9911796707
TMI Blog2025 (4) TMI 1070X X X X Extracts X X X X X X X X Extracts X X X X ..... Order') passed by the Adjudicating Authority (National Company Law Tribunal, Mumbai Bench-I) in C.P.(IB) No.922/MB/C-1/2022. By the impugned order, the Adjudicating Authority has dismissed the Section 7 application filed by the Appellant seeking to initiate Corporate Insolvency Resolution Process ("CIRP in short) against the Corporate Debtor. Aggrieved by the impugned order, the present appeal has been preferred by the Appellant-Catalyst Trusteeship Ltd. 2. Coming to the sequence of events the salient developments which needs to be noticed for deciding the issue at hand are as outlined hereunder : Ecstasy Realty Pvt. Ltd.-Corporate Debtor had passed a Board Resolution and Special Resolution on 20.03.2018 authorising the borrowing of funds by issue of 850 Non-Convertible Debentures (NCD) of an aggregate value of Rs 850 Cr. in two series namely Series-A and Series-B debentures. On 20.03.2018, Catalyst Trusteeship Ltd.-Appellant was appointed as the Debenture Trustee on behalf of the Debenture Holders with the Edelweiss group as the majority bond-holders holding 84.67% of the debentures. The Edelweiss group comprised of ECL Finance ('ECLF' in short), Edelweiss Investment Adviser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant had issued NOC to the Corporate Debtor in this regard and that the final structuring proposal would be provided in June 2022 for which they will run the entire process internally. The Appellant also disbursed Rs 9.33 Cr. in two tranches of Rs 5 Cr and Rs 4.33 Cr. to the Corporate Debtor on 30.03.2022. On 28.04.2022 a demand letter was sent by the Appellant to the Corporate Debtor for an amount of Rs 65.49 Cr. being overdue for payment on the debentures of DTD-I. On 29.04.2022, the Appellant sent a letter to the Corporate Debtor seeking documents etc. for purposes of internal processing and approval of the restructuring proposal. This was followed by another reminder letter on 17.05.2022 seeking payment of Rs 65.49 Cr. as overdue on debentures. On 19.05.2022, the Corporate Debtor addressed a letter to the Appellant stating that they had provided all data to Edelweiss prior to their confirming the restructuring proposal and advised the Appellant to collect the data so furnished from Edelweiss. However, the Corporate Debtor also agreed to send all documents again without prejudice. On 06.06.2022, the Appellant informed the Debenture Holders regarding restructuring pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... remised on discussions held between one of the Debenture Holders and the Corporate Debtor at a time when DTD-I and its terms could be modified only in terms of procedure prescribed under Clause 33. Since ECLF had only 28.17% of the debentures, it could not have decided on behalf of the other Debenture Holders. The Appellant as Debenture Trustee was responsible for protection of interest of all Debenture Holders and therefore the discussion between the Corporate Debtor and ECLF was not binding on the Appellant. It was contended that no moratorium had been granted since the procedure prescribed under Clause 33 of the DTD-I had not been followed for modification of the DTD-I. This was also the view taken in the order passed by the Hon'ble Bombay High Court on 13.09.2022 which the Adjudicating Authority had chosen to side-step. Thus, when moratorium was not granted to the Corporate Debtor in terms of the DTD-I, the debt qua the Financial Creditor had become due and payable. In the facts of the case, the Corporate Debtor ought to have been admitted into CIRP in terms of Section 7 of IBC. That the Corporate Debtor has not disputed the fact that it had availed funds by issuing NCD's, clea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court of Bombay. 6. It was also submitted that the claims made by the Corporate Debtor that it was financially solvent was immaterial since the Corporate Debtor did not place on record any document to substantiate its claims of financial insolvency. The Project Valuation Reports relied upon by the Corporate Debtor referred only to projected profits expected to be earned from real estate project being constructed by them but basis such estimations of profit, Corporate Debtor cannot substantiate their solvency status of the Corporate Debtor. The Appellant debunked the contention of the Respondent that the Corporate Debtor was solvent for if that was the case there would not have arisen default in the repayment of loans. It was also contended that even for argument's sake, it was accepted that the moratorium was allowed till 2023, it remains unexplained as to why the Corporate Debtor did not clear the outstanding debt even till date in 2025. Thus, the intent of Corporate Debtor for resolution was not genuine. It is contended that in Section 7 application, all that has to be seen is whether there is debt which was due and payable and that there has been a default in repayment. No othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving been challenged by the Corporate Debtor and disposed of basis the submission made by the Corporate Debtor to amend the plaint and seek fresh interim reliefs, these observations cannot be taken as binding. In support of their contention, reliance has been placed on the judgement of Hon'ble Supreme Court State of Assam vs Barak Upatyaka D.U Karamchari Sanstha (2009) 5 SCC 694 wherein it was held that an interim order which does not finally and conclusively decide an issue cannot be a precedent. 8. Submission was pressed that following the exchange of a number of communications between the Corporate Debtor and the ECLF and the understanding arrived between them that the DTD-I had been amended, to which understanding the Appellant was also an active party, the Respondent started acting thereon. Pursuant to the communication of 23.03.2022, the Corporate Debtor approached ICIF which was another financial instrumentality of the Edelweiss Group for fund of Rs 152 Cr. and secured it with a charge on 18 flats in Project-1 as well as receivable of Rs 4.42 Cr. from the sale of flats in Project-1. The Corporate Debtor undisputedly completed the Sapphire transaction with ICIF. Upon receipt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs 1208 Cr. which was highly inflated and an unconscionable demand. The impugned order has therefore rightly held that the Section 7 application was for purposes other than resolution of the Corporate Debtor. 10. We have duly considered the arguments advanced by the Learned Counsel for both the parties and perused the records carefully. The two questions which fall for our consideration is whether there was debt which was due and payable by the Corporate Debtor qua the Appellant with incidence of default and whether the Section 7 application was filed with the intent of insolvency resolution or otherwise. 11. It is the case of the Appellant that the defence taken by the Corporate Debtor that one of the Debenture Holders-ECLF had granted a moratorium from repayment under the DTD-I was not tenable. It has been pointed out by the Appellant that Edelweiss group had three entities including ECLF. It was contended by the Appellant that the other two entities namely Edelweiss Rural and Corporate Services Ltd. and Edelweiss Investment Advisor Ltd. also formed part of Edelweiss Group and both of them were vested with a separate and distinct identity. Hence the consent of one entity i.e. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for restructuring the facility was not approved by the Debenture holders was only a afterthought which was adopted after the closure of the Sapphire transaction to orchestrate a default situation. 13. Coming to our analysis and findings, at this stage, we may quickly peruse the communications exchanged between the Appellant, Corporate Debtor and the majority Debenture Holder to see whether there was any understanding arrived between them on a restructuring and moratorium proposal of the Corporate Debtor and the terms and conditions set out, if any, for this purpose. 14. It is an undisputed fact that a restructuring proposal was communicated by Corporate Debtor to ECLF on 16.03.2022 and the email is as reproduced below: "From: Kishor . [mailto:[email protected]] Sent: 16 March 2022 09:52 To:SaahilDugar-Alternatives Subject: Re: Raiaskaran - Pendencies Dear Saahil, I spoke to Mr. Rajan and discussed the documentation and he has assigned the professionals so we could get a quick turnaround in the documentation process related to blackrock. We require the going forward terms confirmed in writing from edelweiss as under: 1. Interest and Principal moratorium of 18 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l (AT) (Insolvency) No. 467 of 2023 (II) Mr. Shobhit Jagdish Rajan ("Guarantor") Nalvedya, 85 Carter Road, Bandra, Mumbal-400050 Dear Madam/Sir, Sub: No Objection Certificate (NOC) 1. We refer to your request wherein you have sought no objection for (i) Issuance of redeemable, non-convertible debentures of an aggregate amount of Rs. 152 Crores (Rupees One Hundred Fifty Two Crores Only) ("NCDs") by Ecstasy Realty Private Limited; (ii) for creation of mortgage and charge over the security set out in the Schedule hereto by Ecstasy Realty Private Limited; (iii) to Mr. Shobhit Jagdish Rajan, to provide their guarantee to secure the NCDs; and (iv) to carry out other ancillary tasks for the successful completion of the proposed issuance of non-convertible debentures including issuance of the NCDs, making any amendments as may be needed to the constitutional documents and all other actions as may be required under applicable laws or as required by the new creditors to give effect to the issuance of NCDs. 2. We, the Debenture Trustee in respect of the financial assistance in the form of non-convertible debentures to the extent of Rs. 850 Crores (Rupees Eight Hundred Fifty Cror ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustee were keeping each other informed of their intent on the modalities of how to proceed with the restructuring and moratorium proposal. The exchange of these correspondences unambiguously shows that prior to the finalisation of the Sapphire transaction, the Corporate Debtor, the Appellant and the Edelweiss Group were in discussion regarding the restructuring and moratorium proposal and the term sheet. These correspondences manifest the clear intention between them with regard to restructuring of debt and moratorium and the reciprocal steps to be taken by them. We are therefore persuaded to believe that it was always in the notice and knowledge of the Appellant that the Corporate Debtor and the Edelweiss Group were negotiating a restructuring proposal. We also find that these correspondences and reference to various discussions between the parties mentioned in the letters were part of the record before the Adjudicating Authority. 20. This brings us to the next stage as to how the parties acted thereupon on the emails of 16.03.2022 and 23.03.2022. There is a communication dated 23.03.2022 by the Corporate Debtor informing the Appellant that they had approached ICIF for availing R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NCDs, as earlier confirmed vide email to us, request you to provide the extension of moratorium of 18 months for Interest and principal of the balance original NCDs in the first week of April 2022. The same needs to be communicated to BSE and SEBI at the earliest, since it's appearing now in the system that we have defaulted on the principal of the original NCD and it would severely affect raising funds in our group companies, thus defeating the very purpose of doing the Sapphire transaction. Kindly revert at the earliest on the same. ( Emphasis supplied ) 22. We next come to the response from the Appellant and ELCF to the above two emails of the Corporate Debtor. The Appellant sent their response on 29.03.2022 which is as below: Date: 29th March 2022 To, 1. Variegate Realestate Private Limited Velocity, 31, Turner Road, Bandra (West), Mumbai - 400050 2. Ecstasy Realty Private Limited 2nd floor Solitaire Building, 80, S.V Road, Santacruz (W), Mumbai - 400 054 3. Mr. Shobhit Jagdish Rajan Naivedya, 85 Carter Road, Bandra, Mumbai - 400050 Dear Sir, Release of Charge Please refer to your request letter dated March 27, 2022 whereby, you have requeste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te Debtor that NOC requested by them had been issued by Appellant a day earlier. It is therefore clear that the Bandra plot had been released only upon receipt of instructions from the ECLF in furtherance of the agreement towards modification of DTD-I. There is no mention of Clause 28.3 of the DTD in the communications of 29.03.2022. This indicates that the Appellant and the Debenture Holders were at ad-idem and acting in concert on the actionable steps to be taken by them consequent upon the restructuring and moratorium proposal coming into play. We further notice that there is not only an unequivocal confirmation on the part of the Appellant for release of charge and mortgage on the immovable properties but that the Appellant had even filed the Memorandum of Satisfaction of Charge on the RoC portal as part of the restructuring proposal. Further this letter of release of charge was also communicated to Variegate Realestate which was a sister concern of the Corporate Debtor though it was not a party to DTD-I. This shows that the Appellant had even expressly communicated to a third party of their intent to act and implement the restructuring proposal. Hence the reference to Clause 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 wherein they have stated that that final restructuring proposal "will be provided" around the month of June. The words "will be provided" is undoubtedly a positive affirmation and it would be misconceived to construe otherwise. 28. The Ld. Sr. Counsel for the Respondent has relied on the judgement of Hon'ble Supreme Court in Indus Biotech Private Ltd. Vs. Kotak India Venture (Offshore) Fund (2021) 6 SCC 436 to contend that a duty is cast on the Adjudicating Authority to ascertain the existence of default and exercise its satisfaction as to whether the Section 7 petition is fit for admission. The relevant paragraph of the said judgment is reproduced below : "In the process of consideration to be made by the adjudicating authority as to whether a default has been committed so as to warrant invocation of IBC, the facts of the particular cases are to be taken into consideration before arriving at a conclusion as to whether a default has occurred even if there is a debt in strict sense... therefore the adjudicating authority certainly would make an objective assessment of the whole situation before coming to a conclusion as to whether the petition under section 7 IBC is to be admit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be restructured. It was submitted by the Respondent that in their reply affidavit before the Adjudicating Authority they had pointedly stated at paras 2.25 and 6 that the Debenture Holders/Debenture Trustee had induced the Corporate Debtor to take a loan of Rs 152 Cr. and transfer it to the Appellant. But once the said amount was received, the Appellant and Edelweiss Group resiled on their promise to extend moratorium and instead took steps to financially cripple the Corporate Debtor. It was pointed out that the Rejoinder Reply of the Appellant thereto was bald and evasive and there was no specific denial thereto. It is also the case of the Corporate Debtor that the Appellant and Debenture Holders acted in cahoots to down-grade the credit rating of the Corporate Debtor. Though money was available in the escrow account of the Corporate Debtor, the Appellant deliberately did not appropriate the same to defray interest payments therefrom. Even the cheques for interest payments were deliberately deposited with a delay of one day so as to create a scenario of default on the part of the Corporate Debtor to down-grade their credit rating. Thus, the default was not the make of the Cor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... F and the Corporate Debtor regarding restructuring proposal and grant of moratorium. Though the Edelweiss Group on the conclusion of the Sapphire transaction had sent a communication on 30.03.2022 stating that the final restructuring approval would be provided around the month of June, instead of proceeding to formalise this implied acceptance of the restructuring proposal, the Appellant had requested the Corporate Debtor a day earlier on 29.04.2022 to provide documents in support of their restructuring proposal for being placed before the Debenture Holders for their consideration. The Corporate Debtor after registering their initial protests on 19.05.2022 by stating that they had already submitted all the requisite information and documents earlier, agreed to provide these documents to the Appellant on 24.05.2022. Before the restructuring proposal could be considered by the Debenture holders, the Appellant issued a statutory Demand Notice under Section 138 of the Negotiable Instruments Act, 1881 on 31.05.2022. Thereafter, on 10.06.2022 the Appellant informed the Corporate Debtor that the majority of the Debenture Holders had rejected the restructuring proposal. Thereafter, on 27.0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctation that the moratorium and release of properties would be acted upon by the Appellant and the Debenture Holders. We also find that the Appellant was aware of the intent of the majority debenture holders of agreeing to the restructuring and moratorium proposal and accordingly also acted on their directions like release of charge on Bandra property, release of Rs 9.33 Cr. etc. towards extending moratorium until September 2023. The pattern of conduct prior to the Section 7 petition shows that both Appellant and the majority debenture holders were working on a common understanding that the restructuring proposal was a done deal. 35. In such circumstances, there seems to be no rational basis for explaining as to how and why the restructuring proposal was suddenly turned down by 97% vote share. Even if for argument's sake, it is agreed that the other sister concerns of Edelweiss did not support the restructuring proposal, it fails to explain what prompted ECLF to turn volte face and backtrack from restructuring proposal while it was all along sending instructions to the Appellant to act on the restructuring proposal and moratorium. 36. Given this backdrop, there seems to be substa ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
