Debenture default and financial debt: section 7 admission upheld despite objection on holder consent requirements.

A debenture-based claim was treated as a financial debt because the trust deed, payment records, admissions of delay and information utility entries showed non-payment of coupon amounts and redemption instalments, establishing default for section 7 admission. The Tribunal held that, at the admission stage, the adjudicating authority must only be satisfied from records and other reliable evidence that a debt is due and default has occurred. It also rejected the argument that initiation required consent of 51% of debenture holders, finding that the trust deed did not make declaration of default contingent on that approval and that the contractual mechanism treated non-response as deemed consent. The application was therefore maintainable.

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Issues: (i) whether the claim based on debentures constituted a financial debt and the corporate debtor had committed default for the purposes of admission under section 7; (ii) whether the objection that consent of 51% debenture holders was required before initiation of proceedings had merit.

Issue (i): whether the claim based on debentures constituted a financial debt and the corporate debtor had committed default for the purposes of admission under section 7.

Analysis: The petition was supported by the debenture trust deed, payment records, correspondence admitting delay, and information utility entries showing outstanding dues. The Tribunal held that non-payment of coupon amounts and redemption instalments under the debenture documents amounted to a payment default. It further held that, for admission of a section 7 application, the adjudicating authority need only be satisfied from records and other evidence that a debt is due and default has occurred. The debt was therefore treated as a financial debt and the default as established.

Conclusion: The issue was decided in favour of the petitioner.

Issue (ii): whether the objection that consent of 51% debenture holders was required before initiation of proceedings had merit.

Analysis: The Tribunal read the debenture trust deed as containing clear events of default triggered by non-payment, and not as making declaration of default conditional upon approval of 51% of debenture holders. It also noted that the debenture trustee had sought consent from all debenture holders and that non-response was to operate as deemed approval. The objection was therefore found inconsistent with the contractual mechanism and unsupported.

Conclusion: The issue was decided against the corporate debtor.

Final Conclusion: The section 7 application was maintainable, the debt and default stood established, and insolvency proceedings were directed to commence with consequential moratorium and appointment of an interim resolution professional.

Ratio Decidendi: For admission of a section 7 application, the adjudicating authority is required to ascertain from the record and other reliable evidence that a financial debt is due and that default has occurred; contractual objections that do not negate the default do not bar admission.

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