Debenture holders' Section 7 application upheld despite improper acceleration notice by non-trustee parties

The NCLAT upheld the NCLT's admission of a Section 7 application filed by debenture holders against a corporate debtor. The tribunal held that the application was not barred by Section 10A of IBC as the default occurred after the Section 10A period ended. Although the facility acceleration notice was improperly issued by debenture holders instead of the debenture trustee as required by the debenture trust deed, the application remained maintainable because the majority debenture holder had already initiated Section 7 proceedings, showing unanimous intent among all debenture holders. The tribunal found sufficient default in interest payments exceeding Rs. 1 crore threshold after the Section 10A period, making the application admissible despite procedural irregularities in the acceleration notice.

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Issues Involved:
1. Whether the Application filed by the Financial Creditors under Section 7 of the Code was hit by Section 10A of the CodeRs.
2. Whether the Debenture Holders have the right to initiate proceedings under Section 7 of the CodeRs.
3. Whether the Facility Acceleration Notice dated 30th May, 2021/31st May, 2021 was incompetent and not in accordance with the Debenture Trust Deed dated 19th March, 2018Rs.
4. In the event, Facility Acceleration Notice dated 30th May, 2021/31st May, 2021 is held to be not in accordance with the Debenture Trust Deed, whether the Application under Section 7 deserves to be dismissedRs.
5. Whether the Order passed by the Adjudicating Authority admitting Section 7 Application needs interference in this AppealRs.

Summary:

Issue 1:
The Tribunal examined Part-IV of the Section 7 Application and found that the default date was mentioned as 1st June, 2021, along with a detailed computation of the amount and days of default. The Tribunal held that the application was not barred by Section 10A since it was based on defaults occurring after the Section 10A period. The Tribunal cited precedents to support that applications are maintainable for defaults subsequent to the Section 10A period.

Issue 2:
The Tribunal considered Clause 9.8 of the Debenture Trust Deed, which grants Debenture Holders the right to take actions available under applicable laws. The Tribunal upheld that Debenture Holders, being financial creditors, have the right to initiate proceedings under Section 7 of the Code. The Tribunal referenced previous judgments affirming the rights of Debenture Holders to file such applications.

Issue 3:
The Tribunal scrutinized the Facility Acceleration Notice and the relevant clauses of the Debenture Trust Deed. It concluded that the notice was not issued in accordance with the Debenture Trust Deed, as it was not issued by the Debenture Trustee based on approved instructions from the majority of Debenture Holders.

Issue 4:
Despite the Facility Acceleration Notice being non-compliant with the Debenture Trust Deed, the Tribunal noted that the majority Debenture Holder had already initiated Section 7 Proceedings against the Corporate Debtor. This demonstrated a unanimous decision among Debenture Holders to proceed against the Corporate Debtor, thus validating the Section 7 Application.

Issue 5:
The Tribunal found no merit in interfering with the Adjudicating Authority's order admitting the Section 7 Application. It emphasized that there was a clear default in payment of interest after the Section 10A period, which exceeded the threshold amount of Rs. 1 Crore. Consequently, the Application under Section 7 was rightly admitted.

Conclusion:
The Tribunal dismissed the appeal, affirming that the application was not barred by Section 10A, Debenture Holders had the right to initiate proceedings, the Facility Acceleration Notice was non-compliant but did not invalidate the application, and the order admitting the Section 7 Application was upheld.

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