AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2025 (4) TMI 1070
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.....02.2023 (hereinafter referred to as 'Impugned Order') passed by the Adjudicating Authority (National Company Law Tribunal, Mumbai Bench-I) in C.P.(IB) No.922/MB/C-1/2022. By the impugned order, the Adjudicating Authority has dismissed the Section 7 application filed by the Appellant seeking to initiate Corporate Insolvency Resolution Process ("CIRP in short) against the Corporate Debtor. Aggrieved by the impugned order, the present appeal has been preferred by the Appellant-Catalyst Trusteeship Ltd. 2. Coming to the sequence of events the salient developments which needs to be noticed for deciding the issue at hand are as outlined hereunder : Ecstasy Realty Pvt. Ltd.-Corporate Debtor had passed a Board Resolution and Special Resolution on 20.03.2018 authorising the borrowing of funds by issue of 850 Non-Convertible Debentures (NCD) of an aggregate value of Rs 850 Cr. in two series namely Series-A and Series-B debentures. On 20.03.2018, Catalyst Trusteeship Ltd.-Appellant was appointed as the Debenture Trustee on behalf of the Debenture Holders with the Edelweiss group as the majority bond-holders holding 84.67% of the debentures. The Edelweiss group comprised ....
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....e of Bandra plot of land. On 30.03.2022 an e-mail was sent by ECLF informing the Corporate Debtor that the Appellant had issued NOC to the Corporate Debtor in this regard and that the final structuring proposal would be provided in June 2022 for which they will run the entire process internally. The Appellant also disbursed Rs 9.33 Cr. in two tranches of Rs 5 Cr and Rs 4.33 Cr. to the Corporate Debtor on 30.03.2022. On 28.04.2022 a demand letter was sent by the Appellant to the Corporate Debtor for an amount of Rs 65.49 Cr. being overdue for payment on the debentures of DTD-I. On 29.04.2022, the Appellant sent a letter to the Corporate Debtor seeking documents etc. for purposes of internal processing and approval of the restructuring proposal. This was followed by another reminder letter on 17.05.2022 seeking payment of Rs 65.49 Cr. as overdue on debentures. On 19.05.2022, the Corporate Debtor addressed a letter to the Appellant stating that they had provided all data to Edelweiss prior to their confirming the restructuring proposal and advised the Appellant to collect the data so furnished from Edelweiss. However, the Corporate Debtor a....
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....that a moratorium had come into place between the parties until September 2023. This conclusion of the Adjudicating Authority was misplaced since the alleged restructuring and moratorium was premised on discussions held between one of the Debenture Holders and the Corporate Debtor at a time when DTD-I and its terms could be modified only in terms of procedure prescribed under Clause 33. Since ECLF had only 28.17% of the debentures, it could not have decided on behalf of the other Debenture Holders. The Appellant as Debenture Trustee was responsible for protection of interest of all Debenture Holders and therefore the discussion between the Corporate Debtor and ECLF was not binding on the Appellant. It was contended that no moratorium had been granted since the procedure prescribed under Clause 33 of the DTD-I had not been followed for modification of the DTD-I. This was also the view taken in the order passed by the Hon'ble Bombay High Court on 13.09.2022 which the Adjudicating Authority had chosen to side-step. Thus, when moratorium was not granted to the Corporate Debtor in terms of the DTD-I, the debt qua the Financial Creditor had become due and payable. In the facts of the cas....
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....that the grant of moratorium from repayment under the DTD-I would have required modification of the terms of DTD-I. The impugned order is therefore in the teeth of the order of the Hon'ble High Court of Bombay. 6. It was also submitted that the claims made by the Corporate Debtor that it was financially solvent was immaterial since the Corporate Debtor did not place on record any document to substantiate its claims of financial insolvency. The Project Valuation Reports relied upon by the Corporate Debtor referred only to projected profits expected to be earned from real estate project being constructed by them but basis such estimations of profit, Corporate Debtor cannot substantiate their solvency status of the Corporate Debtor. The Appellant debunked the contention of the Respondent that the Corporate Debtor was solvent for if that was the case there would not have arisen default in the repayment of loans. It was also contended that even for argument's sake, it was accepted that the moratorium was allowed till 2023, it remains unexplained as to why the Corporate Debtor did not clear the outstanding debt even till date in 2025. Thus, the intent of Corporate Debtor for resolutio....
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....Bombay High Court in the context of a Commercial Suit filed by the Corporate Debtor on whether moratorium was in place, it was pointed out that the interim orders of the Hon'ble Bombay High Court having been challenged by the Corporate Debtor and disposed of basis the submission made by the Corporate Debtor to amend the plaint and seek fresh interim reliefs, these observations cannot be taken as binding. In support of their contention, reliance has been placed on the judgement of Hon'ble Supreme Court State of Assam vs Barak Upatyaka D.U Karamchari Sanstha (2009) 5 SCC 694 wherein it was held that an interim order which does not finally and conclusively decide an issue cannot be a precedent. 8. Submission was pressed that following the exchange of a number of communications between the Corporate Debtor and the ECLF and the understanding arrived between them that the DTD-I had been amended, to which understanding the Appellant was also an active party, the Respondent started acting thereon. Pursuant to the communication of 23.03.2022, the Corporate Debtor approached ICIF which was another financial instrumentality of the Edelweiss Group for fund of Rs 152 Cr. and secured it with ....
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.... borne out from the fact that against a loan disbursed of Rs 600 Cr. against which nearly Rs 508 Cr. was already repaid, yet the Appellant in the Section 7 application had pegged the outstanding dues to Rs 1208 Cr. which was highly inflated and an unconscionable demand. The impugned order has therefore rightly held that the Section 7 application was for purposes other than resolution of the Corporate Debtor. 10. We have duly considered the arguments advanced by the Learned Counsel for both the parties and perused the records carefully. The two questions which fall for our consideration is whether there was debt which was due and payable by the Corporate Debtor qua the Appellant with incidence of default and whether the Section 7 application was filed with the intent of insolvency resolution or otherwise. 11. It is the case of the Appellant that the defence taken by the Corporate Debtor that one of the Debenture Holders-ECLF had granted a moratorium from repayment under the DTD-I was not tenable. It has been pointed out by the Appellant that Edelweiss group had three entities including ECLF. It was contended by the Appellant that the other two entities namely Edelweiss Rural a....
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.... Appellant being only a Debenture Trustee, it had a bounden obligation to act upon the approved instructions of the Debenture Holders. The contention of the Appellant that the proposal of the Corporate Debtor for restructuring the facility was not approved by the Debenture holders was only a afterthought which was adopted after the closure of the Sapphire transaction to orchestrate a default situation. 13. Coming to our analysis and findings, at this stage, we may quickly peruse the communications exchanged between the Appellant, Corporate Debtor and the majority Debenture Holder to see whether there was any understanding arrived between them on a restructuring and moratorium proposal of the Corporate Debtor and the terms and conditions set out, if any, for this purpose. 14. It is an undisputed fact that a restructuring proposal was communicated by Corporate Debtor to ECLF on 16.03.2022 and the email is as reproduced below: "From: Kishor . [mailto:[email protected]] Sent: 16 March 2022 09:52 To:SaahilDugar-Alternatives Subject: Re: Raiaskaran - Pendencies Dear Saahil, I spoke to Mr. Rajan and discussed the documentatio....
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....etween the Corporate Debtor and ECLF/Edelweiss. This contention is belied when we peruse a letter from the Appellant to the Corporate Debtor emanating also on 28.03.2022 which is as extracted below: Date: 28 March 2022 To, (I) Ecstasy Realty Private Limited ("Borrower") 2nd floor Solitaire Building, 80, SV Road, Santacruz (W), Mumbal-400 054 Page 17 of 32 Company Appeal (AT) (Insolvency) No. 467 of 2023 (II) Mr. Shobhit Jagdish Rajan ("Guarantor") Nalvedya, 85 Carter Road, Bandra, Mumbal-400050 Dear Madam/Sir, Sub: No Objection Certificate (NOC) 1. We refer to your request wherein you have sought no objection for (i) Issuance of redeemable, non-convertible debentures of an aggregate amount of Rs. 152 Crores (Rupees One Hundred Fifty Two Crores Only) ("NCDs") by Ecstasy Realty Private Limited; (ii) for creation of mortgage and charge over the security set out in the Schedule hereto by Ecstasy Realty Private Limited; (iii) to Mr. Shobhit Jagdish Rajan, to provide their guarantee to secure the NCDs; and (iv) to carry out other ancillary tasks for the successful....
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....t the Appellant was aware of the restructuring proposal is amply borne out from the contents of the above communication of 28.03.2022 wherein there is also a clear advertence to the fact that the Corporate Debtor was seeking a NOC from them and that they had agreed and confirmed that upon receipt of the Rs.152 Cr from the Corporate Debtor in their Escrow Account, they would issue the requisite NOC. Interestingly, the letter is also marked to all debenture holders which reaffirms the fact that the Debenture Holders and the Appellant-Debenture Trustee were keeping each other informed of their intent on the modalities of how to proceed with the restructuring and moratorium proposal. The exchange of these correspondences unambiguously shows that prior to the finalisation of the Sapphire transaction, the Corporate Debtor, the Appellant and the Edelweiss Group were in discussion regarding the restructuring and moratorium proposal and the term sheet. These correspondences manifest the clear intention between them with regard to restructuring of debt and moratorium and the reciprocal steps to be taken by them. We are therefore persuaded to believe that it was always in the notice and knowl....
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....on restructuring and Bandra release Dear Saahil, In reference to the enclosed mail, kindly note that we have adhered to all your stipulated conditions and completed the Sapphire transaction. The release of Bandra property, as communicated to us, we understand that you have today conveyed to Catalyst to provide the NOC for release of Bandra property. We await their NOC for the same. Please provide to us urgently the release letter from. Catalyst as it is required to book sales prior to March 31st as had been communicated to you by Mr. Rajan. We are on March 30th tomorrow and this issue is causing us it lot of internal stress. Regarding the restructuring of the balance original NCDs, as earlier confirmed vide email to us, request you to provide the extension of moratorium of 18 months for Interest and principal of the balance original NCDs in the first week of April 2022. The same needs to be communicated to BSE and SEBI at the earliest, since it's appearing now in the system that we have defaulted on the principal of the original NCD and it would severely affect raising funds in our group companies, thus defeating the very purpose of doing the Sap....
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....instructions of the ECLF had started acting on their part of obligations in terms of the restructuring proposal as is borne out from the issue of NOC in respect of the Bandra plot. It is however the contention of the Appellant that the release of the Bandra property was on account of Clause 28.3 of the DTD which allowed for release of the property if the Corporate Debtor repaid Rs 50 Cr. and that the release of the said property was not connected in any manner either to the restructuring proposal or grant of moratorium. However, when we run our eyes through the response from the Appellant and ELCF in their communications of 29.03.2022, the pointer is to the contrary. Coming to the communication of 30.03.2022 from ELCF to the Corporate Debtor regarding the release of the charge on the property by the Appellant in the context of conclusion of Sapphire transaction, the letter clearly informs the Corporate Debtor that NOC requested by them had been issued by Appellant a day earlier. It is therefore clear that the Bandra plot had been released only upon receipt of instructions from the ECLF in furtherance of the agreement towards modification of DTD-I. There is no mention of Clause 28.3....
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....Respondent that no right-minded Financial Creditor could have disbursed further loan to the Corporate Debtor once they were declared to be NPA. This lends credibility to the contention of the Corporate Debtor that the disbursals were made since moratorium and restructuring had been agreed to. 26. We are therefore of the considered view that the Appellant and the Debenture Holders by their express conduct had agreed to implement the restructuring and moratorium proposal. No material has been placed on record to show that the Appellant had ever questioned the ECLF on the instructions being issued by them in furtherance of the moratorium. Neither did the Appellant ever question the ECLF that they cannot speak on behalf of the other entities of the other Edelweiss group. 27. That the ECLF had also acted in furtherance of restructuring proposal is also borne out from their above communication of 30.03.2022 wherein they have stated that that final restructuring proposal "will be provided" around the month of June. The words "will be provided" is undoubtedly a positive affirmation and it would be misconceived to construe otherwise. 28. The Ld. Sr. Counsel for the Respondent has r....
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....ing Authority had correctly held that on account of moratorium being in place, there was no occasion for default and hence the Section 7 application was not fit for admission. 30. This brings us to the second issue for our consideration as to whether the purpose of the Section 7 application in the present case was with the intent of insolvency resolution of the Corporate Debtor or otherwise. It is the contention of the Appellant that when there is a case of debt and default, there is no need for the Adjudicating Authority to look into other aspects at all. The Appellant has therefore assailed the impugned order since it has wrongly held that the purpose of the Section 7 application in the present case was not with the intent of insolvency resolution of the Corporate Debtor. 31. Per contra it is contended by the Corporate Debtor that they were made to complete the Sapphire transaction on the pretext that their due would be restructured. It was submitted by the Respondent that in their reply affidavit before the Adjudicating Authority they had pointedly stated at paras 2.25 and 6 that the Debenture Holders/Debenture Trustee had induced the Corporate Debtor to take a loan of Rs ....
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.... "85. Relegation of creditors to the remedy of coercive litigation against the corporate debtor could be detrimental to the interest of the corporate debtor and its creditors alike. While multiple coercive proceedings against the corporate debtor in different forums could impede its commercial/business activities, deplete its cash reserve, dissipate its assets movable and immovable and precipitate its commercial health." 32. When we look at the sequence of events, we find that in close proximity to the period post the conclusion of the Sapphire transaction and deposit of Rs 152 Cr. by the Corporate Debtor with the Appellant, a Demand Notice was sent by the Appellant on 28.04.2022 to the Corporate Debtor to clear the outstanding redemption payment to the tune of Rs 65 Cr. This Demand Notice was served in the midst of several steps already having been taken in pursuance of communications exchanged between the Appellant, ELCF and the Corporate Debtor regarding restructuring proposal and grant of moratorium. Though the Edelweiss Group on the conclusion of the Sapphire transaction had sent a communication on 30.03.2022 stating that the final restructuring approval would be provi....
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.... induced and ensnared the Corporate Debtor into completing the Sapphire transaction on 25.03.2022. The timing and speed of these coercive steps is also unusual. It is the contention of the Corporate Debtor that the Appellant not only reneged on their commitment to extend the moratorium but took measures that financially squeezed the Corporate Debtor into a tight spot. By declaring them as NPA, the prospects of the Corporate Debtor availing of finance from other parties was also severely curtailed. The intent behind these moves were to put the Corporate Debtor into an irretrievable position making it almost impossible to recover from the burden of default. Clearly the Corporate Debtor was not running away from its obligations to repay but had only sought reprieve by way of moratorium. We are inclined to infer from the surrounding circumstances that the Corporate Debtor had entered into the Sapphire transaction with the legitimate expectation that the moratorium and release of properties would be acted upon by the Appellant and the Debenture Holders. We also find that the Appellant was aware of the intent of the majority debenture holders of agreeing to the restructuring and moratori....