2020 (11) TMI 359 - AT - Companies Law

NCLT Orders Repayment in 2 Months under Companies Act 2013

Akhil R Kothakota, Madadi Rinda Versus M/s. Tierra Farm Assets Company Pvt. Limited

Akhil R Kothakota, Madadi Rinda Versus M/s. Tierra Farm Assets Company Pvt. Limited - [2021] 224 Comp Cas 125 (NCLAT–Del) Issues Involved:1. Compliance with Section 71(10) of the Companies Act, 2013.2. Financial distress and non-payment of interest by the Respondent Company.3. Petitioners' demand for redemption of debentures and associated interest.4. Tribunal's direction for settlement and its adherence to statutory provisions.5. Absence of Respondent Company's representation and efforts towards settlement.Issue-wise Detailed Analysis:1. Compliance with Section 71(10) of the Companies Act, 2013:The main issue for consideration was whether the National Company Law Tribunal (NCLT) adhered to the provisions under Section 71(10) of the Companies Act, 2013. The Appellants argued that NCLT did not specifically address the prayer for repayment but rather directed the Respondent Company to explore all possibilities of settlement, which is ultra vires to Section 71(8) and Section 71(10) of the Companies Act, 2013. Section 71(10) empowers the Tribunal to direct the company to redeem the debentures forthwith on payment of principal and interest due thereon when a company fails to pay interest on debentures when it is due.2. Financial distress and non-payment of interest by the Respondent Company:The Respondent Company, incorporated on 13.03.2012, issued secured Non-Convertible Debentures (NCDs). The company failed to make interest payments subsequent to 01.01.2018, leading to substantial financial distress. The Petitioners detailed the interest payments made and the subsequent defaults. The company admitted default in payment of interest on the NCDs and proposed settlement, but no material evidence of arbitration or settlement efforts was provided.3. Petitioners' demand for redemption of debentures and associated interest:The Petitioners demanded repayment of the debentures along with interest due, totaling INR 56,24,460/- for Debenture Holder No. 1 and INR 18,74,820/- for Debenture Holder No. 2. Despite repeated correspondence and a legal notice, the Respondent Company did not respond or initiate any settlement. The Petitioners sought specific directions from the Tribunal for repayment and injunction against dealing with the mortgaged properties.4. Tribunal's direction for settlement and its adherence to statutory provisions:NCLT, while disposing of the Petition, granted six months to the Respondent Company to explore all possibilities of settlement. The Appellants contended that NCLT failed to give any specific direction for repayment, which is mandatory under Section 71(10). The Tribunal is bound to give effect to the right of the Appellants under Section 71(10) read with Section 71(8), which mandates the company to pay interest and redeem the debentures in accordance with the terms and conditions of their issue.5. Absence of Respondent Company's representation and efforts towards settlement:Despite service of notice, there was no representation from the Respondent Company. The Tribunal noted that the Respondent Company did not make any effort to settle the matter nor was there any representation on their behalf. The Tribunal found that Section 71(10) does not empower it to ascertain the financial condition of the defaulting party or grant any other relief than the relief provided under the said Section.Conclusion:The Tribunal concluded that Section 71(10) of the Companies Act, 2013, ought to have been strictly adhered to. Given the facts and circumstances, the Tribunal directed the Respondent Company to repay the amounts due and payable to the Appellants within two months from the date of the order. If the Respondent Company fails to comply, the Appellants are entitled to take steps as deemed fit, in accordance with the law. No costs were awarded, and the application for stay (IA No. 706/2020) was closed.