2019 (7) TMI 684 - AT - Insolvency and Bankruptcy

Initiation of corporate insolvency resolution process by corporate applicant - Section 10 of the I B Code - voting rights of the shareholders upon the occurrence of an event of default - HELD THAT - 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 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with regard to the companies aforesaid, their right under clause (c) of sub-section (3) of Section 7 does not stand superseded by the aforesaid provision. 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. Appeal dismissed.

Summary

Issues involved:
1. Interpretation of voting rights under a Deed of Pledge of Securities.
2. Validity of shareholders' voting rights in the initiation of corporate insolvency resolution process under Section 10 of the Insolvency and Bankruptcy Code.

Analysis:

Issue 1: Interpretation of voting rights under a Deed of Pledge of Securities

The appeal was filed by the 'Export-Import Bank of India' and 'Power Finance Corporation Limited' against the order admitting the application under Section 10 by 'Astonfield Solar (Gujarat) Private Limited' for corporate insolvency resolution. The appellants argued that shareholders had no voting right to approve the decision under Section 10, citing a 'Deed of Pledge of Securities' dated 28th March, 2013. The Deed outlined voting rights until an Event of Default occurred, after which the shareholder's voting rights ceased. However, the shareholders retained their status as shareholders even after losing voting rights. The Security Agent was authorized to exercise voting rights upon default, but the shareholders' ownership was not affected.

Issue 2: Validity of shareholders' voting rights in the initiation of corporate insolvency resolution process under Section 10 of the Insolvency and Bankruptcy Code

The Interim Resolution Professional contended that the appellants were hindering the financial matrix by filing appeals. The Deed of Pledge specified the conditions under which shareholders' voting rights would cease upon default, but it did not transfer their shares to the Financial Creditors. The judgment highlighted that Section 10 of the Insolvency and Bankruptcy Code requires a special resolution by shareholders or partners to initiate the corporate insolvency resolution process. The shareholders' right to decide on such matters was affirmed, stating that the Deed of Pledge did not curtail this right. Consequently, the appeal was dismissed as no interference was warranted, and no costs were awarded.

This judgment clarifies the interpretation of voting rights under a Deed of Pledge of Securities and underscores the importance of shareholders' approval in initiating the corporate insolvency resolution process under Section 10 of the Insolvency and Bankruptcy Code. The rights of shareholders to decide on such critical matters remain intact, irrespective of any agreements governing their voting rights in default scenarios.