Redeemable Preference Shareholder Dismissed as Financial Creditor under Insolvency Law

The Tribunal dismissed the application under Section 7 of the Insolvency & Bankruptcy Code, ruling that the applicant, holding redeemable preference shares, did not qualify as a "Financial Creditor" and the claim did not meet the criteria for a financial debt. The dismissal was without costs.

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Issues Involved:
1. Whether the applicant is a "Financial Creditor" under the Insolvency & Bankruptcy Code, 2016.
2. Whether the claim under the subscription agreement qualifies as a "Financial Debt."
3. The impact of arbitration proceedings initiated by the Financial Creditor.
4. The sufficiency of stamping on the Subscription Agreement and Non-Disposal Undertaking.

Issue-wise Detailed Analysis:

1. Whether the applicant is a "Financial Creditor" under the Insolvency & Bankruptcy Code, 2016:
The Financial Creditor argued that they had disbursed Rs. 40 crores to the Corporate Debtor by subscribing to cumulative non-convertible redeemable preference shares, with an obligation of repayment, thus qualifying as a "Financial Creditor." The Corporate Debtor contended that preference shareholders are not creditors but owners of the company, and their claims do not constitute a financial debt. The Tribunal concluded that the applicant, being a holder of redeemable preference shares, could not be classified as a "Financial Creditor" under Section 5(7) of the Insolvency & Bankruptcy Code (IBC), as the preference shares remain shares and can only be redeemed out of the profits of the company or through a fresh issue of shares, not as a debt.

2. Whether the claim under the subscription agreement qualifies as a "Financial Debt":
The Financial Creditor maintained that the transaction under the Subscription Agreement involved the payment of redemption premium and dividend, which constituted a financial debt under Section 5(8) of the IBC. The Corporate Debtor argued that the preference shares are part of the capital and not a debt. The Tribunal noted that the applicant's claim did not fall under any clauses of Section 5(8) of the IBC, as redemption of preference shares is excluded from its purview. The Tribunal emphasized that preference shares cannot be classified as a liability unless redeemed and concluded that the applicant's claim did not qualify as a financial debt.

3. The impact of arbitration proceedings initiated by the Financial Creditor:
The Corporate Debtor argued that the Financial Creditor had already initiated arbitration proceedings under the Arbitration and Conciliation Act, 1996, and thus, the current application was not maintainable. The Tribunal did not delve deeply into this issue, as the primary determination was based on whether the applicant qualified as a Financial Creditor and whether the claim constituted a financial debt.

4. The sufficiency of stamping on the Subscription Agreement and Non-Disposal Undertaking:
The Corporate Debtor raised the issue of insufficient stamping on the Subscription Agreement and Non-Disposal Undertaking. The Tribunal did not make a definitive ruling on this matter, as the decision was primarily based on the classification of the applicant as a Financial Creditor and the nature of the claim as a financial debt.

Conclusion:
The Tribunal concluded that the application was not maintainable under Section 7 of the IBC, as the applicant, being a holder of redeemable preference shares, could not be classified as a Financial Creditor, and the claim did not constitute a financial debt. The application was dismissed without an order as to costs.

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