TaxTMI 
TaxTMI 
2026 (3) TMI 39
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....ging the order dated 20.01.2026 passed by National Company Law Tribunal, New Delhi Bench (Court-II) admitting a Section 7 petition filed by Beacon Trusteeship Ltd. (the Financial Creditor). 2. Brief facts giving rise to the Appeal needs to be noted. (i) The CD - Arcturus Developers Pvt. Ltd. a real-estate Company decided to raise funds by issuance and allotment of 50,00,000 Optionally Convertible Debentures ("OCDs") of a face value of Rs. 1000/- each. (ii) On 29.07.2019, the CD entered into a Debenture Trust Deed ("DTD") with Respondent No.1/ Debenture Trustee, setting out the terms and conditions of the issue of debentures, rights and powers of the Debenture Trustee. The tenure of the debentures was 60 months from the date of allotment. Redemption was at the end of 60 months from the date of allotment along with redemption premium. Date of allotment was 12.06.2019. The amendment to DTD was affected on 17.01.2020, where redemption provision was revised. Second amendment to the DTD took place on 16.01.2024. (iii) On 06.01.2021, Debenture Holder issued first conversion notice calling upon the CD to convert OCDs into equity shares/CCDs within 36 months fr....
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....tted Section 7 petition. Aggrieved by the order dated 20.01.2026, this Appeal has been filed. 3. We have heard Shri Virender Ganda, learned Senior Counsel, Shri Arun Kathpalia, learned Senior Counsel and Shri Krishnendu Datta, learned Senior Counsel appearing for the Appellant; Shri Abhijeet Sinha, learned Senior Counsel appearing for Respondent No.1; and Shri Kunal Tandon has appeared for Respondent No.2. 4. Learned Counsel for the Appellant challenging the order of Adjudicating Authority submits that Debenture Holder having elected to exercise the conversion option, could not have exercised the put option. It is submitted that on issuance of conversion notice on 06.01.2021, the instruments therefrom were automatically deemed to be treated as equity shares. Learned Counsel relying on Clause 6(b) of Schedule 1 of the DTD submits that the Clause clearly provided that with effect from date Debenture Holder issue conversion notice, the Debenture Holder, be deemed and be treated by the Company for all purposes as the Holder of the relevant number of equity shares. It is submitted that language of Clause 6(b) is unambiguous and consciously inserted into the DTD by the parties. The....
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.... of Companies to evidence that the Debenture Holder became an equity shareholder. The Debenture Holder is not reflected as shareholder in register of members, ROC filings or depository records. The submission of the Appellant that OCDs were converted into equity shares automatically on issuance of conversion notices is factually unsupported, statutorily non-compliance and legally untenable. Clause 6(b) is a relating back provision that fixes the effective date of conversion only if the conversion is completed. It does not determine when conversion took effect, nor whether it occurred at all. Clause 6(b) cannot be read as a deem conversion occurred automatically upon issuance of notice, nor can it override mandatory statutory procedures for allotment. It is submitted that put option under Clause 10 could have very well been exercised by the Debenture Holder after expiry of 60 months from the date of allotment. The submission of the CD that put option could not have been exercised during the subsistence of conversion rights, is incorrect. When conversion has not been effected, the put option can be validly exercised. Upon failure to convert, constitute an event of default under Claus....
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.... Amount plus Redemption Premium at the rate of XIRR of 18% (Eighteen percent) payable on actual basis for the period for which Debentures are held by the Debenture Holder(s). Date of Allotment June 12 2019 Role and Responsibilities of the Debenture Trustee The Trustees shall perform its duties and obligations and exercise its rights and discretions, in keeping with the trust reposed in the Trustees by the Debenture Holder(s) and shall further conduct itself, and comply with the provisions of all Applicable Law, provided that, the provisions of Section 20 of the Indian Trusts Act, 1882, shall not be applicable to the Trustees. The Trustees shall carry out its duties and perform its functions as required to discharge its obligations under the terms of the Securities and Exchange Board of India (Debenture Trustees) Regulations, 1993, the Debenture Trustee Appointment Agreement, this Deed, Definitive Agreements and all other related Definitive Agreements, with due care, diligence. The Trustees shall be vested with the requisite powers for protecting the interest of Debenture Holder(s). The Trustees shall ensure disclosure of all material events on an ongoing basis. Purpo....
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....h deals with "Conversion of Debentures" of the DTD is as follows: "5. Conversion of Debentures (a) At any time on or before the date falling within 60 (Sixty) months from the Date of Allotment of the Debentures, the Company shall at the sole discretion of the Debenture Holder, convert 1,000 (One Thousand) Debenture with a face value of INR 1,000 (Indian Rupees One Thousand only) into 1 (One) Equity Shares fully paid with a face value of INR 10 (Indian Rupees Ten only). The actual date of conversion shall be decided by the Debenture Holder(s). (b) The conversion right available to the Debenture Holder(s) mentioned above shall be exercised by the Debenture Holder(s), by giving 7 (seven) days written notice to the Company ("Conversion Notice"). However, in case of an Event of Default, the Debenture Holder(s) shall have the right to convert the Debentures into the Equity Shares of the Company at the sole discretion of the Debenture Trustee. (c) Post the conversion of all Debentures, the Debenture Holder(s) shall have atleast 33.33% stake on a fully diluted basis in the Company. (d) If not converted by 60 (Sixty) months, the Debentures shall ....
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....anding Amount (which as on 07- 01-2025 is Rs. 1258,73,33,609/- (Rupees One Thousand Two Hundred Fifty Eight Crore Seventy Three Lakh Thirty Three Thousand Six Hundred Nine only)), to the Debenture Holder's designated bank account within 7 days from the receipt of this notice. 10. The CD replied to put option notice on 24.01.2025 objecting to issuance of notice for exercise of put option. It was stated that Debenture Holder has extended time period of 54 months to convert the OCD to equity shares, which time expires on 06.07.2025, hence, the Company/ CD has right and was entitled to convert the OCDs till 06.07.2025 and during subsistence of this right, Debenture Holder cannot exercise the put option. It was further stated in the reply that Company could not have converted the said OCD into equity shares without an active ISIN, which has expired on 11.07.2024. It is useful to notice the entire reply, which is as follows: "ARCTURUS DEVELOPERS PRIVATE LIMITED Regd. Office: Flat No. 621-A, 6th Floor, Devika Towers, 6, Nehru Place, New Delhi - 110019 Email ID: [email protected] Contact No.: 011-49057757 CIN: U70100DL2013PTC257274 Dated: 24.01.2025 To....
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....uisite approval to enable the Company to convert the said OCDs to Equity Shares/ CCDs. In view of the above, it is clearly evident that your notice dated 07.01.2025 is without any merit and has been issued with malafide intent to cause undue loss to the Company. As such, you are called upon to: i. withdraw the said Notice immediately forthwith; AND ii. get the approval of the Debenture Holder for reactivation/ renewal of the ISIN Number. Without prejudice to the above, kindly note that the Company reserves all or any right available to it under law, equity, contract or otherwise whether now or in the future. Thanking You, For and on behalf of Arcturus Developers Private Limited Sd/- Director/Auth. Signatory Copy To: Indiabulls Investment Management Limited Plot No. 422B, Udyog Vihar, Phase IV, Gurugram, Haryana - 122016" 11. The reply, which was submitted by the CD clearly stated that the CD could not convert the OCDs into equity shares due to ISIN having expired on 11.07.2024. The reply was a clear admission by the CD that OCDs could not be converted into CCDs due to expiry of ISI....
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....nto Equity Shares including the increase in authorized capital of the Company and the amendment of Memorandum and Articles, entering into the shareholders agreement, holding of board meetings and shareholders meetings and submit to the Debenture Holder(s), a certified copy of e Form PAS-3 and other necessary forms duly filed with the RoC along with filing receipts or acknowledgments, as applicable, for such forms; (d) The Company shall pay any and all documentary, stamp duty or similar issue or transfer tax or any other taxes, costs and expenses that may be payable in respect of any issue or delivery of the Equity Shares to the Debenture Holder(s) upon conversion, pursuant to the terms and conditions provided herein." 14. Clause 6, sub-clause (a) casts a mandatory duty on the Company, i.e. CD that within seven days following the receipt of a conversion notice, the Company shall convert the Debentures into equity shares. Sub- clause (b) is a clarificatory Clause, which provides that conversion is effective and all debentures shall be forthwith treated as equity shares on and from the date on which the Debenture Holder(s) issue the conversion notice to the Company and eac....
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....Put option", which is as follows: "10. PUT OPTION 10.1 At any time on or after the expiry of 60 (sixty) months from the Date of Allotment, the Debenture Holder(s) shall have a right to exit by way of redeeming the Debentures. The Debenture Holder(s) shall exercise put option by delivery of a written notice of 7 (seven) days (the "Put Option Notice") on the Company and/or the Promoter to severally and mandatorily redeem the Debentures by payment of the Outstanding Amounts ("Put Option Debentures). 10.2 Upon the delivery of such Put Option Notice, the Company and the Promoter shall within 7 (seven) days from the Put Option Notice redeem such Put Options Debentures. 10.3 The Parties shall make best endeavours and render necessary co-operation to each other in order to give effect to the provisions of this part." 15. Clause 11 deals with "Event of default and remedies" and sub- clause 11.1 deals with "Event of default" mention in sub-clause 11.1(xxviii) is as follows: "11.1 (xxviii). If the Company fails to convert Debentures (in part or full) into Equity Shares upon receipt of notice from the Debenture Holder(s) or Debenture Trustee for ....