Export- Import Bank Of India & Anr vs Astonfield Solar (Gujrat) Pvt. Ltd. & ...

Export-Import Bank of India & Anr. ...Appellants

Versus

Astonfield Solar (Gujarat) Pvt. Ltd. & Anr. ...Respondents

Present:

For Appellant : Mr. Ashish Rana, Mr. Surekh Baxy and Mr. Harshit Garg, Advocates

For Respondent : Mr. Gurpreet Singh, IRP

ORDER

04.12.2018 This appeal has been preferred by the 'Export-Import Bank of

India' and 'Power Finance Corporation Limited' (Financial Creditors) jointly

against the order dated 20th November, 2018 passed by the Adjudicating

Authority (National Company Law Tribunal), New Delhi Bench whereby the

application under Section 10 preferred by M/s. Astonfield Solar (Gujarat) Private

Limited and Anr. (Corporate Debtor and Corporate Applicant) has been admitted,

order of moratorium has been passed and the 'Resolution Professional' has been

appointed. Learned counsel appearing on behalf of the appellant submitted that

the shareholders had no voting right to approve the decision of the Board of

Directors for initiation of 'corporate insolvency resolution process' to the

'Corporate Debtor' under Section 10 of the I&B Code. He placed reliance on

'Deed of Pledge of Securities' dated 28th March, 2013 in support of his claim. 2

Mr. Gurpreet Singh, Interim Resolution Professional submitted that when

processing the financial matrix the appellant was making hindrance on the

ground that they have preferred the appeals.

On hearing the parties, the following facts emerges :

The 'Deed of Pledge of Securities' dated 28th March, 2013 was entered into

between the 'Corporate Debtor' and the 'Financial Creditors' wherein the

provision relating to voting rights was mentioned under clause 5.2. Relevant

portion of which reads as follows :

"5.2 Voting Rights

"unless and until an Event of Default (howsoever

described herein and in any of the finance Documents)

shall have occurred, the pledgor shall be entitled to

exercise any and all voting and other consequential rights

pertaining to the Securities (except the right to sell,

transfer, assign, charge, pledge or otherwise Encumber

the Securities or any part thereof otherwise than in

accordance with this Deed) for any purpose not in

violation of or inconsistent with any of the terms of this

Deed or any other agreement in respect of the Facilities,

provided that the pledgor agree that it:

(a) shall not-vote or abstain from voting, in any manner

that is inconsistent with the terms of this Deed or any

other agreements in respect of the facilities, or which

would give rise to an Event of Default or a potential

Event of Default or lead to a Material Adverse Effect or

Company Appeal (AT) (Insolvency) No. 754 of 2018 3

result in a breach of any of the Transaction Documents

or would otherwise prejudice the interests of any of the

Lenders or Security Agent;

(b) shall not-vote or abstain from voting, in favour of any

resolution which would have the effect of altering the

rights of the Security Agent hereunder or under any of

the agreements in respect of the Facilities or the terms

of the Securities or any rights attaching to the

Securities in any way; and

All such voting rights of the Pledgor shall cease forthwith

upon the occurrence of an Event of Default."

Learned counsel for the appellant also placed reliance on clause 5.2.2

whereunder the pledger authorized the Security Agent, upon the occurrence of

an event of default, to attend the general meeting of the members or the meeting

of any class of members or meeting of the creditors or debenture holders and to

exercise the voting rights, as quoted below :

5.2.2. "The Pledgor hereby irrevocably authorizes the

Security Agent, upon the occurrence of an Event of

Default, to attend any general meeting of the members

or meeting of any class of members or meeting of the

creditors or debenture holders and to exercise the voting

rights in respect of the Securities in any manner as it

may deem fit or as the case may be, direct the exercise

by the Pledgor of the voting and other rights attached to

Company Appeal (AT) (Insolvency) No. 754 of 2018 4

any of the Securities as it deems fit. To enable the

Security Agent to exercise the Voting rights as aforesaid,

the Pledgor shall register this Deed with the Borrower

with irrevocable instructions that as and when any

intimation is received from the Security Agent in this

behalf in accordance with the terms of this Deed, the

Security Agent shall be permitted to attend and exercise

the voting rights in respect of the Securities on any

matter at any meeting of the members of the Borrower,

and the Borrower hereby acknowledges and agrees to

the same. The Pledgor shall also arrange with the

Borrower for forwarding copies of the notices of all such

meetings to the Security Agent and and when such

notices are issued to the shareholders, and the Borrower

hereby acknowledges and agrees to the same. The

Pledgor shall execute and deliver to the Security Agent

all proxies and such other instruments as the Security

Agent may require to exercise such voting and other

rights as are granted by this Deed and or available

under Applicable Law."

From the aforesaid 'Deed of Pledge' while we find that in case of default,

the voting rights of the shareholders shall cease to exist upon the occurrence of

an event of default, it will not deprive the shareholder to continue to be a

shareholder and their shares do not stand transferred to the 'Financial Creditor'

Company Appeal (AT) (Insolvency) No. 754 of 2018 5

and thereby the shareholder, in terms of the 'Deed of Pledge' dated 28th March,

2013 may lose their right to vote but they continue to be shareholder even

thereafter.

Section 10 relates to 'initiation of corporate insolvency resolution process'

by the corporate applicant', reads as follows:

"10. Initiation of corporate insolvency resolution

process by corporate applicant -

(1) Where a corporate debtor has committed a default,

a corporate applicant thereof may file an

application for initiating corporate insolvency

resolution process with the Adjudicating Authority.

(2) The application under sub-section (1) shall be filed

in such form, containing such particulars and in

such manner and accompanied with such fee as

may be prescribed.

(3) The corporate applicant shall, along with the

application, furnish--

(a) the information relating to its books of

account and such other documents for such

period as may be specified;

(b) the information relating to the resolution

professional proposed to be appointed as an

interim resolution professional; and

(c) the special resolution passed by

shareholders of the corporate debtor or the

Company Appeal (AT) (Insolvency) No. 754 of 2018 6

resolution passed by at least three-fourth of

the total number of partners of the corporate

debtor, as the case may be, approving filing

of the application.;

(4) The Adjudicating Authority shall, within a period

of fourteen days of the receipt of the application,

by an order--

(a) admit the application, if it is complete and

no disciplinary proceeding is pending against the

proposed resolution professional; or

(b) reject the application, if it is incomplete or

any disciplinary proceeding is pending against the

proposed resolution professional:

Provided that Adjudicating Authority shall, before

rejecting an application, give a notice to the applicant to

rectify the defects in his application within seven days

from the date of receipt of such notice from the

Adjudicating Authority.

(5) The corporate insolvency resolution process shall

commence from the date of admission of the

application under sub-section (4) of this section. "

In terms of clause (c) of sub-section (3) of Section 10 of the I&B Code the

special resolution passed by shareholders of the 'corporate debtor' or resolution

Company Appeal (AT) (Insolvency) No. 754 of 2018 7

passed by at least three fourth of the total number of partners of the corporate

debtor approving to file the application, is to be enclosed.

Even if it is presumed that the shareholder ceased to exercise their right

to vote with regard to the companies aforesaid, their right under clause (c) of

sub-section (3) of Section 7 does not stand superseded by the aforesaid

provision.

With the aforesaid observations, we hold that the shareholder has a right

to decide whether approving or disapproving the decision be proceeded with the

corporate insolvency resolution process under Section 10 of the I&B Code. Such

right does not stand curtailed by Deed of Pledge dated 28th March, 2013. Hence

No interference is called for and in absence of any merit, we dismiss the appeal.

No cost.

[Justice S.J. Mukhopadhaya] Chairperson

[ Justice Bansi Lal Bhat ] Member (Judicial)

/ns/uk/

Company Appeal (AT) (Insolvency) No. 754 of 2018