Conversion of Debentures requires statutory allotment and corporate compliance; absent that, put option exercise can trigger insolvency petition admission.

Construction of contractual conversion and put-option clauses determined the outcome: a deeming clause in the debenture trust deed does not extinguish the debenture holder's status unless statutory allotment and corporate steps (increase of authorised capital, ROC filings, allotment entries, depository credit) are completed, and conversion therefore requires actual statutory compliance; failure to effect conversion and inactive ISIN meant an event of default arose and the put option could validly be exercised after tenor expiry, so the Section 7 petition was properly admitted and the appeal against admission dismissed.

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Issues: Whether the Adjudicating Authority rightly admitted the Section 7 petition by holding that (i) the debentures remained financial debt and (ii) default existed because conversion into equity was not completed by statutory allotment and corporate actions, thereby entitling the financial creditor to exercise the put option and file a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016.

Analysis: The dispute turns on the construction and operation of the debenture trust deed clauses governing conversion (Clause 6) and put option (Clause 10), and on whether the conversion was completed by actual allotment and statutory compliance. Clause 6(b) contains a deeming statement but must be read with Clause 6(c) which requires completion of statutory steps (e.g., filings, increase of authorised capital, recording in statutory registers) for conversion to take effect. Clause 11.1(xxviii) treats failure to convert upon receipt of notice as an event of default and Clause 11.2 makes remedies, including exercise of put option, available on occurrence of default. The record contains the company's reply to the put notice admitting that conversion could not be effected because ISIN was inactive and there was no actual allotment or ROC filings; there is no evidence of statutory allotment, credit to depository accounts, or update of registers. On these facts, the contractual deeming provision did not operate to extinguish the debenture holder's status absent completion of the required corporate and statutory steps, and the put option could validly be exercised after expiry of the contractual tenor.

Conclusion: The Adjudicating Authority correctly found that the debentures were not converted into equity by completion of statutory allotment and corporate actions, that a default occurred when redemption was not made after the put option was exercised, and that the Section 7 petition was rightly admitted; the appeal is dismissed and the admission under Section 7 of the Insolvency and Bankruptcy Code, 2016 is upheld in favour of the financial creditor.

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