G K Investments Limited & Ors. vs Vistra Itcl (India) Limited, (Formerly Known As Il & Fs Trust Company Limtied) & Ors.

In spite of notice served upon the respondent no.1, the security trustee, the said respondent no.1 is not represented. This is an application by the

pledgor challenging the notice for invocation of pledge under the share pledge agreement dated 24th November, 2014. The defendant no.25 was

enjoying various credit facilities from different financial institutions of which the State Bank of India was the monitoring institution. There were events

of default.

It appears that the State Bank of India as the monitoring institution made Master Restructuring plan which was subsequently amended on 24th

January, 2014. The said agreement was entered into between the borrowers, the lenders and the monitoring institution. Pursuant to such agreement,

the Corporate Debt Restructuring Lenders have restructured the then existing credit facilities of the borrower and agreed to extend additional term

loan and working capital facilities to the borrower aggregating to INR 10,304.25 crore.

It appears that one of the securities created for extending such credit facilities are the shares pledged by the plaintiffs under a pledge agreement dated

24th November, 2014. It appears from the recital of the said pledge agreement that the pledgor was aware of the CDR package and the Master

Restructuring Agreement. The pledgor, as beneficiary owner of the shares as mentioned in Schedule II of the said agreement, has created security for

due payment of the facilities and applicable interest thereon and other moneys payable in respect thereof to the borrowers and lenders under the

restructuring document. It appears that there were defaults by the principal debtor.

 SBI has initiated insolvency proceedings against the borrower under the Insolvency and Bankruptcy Code, 2016, which proceedings were admitted

by the National Company Law Tribunal, Kolkata on 21st July, 2017. The interim notice stated that payment defaults and admission of insolvency

proceedings constitute Events of Default as defined under sub-clauses (a), (b), (j) and (I) of Clause 7.1 of the Original Master Restructuring

Agreement and, in view of the aforesaid, each CDR Lender has right to recall/accelerate the entire amount which shall forthwith become payable by

the borrower. The notice invoking pledge refers to the earlier recall notice dated 25th February, 2018 which admittedly was issued during the

pendency of the NCLT proceeding in which the lenders have exercised their right under the facility agreement and demanded payment of over

Rs.12,385 crores.

The security trustee has alleged that although reasonable notice was given to the borrower to pay the outstanding amount under the facility agreement,

no such amount has been paid. In consequence of approved resolution plan of NCLT, Kolkata, part of the outstanding amount under the facility

agreement has been received by the CDR Lenders and balance outstanding amount of the CDR Lenders under the facility agreement more

particularly described in Schedule II have not been paid by the borrower till today. In view thereof, 176 notice of the Indian Contract Act, 1872 was

issued. This notice is under challenge.

Mr. S.K. Kapur, learned senior counsel appearing on behalf of the petitioner has referred to Section 31 of the Insolvency and Bankruptcy Code, 2016

and a letter dated 4th June, 2018 from the borrower to the National Stock Exchange and other applicable stock exchanges to show that Vedanta Star

Limited, a wholly owned subsidiary of Vedanta Limited (VSL), had completely discharged the debt of the debtors under the scheme approved by the

NCLT and in view of discharge of such debts, the said invocation is illegal. It is submitted that the interests of the debtors were protected by Vedanta

in making payment partly by cash and partly by issuing equity shares in favour of the consortium. It is submitted that such notice was issued

mechanically without considering such facts that are relevant for the present purpose. Mr. Kapur has also referred to the reply given on behalf of the

plaintiff on 2nd August, 2018 in which the plaintiff have reiterated that as against Rs.12,396 crores as stated in the recall notice dated 27th February,

2018, the lenders have received payment of about Rs.12,719 crores which is far exceeding the amount stated in the recall notice.

If what is stated by the plaintiffs is correct, then possibly the invocation of the notice by the security trustee is illegal. The notice apparently does not

disclose such facts. The Court assumes for the time being that Vedanta had completely discharged the liability of the lenders although a claim is made

in paragraph 6 of the recall notice that the lenders have realised a part of the outstanding amount and not the balance outstanding amount as described

in Schedule II. On such consideration and relying on such representation, the notice dated 27th July, 2018 is stayed for a period of one week. The

matter shall appear in the list under the heading ‘New Motion’ on 8th August, 2018. The notice dated 3rd August, 2018 is kept with the record.