2023 (12) TMI 1012 - AT - Insolvency and Bankruptcy

Admissibility of Section 7 application - date of default in the Section 7 Application - bar u/s Section 10A of IBC - right of Debenture Holders to initiate proceedings under Section 7 of the Code - competency of Facility Acceleration Notice. Whether the Application filed by the Financial Creditors under Section 7 of the Code was hit by Section 10A of the Code? - HELD THAT - The Law is well settled that no application for initiating proceedings under Section 7 can be initiated for default which is committed during Section 10A period - It is well settled that when default is committed during Section 10A period and subsequent to Section 10A period application is fully maintainable for any default subsequent to Section 10A period - The Application under Section 7 being filed for default which was on basis of default occurred subsequent to Section 10A period it is opined that application was not hit by Section 10A. Whether the Debenture Holders have right to initiate proceedings under Section 7 of the Code? - HELD THAT - It is already noticed that Altico i.e. majority Debenture Holder has already initiated Section 7 proceeding hence all Debenture Holders were unanimous in their view to proceed against the Corporate Debtor and this Tribunal upheld the initiation of proceeding against the Corporate Debtor by the Financial Creditors. Whether the Facility Acceleration Notice dated 30th May 2021/31st May 2021 was incompetent and not in accordance with Debenture Trust Deed dated 19th March 2018? - In event Facility Acceleration Notice dated 30th May 2021/31st May 2021 is held to be not in accordance with Debenture Trust Deed whether the Application under Section 7 deserves to be dismissed? - Whether the Order passed by the Adjudicating Authority admitting Section 7 Application needs interference in this Appeal? - HELD THAT - From the facts and sequence of events as noticed it is clear that the facility acceleration notice issued by the Debenture Holders cannot be said to be in accordance with the Debenture Trust Deed. The notice was not issued by Debenture Trustee and issued by Debenture Holders - having held that Facility Acceleration Notice was not issued in accordance with the terms and conditions of Debenture Trust Deed the next question to be considered is as to whether after the aforesaid holding whether the Section 7 Application deserves dismissal. While noticing the clauses of Debenture Trust Deed it is noticed that Debenture Trustee has to initiate proceeding after occurrence of event of default in pursuance of the approved instructions by the Debenture Holders has to be obtained in meeting with fifty percent vote share as per the clauses of Debenture Trust Deed as noticed above. The Financial Creditors who have filed Section 7 Application were minority debenture holders having only 29.8 percent. Majority Debenture Holder is the Altico Capital. In the Reply which has been filed by the Financial Creditors it has been pleaded that Altico the majority NCDs holder had already initiated proceeding under Section 7 of the Code against the Corporate Debtor - The fact remains that majority Debenture Holder having already initiated Section 7 Proceeding all debenture holders are unanimous in their actions to proceed against the corporate debtor for the defaults committed. It is already held while considering Question no. i that application under Section 7 was not hit by section 10A since the application under Section 7 was not confined to the default committed during Section 10A period rather the Application was filed on the basis of date of default dated 01st June 2021 consequent to Facility Acceleration Notice dated 30th May 2021 and 31st May 2021 as well as other defaults as explained in Section 7 Application. If 1st June 2021 is not taken as date of default the default on the payment of interest after end of the 10A period i.e. after 24th March 2021 there is clear default on the payment of interest and payment of default in the interest of both the Financial Creditors is more than Rs. 1 Crore which is threshold amount for filing of the Application under Section 7 - The tabular chart given in Exhibit K contains the details of interest accrued interest paid and interest outstanding even if we take period after 10A period i.e. period from 31st March 2021 as mentioned in the tabular chart total overdue interest after 10A period is much more than threshold amount of Rs.1 Crore. Details of overdue interest has been captured in the tabular form in exhibit K - The date of default in payment of interest after there are several date of default in payment of interest after Section 10A period which is captured in the tabular form filed as Exhibit K in Part-IV of the Application Financial Creditors have also filed the working for computation of the amount and days of default in tabular form thus the date of default cannot be confined only to date 1st June 2021 as mentioned in Part-IV. The date of default which is mentioned in the tabular form cannot be ignored it is clear that there was default of more than Rs.1 Crore i.e. threshold period in payment of default by the Corporate Debtor after Section 10A period. The above default is very much there even if the default is ignored on the basis of Facility Acceleration Notice dated 30th May 2021/31st May 2021 - even after Section 10A period there being default in payment of interest which was more than threshold amount the Application under Section 7 deserves to be admitted - the order of the Adjudicating Authority admitting Section 7 Application need no interference in this Appeal. Appeal dismissed.

Summary

Issues Involved:
1. Whether the Application filed by the Financial Creditors under Section 7 of the Code was hit by Section 10A of the Code?
2. Whether the Debenture Holders have the right to initiate proceedings under Section 7 of the Code?
3. Whether the Facility Acceleration Notice dated 30th May, 2021/31st May, 2021 was incompetent and not in accordance with the Debenture Trust Deed dated 19th March, 2018?
4. In the event, Facility Acceleration Notice dated 30th May, 2021/31st May, 2021 is held to be not in accordance with the Debenture Trust Deed, whether the Application under Section 7 deserves to be dismissed?
5. Whether the Order passed by the Adjudicating Authority admitting Section 7 Application needs interference in this Appeal?

Summary:

Issue 1:
The Tribunal examined Part-IV of the Section 7 Application and found that the default date was mentioned as 1st June, 2021, along with a detailed computation of the amount and days of default. The Tribunal held that the application was not barred by Section 10A since it was based on defaults occurring after the Section 10A period. The Tribunal cited precedents to support that applications are maintainable for defaults subsequent to the Section 10A period.

Issue 2:
The Tribunal considered Clause 9.8 of the Debenture Trust Deed, which grants Debenture Holders the right to take actions available under applicable laws. The Tribunal upheld that Debenture Holders, being financial creditors, have the right to initiate proceedings under Section 7 of the Code. The Tribunal referenced previous judgments affirming the rights of Debenture Holders to file such applications.

Issue 3:
The Tribunal scrutinized the Facility Acceleration Notice and the relevant clauses of the Debenture Trust Deed. It concluded that the notice was not issued in accordance with the Debenture Trust Deed, as it was not issued by the Debenture Trustee based on approved instructions from the majority of Debenture Holders.

Issue 4:
Despite the Facility Acceleration Notice being non-compliant with the Debenture Trust Deed, the Tribunal noted that the majority Debenture Holder had already initiated Section 7 Proceedings against the Corporate Debtor. This demonstrated a unanimous decision among Debenture Holders to proceed against the Corporate Debtor, thus validating the Section 7 Application.

Issue 5:
The Tribunal found no merit in interfering with the Adjudicating Authority's order admitting the Section 7 Application. It emphasized that there was a clear default in payment of interest after the Section 10A period, which exceeded the threshold amount of Rs. 1 Crore. Consequently, the Application under Section 7 was rightly admitted.

Conclusion:
The Tribunal dismissed the appeal, affirming that the application was not barred by Section 10A, Debenture Holders had the right to initiate proceedings, the Facility Acceleration Notice was non-compliant but did not invalidate the application, and the order admitting the Section 7 Application was upheld.