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TMI Blog2021 (6) TMI 790X X X X Extracts X X X X X X X X Extracts X X X X ..... benture Trustee) Regulations, 1993. (b) The Board of Directors (BoD) of the R1 on 10.11.2016 authorised issuance of secured non-convertible debentures (NCDs) at face value of INR 1000/- each, aggregating to INR 3,00,000 Lakhs and unsecured NCDs at face value of INR 1000/- each, aggregating to INR 50,000 Lakhs. (c) The Petitioner by Debenture Trustee Agreement dated 10.11.2016 consented to act as the Debenture Trustee to the aforesaid Debentures. After the R1 issued the prospectus as required under the Act and the Regulations, the Petitioner entered into a Debenture Trust Deed (DTD) with the former on 02.01.2017. (d) The R1 then on 03.01.2017 issued six series of Secured NCDs at face value of INR 1000/- each, with coupon interest at the rate of 8.70% (for NCD Series 1A- INE217K07AB6); 8.90% (for NCD Series 1BINE217K07AC4); 8.90% (for NCD Series 2A- INE217K07AD2); 9.05% (for NCD Series 2B- INE217K07AE0); 9.00% (for NCD Series 3AINE217K07AF7) and 9.15% (for NCD Series 3B - INE217K07AG5) payable annually to the respective debenture holders. The maturity / redemption date was 03.01.2020 for NCD Series 1A & 1B; 03.01.2022 for NCD Series 2A & 2B and 03.01.2027 for NCD Series 3A & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the payment of the principal and the interest aggregating to INR 2822,12,18,791/- due in respect of the secured NCDs. The R1 however failed to make any payment. Such failure also constituted an 'event of default' under clauses 7.3 (a), (b) & (c) of the DTD. (k) Even otherwise the R1 was liable to pay the principal amount and interest to the tune of INR 2031,14,73,956/- in respect of the NCD Series 1A & 1B and interest to the tune of INR 68,00,68,771/- in respect of the NCD Series 2A & 2B and NCD Series 3A & 3B, on 03.01.2020 and had failed to honour the same. Such default also constituted an 'event of default' under DTD. (l) The Petitioner unsuccessfully put the Respondents on notice dated 04.01.2020 to make the payment of all monies in respect of the secured NCDs aggregating to INR 2850,78,79,727/- with interest at the rate of 2% p.a. till the date of realisation. 3. It is submitted in the Petition that Respondent No. 2 (R2) is a public limited company incorporated under the Act and is a core investment company - nondeposit taking systemically important institution registered with the RBI. R2 had, for the purposes of security for redemption and payment of principal amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 10.90% on the sum of INR 180,67,65,345/- (Indian Rupees One Hundred Eighty Crores Sixty Seven Lakhs Sixty Five Thousand Three Hundred Forty Five only) from 4 January 2020 until payment and/ or realization thereof; 7. That in respect of NCD Series 2B, Respondent No. 1 above named be directed to make payment of interest at the rate of 11.05% on the sum of INR 363,79,61,435 (Indian Rupees Three Hundred Sixty Three Crores Seventy Nine Lakhs Sixty One Thousand Four Hundred Thirty Five only) from 4 January 2020 until payment and/ or realization thereof; 8. That in respect of NCD Series 3A, Respondent No. 1 above named be directed to make payment of interest at the rate of 11.00% on the sum of INR 13,97,04,210/- (Indian Rupees Thirteen Crores Ninety Seven Lakhs Four Thousand Two Hundred Ten only) from 4 January 2020 until payment and/ or realization thereof; 9. That in respect of NCD Series 3B, Respondent No. 1 above named be directed to make payment of interest at the rate of 11.15% on the sum of INR 261,19,74,781/- (Indian Rupees Two Hundred Sixty One Crores Nineteen Lakhs Seventy Four Thousand Seven Hundred Eighty One only) from 4 January 2020 until payment and/ or realizat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the R1. The lenders of the R1 have, under the RBI circular dated 07.06.2019, entered into an ICA inter alia for the debt resolution of the R1. Therefore, an order in terms of the relief sought would cause serious prejudice to the R1 and the ICA lenders who so far have refrained from enforcing their security. An order as sought would rather derail the Resolution Process and would adversely affect the potential resolution of the R1. (e) The redemption date of the principal amount of most of the debentures is ahead. Therefore, the proposed resolution of the R1 expected to be completed within a couple of weeks could possibly take care of the payments. Their redemption is claimed on the basis of right of acceleration provided under the DTD. Event of default under clause 7.3 (f), (h) & (l) as alleged are erroneous and doesn't constitute the 'event of default'. Therefore, the event of default has not been established and an order under Section 71(10) of the Act could not be passed. The Petition is otherwise not maintainable and is liable to be rejected. 6. We have heard the learned counsel appearing for both the sides. It is submitted on behalf of the Petitioner that once the Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urity for the redemption and payment of the principal amount of the Secured NCDs and interest accrued there on, the Holding Company being the legal and beneficial owners of the Trust properties more particularly described in part B of the Schedule - III, do hereby create a charge over properties listed under Part B of the Schedule - III for an amount that is necessary over and above the amount charged as per clause 4.1, in order to secure the value of 1 time of the outstanding Secured NCDs and interest accrued thereon, under Rule 18(1) of Companies (Share Capital & Debentures) Rules, 2014. This charge shall rank pari passu with the existing secured NCD holders of RCL, for an amount that is necessary over and above the amount charged as per clause 4.1, in order to secure the value of 1 time of outstanding Secured NCDs and interest accrued thereon. 4.8.6 In terms of the Rule 18(1) of Companies (Share Capital and Debentures) Rules, 2014, the Holding Company has agreed to hypothecate Trust Properties more particularly described in Part B of the Schedule - III, along with all rights, title, interests, benefits, claims and demand, present and future, whatsoever by way of a first ranki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hout limitation, under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and or the Recovery of Debts Due to Banks & Financial Institutions Act, 1993. 7.3 The occurrence of any one of the following events shall constitute an Event of Default by the Company: a. Default is committed in payment of the principal amount of the Secured NCDs on the due date(s) and such default continues for a period of 7 (seven) working days; b. Default is committed in the payment of any interest on the Secured NCDs on the due date(s) and such default continues for a period of 7 (seven) working days; c. Default is committed in payment of any other Amounts Outstanding and such default continues for a period of 15 (fifteen) days; ... f. Any material indebtedness of the Company for funds raised or availed by the Company, that is, material indebtedness for and in respect of monies borrowed or raised by the Company (whether or not for cash consideration) by whatever means (including acceptance, credits, deposits and leasing) becomes due prior to its stated maturity by reason of default of the terms thereof or if any such indebtedness is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ters dated 27.04.2019 and 29.06.2019 clearly indicate that the R1 has been unable to pay its material debts. It is also not in dispute that the lenders, owing to the inability of the R1 to service its debts, have come together to endeavour a debt Resolution Process for the R1. The conduct of the R1 in not being able to service its debts clearly constitutes an event of default in terms of clause 7.3 (f), (h) & (l) of the DTD. Further the interest in respect of secured NCDs was due on 03.01.2020. The payment was not made until 09.01.2020 (date of filing of the Petition). 11. The R1's inability to pay the material debts is independent of other conditions / circumstances specified in clause 7.3 (f), (h) & (l) of the DTD. Therefore, the default in servicing the other material debts and the failure of the R1 to pay the interest due on the extant secured NCDs clearly constitutes events of default as agreed to between the parties under the DTD. 12. Therefore, we have no hesitation in holding that the R1 committed default in respect of the payment of interest on the debentures in terms of Section 71(10) of the Act. 13. It goes without saying that the redemption of the debentures and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue. 17. Sub-section 11 of Section 71 of the Act is a penal provision for non-compliance of the order of the Tribunal passed under Section 71 of the Act. Penal provisions are the result of violation of the order of an Authority. Therefore there could not be any comparison between the words used in a penal provision and those in other provisions prescribing procedure for the Tribunal to deal with a default in performance of a contract between parties. 18. The use of word 'shall' in sub-section 11 would not decide whether the word 'may' used in the preceding sub-section would be mandatory or directory. What is required to be seen is the context in which the word is used and the attendant conditions provided in the section / sub section. Therefore the language of subsection 11 would hardly have any bearing and relevance in interpreting the language of sub-section 10. 19. Learned senior counsel appearing for the Respondents further relied upon subrule 4 of Rule 73 of the Rules to canvass that the Tribunal is not bound to pass an order under sub-section 10. The procedure prescribed under sub-rule 4 indicates that depending upon the circumstances enumerated therein, the Tribunal may st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tract in personam and not a contract in rem. The debenture holders who are substantial in number are also members of the public. Therefore, their prerogative in timely receipt of interest against their investment (debentures) cannot be sacrificed at the altar of public interest. The submissions regarding consideration of the Resolution bids would have no bearing in the instant Company Petition. The amount of debentures is substantial and the R1 having taken the deposit, there is no reason why any indulgence should be shown to the Respondents on the ground that any Resolution Process is underway. 20. Sub-rule 4 indicates that when the Tribunal is satisfied that it is necessary to pass an order under Section 71(10) of the Act to safeguard the interest of the Company, the debenture holders or the depositors or in the public interest, it would do so. The sub-rule is an aid to the Tribunal to pass an order if it thinks necessary to do so in order to safeguard inter alia the interest of the Company or the debenture holders. The only condition it stipulates that while passing an order the Tribunal may order repayment inter alia of the debentures or part thereof. The sub-rule doesn't indi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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