observations that it is undeniable that the CD’s liability was not fully discharged because the CD attempted to resolve the matter even after the shares were pledged in favor of the financial creditor, indicating that there was a debt and default, were noted by the bench of Justice Ashok Bhushan (Judicial Member), Mr. Barun Mitra (Technical Member), and Mr. Arun Baroka (Technical Member).
The appellant argued that the CD’s whole duty would have been discharged if the shares had been sold at the time the share pledge agreement was signed, but the tribunal rejected this argument. It was noted that because the MOU gave the financial creditor choice over whether to invoke the pledged shares, the value obtained from the shares was insufficient to cover the full amount owed.
The tribunal concluded that the adjudicating authority did not err in admitting the application under section 7 of the code because no settlement of record was presented indicating that the dispute had been settled between the parties. According to the Supreme Court’s ruling in GLASTrust Company v. BYJU Raveendran and Ors. (2024), the tribunal further noted that if a settlement is achieved between the parties, a request to withdraw the CIRP application may be made.
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