2021 (11) TMI 840 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Creditors - existence of debt and dispute or not - event of default - execution of debenture trust deed-cum-indenture of mortgage - HELD THAT - The terms and conditions or the debenture trust deed-cum-indenture of mortgage, evidences the fact that the corporate debtor in view of the raising finance for the purposes of purchasing FSI, undertaking construction activities, creation and maintenance interest service deserve, meeting issue expenses and another general corporate purposes have issued correct placement of fully secured creditor and unlisted fully transferable non-convertible debentures having face value of ₹ 10 lakhs into two series after grant substitution amount of ₹ 25 crores. It was envisaged under the debenture trust deed-cum-indenture of mortgage that by way of private placement of a letter the issuer has offered for issuance by way of private placement of debentures. It is clear that the English mortgage is created in favour of the debenture trustee for the benefit of debenture holders and therefore, the title, ownership possession, interest, benefits, claim and demand including and lease hold rights or for the mortgaged units were transferred to the debenture trustee absolutely - in terms of the debenture trustee-cum-mortgage deed, it is clear that the title of the mortgaged properties is transferred to the debenture trustee absolutely and upon the satisfaction of the secured obligations the debenture trustee shall reconvey that the property to the corporate debtor the clause of reconveyance. Upon perusal of the debenture trustee deed-cum-indenture of mortgage dated January 10, 2018 it is clear that the events of defaults envisage the realization of security upon happening events of defaults as a mechanism defined under the agreement in the particular manner, wherein he has power to sale the property, upon to receiver and make application to the court permanent receiver under clause 32. It also envisages a provision at clause 35.5, wherein it is agreed between the parties that the debenture holders and debenture trustee can take properties without intervention of court - in terms of the English mortgage, the mortgagor has a recourse to repay the mortgaged debt and has the right to seek reconveyance of the properties to the mortgagor upon complete satisfaction of debt. The petitioner has absolute rights in the mortgaged property and cannot initiate any action under section 7 upon non-payment of dues under the debenture trust deed, the petitioner has agreed to recourse and sell the mortgaged assets and recover the money due - this Bench conclude upon non-payment dues under the debenture trust deed, there is no default and the petitioner has agreed to recourse as envisaged under registered debenture trust deed-cum-mortgage. Petition dismissed.

Issues Involved:

1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 7 of the Insolvency and Bankruptcy Code, 2016.
2. Validity and enforceability of the Debenture Trust Deed-cum-Indenture of Mortgage.
3. Determination of default under the provisions of the IBC.
4. Rights and obligations of the financial creditor and corporate debtor under the Debenture Trust Deed.
5. Enforcement of security and realization of secured assets.

Issue-wise Detailed Analysis:

1. Initiation of CIRP under Section 7 of the IBC:

The petitioner, Beacon Trusteeship Ltd., filed a company petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC), seeking to initiate the Corporate Insolvency Resolution Process (CIRP) against Neptune Ventures and Developers P. Ltd. The financial creditor claimed a sum of ?32,08,76,450 as on December 31, 2019, which was said to be the debt and default. The petition was based on the execution of a debenture trust deed-cum-indenture of mortgage between the petitioner and the corporate debtor.

2. Validity and Enforceability of the Debenture Trust Deed-cum-Indenture of Mortgage:

The debenture trust deed was registered on January 10, 2018, and a supplementary debenture trust deed was executed on September 20, 2019, to amend the terms and conditions of the debenture interest rate. The corporate debtor defaulted on the payment terms of the debenture and supplementary debenture trust deed, leading to the financial creditor's claim. The debenture trust deed and supplementary debenture trust deed were registered with the Ministry of Corporate Affairs.

3. Determination of Default under the Provisions of the IBC:

The corporate debtor denied the allegations made by the petitioner, arguing that the value of the security provided exceeded the claim of the debenture holders. The corporate debtor contended that the default alleged by the financial creditor did not constitute a default under the provisions of the IBC. The debenture trust deed-cum-indenture of mortgage provided specific remedies and recourses for the financial creditor in case of default, including the enforcement of security.

4. Rights and Obligations of the Financial Creditor and Corporate Debtor under the Debenture Trust Deed:

The debenture trust deed-cum-indenture of mortgage outlined the events of default and the remedies available to the financial creditor. Clause 17.1 defined the events of default, and Clause 17.2.1 specified that the security created under the agreement would become enforceable upon the occurrence of an event of default. The financial creditor had various options to enforce the security, including selling the mortgaged properties, appointing a receiver, and taking possession of the mortgaged properties.

5. Enforcement of Security and Realization of Secured Assets:

The debenture trust deed-cum-indenture of mortgage provided that the financial creditor had recourse to enforce the security and sell the mortgaged assets to recover the money due. Clause 19.1 stated that the security created in favor of the debenture trustee would become enforceable upon the occurrence of an event of default. The corporate debtor argued that the financial creditor could not claim default under the IBC without first enforcing the security and realizing the secured assets.

Findings:

The tribunal concluded that the petitioner had absolute rights in the mortgaged property and could not initiate any action under Section 7 of the IBC upon non-payment of dues under the debenture trust deed. The petitioner was required to enforce the security and sell the mortgaged assets to recover the money due. The tribunal found that there was no default as contemplated under the provisions of the IBC, as the financial creditor had agreed to recourse as envisaged under the registered debenture trust deed-cum-mortgage. Consequently, the petition was dismissed.

Order:

The registry was directed to communicate the order to both parties immediately.

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