Compulsorily convertible debentures held equity not debt under Section 3(11); SPV no liability, appeal dismissed

SC dismissed the appeal, holding the compulsorily convertible debentures and accompanying documents created equity rights, not a debt under Section 3(11), so the SPV had no liability to the appellant. Coupon and buy-back obligations were those of the sponsor, not the SPV, and no contractual term converted CCDs into financial debt on any event. The appeal was not maintainable as a question of law within the Court's statutory jurisdiction and did not disclose a proper legal issue for interference; lower courts' findings were upheld.

---

---

Issues Involved:
1. Classification of Compulsorily Convertible Debentures (CCDs) as debt or equity.
2. Rejection of the appellant's claim by the Resolution Professional.
3. Interpretation of the Debenture Subscription Agreement and related documents.
4. Jurisdiction of the Supreme Court under Section 62 of the Insolvency and Bankruptcy Code, 2016.

Summary:

1. Classification of Compulsorily Convertible Debentures (CCDs) as debt or equity:
The appellant invested in a highway project through CCDs, which were to be converted into equity by December 2017. The appellant argued that the CCDs should be treated as debt due to financial difficulties faced by the project. The Resolution Professional and the National Company Law Appellate Tribunal (NCLAT) rejected this claim, stating that CCDs are treated as equity as per the Debenture Subscription Agreement and the Concession Agreement with NHAI. The Supreme Court upheld this view, citing the judgment in *Narendra Kumar Maheshwari v. Union of India & Ors.*, which states that instruments compulsorily convertible into shares are regarded as "equity" and not a loan or debt.

2. Rejection of the appellant's claim by the Resolution Professional:
The Resolution Professional rejected the appellant's claim for repayment, stating that CCDs were treated as equity under the financial package approved by NHAI and the lenders' consortium. The appellant's challenge to this position was dismissed by the NCLAT, and the Supreme Court found no reason to overturn this decision.

3. Interpretation of the Debenture Subscription Agreement and related documents:
The Supreme Court examined the Debenture Subscription Agreement, which defined the obligations of the sponsor company and the security provided for the debentures. The Court concluded that the appellant's investment was in the nature of equity and not debt, as the agreement provided for automatic conversion of CCDs into equity shares of ICTL. The Court emphasized that commercial agreements should be interpreted as they are written, without adding implied terms.

4. Jurisdiction of the Supreme Court under Section 62 of the Insolvency and Bankruptcy Code, 2016:
The Supreme Court noted that its jurisdiction under Section 62 is limited to questions of law arising out of the NCLAT's order. The Court found that the appeal did not raise any substantial question of law and that the findings of the lower courts were in accordance with settled principles. Consequently, the appeal was dismissed, with parties bearing their own costs.

Conclusion:
The Supreme Court upheld the classification of CCDs as equity, rejected the appellant's claim for repayment, and emphasized the importance of interpreting commercial agreements as written. The appeal was dismissed on the grounds that it did not raise any substantial question of law.

---