Tribunal Rules CCDs as Debt in IBC Case

The Tribunal directed the Resolution Professional to consider the claims of ICICI Bank and Acreage Properties Private Limited within three days. It rejected Ziasess Ventures Limited's claim, determining that the Compulsorily Convertible Debentures (CCDs) should be treated as debt under the Insolvency and Bankruptcy Code. The Tribunal emphasized that the Corporate Debtor consistently treated the investment as debt, leading to the admission of the claim as Financial Debt under the IBC, 2016. The Resolution Professional was given ten days to present a defense for pending applications, with respondents instructed to respond before the next hearing dates.

---

---

Issues Involved:
1. Admission of claims by ICICI Bank and Acreage Properties Private Limited.
2. Rejection of claim by Ziasess Ventures Limited.
3. Determination of whether compulsorily convertible debentures (CCDs) constitute debt or equity.

Issue-Wise Detailed Analysis:

1. Admission of Claims by ICICI Bank and Acreage Properties Private Limited:
The applications C.A. No. 2876(PB)/2019 and C.A. No. 1785(PB)/2019 were filed by ICICI Bank and Acreage Properties Private Limited, respectively. Both applicants stated that their claims were put on hold by the Resolution Professional without a decision on admissibility. The Resolution Professional undertook to dispose of these claims within three days. The Tribunal directed the Resolution Professional to consider these applications in accordance with the law within the stipulated time.

Regarding the second relief sought by Acreage Properties Private Limited for a forensic audit of the Corporate Debtor, the Tribunal did not address this relief, leaving it open for the party to seek such relief in accordance with the law if entitled.

2. Rejection of Claim by Ziasess Ventures Limited:
Ziasess Ventures Limited filed C.A. No. 1340(PB)/2019 after its claim was rejected by the Resolution Professional on the grounds that the claim fell within the ambit of equity, not debt. The investment agreement dated 23.06.2010 involved an investment of Rs. 24.99 crores towards the issuance of Compulsory Convertible Debentures (CCDs) and Rs. 10 for one share. The Resolution Professional rejected the claim citing that the debentures were not redeemable or refundable in cash and were to be fully converted into shares, thus treating the investment as equity under FEMA regulations.

The applicant argued that the investment was a financial debt as it assured fixed returns on a periodical basis, falling under the definition of financial debt under Section 5(8) of the Insolvency and Bankruptcy Code (IBC). The applicant highlighted that the Corporate Debtor had shown the investment as long-term borrowing in its balance sheet and had paid TDS on interest over the debentures, thus treating it as debt.

3. Determination of Whether Compulsorily Convertible Debentures (CCDs) Constitute Debt or Equity:
The Tribunal examined whether the investment in CCDs constituted debt or equity. The Resolution Professional argued that the investment should be treated as equity due to the participation rights and affirmative rights granted to the applicant. The Tribunal, however, noted that the Corporate Debtor had consistently treated the investment as debt in its books and balance sheets, and TDS had been deducted on interest accrued against the CCDs.

The Tribunal referred to the Supreme Court judgment in Narendra Kumar Maheshwari v. Union of India, which discussed the nature of convertible debentures. However, the Tribunal found that the guidelines and regulations cited by the Resolution Professional did not apply to the present case, as they were related to different financial instruments and contexts.

The Tribunal concluded that under the IBC, which has overriding effect over other enactments, the CCDs should be treated as debt. The Tribunal directed the Resolution Professional to admit the claim as Financial Debt under Section 5(8)(c) of the IBC, 2016.

Additional Orders:
The Tribunal allowed the Resolution Professional to place his defense by way of written submissions along with material papers within ten days for other pending applications. The Tribunal also directed the applicants to serve copies of applications to respondents within three days, with respondents required to place their defense before the next hearing dates.

The applications C.A. No. 1785(PB)/2019 & 1101(PB)/2019 were scheduled for hearing on 03.02.2020, and other applications were scheduled for hearing on 07.02.2020.

---