TaxTMI 
TaxTMI 
TaxTMI 
2023 (6) TMI 1492
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....tion of its Claim by the 1st Respondent/ the Resolution Professional (RP). 2. Briefly put, the facts as mentioned in the Application, which was dismissed by the Adjudicating Authority, are that IVRCL Limited had won the bid for undertaking Construction, Operation and Maintenance of a Project under 'National Highway Authority of India' ("NHAI") in April 2009, subsequent to which the concession Agreement dated 25/03/2010 was entered into between NHAI and 'IVRCL Chengapalli Tollways Limited' ("ICTL") for execution of the Project. IFCI agreed to provide financial assistance to the Corporate Debtor through 'Compulsorily Convertible Debentures' ("CCDs") and subsequently the 'Letter of Intent' ("LOI") / 'Sanction Letter', dated 28/09/2010 was issued and the Applicant/ Financial Creditor agreed to subscribe to the CCDs amounting to Rs. 125,00,00,000/- vide a 'Debenture Subscription Agreement' ("DSA") dated 14/10/2011. 3. IFCI, IVRCL and ICTL entered into a Share Buy Back Agreement, dated 14/10/2011, wherein the terms and conditions of the buy back of CCDs subscribed by the Applicant were detailed. The Applicant by exercising this option agreed to buy back Rs. 12.5 Crore CCDs any time bet....
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....RP sought clarifications, for which the Applicant furnished additional documents, vide emails dated 17/05/2022, 19/05/2022 and 26/05/2022. The RP issued 'Express of Interest' ("EOI") in Form - G on 08/07/2022 for prospective Resolution Applicants to submit the Plan. The RP has rejected the claim of the Applicant, vide e-mail dated 09/08/2022. The Applicant once again sent e-mail communications dated 24/08/2022 and 30/08/2022, but the RP vide e-mail dated 26/09/2022, once again refused to consider the claims of the Applicant. The RP had uploaded the list of Creditors of ICTL on its website and the claims received upto 20/09/2022. The claim of ACRE was admitted at Rs. 1058,49,99,727/- and ACRE holds 99% of voting rights of the CoC of ICTL. 7. Challenging the decision of the RP, the Applicant / the Appellant herein preferred IA No. 1465 of 2022, but the Adjudicating Authority has dismissed the same observing as follows : 12. In compliance with RBI guidelines, all the important contracts / documents namely (I) Concession Agreement dated 25.03.2010 entered into between NHAI IFCI, IVRCL and ICTL- annexure 2 (11) Debenture subscription agreement dated 14.10.2011- annexure 3 (Ill) Share....
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....nce to counter this statement. 15. The applicant has already claimed its dues in the liquidation of IVRCL on account of guarantee of I'VRCL in the instant case which has already been admitted. Applicant has put its reliance on Case Law, CA (AT) 1 186 of 2019 at NCLAT Delhi in EARC Ltd vs Gwalior Bypass Projects Ltd in which it is decided that FC can procced against the principal borrower as well as Corporate Guarantor at the same time, either in CIRPs or file claims in both CIRPs. But, in this case, the basic point before deciding on multiplicity of claim is to decide whether being a CCD holder it can be treated as Corporate Debtor or not. 16. To put emphasis that CCD can be treated as Debt and in turn CCD holder can be treated as Financial Creditor, the applicant has placed its reliance on case laws, SREI Multiple Asset Investment Trust Vs. IDBI Bank Ltd and others, Company Appeal (AT) (Ins) No.593 of 2020 (SREI), Hon'ble NCLAT and SGM Webtech Pvt Ltd vs Boulevard Projects Pvt Limited. In SGM webtech, Hon'ble NCLAT has held that if at the time of winding up or admission of a case under IBC, if the debentures are not matured and not convertible for the period of r....
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....ontained in this 'Master Direction' with respect to 'Equity Instruments' must be construed within the context of 'Foreign Direct Investments' ("FDI") in India and cannot be stretched to cover cases with no element of Foreign Investment. In fact, the Corporate Debtor in its Financial statements for the years FY 2016-17, 2017-18, 2018-19 and 2019-20 has recorded the said CCDs as Debentures under the head 'Other Financial Liabilities'. 9. The Learned Counsel placed reliance on the Judgment of Hon'ble ITAT, Bangalore, dated 25/07/2019 in which the Appellate Tribunal has addressed to the issue as to whether the CCDs are Debt or Equity and observed as follows: "We would like to observe that such circular in the context of FDI policy of RBI is in a different context i.e. regarding future re-payment obligations in convertible foreign currency and to have control over such future re-payment obligations, the RBI is exercising strict and control so that such future re-payment obligations does not go beyond a point and since in the case of fully convertible debentures, there is no future re-payment obligation, the same was considered as equity for the purpose of FDI policy. In our considere....
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....the Appellant as a Share Holder nor as a Financial Creditor, leaving the Applicant herein remedy less. It is argued by the Senior Counsel for the Appellant that even assuming that the CCDs in the instant case are Equity Instruments, since they stood matured for conversion in December 2017, in accordance with the second Proviso to Section 21 of the Code, the Appellant should have been included to the CoC. The Appellant placed reliance on the following Judgments in support of his contention that the CCDs ought to be treated as a 'Debt' and not as an 'Equity' in the instant case. 1. The Assistant Commissioner of Income Tax Circle - 2 (I) (I), Bangalore. V. M/s CAE Flight Training (India) Pvt. Ltd. (Batch Cases). 2. Narendra Kumar Maheshwari V. UOI & Ors. (1990 (Supp) SCC 440) 3. Sahara India Real Estate Corporation Limited & Ors. V. S.E.B.I. & Anr. (2013 1 SCC 1) 12. Learned Sr. Counsel Mr. P.H. Arvindh Pandian appearing on behalf of the Respondent No. 1 submitted that ICTL is a `Subsidiary Company' of IVRCL (`Sponsored Company') holding 100% share capital of ICTL, that the present stage of CIRP is that the Resolution Plan of one SPCP Luxembourg strategies S.A.R.L was approved ....
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....h instruments. As per RBI Master Direction on FDIs, Debentures which are fully, compulsorily and mandatorily convertible shall be treated as 'Equity Instruments'. Moreover, the occurrence of default or any other happening of an event, unless it is part of the conditions of the Contract / Agreement, which by its nature treats the CCDs as 'Equity' and not 'Debt'. It is contended by the Counsel that CCDs do not constitute Financial Debt as defined under Section 5(8) of the Code as the date for the Project was partly financed by 'Equity' and partly financed by 'Debt'. The 'Debt' for the Project was financed by a Consortium of Lenders, who thereafter assigned their Debt to ACRE, while 'Equity' Component was provided by the Parent Company of the Corporate Debtor, IVRCL, which is the Sponsor and the Appellant. This is evident from the terms of the Common Loan Agreement entered into between Lenders Consortium and the Corporate Debtor and the Concession Agreement dated 25/03/2010 between NHAI and the Corporate Debtor. 16. The definition of 'Equity' under the 'Concession Agreement' is reproduced as herein for ease of reference: " "Equity" means the sum expressed in Indian Rupees represent....
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.... was initiated. While so, on 25/04/2022, the RP issued a Public Announcement notifying claims of the Creditors. On 09/05/2022, the Appellant filed a claim with the RP as 'Financial Creditor' claiming a total sum of Rs. 525,04,21,889/- which also includes the interest amount. On 09/08/2022, the RP rejected the claim of the Appellant. 21. It is seen from the record that it was only after four months i.e. on 30/11/2022 that the Appellant herein filed IA No. 1465/2022 challenging the rejection of its 'Claim'. On 07/12/2022, the RFRP was issued for inviting the Resolution Plans. On 09/03/2023, the e-voting on the Resolution Plan was conducted and the Resolution Plan of the 'Successful Resolution Applicant' ("SRA") was approved by 100% voting share. It is seen that on 14/03/2023 the Adjudicating Authority has upheld the rejection of 'Claims' by the RP and has dismissed the Application. 22. It is the main case of the Learned Senior Counsel Mr. P.S. Raman appearing for the Appellant that the CCDs were wrongly treated as 'Equity' and not as 'Debt', as CCDs could not have been converted to Equity, although they matured for conversion in 2017 as there was a change in the ownership of the Co....
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....payment of the principal, albeit at the option of the investor, is postulated." 24. It is the case of the Appellant that the Adjudicating Authority had wrongly relied on the 'RBI Master Direction' as it is related to FDI and has nothing to do with the Domestic Investments in India. The Contention of the Learned Senior Counsel that the ratio in the Judgment passed by the National ITAT, Bangalore is applicable to the facts of this case, is untenable as the definition of convertible Debentures has to be construed keeping the facts of the attendant case on hand more so when in the Context of RBI Master Direction of FDI clearly distinguishes Non Convertible Debentures (NCTs) and Optionally Convertible Debentures (OCDs) from CCDs and treats the NCDs and OCDs as 'Debt'. This Tribunal is of the considered view that though there is no express definition or interpretation regarding whether CCDs are to be treated as 'Debt' or 'Equity', the Adjudicating Authority has rightly relied on Para 4, sub para 4.6 of 'RBI Master Direction' of FDI in coming to a conclusion that Debentures which are fully, compulsorily and mandatorily convertible are to be treated as 'Equity Instrument'. 25. The perusa....
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....l issued by the Corporate Debtor in 2017 and the Payment obligation is on the 'Sponsor' and not on the 'Corporate Debtor'. 27. At this juncture, we find it relevant to read Section 71(8) of the Companies Act, 2013 which states that 'debt' means a 'liability' or 'obligation' in respect of a `Claim' which is due from any person and includes a `Financial Debt' and `Operational Debt'. Hence, this Tribunal is of the considered view that ICTL is bound by the terms of the CCDs provided for under the Agreements. It is significant to mention that the exit option for IFCI is only buy-back of CCDs by the IVRCL or conversion of CCDs into equity. 28. This Tribunal is also conscious of the fact that CCDs in the present case have matured before the 'Admission into CIRP'. The Learned Adjudicating Authority has also rightly placed reliance on the decision of the Hon'ble Supreme Court in 'Narendra Kumar Maheshwari Vs. UOI and Ors.' wherein it is held by the Hon'ble Apex Court that any Instrument, which is fully, compulsorily convertible into shares, is regarded as 'Equity', and not a 'Loan' or 'Debt'. The Argument of the Learned Senior Counsel that this Judgment is with the relevance to a PIL that....