NCLT orders liquidator of steel cos to admit TVS Motor’s claim

The shares supplied by a promoter in an official capacity as security for a loan make the lender a secured creditor ruled the bankruptcy court in a petition filed by two-wheeler maker against the liquidator of Mumbai-based Kalisma Steel.

The Chennai-based two-wheeler maker had approached the Mumbai bench of the National Company Law Tribunal (NCLT) after the liquidator of Kalisma Steel rejected its claim as a financial creditor. At the time of rejection, the liquidator also argued that the claim was belated.

“The shares were supplied by the promoter in his official capacity to provide security for the loan,” said a division bench of Justice PN Deshmukh and a technical member Shyam Babu Gautam in its 15-page order. “The submission of the respondent (liquidator) that the promoter pledged the shares in its personal capacity is not justified.”

TVS argued that the bankrupt company’s promoter had informed it about financial difficulties and would be able to continue its supply as a vendor only if the auto major can support it with an advance of ₹2 crore.

The automaker had extended the said financial assistance at the agreed rate of annual 12% interest. Kalisma Steel agreed to repay the money in five tranches. Also, the promoters of Kalisma Steel had provided shares of ₹2 crore as the security deposit.

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An email query to was unanswered till press time.

“This judgement will definitely come to aid in matters where security other than the normal banking system is not considered by the RP or liquidator,” said Ashish Pyasi, Associate Partner at Dhir & Dhir Associates. “Generally, in cases where the security is provided to a creditor who is neither an NBFC nor a bank, it becomes difficult to prove the transaction that it was a loan secured by the borrower.”

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