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Mr. Souvik Majumdar, Adv.

Mr. Suvrojit Dasgupta, Adv.

Hearing concluded on                  : 26th November, 2018.

Judgment on                           : 28th November, 2018.

Soumen Sen, J.: The notice for invocation of pledge dated 27th July, 2018 by the defendant in its capacity as the security trustee is the subject matter of challenge in this interlocutory application.

On 3rd August, 2018 an interim order was passed by which the impugned notice was stayed initially for a period of one week and, thereafter, continued till 30st November, 2018 or until further order whichever is earlier.

Although I am of the prima facie view that the stated plan does not absolve the liability of the plaintiffs for the outstanding amount under the facility agreement however, it is fairly admitted at the bar on behalf of the defendant that the notice for invocation of pledge dated 27th July, 2018 does not take into consideration the payment received by the defendant no.2 to 24 under the restated plan. Under such consideration the pledge invocation notices all dated 27th July, 2018 cannot be invoked and enforced.

Under Section 30 any person who is interested in putting the corporate body back on its feet may submit a resolution plan to the resolution professional, which is prepared on the basis of an information memorandum.

This plan must provide for payment of insolvency resolution process costs, management of the affairs of the corporate debtor after approval of the plan, and implementation and supervision of the plan. It is only when such plan is approved by a vote of not less than 75% of the voting share of the financial creditors and the adjudicating authority is satisfied that the plan, as approved, meets the statutory requirements mentioned in Section 30, that it ultimately approves such plan, which is then binding on the corporate debtor as well as its employees, members, creditors, guarantors and other stakeholders. Importantly, and this is a major departure from previous legislation on the subject, the moment the adjudicating authority approves the resolution plan, the moratorium order passed by the authority under Section 14 shall cease to have effect. The scheme of the Code, therefore, is to make an attempt, by divesting the erstwhile management of its powers and vesting it in a professional agency, to continue the business of the corporate body as a going concern until a resolution plan is drawn up, in which event the management is handed over under the plan so that the corporate body is able to pay back its debt and get back on its feet. All this is to be done within a period of 6 months with a maximum extension of another 90 days or else the chopper comes down and the liquidation process begins. (See. Innoventive Industries Ltd.) (supra) An unsustainable debt according to me would be a debt where the assets are classified as stressed assets, that is to say, there has been a significant diminution in the intrinsic value of such assets in comparison to the liabilities of the company. It essentially occurs when there is a gross mismatch between the assets and the liabilities and raises a red herring that all is not well with the corporate debtor and there is a threat from creditors to proceed against the assets of the corporate debtor which might not only affect the debtor company but all other stakeholders. The triggering of the process may ultimately result in a plan by which corporate body is able to survive and get back on its feet. In such proceeding the creditors may give up some of their claims with or without conditions in an expectation that such concessions and rearrangement would be beneficial for the continued existence of the corporate debtor. The creditors in doing so may not in all situations give up their right to enforce other securities so as to recover the deficit which has been done in the instant case and reflected in the reinstated plan but in no case can realize more that it had agreed. Once the debt is crystallized to the extent the unsustainable portion of the debt has remained unrealized the secured creditors may realize such sums after giving adjustment of all sums received under the plan. Keeping in view the object of the Code and the terms of the restated plan it prima facie appears that the creditors have not given up the right to cover the differential amount that has resulted due to the reduction in the value of shares. The object and purpose of the plan needs to be read, understood and considered in that context. On such considerations, I am unable to accept that the restated plan has extinguished the liability of the pledgors. The said view is, however, prima facie and not conclusive. The issue is not finally decided as is not necessary at this stage to decide it finally as the notices are otherwise liable to be quashed for the reasons stated below. However, it would only be a pyrrhic victory for the financial institutions as it has been fairly conceeded and admitted at the bar that the notices of invocation of pledge does not reflect the correct amount as the amounts realized under the plan partly by cash and partly by conversion of debt into equity have not been accounted for. On such considerations the pledge invocation notices all dated 27th July, 2018 are set aside.