TaxTMI 
TaxTMI 
2025 (5) TMI 1922
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....ted 09.04.2025 passed by National Company Law 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 ....
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....ef inter alia to not consider the Report for the Financial Year 2023-24 while deciding the 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. Lear....
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....reement dated 29.08.2020. The contractual issues between the Debenture Holders, the CD and RTVPL are the 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 Gro....
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....ood validly transferred to Rivaaz. The Adjudicating Authority has ample jurisdiction to consider and answer 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 ....
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.... any change in the nature and conduct of its business (from what is t out as the date hereof); (e) voluntarily wind up, liquidate or dissolve its affairs; (f) purchase, redeem or buyback its shares 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 i....
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..... JVLR, Jogeshwari (East), Mumbai 400 060 (hereinafter referred to as the Seller, which expression shall, unless repugnant to the context or meaning thereof, be deemed to include its successors) of the FIRST PART; and (2) RIVAAZ TRADE VENTURES PRIVATE LIMITED, a company incorporated under the laws of 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 Li....
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....cum Mortgage Deed dated 15 October 2018 recording the terms of the debentures and creation of security including movable and immovable properties as mentioned therein. In accordance with the terms of the transaction Documents, the Corporate Debtor was required to redeem the Debentures and pay coupon at the rates and on the dates as specified therein. There were certain defaults 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 ....
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....mputation of Claim Amount has been annexed herewith at ANNEXURE 5." 18. After having noticed the Debenture Trust-cum-Mortgage Deed dated 15.10.2018, Acquisition Agreement dated 29.10.2020 and Part-VI of Section 7 Application, now we proceed to consider the Questions. Question No.(1) 19. The CD by filing an IA No.18 of 2023 has prayed for rejection of Section 7 Application on the grounds of bar of Section 10A of the 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....
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....lso noticed above that the scheme of composite arrangement, as was to enter into between Future Group and Reliance Retail Ventures Ltd., subsequently failed. We have also noticed Part-IV of Section 7 Application, which was basis of initiation of Section 7 Application. The date of default mentioned in Part-IV of the Application is 30.04.2021 and it also mentions that debentures were to be redeemed as per the DTMD dated 15.10.2018. The DTMD dated 15.10.2018 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....
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....s rightly held that Application was not barred by 10A. There is no error in the order of Adjudicating Authority rejecting IA No.18 of 2023. Question No.(1) is answered accordingly. Question Nos.(2) & (3) 23. Both the questions being interrelated are being taken together. 24. The Acquisition Agreement dated 29.08.2020 was entered between corporate debtor and Rivaaz Trade Ventures Private Limited (hereinafter referred to as 'RTVPL' or 'Rivaaz'). The financial creditor, 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 exchang....
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....onfirming the principal outstanding of Rs.1004,24,16,661/voted on the Scheme regarding the transferred NCDs." 25. It is further pleaded by the corporate debtor that debenture holders have ratified the Acquisition Agreement through their conduct. The corporate debtor also pressed the waiver and acquiescence against the debenture holders. We have noticed the Debenture Trust cum Mortgage Deed (DTMD) dated 15.10.2018 and noticed certain relevant clauses of deed which was entered between the corporate debtor and financial 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 instructi....
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....at the Company shall not be entitled to assign any or the rights, duties or obligation under the Transaction Documents or in relation to the Debentures." 28. Clause 12.3 provides that company shall not be entitled to assign any of its right, duties or obligations under the transaction documents or in relation to the debentures. To the contrary Clauses 12.1 & 12.2 clearly provides debenture holders to transfer or assigned its rights under the transaction document which debentures were freely transferable by the debenture holders. Clear contrast in the above clauses indicate that DTMD never intended the company to assign any of its rights, duties 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 respec....
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....ry of Reliance Retail Ventures Limited ("RRVL"). FEL will also sell the logistics and warehouse business to RRVL by way of a slump sale. RRFLL and RRVL will take over certain borrowings and current liabilities related to the business and discharge the balance consideration by way of cash. 3. Future Group will retain its FMCG and Integrated Fashion Sourcing & Merchandising businesses in FEL, and its Insurance JVs with Generali along with NTC Mills JVs. 4. FEL will have strategic supply and distribution arrangements for the FMCG and fashion businesses with Reliance Retail. RRFLL will additionally invest Rs. 2800 Cr in equity & warrants of FEL to acquire 13.15% stake, showcasing strategic intent. 5. With regards to NCDs issued 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 Agreeme....
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....un [email protected] Sent: 05 October 2021 16:10 To: Akhilesh Kalra <Akhilesh. [email protected]> Cc: Kamath, Santosh Das [email protected]; Agrawal, Kunal [email protected]; Shah, Nischal [email protected]; Padmanabhan, Radhika [email protected] Subject: Futura group NCDs CAUTION: This email originated from outside your organization. Exercise caution when opening attachments or on clicking links from unknown senders. Hi Akhilesh, Thanks for the call earlier today Request you to send across the audited financials for March 31, 2020 and audited/provisional financials for March 31, 2021 for all the three entities-Rivaaz/NuFuture and Future Ideas. Also, as discussed please confirm that all 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 Acquis....
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....est 1,253,809,741 Redemption Premium 64,180,561 Step-up Interest 216,047,981 Default Interest 19,848,741 Total 11,596,303,690 Will be happy to clarify further as required. Thanks. Regards, Arun" 34. It was next pleaded by corporate debtor that debenture holders after confirming the principal outstanding of Rs.1004,24,02,661/has voted on the scheme regarding the transferred NCD. All the above correspondence relied by the corporate debtor, cannot be read as giving any approval or no objection to the acquisition. In the internal email 29.12.2021 relied by the corporate debtor, summary of exposure outstanding to RTVPL was communicated in response to the balance confirmation request received internally from debenture holders. The other emails as noted above sent by the debenture holders asked for the Acquisition Agreement, enquired about the exposures regarding NCDs in the Rivaaz. All those cannot be read to mean that at any point of time debenture holders have given their consent or no objection to the acquisition. We have noticed above, that Clause 2.2 of Acquisition Agreement itself required approval/no objection of debenture t....
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....matter of 'B.L. Sreedhar & Ors.' Vs. 'KM Munireddy & Ors.' reported in (2003) 2 SCC 355. Learned counsel for the appellant relied on paragraphs 24, 25 & 30 of the judgment, where following was laid down: "24. The following passage from the Law Relating to Estoppel by Representation by George Spencer, 2nd Edn. as indicated in Article 3 is as follows: "It will be convenient to begin with a satisfactory definition of estoppel by representation. From a careful scrutiny and collation of the various judicial pronouncements on the subject, of which no single one is, or was perhaps intended to be, quite adequate, and many are incorrect, redundant, or slipshod in expression; the following general statement of the doctrine of estoppel by representation emerges; where one person ('the representor') had made a representation to another person ('the representee') in words or by acts and conduct, or (being under a duty to the representee to speak or act) by silence or inaction, with the intention (actual or presumptive), and with the result, of inducing the representee on the faith of such representation to alter his position to his detriment, the representor in any litigation ....
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....s in the Rivaaz were asked for and called for. No waiver or acquiescence can be pressed against even debenture holders in the present case. More so, Clause 2.2 of the Acquisition Agreement as noted above required approval or no objection of the debenture trustee. Present is not a case where any approval or no objection is even pleaded from the debenture trustee. Thus the submission advanced by the appellant on the principle of waiver and acquiescence are not attracted. 37. Another judgment relied by the counsel for the appellant is 'Kalpraj Dharamshi & Anr.' Vs. 'Kotak Investment Advisors Ltd. & Anr.' reported in (2021) 10 SCC 401, where Hon'ble Supreme Court has occasion to consider as to whether there was waiver and acceptance by KIAL so as to stop it from challenging the participation of Kalpraj. Above was a case where both Kalpraj where KIAL has submitted a resolution plan and belatedly Kalpraj was also permitted to participate, subsequently KIAL challenged the participation of Kalpraj, hence the question arose as to whether KIAL by principle of waiver and acquiescence is estopped from challenging the participation of Kalpraj. In the above context, Hon'ble Supreme Court had ....
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....f the right, without the need for writing or for consideration moving from, or detriment to, the party who benefits by the waiver, but mere acts of indulgence will not amount to waiver; nor may a party benefit from the waiver unless he has altered his position in reliance on it." 119. For considering, as to whether a party has waived its rights or not, it will be relevant to consider the conduct of a party. For establishing waiver, it will have to be established, that a party expressly or by its conduct acted in a manner, which is inconsistent with the continuance of its rights. However, the mere acts of indulgence will not amount to waiver. A party claiming waiver would also not be entitled to claim the benefit of waiver, unless it has altered its position in reliance on the same. 122. As such, for applying the principle of waiver, it will have to be established, that though a party was aware about the relevant facts and the right to take an objection, he has neglected to take such an objection. 124. However, in the proceedings initiated by the trade union, the retrenchment was held to be illegal and he was directed to be deemed to be in continuous servi....
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....ellant that the debenture holders have exercised their voting rights in the composite scheme and has voted on 22.04.2022 against the scheme and the voting right was exercised as per their outstanding with respect to Rivaaz, who was part of composite scheme of arrangement. It is on the record that the debenture holders voted against the scheme and the outstanding in Rivaaz as on 31.03.2021 as was communicated to the debenture holders was for purposes of scheme voting. The debenture holders were opposed to the scheme arrangement and voted against it which scheme ultimately was not approved. The voting of debenture holders against the scheme with regard to which public statement was given by the Future Group as noted above no waiver or acquiescence can be treated against the debenture holders with respect to Acquisition Agreement. Adjudicating authority in the impugned order has also rightly observed that the Acquisition Agreement was part of the larger and composite scheme of transfer and merger of the Future Group entities into reliance and which composite scheme having failed to obtain the regulatory approval, the Acquisition Agreement has to be looked into as an step into the inte....
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....hat Debentures are statutory instruments governed by the Companies Act, 2013, and related rules. Section 71(8) of the Companies Act, 2013, read with Rule 18(1)(c) and sub-rule (5) of the Companies (Share Capital and Debentures) Rules, 2014, mandates that the issuer of debentures remains liable to redeem the debentures. Form SH-12 requires an undertaking to pay interest and principal as per the terms of the offer, as reflected in Clause 3.2 of the DTMD, which contains a covenant to pay principal and interest. We find merit in the Financial Creditor's submission that the issuer of the debentures cannot contract out of a statutory obligation or liability by way of a private contract and any such contract being contrary to the statutory mandate will be void..." 44. The Acquisition Agreement was relied by the corporate debtor in its reply to Section 7 application, in I.A. 23/2023 filed by the corporate debtor, praying for dismissal of Section 7 application. It was case of the corporate debtor that on account of the Acquisition Agreement, the corporate debtor is no longer debtor and the obligation has been undertaken by Rivaaz, hence Section 7 application could not have been filed....
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....n Agreement is void cannot be accepted. We have noticed that Clauses of DTMD under which without procuring the prior given consent of the debenture trustee, the corporate debtor could not have entered into the Agreement which conflicts provisions of the deed or the other transaction document. The present is the case where no prior written consent of the debenture trustee has been obtained or even pleaded. We have further noticed Scheduled II Clause 12.3 which prohibited the company to assign any of its rights, duties, or obligations. Acquisition Agreement is thus clearly not in conformity with the DTMD and thus is clearly void being in contravention of the DTMD. We thus sustain the finding of the adjudicating authority that Acquisition Agreement is void, but for the reasons as indicated above. 46. Learned counsel for the appellant to contend that adjudicating authority has exceeded its jurisdiction in delving issues or rendering finding that Acquisition Agreement is void relied on the judgment of the Hon'ble Supreme Court in 'Embassy Properties Development (P) Ltd.' Vs. 'State of Karnataka & Ors.' (2020) 13 SCC 308, paragraph 30. In the above case, NCLT Chennai has passed an ord....
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.... transferred to the Rivaaz. The adjudicating authority was thus fully entitled to look into the Acquisition Agreement and considered the same in light of the principal document i.e., DTMD dated 15.10.2018. 49. Another judgment relied by counsel for the appellant is 'Subodh Kumar Gupta' Vs. 'Shrikant Gupta & Ors.' reported in (1993) 4 SCC 1 reliance has been placed on paragraph 3, which is as follows: "3. ...If it is the case of the plaintiff that this document was obtained by fraud or misrepresentation by suppression of material facts or for any other like reason he must have the agreement set aside through court and unless he does that he cannot go behind the agreement, ignore it as a void document and proceed to sue for dissolution of the partnership and rendition of accounts. It is not a matter of the volition of the plaintiff to disregard the document as void and proceed to ignore it altogether without having it declared void by a competent court. It, therefore, appears clear to us that no part of the cause of action arose within the territorial jurisdiction of the Chandigarh Court." 50. In the above observation, Hon'ble Supreme Court held that if the case of the....
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....servations made by adjudicating authority that Acquisition Agreement is void are sustainable, for the reasons indicated above. Question No. (5) 55. Adjudicating authority has noted that an application was filed by the appellant being I.A. No. 4417/2024, where the corporate debtor has objected to the bringing on record of Audited Financial Statements of the debenture holders. In paragraph 10 of the impugned order adjudicating authority has noticed the prayer made in the application, which is as follows: "10. The issues arising for consideration in this IA are (i) whether the audited financial statements of the Debenture Holder produced by the Respondent are admissible' (ii) whether certain schemes of the Debenture Holders had been liquidated as per order of the Hon'ble Supreme Court and the Respondent suppressed this fact from the Tribunal; (iii) whether pursuant to the liquidation the said trust/Debenture Trustee/Respondent stands extinguished in terms of provisions of the Indian Trust Act; and (iv) whether pursuant to the liquidation the Respondent/Financial Creditor has the authority or locus standi from SBI Funds or FTMF to file the Main Application." 56. Reply....
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....rity has rightly accepted the financial statements of the debenture holders and held that the objections raised by the corporate debtor were without any substance. In paragraph 10.15 following has been observed: "10.15 We head both the parties on the Main Application [C.P. (IB)/1260/2022] along with IA(IBC)18/2023 and IA(IBC)/29/2023, on 02.07.2024; 25.07.2024; 08.08.2024; and 29.08.2024; and also IA(IBC)/4417/2014, on 09.10.2024; and 21.10.2024. Considering the submissions of both the parties, the Applicant/Corporate Debtor was provided a fair opportunity hearing on IA(IBC)/4417/2014, challenging taking on record the Report on the Audit of the Financial Statements of FT for FY 2023-2024 (Report), produced by the Respondent/Financial Creditor. After hearing the Report is accepted on record having found that the same is essential in the adjudication of the Main Application. We hold that no prejudice would be caused to either of the parties, especially the Applicant/Corporate Debtor in taking on record the Report. The written submissions of the Applicant/Corporate Debtor and also the written submissions filed by the Respondent/Financial Creditor are duly considered by us. In....