Tribunal Orders Redemption of Debentures, Ruling Against Defaulting Respondent

The Tribunal held that Respondent No. 1 (R1) was liable to redeem the Secured Non-Convertible Debentures (NCDs) and pay the principal and interest as per the Debenture Trust Deed. The Tribunal found R1 had defaulted on payments, constituting an 'event of default' under the DTD. The Tribunal clarified that its power under Section 71(10) of the Companies Act, 2013 was mandatory once conditions were met. Despite arguments regarding financial considerations and public interest, the Tribunal ruled in favor of the Petitioner, directing R1 to pay interest within two months and redeem the debentures within three months.

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Issues Involved
1. Whether the Respondent No. 1 (R1) is liable to redeem the Secured Non-Convertible Debentures (NCDs) and pay the principal and interest as per the Debenture Trust Deed (DTD).
2. Whether the Tribunal's power under Section 71(10) of the Companies Act, 2013 is discretionary or mandatory.
3. Whether the Respondent's default constitutes an 'event of default' under the terms of the DTD.
4. Whether the Tribunal should consider the financial condition of the company and the public interest before passing an order under Section 71(10).

Issue-wise Detailed Analysis

1. Liability of R1 to Redeem Secured NCDs and Pay Principal and Interest:
The Petitioner, acting as the Debenture Trustee, sought direction under Section 71(10) of the Companies Act, 2013, for the redemption of debentures issued by R1. The Petitioner represented 18,959 debenture holders and argued that R1 defaulted on the payment of principal and interest on the secured NCDs, thus constituting an 'event of default' under the DTD. The Tribunal found that R1 had indeed defaulted on its obligations, as evidenced by letters dated 27.04.2019 and 29.06.2019, where R1 admitted its inability to pay its material debts. The Tribunal held that R1 committed default in respect of the payment of interest on the debentures in terms of Section 71(10) of the Act.

2. Discretionary or Mandatory Nature of Tribunal's Power under Section 71(10):
The Respondents argued that the power under Section 71(10) is discretionary, as indicated by the use of the word 'may'. They contended that the Tribunal should exercise its discretion judiciously and consider the financial condition of the company. However, the Tribunal clarified that once the conditions prescribed in sub-section 10 are fulfilled, the word 'may' assumes mandatory characteristics and should be read as 'shall'. The Tribunal cited the case of Akhil R. Kothakota v. M/s Tierra Farm Assets Company Pvt. Ltd., where it was held that the Tribunal must order redemption of the debentures and payment of interest once default is established.

3. Event of Default under DTD:
The Tribunal examined the clauses of the DTD that define 'event of default'. Clause 7.3 of the DTD specifies that default in payment of principal or interest on the due date constitutes an event of default. The Tribunal found that R1's inability to pay its material debts and the failure to pay interest due on the secured NCDs clearly constituted events of default under clauses 7.3 (f), (h), and (l) of the DTD. The Tribunal held that the Petitioner was entitled to move the forum under sub-section 10 for the default in payment of interest.

4. Consideration of Financial Condition and Public Interest:
The Respondents argued that an order in favor of the Petitioner would not be in the interest of R1, its creditors, or the public, as it would derail the ongoing Resolution Process. They referred to Rule 73 of the National Company Law Tribunal Rules, 2016, which allows the Tribunal to consider the financial condition of the company and public interest before making an order. The Tribunal acknowledged the rule but emphasized that the interest of the debenture holders, who are members of the public, cannot be sacrificed. The Tribunal held that the Rules cannot override the express provisions of the Act and that the conditions prescribed in sub-section 10 of Section 71 were fulfilled, necessitating an order for redemption.

Conclusion
The Tribunal allowed the Petition and directed R1 to pay the interest on the debentures at the contractual rate within two months and redeem the debentures by paying the principal within three months thereafter. The Tribunal emphasized that the interest of the debenture holders must be protected and that the mandate under sub-section 10 of Section 71 of the Act must be upheld.

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