Appellant recognized as Financial Creditor in insolvency case, granted voting rights

The Tribunal held that the Appellant, 'MAIF Investments India Pte. Ltd.', is a 'Financial Creditor' of 'M/s. Ind-Barath Energy (Utkal) Limited' ('Corporate Debtor'). The invocation of the pledge of shares did not constitute repayment of the debt of Rs. 102 Crores towards the OCDs. The Tribunal set aside the Adjudicating Authority's decision, directing the 'Resolution Professional' to recognize the Appellant as a 'Financial Creditor' for the constitution of the 'Committee of Creditors' and granted the Appellant voting rights. The appeal was allowed without costs.

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Issues Involved:
1. Whether the Appellant is a 'Financial Creditor' of the 'Corporate Debtor'.
2. Whether the debt of the Appellant stands paid as held by the Adjudicating Authority.

Issue-wise Detailed Analysis:

1. Whether the Appellant is a 'Financial Creditor' of the 'Corporate Debtor':

The Appellant, 'MAIF Investments India Pte. Ltd.', filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 ("I&B Code") against 'M/s. Ind-Barath Energy (Utkal) Limited' ('Corporate Debtor'). The Adjudicating Authority had dismissed the Appellant's application on the grounds that the default was deemed to have been repaid due to the invocation of the pledge of shares and conversion of 'Compulsorily Convertible Debentures' ("CCD") into equity shares.

The Appellant had provided a bridge loan of Rs. 102 Crores by subscribing to 10,200,000 'Optionally Convertible Debentures' ("OCD") of the 'Corporate Debtor'. The interest payments on these OCDs were not made by the 'Corporate Debtor', resulting in an event of default under the Subscription Agreement of 2016.

The Tribunal noted that the definition of 'Financial Creditor' under Section 5(7) and 'Financial Debt' under Section 5(8) of the I&B Code includes debts disbursed against the consideration for the time value of money, such as bonds, notes, debentures, etc. Since there was a disbursal of Rs. 102 Crores in favor of the 'Corporate Debtor' by way of OCDs, the Tribunal found that this constituted a 'financial debt'.

2. Whether the debt of the Appellant stands paid as held by the Adjudicating Authority:

The Adjudicating Authority had held that the default committed by the 'Corporate Debtor' was deemed to have been repaid due to the invocation of pledge shares and conversion of CCDs into equity shares. However, the Tribunal found that the redemption of 'NCD' and 'CCD' is different from the conversion within the 'OCD'. The Appellant had demanded interest payments on the OCDs, which were not paid by the 'Corporate Debtor'.

The Tribunal noted that the Appellant and 'MAIF-II' had invoked the pledge of 49% equity shares of the 'Corporate Debtor' and 51% equity of the holding company. However, the Tribunal found that the invocation of the pledge and conversion of CCDs into equity shares did not imply that the debt amount was repaid. The Tribunal emphasized that there is no presumption of payment of debt merely on the invocation of the pledge until the conversion of the debenture into shares is accepted under the law.

The Tribunal concluded that the Adjudicating Authority had wrongly held that the debt had been paid and there was no default on the conversion of the CCD. The interest to which the Appellant was entitled had not been paid by the 'Corporate Debtor', resulting in a default of more than Rs. 1 Lakh.

Conclusion:

The Tribunal held that the Appellant, 'MAIF Investments India Pte. Ltd.', is a 'Financial Creditor' of 'M/s. Ind-Barath Energy (Utkal) Limited' ('Corporate Debtor'). The invocation of the pledge of shares pursuant to the Subscription Agreement did not imply that the disbursement of Rs. 102 Crores towards the OCDs was repaid. The Tribunal set aside the impugned order and directed the 'Resolution Professional' to treat the Appellant as a 'Financial Creditor' for the purpose of the constitution of the 'Committee of Creditors' and allow the Appellant to participate as a member with voting rights to the extent of the amount disbursed and claimed. The appeal was allowed with no cost.

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