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TMI Blog2023 (12) TMI 129X X X X Extracts X X X X X X X X Extracts X X X X ..... ot concerned with a debenture per se. The debenture subscription agreement clearly defines ICTL as the special purpose vehicle while IVRCL is the sponsor company and IFCI is the lender. In terms of Clause 2.4, the rate of interest/coupon rate of 11 per cent per annum, payable quarterly, is applicable till either the buy back of all the CCDs (an option available to the borrowers) or conversion of CCDs into equity. The liability is of the sponsor company for making coupon payments and not of the SPV/ICTL. Further, under Clause 2.8, the buy back is also an arrangement inter se the Sponsor company and IFCI - the appellant was provided security under the Debentures Subscription Agreement but the obligations are of the sponsor company. That being the position, it is difficult to appreciate how the obligation is of the SPV i.e. ICTL. Unless the debt is of the ICTL, the appellant cannot seek a recovery of the amount on the basis of being a creditor of the SPV ICTL. The effect of the aforesaid is that a contract means as it reads. It is not advisable for a Court to supplement it or add to it. It is an unfortunate scenario where the appellant is being left high and dry as there is nothing wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as a floating security with a covenant for payment on a specified date. In re Crompton Co. Ltd. [1914] 1 Ch. 954. 2. In the factual scenario of the present case, we are concerned with a Highway project in which the appellant has made investments through the CCDs. The National Highways Authority of India (NHAI) had awarded the project in question in terms of a Concession Agreement dated 25.03.2010 executed between it and the IVRCL Chengapalli Tollways Ltd (ICTL). ICTL was in turn a subsidiary Company of IVRCL which was holding 100 per cent share capital of ICTL. A consortium of lenders had provided term loan facility to the ICTL to execute various documents including the company loan agreement dated 24.11.2010 and the balance project was to be financed by IVRCL through equity infusion. As a part of the equity component of the project, the financing was to be obtained through CCDs. It is not in dispute that what the appellant subscribed to was the CCDs, albeit with other debentures being executed simultaneously. The date of conversion into equity from the CCDs was December, 2017. The formal issuance of shares was however, not done after the said date. We may note that the appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reatment of CCDs as equity and no approval for conversion to debt was sought from NHAI. d. All repayment obligations under the DSA are that of IVRCL Limited and not of ICTL/Corporate Debtor. e. The notes to the balance sheets of ICTL/Corporate Debtor also clarify that the repayment obligations are that of IVRCL Limited and not ICTL/Corporate Debtor. f. The CDs were mandatorily convertible to equity in December, 2017, and only corporate actions for the conversion was pending. 6. It will be noticed from the aforesaid that the fundamental principal for rejecting the debt claim was that in view of the appellant having invested the amount as per the CCDs, the same was to be treated as equity. The CCDs had been approved as equity under the financial package for the Concession Agreement dated 25.03.2010 and were towards the part of equity of the project cost approved by the NHAI having a debt equity ratio. There was never any re-categorization of CCDs from equity to debt. The lenders consortium had also approved the term of CCDs as equity. The endeavour of the appellant to challenge the position of the Resolution Professional vide IA No.1465/2022 did not succeed in terms of an order dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... devised, and the real objective was that the amount advanced was to be treated as a debt. The conversion of CCDs to equity actually became impossible due to the insolvency of the ICTL and thus, the entire principal amount along with the interest became due and payable. 10. Learned senior counsel contends that in effect the appellant is neither treated as shareholder nor as a financial creditor leaving the appellant remediless. He further sought to emphasise that ICTL was a subsidiary of IVRCL, which was really holding 100 per cent shareholding of ICTL. 11. We may note that it is not disputed by him that the put option was never exercised. In effect, his submission was that whether CCDs should be categorized as debt or equity would depend on the status of the maturity of the CCDs and the position of the investor at the inaugural time, and this would vary in the facts and circumstances of each case. 12. In order to appreciate this submission, we may note the submission of Mr.Shyam Divan, learned senior counsel for the respondent No.1 who has drawn our attention to the Concessionaire Agreement with the NHAI defining equity as under:- Equity means the sum expressed in Indian Rupees rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a debenture per se. 16. The debenture subscription agreement clearly defines ICTL as the special purpose vehicle while IVRCL is the sponsor company and IFCI is the lender. In terms of Clause 2.4, the rate of interest/coupon rate of 11 per cent per annum, payable quarterly, is applicable till either the buy back of all the CCDs (an option available to the borrowers) or conversion of CCDs into equity. The liability is of the sponsor company for making coupon payments and not of the SPV/ICTL. Further, under Clause 2.8, the buy back is also an arrangement inter se the Sponsor company and IFCI. The conversion into equity takes place as per Clause 2.9 and the put option as per Clause 2.11. It would suffice to reproduce Clause 2.9 which reads as under:- 2.9 Conversion into equity In the event of default of payment of return or buy back of 12.50 Crore CCDs in two tranches anytime between the end of the 3rd year and 6th year from the date of issue of CCDs giving an effective transaction IRR (including processing charges payable by the sponsor company) of 15,50 % p.a. If it is exercised anytime between 3rd and 5th year, else, a rate of 15% p.a., would be applicable between the 5th and 6th y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... single and/or multiple act(s) taken simultaneously or otherwise under and/or in pursuance of this Agreement and/or the Pledge Agreement, read with the Power of Attorney jointly or severally constitute Change in Ownership per Clause 5.3 of the Concession Agreement. Any such act(s) if taken without prior written approval of the NHAI shall be treated as having been carried out in contravention of the Concessional Agreement and thus void ab initio as per subclause (a) above. It is hereby specifically clarified that for purposes Change in Ownership under the Concession Agreement and all stipulations thereto including inter alia as provided in clause 5.3, the lender (the IFCI) shall at all times to be treated as the acquirer of Equity and/or the person directly/indirectly acquiring control of the Board of Directors of the Borrower (the Concessionaire). 20. A reading of all the aforesaid leads to a conclusion that the appellant was provided security under the Debentures Subscription Agreement but the obligations are of the sponsor company. That being the position, it is difficult for us to appreciate how the obligation is of the SPV i.e. ICTL. Unless the debt is of the ICTL, the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a third party. However, these are commercial decisions of the respective parties. The obligations were of the sponsoring company and IVRCL in terms of Clause 2.4. 24. A reading of the impugned judgment, specifically the rationale from para 19 onwards shows that the issue has been correctly crystallized as to whether CCDs could be treated as a debt instead of an equity instrument. In that sense, it was observed that treating them as a debt would tantamount to breach of the concessional agreement and the common loan agreement. The investment was clearly in the nature of debentures which were compulsorily convertible into equity and nowhere is it stipulated that these CCDs would partake the character of financial debt on the happening of a particular event. 25. The appellant has invoked the guarantees and sought remedy against the sponsor company. The fact that it is not serving any fruitful purpose is not something which can weigh with us. 26. A significant aspect taken note of in the impugned order is that the terms of the various agreements prohibited the corporate debtor from taking further debt without the consent of the assignees. No such approval was sought or taken. The amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X
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