TaxTMI 
TaxTMI 
2022 (11) TMI 953
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.... 2. In brief, the Respondent allotted 5,60,000/- debentures of Rs. 1000 each (Rs. 10 face Value + Rs. 990 Security Premium) to the Appellant on 31.04.2011 on certain terms and conditions. Two relevant conditions of debentures are as under : "(1) Debentures can be redeemed at any time at the option of the issuer. Debentures can also be redeemed at the request of the debenture holders after expiry of 1(one) year but before 31st March, 2026 (i.e. the Maturity Date). (2) Debenture shall carry a coupon rate of 6% p.a. payable on face value plus securities premium on quarterly rests." 3. The Adjudicating Authority has reproduced the debenture certificate in its order for a quick reference, therefore, the same is reproduced as under:- 4. The salient features of the debenture held by the Appellant are as under: "(i) The debentures are redeemable at the request of debenture holder after expiry of one year. The debenture certificate was issued on 13.04.2021, therefore, it can be redeemed by the Appellant after expiry of one year i.e. from 13.04.2021.(ii) The debentures can be redeemed by the debenture holder after expiry of one year but before 31.03.2026 (i.....
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....a trust deed for securing the issue of debentures, or in any contract with the debenture-holders secured by a trust deed, shall be void in so far as it would have the effect of exempting a trustee thereof from, or indemnifying him against, any liability for breach of trust, where he fails to show the degree of care and due diligence required of him as a trustee, having regard to the provisions of the trust deed conferring on him any power, authority or discretion: Provided that the liability of the debenture trustee shall be subject to such exemptions as may be agreed upon by a majority of debenture-holders holding not less than three fourths in value of the total debentures at a meeting held for the purpose. (8) A company shall pay interest and redeem the debentures in accordance with the terms and conditions of their issue. (9) Where at any time the debenture trustee comes to a conclusion that the assets of the company are insufficient or are likely to become insufficient to discharge the principal amount as and when it becomes due, the debenture trustee may file a petition before the Tribunal and the Tribunal may, after hearing the company and any othe....
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....21 and allowed the extension of time for payment of interest of the first quarter alongwith second quarter. 10. On 01.10.2021, interest of second quarter accrued to the tune of Rs. 84,00,000/-. The Appellant again served a letter demanding the interest of both first and second quarter for the financial year 2021-22. 11. Since the aforesaid amount was not being paid, therefore, the Appellant served a default notice on 29.10.2021 and a legal notice on 22.11.2021 to the Respondent demanding interest due on the debentures of first and second quarter for the financial year 2021-22 and in the meantime the interest of third quarter (01.10.2021 to 31.12.2021) also become payable of an amount of Rs. 84,00,000/- which again was not paid. 12. The Appellant, thus, added the interest of three quarters fell due on 01.07.2021 of an amount of Rs. 71,80,274/-, on 01.10.2021 to the tune of Rs. 84,00,000/- and on 01.01.2022 to the tune of Rs. 84,00,000/-, total amounting to Rs. 2,39,80,274/- as debt which was not being paid despite demand and attributed default to it w.e.f. 29.10.2021. 13. The application filed under Section 7 of the Code was dismissed by the Adjudicating Authority on the....
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.... Corporate Debtor which means a corporate person who owes a debt to any person. Corporate person is defined under Section 3(7) which means "a company as defined in clause (20) of section 2 of the Companies Act, 2013, a limited liability partnership, as defined in clause (n) of sub-section (1) of section 2 of the Limited Liability Partnership Act, 2008, or any other person incorporated with limited liability under any law for the time being in force but shall not include any financial service provider" and person is defined under Section 3 (23) which includes a company. The word debt is defined under Section 2 (11) which means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt. Claim is defined in Section 2(6) means a right to payment and if debt is not paid then it is a default which is defined in Section 3(12) which means non-payment of debt as a whole or part of it or instalment which becomes due and payable. 20. Now the question is that who can recover the debt. Section 3(10) provides definition of creditor which says that any person to whom a debt is owed and includes a financial creditor, an operat....
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....roject, whichever is less: Provided also that where an application for initiating the corporate insolvency resolution process against a corporate debtor has been filed by a financial creditor referred to in the first or second provisos and has not been admitted by the Adjudicating Authority before the commencement of the Insolvency and Bankruptcy Code (Amendment) Act, 2020, such application shall be modified to comply with the requirements of the first or second provisos as the case may be within thirty days of the commencement of the said Act, failing which the application shall be deemed to be withdrawn before its admission.] Explanation. - For the purposes of this sub-section, a default includes a default in respect of a financial debt owed not only to the applicant financial creditor but to any other financial creditor of the corporate debtor. (2) The financial creditor shall make an application under subsection (1) in such form and manner and accompanied with such fee as may be prescribed. (3) The financial creditor shall, along with the application furnish - (a) record of the default recorded with the information utility or such ot....
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....as the conditions are provided in Section 7(2) are concerned and there is no disciplinary proceedings pending against the RP then it may order admission of the application. Whereas Section 7(5)(b) provides that if the Adjudicating Authority is satisfied that no default has occurred or the application filed under Section 7 is incomplete in so far as Section 7(2) is concerned or any disciplinary proceeding is pending againstthe proposed resolution professional then it may reject the application. 23. Thus, in order to maintain the application under Section 7 of the Code the financial creditor has to show the default as a condition precedent. In this regard, we may have to refer to definition of default provided in Section 3(12) "default" means non-payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not paid. The debt has also been defined as a liability in respect of claim towards a financial debt or operational debt and the claim means the right to payment. There is no dispute, in so far as the facts of this case are concerned that the amount of interest became due and payable by the Corporate Debtor to the Appellant on 01.0....
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.... Insolvency and Bankruptcy(Application to Adjudicating Authority) Rules, 2016. Under Rule 4, the application is made by a financial creditor in Form 1accompanied by documents and records required therein. Form 1 isa detailed form in 5 parts, which requires particulars of the applicant in Part I, particulars of the corporate debtor in Part II, particulars of the proposed interim resolution professional in part III, particulars of the financial debt in part IV and documents, records and evidence of default in part V. Under Rule 4(3), the applicant is to dispatch a copy of the application filed with the adjudicating authority by registered post or speed post to the registered office of the corporate debtor. The speed, within which the adjudicating authority is to ascertain the existence of a default from the records of the information utility or on the basis of evidence furnished by the financial creditor, is important. This it must do within 14 days of the receipt of the application. It is at the stage of Section 7(5), where the adjudicating authority is to be satisfied that a default has occurred, that the corporate debtor is entitled to point out that a default has not occurred in ....
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.... the purpose of Part II of the Code, there must be a financial debt which is owed to that person. He may be the principal creditor to whom the financial debt is owed or he may be an assignee in terms of extended meaning of this definition but, and nevertheless, the requirement of existence of a debt being owed is not forsaken. 48. It is also evident that what is being dealt with and described in Section 5(7) and in Section 5(8) is the transaction vis-à-vis the corporate debtor. Therefore, for a person to be designated as a financial creditor of the corporate debtor, it has to be shown that the corporate debtor owes a financial debt to such person. Understood this way, it becomes clear that a third party to whom the corporate debtor does not owe a financial debt cannot become its financial creditor for the purpose of Part II of the Code. 49. Expounding yet further, in our view, the peculiar elements of these expressions "financial creditor" and "financial debt", as occurring in Sections 5(7) and 5(8), when visualised and compared with the generic expressions "creditor" and "debt" respectively, as occurring in Sections 3(10) and 3(11) of the Code, the scheme of things....
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....red Office: H.No. 4-B, Office No. 25, 1st Floor, Ashirwad Complex, Behind Shiva Market, Vill. Pitampura, New Delhi-110034 This is to certify that the person(s) named in this Certificate is/are the Registered Holder(s) of the within mentioned debenture(s) bearing the distinctive number(s) herein specified in the above named Company subject to the Memorandum and Articles of Association of the Company and the amount endorsed herein has been paid up on each such debenture. FACE VALUE (RS.) 10/- EACH SECURITY PREMIUM (RS.) 990/- EACH AMOUNT PAID-UP PER DEBENTURE (RS.) 1000/- EACH Register Follo No: 1 Name(s) of the Holder(s): No. of debentures held: Base Realtors Private Limited Five Lakhs and Sixty Thousand (in words) From 00001 To 560000 Certificate No: 5 560000 (in figures) (Both inclusive) Distinctive No.(s): Issued on this 13th day of April, 2021 at New Delhi. Rasel Jaskann. Director Director "No Transfer of Debenture(s) comprised in the Certificate can be registered unless accompanied by this Certificate. Document 2 Issued in lieu of Debenture Certificate Not MEMORANDUM OF TRANSFERS OF DEBE....