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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 ..... tted. 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 emails to the Corporate Debtor highlighting several occasions where the Corporate Debtor has breached the terms of DSA and the Transaction Document. As per the DSA, the redemption date was 06.10.2020. The Corporate Debtor by letter dated 03.10.2020 requested the Financial Creditor for extension of 290 days i.e. upto 31.07.2021 for redemption of optionally convertible debentures. The Financial Creditor consented to the extension till July 31, 2021 which was communicated vide letter dated 05.10.2020. The Debenture T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is 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. Reliance of the Adjudicating Authority on the contents of the Rejoinder without giving opportunity to the Corporate Debtor to respond violates the Principles of Natural Justice. The Respondent is not a Financial Creditor of the Corporate Debtor, hence, application could not have been admitted. There is no default. The Corporate Debtor is a going concern. It is further submitted that the Adjudicating Authority relied on the instruments which are stamped insufficiently and are not admissible evidence. Mr. Sinha further su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal 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. The Financial Creditor was only investor and is not Financial Creditor of the Corporate Debtor. To support his submission, learned counsel for the Appellant has relied on judgment of Hon'ble Supreme Court in "IFCI Limited" (Supra). The judgment of the Hon'ble Supreme Court arose out of proceedings under CIRP where claim filed by the Appellant was rejected by the Resolution Professional on the ground that compulsorily convertible debentures are part of equity in the project cost. The said order of the Resolution Profe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 has also been extracted in the impugned order of National Company Law Appellate Tribunal (NCLAT) as under: "A Compulsory Convertible Debenture does not postulate any repayment of the principle. The question of security becomes relevant for the purpose of payment of interest on these debentures and the payment of principle only in the unlikely event of winding up. Therefore, it does not constitute a 'debenture' in its classic sense. Even a debenture, which is only convertible at option has been regarded as a 'hy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion. 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 against time value of money and per se, constitute 'financial debt' in the light of Section5(8)(c) of the I&B Code." 11. 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. 12. Now we come to the submission of the Appellant that Financial Creditor is related party of the Corporate Debtor. We notice that the said plea has not been taken by the Appellant in the appeal or in the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... djourned 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 stamped insufficiently and are not admissible evidence. The said submission has been repelled by learned counsel for the Respondent. It is submitted that in the present case debt and default was admitted by the Corporate Debtor which fact has been noticed by the Adjudicating Authority in the impugned order. The Adjudicating Authority recorded a finding that in the pleading and during the arguments the Corporate Debtor has clearly admitted that it failed to redeem the OCDs on the redemption date. We may extract Para 18 of the impugned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icating 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 occurred, there is hardly a discretion left with NCLT to refuse admission of the application under Section 7. "Default" is defined under sub-section (12) of Section 3 IBC which reads thus: "3. Definitions.-In this Code, unless the context otherwise requires- * * * (12) "default" means non-payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not [paid] by the debtor or the corporate debtor, as the case may be;" Thus, even the non-payment of a part of debt when it become ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 7. To interpret words and provisions of a statute, it may become necessary for the Judges to embark upon lengthy discussions. The words of Judges interpreting statutes are not to be interpreted as statutes." 14. Thus, it was clarified by the order in review that the decision in Vidarbha Industries was in the setting of facts of the case before this Court. Hence, the decision in Vidarbha Industries cannot be read and understood as taking a view which is contrary to the view taken in Innoventive Industries and E.S. Krishnamurthy. T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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