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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 ..... ommitted default in respect of the payment of interest on the debentures in terms of Section 71(10) of the Act. Sub-rule 3 indicates that the Tribunal shall pass appropriate order within 60 days from the date of receipt of the Application under Section 71(10) of the Act. However, before making an order reasonable opportunity of being heard has to be given to the Company or any other person interested in the matter. In our considered opinion reasonable opportunity has been granted to the R1 Company and the Company has been heard at length in the matter - 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. The Petitioner / debenture trustee represents 18,959 debenture holders who are the members of the public. Therefore, under the garb of public interest their interest canno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad a downslide from C as on 26.04.2019 to D as on 12.09.2019. The fall in the credit rating within such a brief period alarmed the Debenture Trustee (i.e. Petitioner) who was obliged to act to safeguard the rights and interest of the debenture holders. (f) Meanwhile the R1 on 27.04.2019 informed the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) that it had delayed the repayment of principal aggregating to INR 542,00,00,000/- in respect of the loan due to various Banks. The R1 however assured that it would regularise the said payment shortly. The R1 s admission of default in respect of the repayment of the material debts constituted an event of default in terms of clauses 7.3 (f), (h) and (l) of the DTD. (g) The R1 on 29.06.2019 informed the BSE NSE further that due to the ongoing liquidity crunch, the maturity of certain (other) debentures worth INR 400,00,00,000/- has been extended till 31.10.2019 with the consent of the debenture trustees and the debenture holders concerned. The said communication and admission of default also constituted event of default under the DTD. (h) Considering the large scale financial debacle inter alia in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all present and future book debts and business receivables (including the current assets and investments) in favour of the Petitioner. 4. The Petitioner accordingly came up with the present Petition inter alia with the following prayers [interim prayers are omitted]: 1. That this Hon ble Tribunal order and declare that Respondent No.1 is liable and obligated to redeem the Secured NCDs and make the payment of principal amount, interests and all monies due and payable amounting to INR 2850,78,79,727/- (Indian Rupees Two Thousand Eight Hundred Fifty Crores Seventy Eight Lakhs Seventy Nine Thousand Seven Hundred Twenty Seven only) being the undisputed outstanding amount due and payable in respect of the Secured NCDs; 2. That this Hon ble Tribunal order and declare that any action taken or resolution passed by the Respondent No.1 in order to subvert the rights of the Applicant and the Secured NCD holders and to evade Respondent No.1 s obligations of redemption of the Secured NCDs and payment of the principal amount along with interest and all monies due thereon is illegal, non-binding, invalid and non-est; 3. That Respondent No. 1, above named be directed to make repa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the Petition. The defence plea, in objection to the Petition, culled from the written submission filed by the Respondents may be stated as follows. (a) The power under Section 71(10) of the Act is discretionary and could not be automatic solely on the basis of default in honouring the NCDs as contended by the Petitioner. The use of word may in Section 71(10) of the Act is a clear indication that the Tribunal has to exercise its discretionary jurisdiction while granting the reliefs thereunder. The jurisdiction therefore could not be mandatory. The use of word shall in sub-section 11 in contradistinction to the word may in sub-section 10 clearly indicates that the jurisdiction under sub-section 10 cannot be mandatory. (b) Sub-section 8 thereof provides that the payment of interest or the redemption of the debentures has to be made in terms of the issue. Therefore without considering the terms of the debenture issue, the discretion under sub-section 10 cannot be appropriately used. Subsection 10 enjoins the Tribunal to order the payment of the principal as well as interest, upon a solitary instance of default, even of payment of interest. Therefore, it is incumbent o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fault as contemplated under Section 71(10) of the Act, it would be obligatory on the part of the Tribunal to pass an order thereunder. In this connection reliance is placed on Akhil R. Kothakota and another v. M/s Tierra Farm Assets Company Pvt. Ltd. (Company Appeal (AT) No. 39 of 2020 decided on 09.11.2020) and Indrajit Saroj Ors. v. Prism Industrial Complex Limited Company Ors (CP No. 201/ALD/2017, NCLT, Allahabad Bench decided on 18.05.2018) 7. There is no quarrel that the Petitioner represented 18,959 number of debenture holders in respect of the following secured NCDs issued by the R1. Sr. No. ISIN Principal Redemption Date Coupon Interest Rate (payable annually) (%) 1. INE217K07AB6 ( NCD Series 1A ) 3 January 2020 8.70 2. INE217K07AC4 ( NCD Series 1B ) 3 January 2020 8.90 3. INE217K07AD2 ( NCD Series 2A ) 3 January 2022 8.90 4. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssary 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 ranking pari passu charge and to have and to hold such Trust Properties unto and to the use of the Debenture Trustee (for the benefit of the Secured Parties) over and above the Trust Properties charged by the Company under clause 4.8.1 in order to secure the Required Security Cover only to the extent that the Trust Properties charged by the Company under clause 4.8.1 is insufficient to meet the Required Security Cover. 7 EVENTS OF DEFAULTS AND REMEDIES: 7.1 Upon the occurrence of any of the events specified in Clause 7.3 below (each, an Event of Default ), the Debenture Trustee may, in its discretion, which has not been waived in writing by the Debenture Trustee (acting on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 paid at its stated maturity (in the reasonable opinion of the Debenture Trustee), or there is a default in making payments due under any guarantee or indemnity given by the Company in respect of the material indebtedness of borrowed monies of any person, and proceedings are initiated by the relevant lender or creditor in connection with such default, for recovery of such indebtedness or for enforcement or invocation of such guarantee or indemnity; h. If the Company is unable to pay its material debts (in the reasonable opinion of the Debenture Trustee) or proceedings for taking it into liquidation, whether voluntarily or compulsorily, may be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her 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 payment of interest has to be in accordance with the terms and conditions of the issue. The same is specified in sub-section 8 of Section 71 of the Act. As already indicated the R1 defaulted in making the payment of interest as required under the terms and conditions of their issue. Therefore the Petitioner / debenture trustee was entitled to move the present forum in sub-section 10. 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. 14. With regard to the language used in the section it would presently be profitabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 stay its hands in passing an order under sub-section 10 of Section 71 of the Act. It will accordingly be appropriate to quote the relevant provision. 73. Application under sections 71(9), 71(10), section 73(4) or section 74(2) and 76(2).- xxx xxx xxx (3) The Tribunal shall pass an appropriate order within a period of sixty days from the date of receipt of application under sub-rule (1): Provided that the Tribunal shall, before making any order under this rule, give a reasonable opportunity of being heard to the company and any other person interested in the matter. (4) The Tribunal may, if it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 indicate that the Tribunal would not pass an order or refuse to pass an order despite the conditions prescribed in sub-section 10 of Section 71 of the Act having been fulfilled. Besides the Rules being a subordinate legislation would not override the express provision in the principal legislation. The Rules are meant to facilitate the object and purpose of the provisions of the principal legislation. Therefore, the Rules cannot be read to thwart the requirements of the Act. 21. As already indicated when the conditions prescribed in sub-section 10 are fulfilled the Tribunal would have no option th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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