A Deep Dive into 2023's Insolvency Regime - Part 4 of 5

A Deep Dive into 2023's Insolvency Regime - Part 4 of 5

Continuing our exploration of the evolving insolvency landscape in 2023, Part 4 examines two pivotal cases that further shape the legal framework surrounding insolvency proceedings in India.

M/S. Vistra ITCL (India) & Ors. v. Mr. Dinkar Venkatasubramanian & Anr

Secured Creditor Rights and Treatment of Pledged Shares

The Supreme Court's ruling in the case of M/S. Vistra ITCL (India) & Ors. v. Mr. Dinkar Venkatasubramanian & Anr. centers on the entitlement of a secured creditor to retain the sale proceeds of shares pledged by the corporate debtor, Amtek Auto Limited, under the Insolvency and Bankruptcy Code, 2016 (IBC).

Key Highlights:

  • The case involves the corporate debtor pledging shares as security for a short-term loan facility extended to its group companies.
  • Following the initiation of insolvency proceedings under Section 7 of the IBC, the appellants, claiming to be secured creditors, sought rights over the pledged shares. The Resolution Professional, however, rejected their claim.
  • The National Company Law Appellate Tribunal (NCLAT) dismissed the appellants' claim, contending that they did not qualify as secured creditors since they hadn't paid any financial debt to the corporate debtor.
  • The Supreme Court, citing precedents, emphasized the non-liability of the corporate debtor for loans advanced to its group companies.
  • The Supreme Court recognized the rights and obligations of the appellants as secured creditors under Sections 52 and 53 of the IBC.
  • The judgment reflects an equitable interpretation of insolvency laws, allowing the application for liquidation proceedings during the Corporate Insolvency Resolution Process (CIRP).


This decision clarifies the rights of secured creditors, particularly in scenarios involving pledged shares. It emphasizes the importance of distinguishing between the corporate debtor and its group entities and provides an equitable solution for recognizing secured creditor rights during insolvency proceedings. The ruling contributes to the evolving jurisprudence surrounding the treatment of secured creditors within the IBC framework. While establishing the criteria for third-party beneficiaries to be considered financial creditors, the judgment leaves the specifics of the valuation process open-ended. This decision provides a safety net for the security interests of third-party beneficiaries in insolvency proceedings but leaves room for negotiation and interpretation in determining the value to be provided by a resolution applicant.


Tottempudi Salalith v. State Bank of India & Ors.

Timeline for Initiating CIRP Based on DRT Recovery Certificates

The Supreme Court clarified the timeline for a Debt Recovery Tribunal (DRT) Recovery Certificate holder to initiate Corporate Insolvency Resolution Process (CIRP) proceedings and lodge a claim in CIRP. The judgment stipulates three years from the date of the Recovery Certificate for initiating CIRP and twelve years for lodging a claim in CIRP if pursued as a deemed decree.

Key Points:

  • Tottempudi Salalith, the appellant and managing director of the Corporate Debtor, challenged the initiation of CIRP by State Bank of India (SBI) based on DRT Recovery Certificates.
  • Appellant argued that acknowledgment beyond the limitation period under Section 18 of the Limitation Act should not revive the right to sue.
  • Section 238A of the I&B Code applies the statute of limitation.
  • Date of default should be the date when the loan account was declared a non-performing asset.
  • Banks were barred under the doctrine of election from approaching NCLT after DRT for the same debts.

Supreme Court's Response:

  • Referred to the Kotak-I case, stating CIRP can be initiated within three years from the DRT Recovery Certificate.
  • Corporate Debtor's acknowledgment post-filing of Section 7 petition cannot extend the limitation period.
  • Date of default is when the limitation period starts ticking.
  • Doctrine of election doesn't apply if recovery proceedings and I&B Code did not coexist.


Doctrine of Election:

  • The doctrine of election doesn't bar financial creditors from approaching NCLT if recovery proceedings commenced before the I&B Code's existence.
  • Recovery Certificate itself gives rise to a fresh cause of action.

Composite Application:

  • The composite application based on three recovery certificates, two within the three-year limitation, is maintainable.
  • Third recovery certificate in 2015, treated as a deemed decree, allows twelve years to lodge a claim in I&B Code proceedings.


The Supreme Court affirmed that a DRT Recovery Certificate holder has three years to initiate CIRP and twelve years to lodge a claim in CIRP if pursued as a deemed decree, providing clarity on the timeline for such proceedings.


As we conclude Part 4 of our deep dive into the 2023 insolvency regime, these cases continue to contribute valuable insights into the nuanced and dynamic landscape of corporate insolvency laws. Stay tuned for the final installment, Part 5, where we will explore additional cases that have left a lasting impact on the evolving insolvency framework in India.

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