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TMI Blog2023 (12) TMI 1012X X X X Extracts X X X X X X X X Extracts X X X X ..... rector of the Corporate Debtor, Rajesh Estates and Nirman Pvt. Ltd. has been filed against the Order dated 24th March, 2023 passed by National Company Law Tribunal, Court-III, Mumbai Bench (hereinafter referred to as "The Adjudicating Authority") by which Section 7 Application under Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as "The Code") filed by the Financial Creditors (Respondent No. 1 and 2 herein) has been admitted. 2. Brief facts of the case necessary to be noticed for deciding this Appeal are:- I. Debenture Trust Deed (DTD in short) was entered between Vistara ITCL Limited (Debenture Trustee) and the Corporate Debtor. The Corporate Debtor issued Non-Convertible Debentures (NCDs in short) of Rs. 432 Crores of which Financial Creditors (Respondent No. 1 and 2 herein) subscribes to NCDs of Rs. 129 Crores i.e. 29.8% of the total issued capital. As per Debenture Trust Deed, payment of principal amount under the DTD was to be made on 31st December, 2020. Corporate Debtor could not make the payment of principal amount and the interest. Financial Creditor issued a notice dated 30th May, 2021 (Facility Acceleration Notice). Notice mentioned that there being tot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Mr. Ramji Srinivasan, Sr. Advocate appearing for Financial Creditors. 4. Learned counsel for the Appellant submits that the entire basis of the Financial Creditors' case for existence of default is the Facility Acceleration Notice dated 30th May, 2021/31st May, 202, however as Acceleration Notice is illegal, contrary to the provisions of the Debenture Trust Deed, there is no default on the part of the Corporate Debtor. It is submitted that Facility Acceleration Notice has been issued by the Debenture Holders whereas under the Debenture Trust Deed it is Debenture Trustee who along is entitled to declare event of default and issue a Facility Acceleration Notice after approved instructions received from Debenture Holders. Mr. Kathpalia has referred to Clause 9.2 of the Debenture Trust Deed. It is submitted that approved instruction has to be approved by 50% of the Debenture Holders by value. The Financial Creditors i.e. Respondent Nos. 1 and 2 hold only 29.8% of the non-convertible debentures hence they were not eligible to initiate proceedings under Section 7 of the Code. When the Debenture Trust Deed require something to be done in particular manner it has to be done only in that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pital who is a majority Debenture Holder has already initiated Section 7 Application against the Corporate Debtor which makes it clear that majority debenture holder has proceeded to initiate proceedings under Section 7 against the Corporate Debtor. No payments have been made by Corporate Debtor even after 10 A period. Present is a case for initiation of CIRP against the Corporate Debtor. 6. From the submissions of Learned Counsel for the parties and materials on record, following are the questions which arise for consideration in this Appeal:- i. Whether the Application filed by the Financial Creditors under Section 7 of the Code was hit by Section 10A of the Code? ii. Whether the Debenture Holders have right to initiate proceedings under Section 7 of the Code? iii. 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? iv. 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? v. Whether the Order passed by the Adjudic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt became due to be paid by the Corporate Debtor. 9. 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. In this context, we refer to the Judgment of Hon'ble Supreme Court in Ramesh Kymal Vs. Siemens Gamesha Renewable Power Pvt. Ltd., (2021) 3 SCC 224, but the question which is up for consideration is as to whether application under Section 7 which was filed on basis of default as on 1st June, 2021 is hit by Section 10A. 10. 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. Learned Counsel for the Respondents has relied on Judgment of this Tribunal in Mr. T. Prabhakar Vs. Mr. S Krishnan, C.A.(AT) (CH) Ins. No. 217 of 2021. Reliance has also been placed on the Judgment of this Tribunal in Dharmesh S Jain Vs. SREI Equipment Finance Pvt Ltd, 2023 SCC OnLine NCLAT 6 where default was both during 10A period and subsequent to Section 10A period. In paragraph 12, following was noticed: "12. Now we come to the question of debt and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Settlement Date" 13. Learned Counsel for the Appellant tried to distinguish clause 9.8 on the submission that Debenture Holders unqualified right to take all such action as may be available to them with reference to various policies and schemes promulgated by the RBI hence clause 9.8 is not attracted in the present case. When we look into the last sentence of the clause which begins with words "other remedies available to lenders in general in accordance with the provisions of the applicable law, at any time until the Final Settlement Date". The above clause in addition to Debenture Holders unqualified right as mentioned in first part of the clause thus remedies available in general are very much available to the Debenture Holders and one of the remedies available to Debenture Holders is to take proceeding under Section 7. Debenture Holders are the financial creditors which is undisputed fact. 14. Learned Counsel for the Respondent has relied on Judgment of this Tribunal in Mr. T. Prabhakar Vs. Mr. S Krishnan, C.A.(AT) (CH) Ins. No. 217 of 2021. In paragraph 48 of the Judgment, following has been stated: "48. It cannot be gainsaid that the Debenture Holders even in the absence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to issue Acceleration Notice dated 26.07.2022. We do not find any infirmity in the initiating proceeding against the Corporate Debtor under Section 7, there being debt and default undisputed and clearly proved by the fact as noted above. The Financial Creditor stepped in the shoes of the Debenture Holder on the basis of Assignment Deed dated 04.03.2021. In view of the foregoing consideration, we do not find any substance in grounds raised by the Appellant to interfere with the impugned order. There is no merit in the Appeal. Appeal is dismissed." 16. We have 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. Question No. iii, iv & v 17. The submission which has been much pressed by the Appellant is that Facility Acceleration Notice dated 30th May, 2021 and 31st May, 2021 was not in accordance with Debenture Trust Deed. 18. We may first notice the certain provisions of the Debenture Trust Deed. The Debenture Trust Deed dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Holder) into fully paid up equity shares of the Issuer in accordance with Clause 9.3 (Conversion of outstanding debentures into shares) below and the Issuer shall forthwith take all necessary action to ensure that such conversion is in compliance with the Applicable Law; and/or (h) stipulate such other conditions or amend any terms of the Transaction Documents as the Debenture Trustee considers necessary; and/or (i) the Debenture Trustee may (but shall not be obliged to), at its sole discretion and option enter into, on behalf of the Obligors/Security Providers such third party arrangements with such parties as the Debenture Trustee deems fit, for the purposes including but not limited to: (A) completing the construction and development of the Project Embassy; (B) sale/disposal of units or plots in the Project Embassy; or (C) any other measures to ensure the servicing and repayment of the Secured Obligations; and/or (j) exercise such other rights as may be available to the Debenture Trust under the Debenture Documents or under Applicable Law; in accordance with the Approved Instructions. The Issuer further ...and shall ensure that the other Obligors agree) that the Debentur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndependently in declaring an 'Event of Default' in respect of its individual loan and recalling the loan advanced by it to the borrower Doshion and seeking repayment of the said loan from the guarantor FIPL. We are, therefore, of the view that the locus standi of the Respondent IDBI Bank in taking unilateral action for declaring an 'Event of Default' in the repayment of the loan advanced by it is not established as the IDBI Bank being a participating bank of the Bank of Baroda consortium was bound to act under the clauses/provisions of the Inter-se Agreement and the Security Trustee Agreement. 30. We also consider the argument of the Appellant that Article 7.6 (e) of the Security Trustee Agreement stipulates that any lender which proposes to opt out of the consortium or reduce its share of facilities, shall be entitled to opt out and reduce its facilities only after the said lender has arranged with the borrower and ensure the substitution of the said lender, replenishment of facilities to the extent of the proposed reduction. We find strength in the argument of the Appellant that Standard Chartered Bank, a participant of the Bank of Baroda consortium, did not honour its promise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Acceleration Notice. In fact, interestingly, Altico itself initiated a Section 7 Proceeding against the Respondent No. 3/Corporate Debtor (Company Petition-CP(IB)79(MB)2021 for the same 432 NCDs under the same DTD. Whilst the aforesaid Company Petition filed by Altico was pending before the Hon'ble NCLT Mumbai Bench, a company petition under Section 7 filed by Steel Investments Private Limited against the Respondent No. 3 was admitted on July 16, 2021. Altico filed its claim before the insolvency resolution professional ("IRP") appointed by the Hon'ble Tribunal. An appeal was filed against the admission order in this Hon'ble NCLAT and eventually consent terms were filed between the parties and the appeal was disposed off. In the meanwhile, Altico transferred its debt to Assets Care and Reconstruction Enterprise Limited ("ACRE"). Also ACRE has now initiated a Section 7 Proceeding against the Respondent No. 3/Corporate Debtor (Company Petition - CP(IB)/926(MB)/2021 for the same 432 NCDs under the same DTD, which is pending before the Hon'ble NCLT, Mumbai Bench. This shows that the NCD holders reading of the DTD is also clear that an NCD holder can issue Acceleration Notice(s) and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t interest period for the Debenture shall start from relevant deemed date of allotment and shall end on June 30, 2018 and subsequent interest after first interest period shall start from first date of calendar quarter and end on the last day of the calendar quarter. Clause 4.3 is as follows: "4.3 Interest 4.3.1 Rate of Interest (a) Interest shall accrue at the Interest Rate on the entire outstanding Debenture Amount from the relevant Deemed Date of Allotment. (b) Interest, Default Interest and other charges shall accrue from day to day and shall be computed on the basis of a 365 (three hundred and sixty five) or 366 (three hundred and sixty six) days' year, as the case may be, and the actual number of days elapsed. 4.3.2 Interest Periods (a) First Interest Period: The first Interest Period for the Debentures shall start from the relevant deemed date of allotment and shall end on June 30, 2018. (b) Subsequent Interest Periods: All subsequent Interest Periods, after the first Interest Period, shall start on the first day of the calendar quarter and shall end on the last day of that calendar quarter. (c) Last Interest Period: The last interest period for the Debentures ..... X X X X Extracts X X X X X X X X Extracts X X X X
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