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2020 (11) TMI 359 - AT - Companies LawRedemption of Debentures - main contention of the Appellant is that NCLT did not specifically address to the prayer for repayment but rather gave a direction to explore all possibilities of settlements of claims of Petitioners and granted six months time, which is ultra vires to Section 71(8) and Section 71(10) of the Companies Act, 2013 - Whether the provisions under Section 71(10) of the Companies Act 2013 was adhered to by NCLT while disposing of the Petition? HELD THAT - It is significant to mention that Section 71(11) of the Companies Act, 2013 speaks of Penalty for Default . Section 71(12) provides a contract with a Company to take up pay for any debentures of the Company may be enforced by a decree of Specific Performance . As a matter of fact, Section 73 of the NCLT Rules, 2016 relates to Applications under Section 71(9), 71(10), 73(4) and Section 74(2) Section 76(2) of the Companies Act, 2013. It is relevant to mention that the relief for Specific Performance is allowed as a rule when there is no other relief which would meet the circumstances of the given case. A perusal of the Reply filed by the Respondent Company in the Company Petition before the Tribunal shows that there is a clear admission by the Respondent Company in paras 12 to 18 that there is a default of payment of interest on the Non-Convertible Debentures and that they proposed to settle the dues and that the matter was under due process. It is relevant to mention that in para 17 of their Reply, the Respondent Company had averred that there is an Arbitration proposal pending between the Parties, but the material on record does not evidence any such initiation of Arbitration proceedings - A perusal of the record shows that the Tribunal had taken into consideration the Financial Status of the Company , the interest of all Stake Holders and has given a direction for settlement. However, the fact remains that the Respondent Company did not make any effort to settle the matter nor was there any representation on their behalf before this Tribunal, despite service of notice. Section 71(10) provides a clear mechanism for issue and repayment of debentures, including the enforcement of repayment obligations. Section 71(10) provides that the Tribunal may hear the Parties concerned and direct, by Order, the Company to redeem the debentures forthwith on payment of principal and interest due thereon. Having regard to the provisions of Section 71(8) read with Section 71(10) of the Companies Act 2013 and also the fact that no concerted efforts have been made by the Respondent Company to explore the possibilities of settlement and also the fact that the time of six months granted by the National Company Law Tribunal has lapsed, though this Tribunal is of the considered view that Section 71(10) of the Companies Act 2013, ought to have been strictly adhered to, keeping in view the facts and circumstances of the attendant case on hand, this Appeal is disposed of with a specific direction to the Respondent Company to repay the amounts due and payable to the Appellants herein within a period of two months from today.
Issues Involved:
1. Compliance with Section 71(10) of the Companies Act, 2013. 2. Financial distress and non-payment of interest by the Respondent Company. 3. Petitioners' demand for redemption of debentures and associated interest. 4. Tribunal's direction for settlement and its adherence to statutory provisions. 5. Absence of Respondent Company's representation and efforts towards settlement. Issue-wise Detailed Analysis: 1. Compliance with Section 71(10) of the Companies Act, 2013: The main issue for consideration was whether the National Company Law Tribunal (NCLT) adhered to the provisions under Section 71(10) of the Companies Act, 2013. The Appellants argued that NCLT did not specifically address the prayer for repayment but rather directed the Respondent Company to explore all possibilities of settlement, which is ultra vires to Section 71(8) and Section 71(10) of the Companies Act, 2013. Section 71(10) empowers the Tribunal to direct the company to redeem the debentures forthwith on payment of principal and interest due thereon when a company fails to pay interest on debentures when it is due. 2. Financial distress and non-payment of interest by the Respondent Company: The Respondent Company, incorporated on 13.03.2012, issued secured Non-Convertible Debentures (NCDs). The company failed to make interest payments subsequent to 01.01.2018, leading to substantial financial distress. The Petitioners detailed the interest payments made and the subsequent defaults. The company admitted default in payment of interest on the NCDs and proposed settlement, but no material evidence of arbitration or settlement efforts was provided. 3. Petitioners' demand for redemption of debentures and associated interest: The Petitioners demanded repayment of the debentures along with interest due, totaling INR 56,24,460/- for Debenture Holder No. 1 and INR 18,74,820/- for Debenture Holder No. 2. Despite repeated correspondence and a legal notice, the Respondent Company did not respond or initiate any settlement. The Petitioners sought specific directions from the Tribunal for repayment and injunction against dealing with the mortgaged properties. 4. Tribunal's direction for settlement and its adherence to statutory provisions: NCLT, while disposing of the Petition, granted six months to the Respondent Company to explore all possibilities of settlement. The Appellants contended that NCLT failed to give any specific direction for repayment, which is mandatory under Section 71(10). The Tribunal is bound to give effect to the right of the Appellants under Section 71(10) read with Section 71(8), which mandates the company to pay interest and redeem the debentures in accordance with the terms and conditions of their issue. 5. Absence of Respondent Company's representation and efforts towards settlement: Despite service of notice, there was no representation from the Respondent Company. The Tribunal noted that the Respondent Company did not make any effort to settle the matter nor was there any representation on their behalf. The Tribunal found that Section 71(10) does not empower it to ascertain the financial condition of the defaulting party or grant any other relief than the relief provided under the said Section. Conclusion: The Tribunal concluded that Section 71(10) of the Companies Act, 2013, ought to have been strictly adhered to. Given the facts and circumstances, the Tribunal directed the Respondent Company to repay the amounts due and payable to the Appellants within two months from the date of the order. If the Respondent Company fails to comply, the Appellants are entitled to take steps as deemed fit, in accordance with the law. No costs were awarded, and the application for stay (IA No. 706/2020) was closed.
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