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TMI Blog2023 (4) TMI 1082X X X X Extracts X X X X X X X X Extracts X X X X ..... n of proceedings to be in personam or in rem is also made clear by the fact that in the Company that is facing financial stress and for which a resolution plan is under consideration, 23 debenture holders who are among those represented by the Debenture Trustee are also part of ICA Lenders, though a majority of the retail debenture holders are not signatories to the ICA. The contention of the Respondent Debenture Trustee is that the requirement of sub-section 10 of Section 71 of the Companies Act, 2013 is that the Tribunal should pass an order only keeping in view its satisfaction and what is necessary to safeguard interest of the company or debenture holders. He has contended that the issue of public interest and financial condition of the company are not necessary factors to be look into by the Tribunal while passing the order - While considering the above argument of the Learned Counsel for the Respondent-Debenture Trustee, we note that the provision under section 71 (3) and section 71(10) of the Companies Act, 2013 stipulates that NCLT shall, before making any order, give a reasonable opportunity of being heard to the Company and person concerned in the matter. Rul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce Rakesh Kumar Jain ] Member ( Judicial ) And [ Dr. Alok Srivastava ] Member ( Technical ) For the Appellant : Mr. Kumar Kislya , Advocate . For the Respondent : Ms. Moulshree Shukla Mr. Vaijayant Poliwal Advocates for R - 1 . For the Appellant : Mr. Victer Das , Advocate For the Respondent: Ms. Moulshree Shukla Mr. Vaijayant Poliwal Advocates for R - 1 . For the Appellant Mr. Victer Das , Advocate . For the Respondent: Ms. Moulshree Shukla Mr. Vaijayant Poliwal Advocates for R - 1 . For the Appellant : Mr. Kumar Kislay and Ms. Aishna Jain , Advocate . For the Respondent : Ms. Moulshree Shukla Mr. Vaijayant Poliwal Advocates for R - 1 . JUDGMENT [ Per. Dr. Alok Srivastava , Member ( Technical ) ] 1. Four appeals being disposed of in this common judgment, namely, CA(AT) No. 69/2021 (in short Appeal-I ), CA(AT) No. 70/2021 (in short Appeal-II ), CA(AT) No. 71/2021 (in short Appeal-III ) and CA(AT) No. 73/2021 (in short Appeal-IV ), which are tagged together, which have been filed by respective Appellants under section 421 of the Companies Act, 2013 assailing the order dated 21.6.2021 (hereinafter called Impugned Order- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pleaded in the Company Petition since it was a person interested in the matter as per proviso of section 73(3) of the Companies Act, 2013. This application CA No. 129/2021 was rejected by NCLT vide Impugned Order-II passed on 27.5.2021 and without waiting for the limitation period for the appeal on this order to be over, the NCLT went ahead and passed Impugned Order-I on 21.6.2021 whereby RHFL was directed to pay interest on the debentures at the contractual rate within a period of two months and also redeem the debentures thereafter within three months. In the other appeals, namely, Appeal-II and Appeal-III, RHFL has requested for setting aside the Impugned Order-I on the ground that the bid for resolution of the corporate debtor (RHFL) is being finalized and Impugned Order-I will cause hurdle in the finalization of the bid which would lead to the successful resolution of the corporate debtor, so that the interest of all financial creditors including debentures holders can be taken care of. In Appeal-IV the Appellant Bank of Baroda has prayed for setting aside both the Impugned Order-I and Impugned Order-II, so that the resolution of the corporate debtor can be successfully achi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s was uploaded on the website of the lead bank. He has also submitted that the bid document stipulates that implementation of the approved bid would require prior consent of the non-ICA lenders as per the terms of their respective financing documents. 11. The Learned Counsel for Appellant Bank of Baroda has further submitted that the Debenture Trustee filed the Company Petition for CP No. 139/MB/2020 under section 71 of the Companies Act, 2013 before NCLT, Mumbai on 8.1.2020, praying for declaration that RHFL is liable and obligated to redeem the secured NCDs and make payment of principal amount, interest and other monies due and payable to the debenture holders amounting to Rs.2850.79 crores, Certain other prayers made by the Debenture Trustee in the said Company Petition pertain to payment of interest in respect of various series of NCDs. 12. The Learned Counsel for Bank of Baroda has further submitted that the resolution process of RHFL resulted in receipt of four bids, which were thoroughly evaluated and voting on the bids by ICA Lenders took place between 31.5.2021 and 9.6.2021 and simultaneously to ensure a fair and equitable treatment, the ICA Lenders have been engagin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd cash equivalent of RHFL. Thus, the Debenture Trustee holds a pari passu charge on assets of RHFL, along with the ICA Lenders. He has further submitted that the ICA Lenders of RHFL took action to identify a debt resolution plan, but due to the inapplicability of the provisions of RBI circular to majority of secured NCD holders (mutual funds, pension funds and individuals), the Debenture Trustee did not accede to the ICA. He has further argued that the credit rating of RHFL degraded from AA+ to D between April 2019 to September 2019 and RHFL committed various breaches of the Debenture Trustee Deed, particularly of clauses 7.3(f), (h) and (l), 25.2(xxii) and 26 and these breaches were flagged by the Debenture Trustee in its letters dated 7.8.2019 and 27.8.2019 to RHFL, which went unresponded and the breaches to the Debenture Trustee Deed were also not rectified. 14. The Learned Counsel for Debenture Trustee has argued that upon instructions from the NCD holders, the Debenture Trustee vide letter dated 19.11.2019 declared occurrence of Event of Default under clause 7.1 of the Debenture Trustee Deed and called upon the Appellant to make payment of the principal amount and all inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 71(10) of the Companies Act, 2013, and also that the Tribunal does not have to consider public interest while deciding the application under Section 71(10) of the Companies Act, 2013. 17. The Learned Counsel for the corporate debtor RHFL has echoed the arguments put forth by the Learned Counsel for Bank of Board (ICA Lenders) and argued that the RBI circular dated 7.6.2019 provided a framework for resolution of stressed assets and in accordance with this circular, the resolution process of the corporate debtor RHFL was initiated, in which on 19.6.2021 Authum Infrastructure and Investment Limited was declared as the successful highest bidder in relation to acquisition of all the assets of RHFL. He has also pointed that out of total of 20,453 creditors of RHFL, 35 creditors, who control 63% of the total principal amount outstanding have already approved the Resolution Plan as ICA Lenders and under the proposed Resolution Plan, over 18880 retail debenture holders (who are represented by the Debenture Trustee) would receive 100% principal repayment as per the distribution pattern. He has thus added that actually 23 debenture holders, who are also among those represented by the De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1) Where a company fails to redeem the debentures or repay the deposits or any part thereof or any interest thereon, an application under sub-section (10) of section 71 or under subsection (4) of section 73 of the Act or section 45QA of the Reserve Bank of India Act, 1934 (2 of 1934), shall be filed to the Tribunal, in Form No. NCLT. 11 in duplicate and shall be accompanied by such documents as are mentioned in Annexure B, by- (a) in case of debentures, all or any of the debenture holders concerned, or debenture trustee; (b) in case of deposits, all or any of the where the deposits are secured, by the depositors concerned, or deposit trustee. xx xx xx xx xx (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 is satisfied, on the application filed under sub-rule (1). that it is necessary so to do, to safeguard the interests of the company, the debenture holde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wer as opposed to the use of word shall . We further note that 20% of the debenture holders are signees of the Inter Creditor Agreement (ICA), even though it is not obligatory on the debenture holders to sign the ICA. The debenture holders are investors, whereas the creditors, who sign the ICA, who form the major part of ICA are financial creditors of the Company. It stands to reason that if some debenture holders have signed the ICA, they have shown interest in the successful resolution of RHFL. 25. It is argued by the Learned Counsel for the Debenture Trustee that the Company Petition was preferred under section 71(10) of the Companies Act, 2013 before the NCLT in exercise of its exclusive jurisdiction, which arises from the provision of section 71(8) of the Companies Act, 2013 which mandates that a company shall pay interest and redeem the debentures in accordance with the terms and conditions of the debenture issue. Clause 3.1.3 of the Debenture Trust Deed provides that the contractual obligation of the Issuer Company to pay to the secured NCDs holders, the principal amount on the date of the maturity and annual interest as accrued in accordance with the financial governanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted with a right in personam which is an interest protected against specified individuals. All disputes relating to rights in personam are considered to be amenable to arbitration while rights in rem are required to be adjudicated by courts and public tribunals.... * * * * * 38. Hence, in addition to various classes of disputes which are generally considered by the courts as appropriate for decision by public fora, there are classes of disputes which fall within the exclusive domain of special fora under legislation which confers exclusive jurisdiction to the exclusion of an ordinary civil court. That such disputes are not arbitrable dovetails with the general principle that a dispute which is capable of adjudication by an ordinary civil court is also capable of being resolved by arbitration. However, if the jurisdiction of an ordinary civil court is excluded by the conferment of exclusive jurisdiction on a specified court or tribunal as a matter of public policy such a dispute would not then be capable of resolution by arbitration. 27. Further, the question of proceedings to be in personam or in rem is also made clear by the fact that in the Company that is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s financial condition and health would, therefore, also become relevant factors while hearing an application under section 71(10). The ICA Lenders, who have all signed the Inter Creditor Agreement, have also taken steps for financial rejuvenation and revitalization of the Company through a resolution plan. Therefore, the ICA Lenders are also important parties insofar as financial resolution of the Company is concerned, and therefore we are of the opinion that they should be afforded an opportunity to be heard in the company petition as the redemption of NCDs shall have an impact on the financial condition of the Company and would deeply affect the implementation of the resolution plan, which is for resolution of the Company. 32. In the light of the above, when we look at the Impugned Order of the NCLT dated 27.5.2021, we note that the NCLT has denied an opportunity to be heard to ICA Lenders on the ground that insofar as section 71(10) of the Companies Act, 2013 is concerned, they do not have a right to be heard. We are of the opinion that this is an incorrect reading of the requirement of hearing of person concerned as is laid down in section 71(10) of the Companies Act, 2013 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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