AI Drafter 
TaxTMI 
TaxTMI 
2021 (6) TMI 790
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....curities and Exchange Board of India (SEBI) (Debenture Trustee) Regulations, 1993. (b) The Board of Directors (BoD) of the R1 on 10.11.2016 authorised issuance of secured non-convertible debentures (NCDs) at face value of INR 1000/- each, aggregating to INR 3,00,000 Lakhs and unsecured NCDs at face value of INR 1000/- each, aggregating to INR 50,000 Lakhs. (c) The Petitioner by Debenture Trustee Agreement dated 10.11.2016 consented to act as the Debenture Trustee to the aforesaid Debentures. After the R1 issued the prospectus as required under the Act and the Regulations, the Petitioner entered into a Debenture Trust Deed (DTD) with the former on 02.01.2017. (d) The R1 then on 03.01.2017 issued six series of Secured NCDs at face value of INR 1000/- each, with coupon interest at the rate of 8.70% (for NCD Series 1A- INE217K07AB6); 8.90% (for NCD Series 1BINE217K07AC4); 8.90% (for NCD Series 2A- INE217K07AD2); 9.05% (for NCD Series 2B- INE217K07AE0); 9.00% (for NCD Series 3AINE217K07AF7) and 9.15% (for NCD Series 3B - INE217K07AG5) payable annually to the respective debenture holders. The maturity / redemption date was 03.01.2020 for NCD Series 1A & 1B; 03.....
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....etitioner on 19.11.2019 by letter informed the R1 of various acts of default and called upon to make the payment of the principal and the interest aggregating to INR 2822,12,18,791/- due in respect of the secured NCDs. The R1 however failed to make any payment. Such failure also constituted an 'event of default' under clauses 7.3 (a), (b) & (c) of the DTD. (k) Even otherwise the R1 was liable to pay the principal amount and interest to the tune of INR 2031,14,73,956/- in respect of the NCD Series 1A & 1B and interest to the tune of INR 68,00,68,771/- in respect of the NCD Series 2A & 2B and NCD Series 3A & 3B, on 03.01.2020 and had failed to honour the same. Such default also constituted an 'event of default' under DTD. (l) The Petitioner unsuccessfully put the Respondents on notice dated 04.01.2020 to make the payment of all monies in respect of the secured NCDs aggregating to INR 2850,78,79,727/- with interest at the rate of 2% p.a. till the date of realisation. 3. It is submitted in the Petition that Respondent No. 2 (R2) is a public limited company incorporated under the Act and is a core investment company - nondeposit taking systemically important institu....
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..../ or realization thereof; 6. That in respect of NCD Series 2A, Respondent No. 1 above named be directed to make payment of interest at the rate of 10.90% on the sum of INR 180,67,65,345/- (Indian Rupees One Hundred Eighty Crores Sixty Seven Lakhs Sixty Five Thousand Three Hundred Forty Five only) from 4 January 2020 until payment and/ or realization thereof; 7. That in respect of NCD Series 2B, Respondent No. 1 above named be directed to make payment of interest at the rate of 11.05% on the sum of INR 363,79,61,435 (Indian Rupees Three Hundred Sixty Three Crores Seventy Nine Lakhs Sixty One Thousand Four Hundred Thirty Five only) from 4 January 2020 until payment and/ or realization thereof; 8. That in respect of NCD Series 3A, Respondent No. 1 above named be directed to make payment of interest at the rate of 11.00% on the sum of INR 13,97,04,210/- (Indian Rupees Thirteen Crores Ninety Seven Lakhs Four Thousand Two Hundred Ten only) from 4 January 2020 until payment and/ or realization thereof; 9. That in respect of NCD Series 3B, Respondent No. 1 above named be directed to make payment of interest at the rate of 11.15% on the sum of INR 261,19,....
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....ditors and even in the interest of the debenture holders whom the Petitioner represents. The principal outstanding against the secured NCDs represent only 23% of the total principal debt burden of the R1. The lenders of the R1 have, under the RBI circular dated 07.06.2019, entered into an ICA inter alia for the debt resolution of the R1. Therefore, an order in terms of the relief sought would cause serious prejudice to the R1 and the ICA lenders who so far have refrained from enforcing their security. An order as sought would rather derail the Resolution Process and would adversely affect the potential resolution of the R1. (e) The redemption date of the principal amount of most of the debentures is ahead. Therefore, the proposed resolution of the R1 expected to be completed within a couple of weeks could possibly take care of the payments. Their redemption is claimed on the basis of right of acceleration provided under the DTD. Event of default under clause 7.3 (f), (h) & (l) as alleged are erroneous and doesn't constitute the 'event of default'. Therefore, the event of default has not been established and an order under Section 71(10) of the Act could not be passed. The ....
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....Conditions. ... 3.1.8 In case of any default in payment of the Amounts Outstanding of the due date (as applicable), the Company shall pay a default interest rate mentioned under Financial Covenants and Conditions. ... 4.2 For the purposes of the security for the redemption and payment of the principal amount of the Secured NCDs and interest accrued there on, the Holding Company being the legal and beneficial owners of the Trust properties more particularly described in part B of the Schedule - III, do hereby create a charge over properties listed under Part B of the Schedule - III for an amount that is necessary over and above the amount charged as per clause 4.1, in order to secure the value of 1 time of the outstanding Secured NCDs and interest accrued thereon, under Rule 18(1) of Companies (Share Capital & Debentures) Rules, 2014. This charge shall rank pari passu with the existing secured NCD holders of RCL, for an amount that is necessary over and above the amount charged as per clause 4.1, in order to secure the value of 1 time of outstanding Secured NCDs and interest accrued thereon. 4.8.6 In terms of the Rule 18(1) of Companies (....
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....nder this Deed in accordance with Applicable Law. Notwithstanding anything contained herein, the Debenture Trustee shall also be entitled to enforce this Deed and its rights and benefits created hereunder, including (but not limited to) in relation to the Security and to seek any and all remedies under the applicable law including without limitation, under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and or the Recovery of Debts Due to Banks & Financial Institutions Act, 1993. 7.3 The occurrence of any one of the following events shall constitute an Event of Default by the Company: a. Default is committed in payment of the principal amount of the Secured NCDs on the due date(s) and such default continues for a period of 7 (seven) working days; b. Default is committed in the payment of any interest on the Secured NCDs on the due date(s) and such default continues for a period of 7 (seven) working days; c. Default is committed in payment of any other Amounts Outstanding and such default continues for a period of 15 (fifteen) days; ... f. Any material indebtedness of the C....
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....& NSE that the repayment of principal to various banks have been delayed due to the ongoing securitization and monetization proposals considered by the financial institutions. It is also not in dispute that by letter dated 29.06.2019, the R1 informed the BSE & NSE that due to severe liquidity crisis in the housing sector, the maturity of certain debentures has been extended till 31.10.2019. 10. The letters dated 27.04.2019 and 29.06.2019 clearly indicate that the R1 has been unable to pay its material debts. It is also not in dispute that the lenders, owing to the inability of the R1 to service its debts, have come together to endeavour a debt Resolution Process for the R1. The conduct of the R1 in not being able to service its debts clearly constitutes an event of default in terms of clause 7.3 (f), (h) & (l) of the DTD. Further the interest in respect of secured NCDs was due on 03.01.2020. The payment was not made until 09.01.2020 (date of filing of the Petition). 11. The R1's inability to pay the material debts is independent of other conditions / circumstances specified in clause 7.3 (f), (h) & (l) of the DTD. Therefore, the default in servicing the other material debts a....
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....ebentures on the date of their maturity or fails to pay the interest thereon on their due date. The other condition being, before passing an order, the Tribunal is required to hear the parties concerned. In the instant case the parties have been heard at length and the condition regarding hearing has been fulfilled. In addition, as already held the R1 has failed to pay the interest on the debentures on the date they were due. 17. Sub-section 11 of Section 71 of the Act is a penal provision for non-compliance of the order of the Tribunal passed under Section 71 of the Act. Penal provisions are the result of violation of the order of an Authority. Therefore there could not be any comparison between the words used in a penal provision and those in other provisions prescribing procedure for the Tribunal to deal with a default in performance of a contract between parties. 18. The use of word 'shall' in sub-section 11 would not decide whether the word 'may' used in the preceding sub-section would be mandatory or directory. What is required to be seen is the context in which the word is used and the attendant conditions provided in the section / sub section. Therefore the language o....
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....t come within the parameters of 'any other person interested' so far as the prayers made in the Petition. It is further submitted by the Respondents that the Resolution bids due to be voted by the ICA lenders would help in monetisation and maximization of the value of the R1. An order in the Petition may derail such process and that would be against the public interest. We have indicated in the order dated 27.05.2021 in CA No. 129 of 2021 that issue of debentures is a contract in personam and not a contract in rem. The debenture holders who are substantial in number are also members of the public. Therefore, their prerogative in timely receipt of interest against their investment (debentures) cannot be sacrificed at the altar of public interest. The submissions regarding consideration of the Resolution bids would have no bearing in the instant Company Petition. The amount of debentures is substantial and the R1 having taken the deposit, there is no reason why any indulgence should be shown to the Respondents on the ground that any Resolution Process is underway. 20. Sub-rule 4 indicates that when the Tribunal is satisfied that it is necessary to pass an order under Section 71(10....