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2021 (5) TMI 572 - Tri - Insolvency and BankruptcyMaintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Creditors - Corporate Debtor is a party to the Debenture Trust Deed - accrued interest was not paid when it became due and payable - existence of debt and dispute or not - HELD THAT - The Corporate Debtor is a party to the Debenture Trust Deed in its capacity as a security provider/co-obligor and surety to that. Along with the Issuer Company, i.e., LDR, the Corporate Debtor is jointly and severally liable to repay all outstanding amounts under the NCDs. Under the terms of the Debenture Trust Deed, the Corporate Debtor agreed to make payments to the debenture holders by way of issue of an unconditional, irrevocable Corporate Guarantee. The Bench notes that as per Clause 2 of the Corporate Guarantee dated 06.10.2016, the Corporate Debtor is not only liable as a surety but also as a primary obligor. As per Clause 2 of the Deed of Guarantee, the obligation on part of the Corporate Debtor is unconditional and irrevocable. Further, the Corporate Debtor is liable as if it is the Principal Debtor under the Debenture Trust Deed as per Clause 16 of the Deed of Guarantee. The Bench notes that the Debenture Trustee is duly registered with the RoC and certification of charge has been annexed in the Petition. A Bank statement reflecting disbursal of monies has also been annexed in the Petition. We note that Corporate Debtor has not denied the execution of the trust deed or the deed of guarantee. It is also not disputed by the Corporate Debtor regarding the monies disbursed and the quantum of debt due and computation of interest. The default and its consequences clearly provide that nonpayment of interest towards outstanding NCDs is an 'event of default' and the Debenture Trust Deed recognizes that in case there is an 'event of default', the Petitioners/Debenture Holders are entitled to recover the money paid towards the NCDs. Therefore, the Bench notes that in this case an 'event of default' has occurred in terms of Clause 8.8 of the Debenture Trust Deed when accrued interest was not paid when it became due and payable and therefore the Corporate Debtor was entitled to redeem the NCDs. The existence of debt and default is reasonably established by the Petitioner as a major constituent for admission of a Petition under Section 7 of the Code. Therefore, the Petition under sub-section (2) of Section 7 is taken as complete - Application admitted - moratorium declared.
Issues Involved:
1. Maintainability of the Petition. 2. Execution and invocation of the Debenture Trust Deed and Guarantee. 3. Alleged force majeure conditions. 4. Disbursement of Project Management Fees. 5. Maturity and redemption of Non-Convertible Debentures (NCDs). Issue-wise Detailed Analysis: 1. Maintainability of the Petition: The Corporate Debtor contended that the Petitioners, being only holders of the NCDs and not parties to the Debenture Trust Deed, lacked the locus to file the Petition. The Tribunal found this argument untenable, stating that the Debenture Trustee acts for the benefit of the Debenture Holders and their presence does not limit the rights of the debenture holders. The Tribunal referenced a similar case, Bennet Property Holdings Company Limited v. Brick Eagle Affordable Housing, where it was upheld that debenture holders have the locus to file an application under Section 7 of the Insolvency and Bankruptcy Code (IBC). 2. Execution and Invocation of the Debenture Trust Deed and Guarantee: The Tribunal noted that the Debenture Trust Deed was executed between LDR and the Debenture Trustee for issuing 20,000 secured, unrated, redeemable NCDs. The Corporate Debtor was a party to the Deed in its capacity as a security provider and co-obligor. The Deed included an unconditional and irrevocable Corporate Guarantee, making the Corporate Debtor liable as a primary obligor. The Tribunal observed that the Corporate Debtor did not deny the execution of the Trust Deed or the Deed of Guarantee, nor did it dispute the disbursed monies, debt quantum, or interest computation. 3. Alleged Force Majeure Conditions: The Corporate Debtor argued that force majeure conditions, such as government orders and an NGT order, delayed the project. The Tribunal dismissed this argument, noting that the NGT order existed before the execution of the Debenture Trust Deed. The Tribunal emphasized that the Corporate Debtor's payment obligations were unconditional and that force majeure is not an inherent right but must be explicitly included in the contract. The Tribunal cited Clause 17.1.32 of the Deed of Guarantee, which triggers the Petitioners' right to invoke the Guarantee if the project cannot proceed for any reason. 4. Disbursement of Project Management Fees: The Corporate Debtor claimed that the Petitioners breached the Debenture Trust Deed by refusing to disburse Project Management Fees (PM Fees). The Petitioners countered that PM Fees were contingent on actual project expenses, which were not incurred due to halted construction. The Tribunal referred to Clause 8.8 of the Debenture Trust Deed, which stipulates that PM Fees are payable based on actual costs. Since no work was carried out, the Tribunal found it correct not to release PM Fees. The Tribunal reiterated that the Corporate Debtor, as a Guarantor, could not dispute the unconditional and irrevocable Deed of Guarantee. 5. Maturity and Redemption of Non-Convertible Debentures (NCDs): The Corporate Debtor contended that the NCDs were not due and payable until 30.09.2020 and 30.09.2021. The Tribunal referred to Clause 18 of the Debenture Trust Deed, which outlines the consequences of an Event of Default, including immediate payment of accrued interest, outstanding principal, and default interest upon default. The Tribunal determined that an Event of Default occurred when the accrued interest was not paid, entitling the Petitioners to redeem the NCDs. Conclusion: The Tribunal found the existence of debt and default reasonably established by the Petitioners, fulfilling the major requirement for admitting a Petition under Section 7 of the IBC. Consequently, the Tribunal admitted the Petition, initiating the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor, effective from the date of the Order. The Tribunal also appointed an Interim Resolution Professional and directed the Registry to communicate the order to the parties involved.
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