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TMI Blog2024 (1) TMI 1433X X X X Extracts X X X X X X X X Extracts X X X X ..... tween the parties - the Respondent has rightly relied on judgment of this Tribunal in MAIF Investments India Pte. Limited [2019 (4) TMI 1903 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI], where Section 7 application was filed by the Financial Creditor which was dismissed by the Adjudicating Authority. The Financial Creditor has entered into subscription agreement subscribing OCDs. Appeal was filed by the Financial Creditor challenging the order rejecting the application. This Tribunal in the aforesaid case examined the DAS and held that OCDs are financial debt within the meaning of Section 5(8)(c). - This Tribunal allowed the appeal and set aside the order and held the Appellant to be treated as Financial Creditor. The above judgment fully supports the submission of learned counsel for the Respondent. Financial Creditor is related party of the Corporate Debtor - HELD THAT:- The said plea has not been taken by the Appellant in the appeal or in the reply. However, it is not the case of the Appellant that application filed by the Financial Creditor is not maintainable it being related party. On the said submission no mileage can be taken by the Appellant nor on this ground it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ms. Vala Srihitha, Ms. Diksha Gupta, Mr. Aditya Dhupar, Advocates for FC Mr. Prashant Mehta, Ms. Prachi Kohli, Advocates for Interveners/homebuyers JUDGMENT ASHOK BHUSHAN, J. This Appeal by Suspended Director of the Corporate Debtor has been filed challenging order dated 24.11.2023 passed by the Adjudicating Authority (National Company Law Tribunal), Principal Bench, New Delhi in C.P. (IB) No.390(PB)/2023 by which order the Section 7 application filed by the Respondent No.1, the Financial Creditor has been admitted. Appellant aggrieved by the said order has come up in this Appeal. Brief facts of the case necessary to be noticed for deciding this Appeal are: i. A Debenture Subscription Agreement (DSA) was executed where the Financial Creditor, the Respondent No.1 subscribed to unlisted optionally convertible cumulatively secured debentures (OCD) aggregating to Rs. 125,00,00,000/- issued by the Corporate Debtor. Various security and transaction documents as contemplated under DSA were executed on the same day such as Debenture Trust Deed, Memorandum of entry to create equitable mortgage, Deed of Personal Guarantee, etc. ii. The Financial Creditor in the year 2020 send various ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l appearing for the Appellant and Shri Arun Kathpalia, learned senior counsel appearing for the Financial Creditor - Respondent No.1. We have also heard learned counsel for the Interveners. 3. Shri Abhijeet Sinha, learned counsel for the Appellant challenging the order admitting Section 7 application submits that the optionally convertible debentures were in the nature of equity. It is submitted that the Financial Creditor invested the amount in optionally convertible debentures (OCDs) and there was no debt on basis on which Section 7 application could be entertained. Learned counsel for the Appellant has relied on recent judgment of Hon'ble Supreme Court in "IFCI Limited vs. Sutanu Sinha & Ors., Civil Appeal No.4929 of 2023 decided on 09.11.2023 reported in 2023 SCC OnLine SC 1529". Shri Sinha further submitted the Financial Creditor was a related party of the Corporate Debtor. It is submitted that the application under Section 7 was admitted in contravention of Principles of Natural Justice. The Adjudicating Authority placed reliance on the Rejoinder Affidavit filed by the Applicant, although in the hearing dated 11.10.2023, the Applicant offered to withdraw the Rejoinder. Relia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reme Court in "Re Interplay between Arbitration Agreements Under the Arbitration and Conciliation Act 1996 and Indian Stamp Act 1899". The submission of the Appellant regarding violation of Principles of Natural Justice is wholly incorrect. The Adjudicating Authority has reserved the orders after hearing both the parties. Against the order dated 06.11.2023 reserving the orders by Adjudicating Authority appeal being Company Appeal (AT) (Ins) No.1486 of 2023 was filed by the Appellant, which was dismissed by this Tribunal on 17.11.2023. The submission of the Appellant that Corporate Debtor is a going concern, hence, Section 7 application should not be admitted cannot be accepted there being debt and default, which has been proved. The Corporate Debtor itself in its reply has admitted debt and default, hence, the Adjudicating Authority had to admit the section 7 application. 5. We have considered the submissions of learned counsel for the parties and perused the record. 6. The first submission which has been advanced by learned counsel for the Appellant is that there was no debt due to the Financial Creditor since the optionally convertible debentures are in the nature of equity. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the claim in Para 6 and observed that the ground for rejection of debt claimed was that Appellant have invested the amount as per compulsorily convertible debentures which has to be treated as equity. In Para 6 of the judgment following has been observed by the Hon'ble Supreme Court: "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 14.03.2023, the said order relied upon the judgment of this Court in Narendra Kumar Maheshwari v. Union of India It would be useful to extract that part of the judgment which h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case, DSA in question is not CCD rather DSA in question is OCD with regard to which there is no dispute between the parties. Learned counsel for the Respondent has rightly relied on judgment of this Tribunal in "MAIF Investments India Pte. Limited" (Supra), where Section 7 application was filed by the Financial Creditor which was dismissed by the Adjudicating Authority. The Financial Creditor has entered into subscription agreement subscribing OCDs. Appeal was filed by the Financial Creditor challenging the order rejecting the application. This Tribunal in the aforesaid case examined the DAS and held that OCDs are financial debt within the meaning of Section 5(8)(c). In Para 23 following was held: "23. In the present case, there has been a disbursal of Rs. 102 Crores in favour of the 'Corporate Debtor' by way of 'OCDs'. In terms of Section 5(8)(c), any amount raised pursuant any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument, comes within the meaning of 'financial debt'. Therefore, from the aforesaid fact, we find that there is a disbursal of Rs. 102 Crores in favour of the 'Corporate Debtor' and the 'OCDs' originally met is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the time of the Tribunal on one pretext or the other which is spoiling the timelines specified by the Code. However, in the interest of justice, we give one more opportunity. We are inclined to adjourn the matter to 18.10.2023." 14. The above order does not indicate that the Applicant has withdrawn his Rejoinder. What counsel for the Applicant stated on 11.10.2023 was that if the arguments goes on that day, the Applicant is willing withdraw the Rejoinder. The fact is that the arguments did not proceed on that day and matter was adjourned to give opportunity to the Corporate Debtor. We, thus, are of the view that the Adjudicating Authority gave opportunity to the Corporate Debtor to make his submissions on the next date and submissions were not heard on 11.10.2023 since Rejoinder was served on the Corporate Debtor only on 09.10.2023. Matter was heard thereafter on 07.11.2023 and after hearing the matter judgment was reserved. We do not find any substance in the submission of the Appellant that there is any violation of Principles of Natural Justice. 15. Learned counsel for the Appellant has also contended that the impugned order is passed on the basis of instruments which are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tractual obligation to redeem the OCDs to ASK." (Emphasis Placed) Thus, we find that the Respondent has admitted in unequivocal terms that it had failed to redeem the OCDs even by the Revised Redemption Date due to the economic crises." 16. The Financial Creditor has also filed 'Record of Default' by Additional Document dated 05.07.223 issued by NeSL. The 'Record of Default' has been extracted by the Adjudicating Authority in Para 19 of the impugned order which clearly proves default. Relying on the material on record, the Adjudicating Authority concluded that there are sufficient materials to prove financial debt and default by the Corporate Debtor. Learned counsel for the Respondent has relied on the judgment of Hon'ble Supreme Court in "M. Suresh Kumar Reddy vs. Canara Bank & Ors., (2023) 8 SCC 387" where the Hon'ble Supreme Court after referring to the earlier judgment of Hon'ble Supreme Court in "Vidarbha Industries Power Ltd. vs. Axis Bank Ltd., (2022) 8 SCC 352" held that in the application under Section 7, the Adjudicating Authority has to look into the debt and default. In Para 11 to 14 following has been held: "11. Thus, once NCLT is satisfied that the default has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is incapable of realisation. The example is only illustrative. 89. In this case, the adjudicating authority (NCLT) has simply brushed aside the case of the appellant that an amount of Rs 1730 crores was realisable by the appellant in terms of the order passed by APTEL in favour of the appellant, with the cursory observation that disputes if any between the appellant and the recipient of electricity or between the appellant and the Electricity Regulatory Commission were inconsequential." (emphasis supplied) 13. A review petition was filed by Axis Bank Ltd. seeking a review of the decision of Vidarbha Industries on the ground that the attention of the Court was not invited to the case of E.S. Krishnamurthy. While disposing of review petition by order dated 22-9-2022, this Court held thus : (Vidarbha Industries Power case, SCC p. 323, paras 6-7) "6. The elucidation in para 90 and other paragraphs [of the judgment under review] were made in the context of the case at hand. It is well settled that judgments and observations in judgments are not to be read as provisions of statute. Judicial utterances and/or pronouncements are in the setting of the facts of a particular case. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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