TaxTMI 
TaxTMI 
TaxTMI 
2025 (5) TMI 1922
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.... Tribunal ("NCLT"), Mumbai Bench-VI admitting Section 7 Application filed by Axis Trustee Services Limited. IA No.18 of 2023 and IA No.29 of 2023 filed by the Appellant were also dismissed and IA No.4417 of 2024 was disposed of by the same order. 2. Brief facts of the case necessary to be noticed for deciding the Appeal are: (i) A Debenture Trust-cum-Mortgage Deed ("DTMD") dated 15.10.2018 was signed and executed between Debenture Trustee - Axis Trustee Services Ltd. (Respondent No.1 herein) and the Corporate Debtor - Future Ideas Company Limited. Schedule I of the DTMD mentions the names of the initial Debenture Holders. (ii) A Public Announcement was made on 29.08.2020 by Future Group, which commenced a major reorganisation of its businesses, in which key companies in the Future Group were to be merged into Future Enterprises Limited ("FEL"). On 29.08.2020 an Acquisition Agreement was entered into between CD and Rivaaz Trade Ventures Pvt. Ltd. ("RTVPL"), where debt amounting to Rs.122.83 crores under the NonConvertible Debentures ("NCD") issued by CD was acquired by RTVPL. In the Acquisition Agreement, neither the Debenture Trustee nor the Debenture Holders were party. (ii....
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....e main Company Petition. Debenture Trustee filed reply to IA No.4417 of 2024. (vii) The hearing in all the IAs as well as Company Petition was concluded and the Adjudicating Authority by the impugned order rejected IA No.18 of 2023 and IA No.29 of 2023 and disposed of IA No.4417 of 2024, taking on record the Financial Statement for the year 2023-24 and by the same order admitted Section 7 Application filed by the Debenture Trustee and appointed Mr. Ritesh Agarwal, as an IRP. Aggrieved by the order dated 09.04.2025, this Appeal has been filed. 3. We have heard learned Counsel for the Appellant as well as learned Counsel for the Debenture Trustee and learned Counsel for the IRP on 23.04.2025, when judgment was reserved and it was directed that Committee of Creditors, if not constituted, shall not be constituted till delivery of the judgment. 4. We have heard Shri Arun Kathpalia, learned Senior Counsel appearing for the Appellant and Shri Krishnendu Datta, learned Senior Counsel appearing for the Financial Creditor and Priyanka Jain, learned Counsel appearing for the IRP. 5. Learned Counsel for the Appellant challenging the impugned order submits that after execution of the Acqui....
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....he questions, which cannot be examined and decided by the Adjudicating Authority and the remedy lies in the Civil Court only. The Adjudicating Authority exceeded its jurisdiction in entering into contractual issues and declaring the Acquisition Agreement as void, which is beyond the jurisdiction of the Adjudicating Authority. The Adjudicating Authority cannot exercise jurisdiction of Civil Court in declaring the Acquisition Agreement as void. 6. Shri Krishnendu Datta, learned Senior Counsel appearing for the Respondent refuting the submissions of the Appellant submits that as per the DTMD, the CD had no right to assign its rights and obligations under the Deed. The Acquisition Agreement relied by the Appellant itself in Clause 2.2 requires the CD to obtain approval/ no objection from the Debenture Trustee. No objection having not been obtained from the Debenture Trustee, the Acquisition Agreement has not even come into force. The purported Acquisition Agreement dated 29.08.2020 was part of composite scheme of arrangement as for the public statement dated 29.08.2020 by Future Group, the composite scheme of arrangement having not been approved, the Acquisition Agreement cannot be im....
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....wer all issues raised before it. 7. Learned Counsel for the parties have also relied on various judgments of the Hon'ble Supreme Court and this Tribunal in support of their submissions, which shall be noticed hereinafter. 8. We have considered the submissions of learned Counsel for the parties and have perused the records. 9. As noted above, the Adjudicating Authority has decided IA No.18 of 2023, IA No.29 of 2023 as well as IA No.4417 of 2024 while deciding Section 7 Application filed by Debenture Trustee. The issues and objections raised in IA Nos.18 and 29 of 2023 were all objections to Section 7 Application and in the IAs, the CD has prayed for dismissal of Section 7 Application filed by Debenture Trustee. 10. From the submissions raised by learned Counsel for the parties and materials on record, following are the questions, which arise for answer in the present Appeal: (1) Whether Section 7 Application filed by Respondent No.1 was barred by Section 10A of IBC in view of notice dated 22.10.2020 issued by the Financial Creditor seeking repayment under the mandatory repayment clause under Debenture Trust-cum-Mortgage Deed dated 16.09.2015? (2) Whether by virtue of Acquisi....
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....res or reduce its share capital; (g) enter into any agreement which conflicts with the provisions of this Deed or the other Transaction Documents; (h) amend or modify the object clause set out in the memorandum and articles of association of the Company: (i) make any changes to its accounting policies or accounting methods or change its financial year from April 1-March 31, unless otherwise required under Applicable Law; (j) make any changes, amendments or modifications to any of the Master License Agreements, the Tri-partite Agreements or the Escrow Agreement or exercise any of the rights of the Company or grant any waivers or indulgences under the Master License Agreements, the Tri-partite Agreements or the Escrow Agreement; (k) sell, transfer, assign or otherwise create any Encumbrance over the Future Trademarks (as defined in the Master License Agreement) and shall at all times continue to hold all right, title and interest in respect thereto. 12. Clause 13 deals with 'Event of default and remedies'. Clause 17 deals with 'Modifications to these presents', which is as follows: "17. MODIFICATIONS TO THESE PRESENTS The Debenture Trustee shall concur with the Company....
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....f India, having its principal office at 101, Shivam Building. Mistry Complex, JB Nagar, Andheri East, Mumbai 400 059 (hereinafter referred to as the Buyer, which expression shall, unless repugnant to the context or meaning thereof, be deemed to include its successors) of the SECOND PART. The Buyer and the Seller are collectively referred to as the Parties, and the term Party shall refer to any of them. WHEREAS: A. The Parties have agreed that the Seller shall sell and transfer to the Buyer, and the Buyer shall purchase and receive from the Seller, the Identified Assets (as defined below) and Identified Liabilities (as defined below) of the Seller, for consideration of an amount equivalent to the Consideration (as defined below) and upon the terms set forth herein. B. The Parties have agreed that only the Identified Assets and the Identified Liabilities shall be transferred by the Seller to the Buyer and the remaining assets and liabilities of the Seller shall continue to remain with the Seller. C. The Seller and the Buyer wish to record in this Agreement the terms of the proposed transfer of the Identified Assets and the Identified Liabilities." 15. Schedule-2 of the Acq....
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....ts committed by the Corporate Debtor around 2020, due to which the Applicant was constrained to issue a Notice dated 22 October 2020 through their Advocates recording the defaults and calling upon the Corporate Debtor to make payment as mentioned therein. Considering the Corporate Debtor committed default in Redemption of the Debentures on the due date i.e., 30th March 2022, the same was construed as an Event of Default under the transaction documents. Applicant was constrained to issue a Notice dated 1st July 2022 calling upon the Corporate Debtor to make payment of all amounts under and in respect of the debentures. Instead of making payment of the amounts under said Debentures, the corporate debtor by its response dated 7th July 2022 raised frivolous defenses which was responded to by the Corporate Debtor by their Rejoinder dated 21st July 2022. Despite receipt of the Notices, the corporate debtor has failed to honor the Notices issued by the Applicant and comply with their obligations of payment. The present amount of Debt is Rs. 122,83,28,079/as on 27th September 2022 which is much more than the mandated limited under the Code. The debt and default are established, and the C....
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....e IBC. The basis of the Application - IA No.18 of 2023 is the notice dated 22.10.2020, by which according to the CD, the Financial Creditor sought repayment under the Mandatory Prepayment clause of previous Debenture Trust-cum-Mortgage Deed dated 16.09.2015, due to a default caused by the downgrading of debenture ratings between March and August, 2018. The notice dated 22.10.2020 is filed as Annexure A-7 to the Appeal. The said notice was issued in reference to downgrading of the ratings of debentures, which entitled the Financial Creditor - Debenture Holders to trigger the Mandatory Prepayment Option. It is useful to refer to paragraphs 12, 13 and 14 of the notice, which clearly indicate that Debenture Trustee reserve its right to accelerate the redemption of the Debentures. Paragraphs 12, 13 and 14 are as follows: "12. Further, per the Transaction Documents, in the event the rating of the Debentures, at any point in time until the Final Settlement Date, falls to or below BBB+, each of the Debentures Holders shall be entitled to exercise the Mandatory Prepayment Options and the Company shall be obligated to comply with the Mandatory Prepayment Notice. Considering the present rat....
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....8 as noticed above contained a schedule regarding payment details. The date, 30.04.2021 is one of the dates of Redemption Schedule as per Schedule-IV 'Payment Dates' and amount of Rs. 5 crores were to be paid. The payment dates indicate that default in repayment also prior to 24.03.2021. It is well settled that Section 7 Application can very well be filed by a Financial Creditor on defaults committed by the CD, which defaults are committed subsequent to 10A period. The present is a case where Section 7 Application clearly mentions the date of default as 30.04.2021, hence, the Adjudicating Authority has rightly not accepted the submission of the CD that Application is barred by Section 10A. The Adjudicating Authority in paragraph 8.7 has observed that Financial Creditor cannot be held to be barred from filing application under Section 7 on the basis of default subsequent to Section 10A period. Paragraphs 8.7 and 8.8 of the impugned order are as follows: "8.7 Be that as it may, it is now well-settled that Section 10A will have no bearing on defaults occurring after the expiry of the prohibited period. We find merit in the Respondent's contention that since the Applicant/Corpora....
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....editor, debenture trustee or the debenture holder were not part to the Agreement. Clause 2.2 of the Acquisition Agreement provided that identified liabilities by the seller to the buyers shall be subject to receipt of approval/non-objection letters from Axis Trustee Service Limited, debenture trustee in respect of NCD 1 and NCD 2. The corporate debtor has not pleaded or claimed that any approval or no objection letter was received from Axis Trustee Service Limited. The case set up before the adjudicating authority by the corporate debtor in I.A. No.29/2023, as well as in reply to Section 7 application based on email dated 31.08.2020 sent by the corporate debtor to the debenture holders and other correspondence exchanged between the parties on basis of which, according to the corporate debtor, transfer of liability is substantiated. In paragraph 4.1 of the impugned order, adjudicating authority has noticed the averments of the corporate debtor. It is useful to extract paragraph 4.1 of the impugned order, which is as follows: "4.1 The Respondent/Financial Creditor no longer qualifies as a creditor under Sections 3 and 5(8) of the Code, as the liabilities related to the NCDs have be....
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....inancial creditor. Clause 10.1 of the DTMD contains affirmative covenants by the company. Positive covenants include Clauses (g) & (i), which is as follows: "(g) The Company shall discharge its obligations in connection with the Debentures in a reasonable and prudent manner. (i) The Company shall comply with any directions/guidelines issued by any Governmental Authority, in relation to the Debentures." 26. Clause 10.2 contains negative covenants. Negative covenants under clause 10.2 is as follows: "10.2 Negative Covenants The Company shall not, without procuring the prior written consent of the Debenture Trustee (acting on the instructions of the Majority Debenture Holders): (a) undertake or enter into any amalgamation, demerger, merger or corporate restructuring or reconstruction scheme proposed; (b) incur any Financial Indebtedness; (c) enter into a single transaction or a series of transactions (whether related or not) and whether voluntary or involuntary to sell, lease, transfer or otherwise encumber or dispose the Mortgaged Property or any part thereof; (d) make any change in the nature and conduct of its business (from what is being carried out as on the date....
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....or obligations. Despite the aforesaid clauses of the transaction, DTMD Acquisition Agreement was entered between Company and the Rivaaz. Clause 2.2 of the Acquisition Agreement contemplated that approval/no objection of debenture trustee was to be obtained. Clause 2.2 of the Acquisition Agreement is as follows: "2.2 The transfer of the Identified Assets and Identified Liabilities by the Seller to the Bayer shall be subject to receipt of approvals/no-objection letters from Axis Trustee Services Limited, debenture trustee in respect of the NCDs I and NCDs II pursuant to the financing documents executed in relation to NCDs 1 and NCDs II. The Seller shall also ensure that such waiver/approval shall contain approval for assignment of the Master License Agreements in favour of the Buyer." 29. There are no approval or no objection by debenture trustee pleaded or proved. Corporate debtor has endeavoured to treat conduct of debenture holders which, according to the corporate debtor has ratified the Acquisition Agreement. Corporate debtor has relied on email dated 31.08.2020 sent by one Mr. Akhilesh Kalra of Future Group to one Mr. Arun Gupta of Franklin Templeton. Copy of which email was....
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....sued by each of Future Ideas Company Limited ("FICL") and nuFuture Digital (India) Limited ("NFDIL") to Franklin Templeton ("FT"), please note: a. FICL has executed an Acquisition Agreement with Rivaaz wherein FICL has transferred its obligations toward repayment of NCD-1 and NCD-2 (current o/s Rs. 127.5 Cr.) along with equivalent amount of identified assets to Rivaaz b. Similarly, NFDIL has executed an Acquisition Agreement with Rivaaz wherein NFDIL has transferred its obligations toward repayment of NCD-1 and NCD-2 (current o/s Rs. 256.3 Cr.) along with equivalent amount of identified assets to Rivaaz 6. Since the acquirer was desirous of purchasing all the assets pertaining to the retail, wholesale, logistics & warehouse businesses (including those owned by Rivaaz, FICL and NFDIL), consequently, the equity shares of Rivaaz have been acquired by wholly owned subsidiary of FEL, Future Bazaar India Limited (FBIL), rendering Rivaaz a wholly owned subsidiary of FBIL. 7. As part of the Composite Scheme of Arrangement (subject to necessary regulatory and stakeholders' approvals), FBIL and its wholly owned subsidiaries (including Rivaaz) would be merging with FEL. Thereby, t....
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.... NCDs issued by the above 3 entitles and held by FMF are consolidated under Rivaaz and are included in the March 31, 2022 financials of Rivaaz Trade Ventures. Please respond to this priority. Thanks. Regards, Arun" 32. The above email cannot be read as giving any type of consent or approval of the Acquisition Agreement. The email dated 05.10.2021 was replied on 06.10.2021 informing that NCDs issued by the three entities and are consolidated under Rivaaz and are included in the March 31, 2021 financials of RTVPL. Another email replied on 21.03.2021, which was sent on behalf of the debenture holders to Future Group, which reads as follows: "From: Akshay KUBDE [email protected] Sent: Tuesday, December 21, 2021 4:32 PM To: Vaidya, Mayur <Mayur [email protected]> Cc: #fundscsv [email protected]; Investment Ops IND AMC [email protected] Subject: FW: EXTERNAL: Fw: Fw: Certificate Hi Mayur, As discussed, our Custody team in in receipt of below mail regarding amount Outstanding as on 31.03.21 for Rivaaz Trade Ventures Pvt Ltd. Please check and confirm. Thanks and regards, Akshay Kubde Fund Services, Securities Services ....
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....We have noticed above, that Clause 2.2 of Acquisition Agreement itself required approval/no objection of debenture trustee. Neither any correspondence from debenture trustee has been referred or relied to claim that debenture trustee at any point of time gave its approval or no objection to the Acquisition Agreement. Thus, according to own case of the corporate debtor, there was no compliance of Clause 2.2 of the Acquisition Agreement. Reference of certain correspondence by the debenture holders in the above regard cannot be substituted as approval and no objection from the Axis Trustee Service Limited, the respondent herein which is specifically required under Acquisition Agreement Clause 2.2 as noted above. Thus, Acquisition Agreement itself having not been complied with insofar as obtaining approval or no objection of Axis Trustee Service Limited, there is no occasion to accept the case of the corporate debtor that obligation under the NCDs as per debenture trust DTMD stood transferred from corporate debtor to Rivaaz. As noted above the financial creditor or debenture holders were never party to the Acquisition Agreement 29.08.2020. 35. Learned counsel for the appellant submits....
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....th of such representation to alter his position to his detriment, the representor in any litigation which may afterwards take place between him and the representee, is estopped, as against the representee, from making, or attempting to establish by evidence, any averment substantially at variance with his former representation, if the representor at the proper time, and in the proper manner, objects thereto." 25. In Article 1175 at p. 637 of Halsbury's Laws of England, 3rd Edn., Vol. 14, it is stated as follows: "1175. Waiver is the abandonment of a right, and is either express or implied from conduct. A person who is entitled to the benefit of a stipulation in a contract or of a statutory provision (a) may waive it...." "The essence of waiver is 'estoppel' and where there is no 'estoppel' there can be no 'waiver', the connection between 'estoppel' and 'waiver' being very close. But, in spite of that, there is an essential difference between the two and that is whereas estoppel is a rule of evidence, waiver is a rule of conduct. Waiver has reference to man's conduct, while estoppel refers to the consequences of that conduct." 30. If a man either by words or by condu....
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....ipation of Kalpraj. In the above context, Hon'ble Supreme Court had occasion to consider waiver in paragraphs 117, 118, 119, 122 and 124, which are as follows: "117. The word "waiver" has been described in Halsbury's Laws of England, 4th Edn., Para 1471, which reads thus: "1471. Waiver.-Waiver is the abandonment of a right in such a way that the other party is entitled to plead the abandonment by way of confession and avoidance if the right is thereafter asserted, and is either express or implied from conduct. ... A person who is entitled to rely on a stipulation, existing for his benefit alone, in a contract or of a statutory provision, may waive it, and allow the contract or transaction to proceed as though the stipulation or provision did not exist. Waiver of this kind depends upon consent, and the fact that the other party has acted on it is sufficient consideration. ... It seems that, in general, where one party has, by his words or conduct, made to the other a promise or assurance which was intended to affect the legal relations between them and to be acted on accordingly, then, once the other party has taken him at his word and acted on it, so as to alter his posit....
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....inuous service with all benefits. A writ petition was filed by the respondent before the High Court. The said writ petition was dismissed [Purna Theatre v. State of W.B., 1996 SCC OnLine Cal 318] by the Single Judge of the High Court, upholding the findings of the Tribunal. In an appeal before the Division Bench, a plea was taken for the first time, that the workman had accepted the amount paid by the employer and as such, it amounted to waiver by the workman. The Division Bench allowed [Purna Theatre v. State of W.B., 1999 SCC OnLine Cal 448] the appeal and set aside the award passed by the Tribunal and the judgment and order passed by the Single Judge. Setting aside the judgment of the Division Bench, this Court observed thus : (Krishna Bahadur case [Krishna Bahadur v. Purna Theatre, (2004) 8 SCC 229 : 2004 SCC (L&S) 1086], SCC p. 233, paras 9-10) "9. The principle of waiver although is akin to the principle of estoppel; the difference between the two, however, is that whereas estoppel is not a cause of action; it is a rule of evidence; waiver is contractual and may constitute a cause of action; it is an agreement between the parties and a party fully knowing of its rights has ....
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....cess. 41. In view of the forgoing discussions and conclusions, we are of the view that no approval or consent to the Acquisition Agreement can be imputed to the debenture holders, whereas, no approval or consent is even pleaded on the part of the debenture trustee. 42. In view of the forgoing discussions and conclusions, we answer Question Nos. (2) & (3) in following manner: I. By virtue of Acquisition Agreement dated 29.08.2020 the rights and obligations of the corporate debtor under the NCD issued by the corporate debtor were not transferred to RTVPL. II. From the correspondence between the debenture holders, and the corporate debtor brought on record, demonstrates that debenture holders had never ratified or given their consent to the Acquisition Agreement, either by their conduct or by waiver and acquiescence. Question No. (4) 43. Learned counsel for the appellant has submitted that adjudicating authority had no jurisdiction to look into issues with regard to Acquisition Agreement dated 29.08.2020 and observation of the adjudicating authority that DTMD being a statutory contract, any Agreement contrary to the statutory mandate will be void or unsustainable. The appellan....
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....xt, we refer to paragraph 4 of the reply filed by the corporate debtor to Section 7 application where the Acquisition Agreement 29.08.2020 has been relied. Paragraph 4 of the reply is as follows: "4. Firstly, it is stated that, that the alleged liability of Rs. 122,83,28,079/(Rupees One Hundred Twenty-Two Crore Eighty Three Lacs Twenty Eight Thousand Seventy Nine Only) for supposed dues arising out of certain Non-Convertible Debentures (NCDs) as more particularly enumerated in the captioned Petition, have been acquired by Rivaaz Trade Ventures Pvt. Ltd. (RVTPL) vide an Acquisition Agreement dated 29 August,2020 (Acquisition Agreement). This fact has been duly brought to the notice of the Financial Creditor on 31 August,2020 itself and no dispute with respect to the same was raised. It is pertinent to note that the Financial Creditor has even acknowledged that the debt has been assigned by the Corporate Debtor in terms of the Assignment Agreement by voting in the Composite Scheme of Arrangement meeting held on 22 April, 2022 with respect to RTVPL which included the acquired liabilities of the Corporate Debtor. Thus, the present Company Petition is filed without any application of ....
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....ease of the corporate debtor and execute a supplemental lease deed, which was challenged before the High Court where an interim order was passed in the Writ Petition filed by the State of Karnataka, against which interim order, the matter was taken to the Hon'ble Supreme Court. In paragraph 30 of the judgment which is relied by the appellant, Hon'ble Supreme Court laid down following: "30. The NCLT is not even a civil court, which has jurisdiction by virtue of Section 9 of the Code of Civil Procedure to try all suits of a civil nature excepting suits, of which their cognizance is either expressly or impliedly barred. Therefore NCLT can exercise only such powers within the contours of jurisdiction as prescribed by the statute, the law in respect of which, it is called upon to administer. Hence, let us now see the jurisdiction and powers conferred upon NCLT." 47. There can be no quarrel to the proposition laid down by the Hon'ble Supreme Court in paragraph 9, adjudicating authority is not a civil court nor can try all Suites of the civil nature. The jurisdiction and power of the NCLT has been dealt with by the Hon'ble Supreme Court in the above case where in paragraph 46, Hon'ble ....
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....of material fact or for any other like nature Agreement was required to be set aside through court. The above observation has no application in the present case since financial creditors are not claiming that Acquisition Agreement was obtained by fraud or misrepresentation or by suppression of material facts. Appellant has contended that Acquisition Agreement is contrary to the DTMD, which question could have been very well be gone into by the adjudicating authority. 51. Next judgment relied by the appellant is 'S. Chand & Co.' Vs. 'M/s. Bharat Carpets Ltd.' reported in 2011 SCC OnLine DEL 4984, reliance has been placed on paragraph 37, which is as follows: "37. In any event, it is settled law that objectors cannot wish away a share purchase agreement/MoU/deed of arrangement by merely stating that they are void documents. They cannot rest content by alleging that the documents have no efficacy in law and must be ignored. If it is their case that these documents have been obtained by fraud or misrepresentation by suppression of material facts or any other reason, they must have the agreements set aside through Court and unless they do that they cannot go behind the agreement and ....
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....reported in (2021) 10 SCC 330, the adjudicating authority has rightly observed that additional document amended the pleading can be accepted and permitted by the Tribunal. With regard to balance sheets of debenture holders, adjudicating authority has held that corporate debtor has failed to show any grave prejudice or any unfair advantage was derived by the financial creditor due to non-production of the balance sheets of the debenture holders. It was held that balance sheets of the debenture holder which is a mutual fund being public documents are available on the website. Adjudicating Authority held that the balance sheets of the debenture holders need to be accepted on the record. In paragraph 10.7 following observations have been made by the adjudicating authority: "10.7 The Corporate Debtor has failed to show whether any grave prejudice was caused to it or whether any unfair advantage was derived by the Respondent/Financial Creditor due to nonproduction of the balance sheets of the Debenture Holders by the Debenture Trustee/Financial Creditor. It is also pertinent to note that the balance sheets of FTMF, being a mutual fund, are public documents available on their website. I....