2019 (4) TMI 1903 - AT - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - default under the Subscription Agreement of 2016 - existence of debt and dispute or not - Whether the Appellant is a Financial Creditor of the Corporate Debtor ? - Whether the debt of the Appellant stands paid as held by the Adjudicating Authority? HELD THAT - In the present case there has been a disbursal of Rs. 102 Crores in favour of the Corporate Debtor by way of OCDs . In terms of Section 5(8)(c) any amount raised pursuant to any note purchase facility or the issue of bonds notes debentures loan stock or any similar instrument comes within the meaning of financial debt . Therefore from the aforesaid fact we find that there is a disbursal of Rs. 102 Crores in favour of the Corporate Debtor and the OCDs originally met is against time value of money and per se constitute financial debt in the light of Section 5(8)(c) of the I B Code . Whether the debt amount payable by M/s. Ind- Barath Energy (Utkal) Limited is deemed to have been repaid in view of invocation of pledge shares and the conversion of CCDs into equity shares? - HELD THAT - The Promoters confused the Adjudicating Authority by co-relating the two independent agreements i.e. one Subscription Agreement dated 23rd December 2016 and the separate agreement which the Appellant and its sister entity MAIF-II has entered into for subscription to certain NCD and CCD in the holding company of the Corporate Debtor which are unrelated to the agreement dated 23rd December 2016 - The Adjudicating Authority failed to consider the same and thereby wrongly held that the debt has been paid and there was no default on conversion of the CCD . It also failed to consider that the interest to which the Appellant was entitled for different debt for which notice was given and as discussed above had not been paid by the Corporate Debtor and there was a default of more than Rs. 1 Lakh on the part of the Corporate Debtor . The Appellant- MAIF Investments India Pte. Ltd. is a Financial Creditor of M/s. Ind-Barath Energy (Utkal) Limited - ( Corporate Debtor ). Further we hold that by the invocation of the pledge of shares pursuant to the Subscription Agreement no presumption can be drawn that the disbursement of Rs. 102 Crores so made was towards the OCD and stands paid. Impugned Order set aside - Resolution Professional are directed to treat the Appellant as a Financial Creditor for the purpose of constitution of the Committee of Creditors and allow the Appellant- MAIF Investments India Pte. Ltd. to take part as a member of the Committee of Creditors with voting share to the extent of the amount disbursed and claimed by it. Appeal allowed.

Summary

Issues Involved:
1. Whether the Appellant is a 'Financial Creditor' of the 'Corporate Debtor'.
2. Whether the debt of the Appellant stands paid as held by the Adjudicating Authority.

Issue-wise Detailed Analysis:

1. Whether the Appellant is a 'Financial Creditor' of the 'Corporate Debtor':

The Appellant, 'MAIF Investments India Pte. Ltd.', filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 ("I&B Code") against 'M/s. Ind-Barath Energy (Utkal) Limited' ('Corporate Debtor'). The Adjudicating Authority had dismissed the Appellant's application on the grounds that the default was deemed to have been repaid due to the invocation of the pledge of shares and conversion of 'Compulsorily Convertible Debentures' ("CCD") into equity shares.

The Appellant had provided a bridge loan of Rs. 102 Crores by subscribing to 10,200,000 'Optionally Convertible Debentures' ("OCD") of the 'Corporate Debtor'. The interest payments on these OCDs were not made by the 'Corporate Debtor', resulting in an event of default under the Subscription Agreement of 2016.

The Tribunal noted that the definition of 'Financial Creditor' under Section 5(7) and 'Financial Debt' under Section 5(8) of the I&B Code includes debts disbursed against the consideration for the time value of money, such as bonds, notes, debentures, etc. Since there was a disbursal of Rs. 102 Crores in favor of the 'Corporate Debtor' by way of OCDs, the Tribunal found that this constituted a 'financial debt'.

2. Whether the debt of the Appellant stands paid as held by the Adjudicating Authority:

The Adjudicating Authority had held that the default committed by the 'Corporate Debtor' was deemed to have been repaid due to the invocation of pledge shares and conversion of CCDs into equity shares. However, the Tribunal found that the redemption of 'NCD' and 'CCD' is different from the conversion within the 'OCD'. The Appellant had demanded interest payments on the OCDs, which were not paid by the 'Corporate Debtor'.

The Tribunal noted that the Appellant and 'MAIF-II' had invoked the pledge of 49% equity shares of the 'Corporate Debtor' and 51% equity of the holding company. However, the Tribunal found that the invocation of the pledge and conversion of CCDs into equity shares did not imply that the debt amount was repaid. The Tribunal emphasized that there is no presumption of payment of debt merely on the invocation of the pledge until the conversion of the debenture into shares is accepted under the law.

The Tribunal concluded that the Adjudicating Authority had wrongly held that the debt had been paid and there was no default on the conversion of the CCD. The interest to which the Appellant was entitled had not been paid by the 'Corporate Debtor', resulting in a default of more than Rs. 1 Lakh.

Conclusion:

The Tribunal held that the Appellant, 'MAIF Investments India Pte. Ltd.', is a 'Financial Creditor' of 'M/s. Ind-Barath Energy (Utkal) Limited' ('Corporate Debtor'). The invocation of the pledge of shares pursuant to the Subscription Agreement did not imply that the disbursement of Rs. 102 Crores towards the OCDs was repaid. The Tribunal set aside the impugned order and directed the 'Resolution Professional' to treat the Appellant as a 'Financial Creditor' for the purpose of the constitution of the 'Committee of Creditors' and allow the Appellant to participate as a member with voting rights to the extent of the amount disbursed and claimed. The appeal was allowed with no cost.