Financial Creditors As Minority Debenture Holder Entitled To Initiate CIRP Irrespective Of Presence Of Debenture Trustee: NCLT Mumbai
Udai Yashvir Singh
23 April 2023 8:30 AM GMT
The National Company Law Tribunal, Mumbai Bench, comprising Shri H.V. Subba Rao (Judicial Member) and Smt. Madhu Sinha (Technical Member), while adjudicating an application under Section 7 of Insolvency and Bankruptcy Code, 2016 (“IBC, 2016”) in Clearwater Capital Partners Singapore Fund IV Private Limited and Anr vs Rajesh Estates and Nirman Private Limited has held the...
The National Company Law Tribunal, Mumbai Bench, comprising Shri H.V. Subba Rao (Judicial Member) and Smt. Madhu Sinha (Technical Member), while adjudicating an application under Section 7 of Insolvency and Bankruptcy Code, 2016 (“IBC, 2016”) in Clearwater Capital Partners Singapore Fund IV Private Limited and Anr vs Rajesh Estates and Nirman Private Limited has held the Debenture Trustee is not the only person empowered to initiate an Corporate Insolvency Resolution Process(“CIRP”) even though the Financial Creditors were Minority Debenture Holders.
Background Facts
Rajesh Estates and Nirman Private Limited (“Corporate Debtor”) was engaged in the business of real estate construction. The Corporate Debtor issued 129 unrated, unlisted, secured, redeemable, non-convertible debentures (“NCDs”) having a face value of Rs. 1,00,00,000/- to Clearwater Capital Partners Singapore Fund IV Private Limited and Clearwater Capital Partners Singapore Fund V Private Limited (“Financial Creditors”). The NCDs were issued in pursuance of a Debenture Trust Deed dated 19.03.2018 with Vistra ITCL (India) Private Limited as the Debenture Trustee. In May 2021, the Corporate Debtor defaulted in fulfilling the payment obligation with respect to the NCDs on account of which 2 Acceleration Notices dated 31.05.2021 were issued by the Financial Creditors demanding the redeeming the NCDs. There was no acknowledgement of the Acceleration Notices by the Corporate Debtor, due to which the Financial Creditors invoked Personal and Corporate Guarantees. The Financial Creditors called upon the Rajesh Constructions and Personal Guarantors (“Corporate Guarantor”) to pay the entire accelerated amount of Rs. 194,77,68,682/- by way of a Guarantee Notice dated 02.06.2021, which was also returned unclaimed. Thus the Corporate Debtor and the Corporate Guarantors despite repeated reminders, failed to fulfill their obligations.
On the contrary, it was submitted by the Corporate Debtor that the petition is barred by Section 10A as the alleged default under the Debenture Trust Deed was on 31.12.2020. Further the Acceleration Notice did not provide any details and granted just one day’s time to the Corporate Debtor to repay the total sum. It was further submitted that the Acceleration Notice is against the provisions of the Debenture Trust Deed as the Acceleration Notice can only be issued by the Debenture Trustee and the Debenture Trustee can only act on instructions issues by the majority of the NCD holders. The Financial creditors were minority of NCD holders and thus they cannot declare an event of default without following the provisions Debenture Trust Deed.
Findings of the Tribunal
The Tribunal observed that a separate clause in the Debenture Trust Deed gave unqualified rights to both the Debenture Trustee and the Debenture Holders separately wherein they can take action under various policies, schemes, etc., under the applicable laws whenever required. It was further observed that Section 71(6) of the Companies Act, 2013 construes Debenture Trustee as one who shall protect the interests of Debenture Holders. It was observed that even though Financial Creditors are Minority Debenture Holders, the Debenture Trustee is not the only person empowered to initiate an action. Reliance was placed on the NCLT Mumbai judgment of Reliance AIF Management Company Limited & Ors. v. Bharucha & Motivala Infrastructure Private Limited’ CP(IB) – 4108 /2019 wherein it was held that the presence of a Trustee does not limit any right of a debenture holder under any circumstances. Reliance was further placed on the NCLAT judgment of Mr. T Prabhakar v. Mr. S Krishnan’ (Company Appeal (AT) (CH)(INS) No. 217 of 2021 wherein it was held that there is no fetter in law for the ‘Debenture Holder’ to file an application seeking to initiate CIRP without adding the ‘Debenture Trustee’.
It was further observed that no payment had been made till date which suggested that there has been a default on the part of the Corporate Debtor. Section 10A would not apply as only 10% of the amount fell due under the suspension period and 90% was not covered as the default was of a continuous nature.
With the aforesaid observations, the Tribunal admitted the petition.
Case: Clearwater Capital Partners Singapore Fund IV Private Limited and Anr vs Rajesh Estates and Nirman Private Limited
Case No. :C.P.(IB) 560 OF 2022
Counsels for the Applicants:Adv. Pulkit Sharma a/w Adv. Ranjit Shetty, Adv. Priyanka Shetty, Adv. Arjun Amin i/b Argus Partners.
Counsel for the Respondent :Adv. Viraj Parikh i/b DSK Legal
