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Pledge of shares does not tantamount to a guarantee or indemnity and is not a financial debt

IN THE MATTER OF M/s. Vistara ITCL (India) Ltd. vs Mr. DinkarVenkatasubramanian, appeal was filed against the order of the NCLT rejecting the claim of the appellants for inclusion as Secured Creditors on the basis of pledge of shares by the Corporate Debtor.

The NCLAT rejecting the appeal observed that Appellants have not lent any money directly to the Corporate Debtor and the Corporate Debtor did not owe any financial debt to the Appellants except that the pledge of shares was to be executed. There can be no dispute with the preposition of law that creation of pledge of shares by the Corporate Debtor does not tantamount to a guarantee or indemnity.The debt along with interest disbursed against time value of money constitute the basic ingredients of the financial debt as defined in I&B Code and since the same is lacking as regards any transaction between the Appellant and the Corporate Debtor, pledge of  shares would not fall within the concept of guarantee and indemnity so as to bring it within the meaning of financial debt.

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