2019 (10) TMI 4 - Tri - Insolvency and Bankruptcy

Maintainability of petition - initiation of CIRP - Corporate Debtor committed default for non-repayment - HELD THAT - The Tribunal is of the opinion that justice would be met if both the parties are permitted to resolve their issues by the proposed arbitration rather than to keep the matter pending here, since the Share Subscription Agreement in question is admittedly was executed and binding on both the parties, where Arbitration clause is available. The Petition is disposed off.

Summary

Issues Involved:
1. Initiation of Corporate Insolvency Resolution Process (CIRP)
2. Compliance with Section 7 of the IBC, 2016
3. Validity of the Share Subscription Agreement (SSA)
4. Classification of Preference Shares as Financial Debt
5. Adherence to Section 55 of the Companies Act, 2013
6. Arbitration Clause in SSA
7. Maintainability of the Application

Detailed Analysis:

1. Initiation of Corporate Insolvency Resolution Process (CIRP):
The Petitioner, M/s. Shan Global Manufacturing and Trading Private Limited, filed C.P. (IB) No. 151/BB/2018 under Section 7 of the Insolvency and Bankruptcy Code (IBC), 2016, seeking to initiate CIRP against M/s. C L N Properties Private Limited on the grounds of default for an outstanding amount of ?15 Crores plus 14% interest. The default arose from the non-redemption of Non-Cumulative Non-Convertible Redeemable Preference Shares (NCRPS) during the agreed period.

2. Compliance with Section 7 of the IBC, 2016:
The Respondent contended that the Petitioner did not comply with the provisions of Section 7 of the IBC, 2016, as the necessary documents were not submitted. The Tribunal noted this objection but did not dismiss the application solely on this ground.

3. Validity of the Share Subscription Agreement (SSA):
The SSA dated 29.01.2010, between the parties, outlined the terms of investment, including the subscription to 5,00,000 NCRPS for ?10 Crores, with redemption terms specified. The Petitioner argued that the Respondent failed to redeem the NCRPS as per the SSA, making the amounts advanced a debt legally owed to the Petitioner, thereby classifying them as a Financial Creditor.

4. Classification of Preference Shares as Financial Debt:
The Petitioner argued that the NCRPS should be classified as a financial debt due to the time value of money and the assured return, as per the precedent set in Nikhil Mehta & Sons (HUF) Vs. AMR Infrastructure Limited. The Respondent disputed this, stating that the redemption of NCRPS was at the company's sole option and did not constitute a financial debt under IBC provisions.

5. Adherence to Section 55 of the Companies Act, 2013:
The Petitioner claimed that the Respondent did not comply with Section 55 of the Companies Act, 2013, which governs the issuance and redemption of preference shares. The Respondent argued that the redemption should be from the profits of the company or proceeds from a fresh issue of shares, maintaining the capital of the company intact.

6. Arbitration Clause in SSA:
Clause 10 of the SSA provided for dispute resolution through arbitration. The Petitioner had requested arbitration post the due date for redemption, but the Respondent did not appoint an arbitrator within the specified timelines. Consequently, the Petitioner approached the Bengaluru High Court for the appointment of an arbitrator, which was pending admission.

7. Maintainability of the Application:
The Respondent contended that the application was barred by limitation and suffered from delay and laches. They also highlighted discrepancies in the names of the transacting parties in the documents submitted. The Tribunal considered these objections but focused on the arbitration agreement between the parties.

Judgment:
The Tribunal, considering the submissions and the arbitration clause in the SSA, directed both parties to resolve their issues through arbitration as initiated by CMP No. 167 of 2016 before the Hon’ble High Court of Karnataka. The Petitioner was granted liberty to file a fresh company petition if aggrieved by the arbitration proceedings. The petition was disposed of accordingly.