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2023 (4) TMI 448 - AT - Insolvency and BankruptcyAppointment of a debenture trustee - financial creditors or not - Whether the Debenture Holders, namely, the Respondents No. 1 and 2 are Financial Creditors in the light of the provisions of the IBC and the Debenture Trust Deed and Deed of Irrevocable and Unconditional Guarantee? - Whether the Debenture Holders can claim the repayment on account of Event of Default under Section 5(8) of the IBC and the Appellant is a Corporate Debtor under the provisions of the IBC? HELD THAT - The appointment of a debenture trustee is a requirement of the relevant rules for protecting the interest of the debenture holders - on looking at the definition of Financial Creditor in Section 5(7) of the IBC, which lays down that Financial Creditor is a person to whom a financial debt is owed and also includes a person to whom such debt has been legally assigned or transferred to. Whether the Debenture Holders can be considered Financial Creditor as defined under the IBC? - HELD THAT - The DTD is entered into between various parties viz. LDRPL (Issuer Company), Mr. Rustom Darius Bharucha, Mr. Zubin Darius Bharucha, Bharucha Motivala Infrastructure Pvt. Ltd. and PRA Realty (India) Pvt. Ltd. and Vistra ITCL (India) Limited (The Debenture Trustee). Out of these parties, Bharucha Motivala Infrastructure Pvt. Ltd. and PRA Realty (India) Pvt. Ltd. are the Guarantors and Co-Obligors of the issued NCDs as is laid down in the Debenture Trust Deed. It is clear from clause 3.4 that the Debenture Holders shall pay the amount of subscription for the NCDs and from clause 8.12(a) that all due payments shall be made to the Debenture Holders. Significantly, clause 8.6(d) stipulates that Debenture Holders and the Debenture Trustee shall be entitled to exercise any of their rights as set out in the Transaction Documents and the Security shall be enforceable in the manner set out in the Transaction Documents. Thus the rights as set out in Transaction Documents are separately available for enforcement to the Debenture Holders and Debenture Trustee. Clause 18.1(c) lays down that the rights given to the Debenture Trustee are available to the Debenture Holders for enforcing the Securities. Significantly, the Corporate Debtor is a Co-obligor too, and it undertakes all the obligations that are falling on the Issuer Company of the NCDs. An Event of Default notice was first sent by the Debenture Holders on 02.01.2019 and another Event of Default notice was sent on 21.02.2019 where after the Demand Certificate dated 14.05.2019 was issued by the Debenture Trustee to B M Infra which was the Respondent No. 3 in the Section 7 petition invoking the Guarantee dated 06.10.2016 and calling upon B M Infra to pay to the Debenture Holders an amount of Rs. 37,51,64,939/- - in accordance with clause (i) of Section 5(8), B M Infra is liable to pay the amount claimed as Financial Debt on account of the Deed of Guarantee given by it both as a Guarantor and Co-obligor. Therefore, inescapable conclusion is arrived at that B M Infra (R-3) is the Corporate Debtor with regard to the Section 7 application filed by the R-1 and R-2 as Financial Creditors - the Debenture Holders, namely, Respondents No. 1 and 2 are the Financial Creditors of the Corporate Debtor - B M Infra in the light of the provisions of the IBC. Further, the issue whether the Debenture Holders can claim repayment with regard to the amount mentioned in the demand certificate as a Financial Debt is squarely answered in Clause 4 of the Deed of Irrevocable and Unconditional Guarantee of which B M Infra and Vistra ITCL are co-signees since the demand certificate has been issued by the Debenture Trustee on 14.05.2019, a conjoint reading of the Debenture Trust Deed and Deed of Guarantee clearly establishes that the amount claimed in demand certificate is to be paid directly to the Debenture Holders by Respondent No. 3, who is the Corporate Debtor within the provisions of the IBC. The Adjudicating Authority has not committed any error in admitting the section 7 application filed by the respondents - There are no reason to interfere with the Impugned Order - appeal dismissed.
Issues Involved:
1. Whether the Debenture Holders are Financial Creditors under the provisions of the IBC. 2. Whether the Debenture Holders can claim repayment on account of Event of Default under Section 5(8) of the IBC and if the Appellant is a Corporate Debtor under the IBC. Summary: Issue 1: Financial Creditors The Tribunal examined whether the Debenture Holders, Respondents No. 1 and 2, qualify as Financial Creditors under the IBC. The definition of Financial Debt under Section 5(8)(c) and Section 5(8)(i) was considered, which includes amounts raised through debentures and guarantees. The Debenture Trust Deed (DTD) and the Deed of Irrevocable and Unconditional Guarantee were scrutinized, revealing that the Corporate Debtor (B & M Infra) had signed these documents as a Co-Obligor and Guarantor. The Tribunal concluded that the Debenture Holders are Financial Creditors because the Corporate Debtor had guaranteed repayment to them, thus establishing a direct jural relationship. Issue 2: Claim for Repayment The Tribunal addressed whether the Debenture Holders can claim repayment under Section 5(8) of the IBC. The DTD and the Deed of Guarantee outlined the obligations of the Corporate Debtor to repay the amounts due upon the issuance of a Demand Certificate by the Debenture Trustee. The Tribunal noted that an Event of Default had occurred, and a Demand Certificate was issued on 14.05.2019, requiring B & M Infra to pay Rs. 37,51,64,939/-. The Tribunal held that the Corporate Debtor is liable to repay this amount as a Financial Debt under the IBC. Conclusion: The Tribunal affirmed that the Debenture Holders are Financial Creditors and that the Corporate Debtor is liable to repay the claimed amount. The appeal was dismissed, upholding the initiation of the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor.
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