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2020 (9) TMI 11 - Tri - Insolvency and BankruptcyMaintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Debt or not - HELD THAT - By looking at the agreement entered into between the parties, this money has been shown as money paid towards fully and compulsorily convertible debentures for the value mentioned therein, it is not the case of the Corporate Debtor that this money has not come into the account, indeed it is the case of the Corporate Debtor until before this case is filed that this is a long term borrowings as per the balance sheet of the Company and it is also the case of the Corporate Debtor that TDS has been deducted on the interest accrued against the compulsorily convertible debentures held by the applicant - When a party admits a factual aspect stating that applicant is a creditor, debentures are lying in its name and the debt is shown as long term borrowing, then such party cannot take out diametrically opposite stand stating that the debt being shown as capital under FEMA or under some other Regulations, therefore it is not a debt. It is true that in the agreement, that after 15 years, these debentures would become equity, but until such time the Corporate Debtor shall pay fixed returns to this applicant. The RP merely by showing this, the RP Counsel cannot come with an argument to say that this is to be treated as equity for redemption of debentures has not been envisaged in the agreement. At the time of winding up or admission of a case under IBC, if the debentures are not matured and not convertible for the period for redemption is not complete, they shall be treated as debentures and the consequence is, it will remain as debt - Same is the case here, debentures are not matured for conversion, interest shall be paid through coupons periodically. That has also not complied with. This application is hereby allowed directing the Resolution Professional to admit the claim as Financial Debt as envisaged under Section 5(8) (c) of the Insolvency and Bankruptcy Code, 2016.
Issues Involved:
1. Admission of claims by ICICI Bank and Acreage Properties Private Limited. 2. Rejection of claim by Ziasess Ventures Limited. 3. Determination of whether compulsorily convertible debentures (CCDs) constitute debt or equity. Issue-Wise Detailed Analysis: 1. Admission of Claims by ICICI Bank and Acreage Properties Private Limited: The applications C.A. No. 2876(PB)/2019 and C.A. No. 1785(PB)/2019 were filed by ICICI Bank and Acreage Properties Private Limited, respectively. Both applicants stated that their claims were put on hold by the Resolution Professional without a decision on admissibility. The Resolution Professional undertook to dispose of these claims within three days. The Tribunal directed the Resolution Professional to consider these applications in accordance with the law within the stipulated time. Regarding the second relief sought by Acreage Properties Private Limited for a forensic audit of the Corporate Debtor, the Tribunal did not address this relief, leaving it open for the party to seek such relief in accordance with the law if entitled. 2. Rejection of Claim by Ziasess Ventures Limited: Ziasess Ventures Limited filed C.A. No. 1340(PB)/2019 after its claim was rejected by the Resolution Professional on the grounds that the claim fell within the ambit of equity, not debt. The investment agreement dated 23.06.2010 involved an investment of ?24.99 crores towards the issuance of Compulsory Convertible Debentures (CCDs) and ?10 for one share. The Resolution Professional rejected the claim citing that the debentures were not redeemable or refundable in cash and were to be fully converted into shares, thus treating the investment as equity under FEMA regulations. The applicant argued that the investment was a financial debt as it assured fixed returns on a periodical basis, falling under the definition of financial debt under Section 5(8) of the Insolvency and Bankruptcy Code (IBC). The applicant highlighted that the Corporate Debtor had shown the investment as long-term borrowing in its balance sheet and had paid TDS on interest over the debentures, thus treating it as debt. 3. Determination of Whether Compulsorily Convertible Debentures (CCDs) Constitute Debt or Equity: The Tribunal examined whether the investment in CCDs constituted debt or equity. The Resolution Professional argued that the investment should be treated as equity due to the participation rights and affirmative rights granted to the applicant. The Tribunal, however, noted that the Corporate Debtor had consistently treated the investment as debt in its books and balance sheets, and TDS had been deducted on interest accrued against the CCDs. The Tribunal referred to the Supreme Court judgment in Narendra Kumar Maheshwari v. Union of India, which discussed the nature of convertible debentures. However, the Tribunal found that the guidelines and regulations cited by the Resolution Professional did not apply to the present case, as they were related to different financial instruments and contexts. The Tribunal concluded that under the IBC, which has overriding effect over other enactments, the CCDs should be treated as debt. The Tribunal directed the Resolution Professional to admit the claim as Financial Debt under Section 5(8)(c) of the IBC, 2016. Additional Orders: The Tribunal allowed the Resolution Professional to place his defense by way of written submissions along with material papers within ten days for other pending applications. The Tribunal also directed the applicants to serve copies of applications to respondents within three days, with respondents required to place their defense before the next hearing dates. The applications C.A. No. 1785(PB)/2019 & 1101(PB)/2019 were scheduled for hearing on 03.02.2020, and other applications were scheduled for hearing on 07.02.2020.
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