TaxTMI 
TaxTMI 
2026 (2) TMI 1165
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....l by the National Company Law Appellate Tribunal, Principal Bench, New Delhi ('NCLAT'), vide judgment dated 16.04.2025 passed in the debenture trustee's Company Appeal (AT) (Insolvency) No. 467 of 2023. Aggrieved thereby, the debenture trustee is in appeal before this Court under Section 62 of the Code. 2. The respondent company proposed to erect a residential-cum-retail project in Mumbai and to meet its requirement of funds in that regard, it proposed to issue 850 redeemable non-convertible debentures of the value of Rs.850 crore in two series, viz., Series A and Series B. The resolution in this regard was passed by the Board of Directors of the respondent company on 20.03.2018. On the same day, the debenture trustee was appointed on behalf of the debenture holders. A Debenture Trust Deed (DTD) was executed between the debenture trustee, the respondent company and Shobhit J. Rajan, the mortgage provider, on 27.03.2018. Series A debentures to the tune of Rs.600 crore were fully subscribed by the debenture holders and the entire amount was disbursed to the respondent company on 28/29.03.2018. ECL Finance Limited (ECLF), Edelweiss Finvest Pvt. Ltd., Barbelo Estates LLP, an entity ....
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....on between the respondent company and ECLF in this letter. In turn, the debenture trustee addressed letter dated 28.03.2022 to the respondent company, wherein it stated that it had no objection to the issuance of non-convertible debentures of Rs.152 crore by the respondent company and creation of a charge over the 18 unsold flats and the receivables of Rs.4.42 crore. It was further stated that upon receipt of Rs.152 crore from the respondent company in the escrow account, the debenture trustee would immediately release the charge over the said property. Significantly, there was no mention in this letter also of the restructuring proposal or of the debenture trustee even being aware of it. On the other hand, on 28.04.2022, the debenture trustee addressed a demand letter to the respondent company, stating that Rs.65,49,72,125/- was overdue on the debentures as on 15.04.2022 and asking for payment. 5. It appears that it was only thereafter that the debenture trustee was brought into the picture apropos the restructuring proposal. Pertinently, none of the earlier e-mails exchanged between ECLF and the respondent company were marked to or shared with the debenture trustee. By its let....
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.... present appeal. 8. Perusal of the order passed by the NCLT reflects that the NCLT proceeded on the premise that a moratorium was already in place pursuant to the negotiations between the respondent company and one of the debenture holders. Observing that insolvency proceedings were not in the nature of recovery proceedings, the NCLT dismissed the company petition. In appeal before the NCLAT, it was specifically contended on behalf of the debenture trustee that, in terms of clause 4.4 of the DTD, the respondent company was required to maintain an interest payment reserve account in escrow with the bank and was liable to pay interest to the debenture holders, compounded quarterly. As the respondent company had failed to do so, the debenture trustee issued recall notice dated 21.07.2022 to the respondent company, demanding repayment of the principal amount along with interest, amounting to Rs.1,203.55 crore. It was pointed out that the understanding of the NCLT that a moratorium was in place was erroneous as the argument in that regard was based on the discussions held by the respondent company with only one of the debenture holders and there was no modification of the DTD in acco....
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.... debenture trustee and the debenture holders, by their conduct, agreed to implement such restructuring, whereby an 18 months moratorium became operative and subsisted till September, 2023, thereby negating the default claim of the debenture trustee; and lastly, the debenture trustee and the debenture holders deliberately engineered a default so as to coerce the respondent company. 12. In this regard, we may note the settled legal position that for admission of an application under Section 7 of the Code, the adjudicating authority is only required to examine and satisfy itself that a financial debt exists and there is default in relation thereto. In this context, the observations of this Court in Innoventive Industries Limited vs. ICICI Bank and another (2018) 1 SCC 407 are of relevance and are extracted hereunder: '30. On the other hand, as we have seen, in the case of a corporate debtor who commits a default of a financial debt, the adjudicating authority has merely to see the records of the information utility or other evidence produced by the financial creditor to satisfy itself that a default has occurred. It is of no matter that the debt is disputed so long as the ....
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....ctions'. The phrase 'approved instructions' is defined in clause 1.1 of the DTD to mean the instructions of the debenture holders to the debenture trustee, which have been approved pursuant to the provisions set out in Schedule 2, titled 'Provisions for the Meetings of the Debenture Holders'. Clause 22 in Schedule 2 provides that a meeting of the debenture holders shall, inter alia, have the power, amongst others, to sanction any compromise or arrangement proposed to be made between the respondent company and the debenture holders. Clause 23 therein specifically provides that the power set out in clause 22 shall be exercisable by a resolution passed at a meeting of the debenture holders duly convened and held in accordance with the provisions therein contained and carried by a majority of not less than three-fourths of the persons voting thereat upon a show of hands or if a poll is demanded by a majority, representing not less than three-fourths in value of the votes cast, on such poll and such a resolution is called a 'Special Resolution'. 15. Clause 33.2 of the DTD states that the debenture trustee shall, before taking any action on behalf of the debenture holders or providing....
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....n payment of Rs.50 crore by the respondent company towards redemption of the debentures. The 'additional property' referred to in this clause is defined in clause 1.1 as the parcel of land of 15,138 square feet situated on Turner Road, Bandra (W), Mumbai, to be mortgaged by Variegate Real Estate Pvt. Ltd. The final settlement date, as defined, means the day on which the debentures are redeemed to the satisfaction of the debenture trustee. The release of this property assumes importance as the same was construed by the NCLT and the NCLAT to be a factor weighing in favour of the respondent company's claim that its restructuring proposal had been accepted and acted upon. However, the letter dated 29.03.2022 addressed by the debenture trustee to Variegate Real Estate Pvt. Ltd., the respondent company and Shobhit J. Rajan in relation to release of the Bandra property from the mortgage stands on a different footing as it was relatable to clause 28.3 of the DTD and not the respondent company's restructuring proposal. The release of this property seems to have taken place upon the respondent company transferring monies towards redemption of the debentures after receiving the additional fun....
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....was agreeable to the restructuring proposal and the grant of a moratorium, it would need to run the entire process internally based on the overall resolution process in compliance with the terms of the DTD. Therefore, the respondent company could not have assumed that ECLF had already agreed to the restructuring proposal without further ado and that the same was binding upon all concerned. In this regard, the observations made by the NCLAT against ECLF are without basis as the aforestated communication from ECLF to the respondent company demonstrates that no promise was held out by it as to the restructuring and all that was stated was that the proposal would be considered as per due procedure. 20. The conclusion drawn by the NCLAT as to the debenture trustee colluding with the debenture holders does not hold water as the debenture trustee was enjoined by the DTD to protect the interest of the debenture holders. Even on facts, the question of collusion between them was not made out. The NCLAT's notion that the debenture trustee was required to act with fairness and protect the interest of the respondent company is contrary to the duty and obligation cast upon the debenture trust....