Insolvency and Bankruptcy Code, 2016 – s. 62 – Appeal to Supreme Court – Jurisdiction u/s. 62 – Compulsorily Convertible Debentures-CCDs to be categorised as debt or an equity – On facts, project awarded in terms of Concession Agreement executed between the Authority and IVRCL-ICTL – ICTL was a subsidiary company of IVRCL holding 100 per cent share capital of ICTL – Consortium of lenders provided term loan facility to the ICTL to execute company loan agreement, and the balance project was to be financed by IVRCL through equity infusion – As a part of the equity component of the project, the financing was to be obtained through Compulsorily Convertible Debentures-CCDs – Date of conversion into equity from the CCDs was stated – Appellant-IFCI subscribed to the CCDs at the request of ICTL in terms of a Debenture Subscription Agreement – Project ran into financial difficulties – Invocation of Corporate guarantees of IVRCL and initiation of Corporate Insolvency Resolution Process-CIRP – IFCI claimed that the amount owing to it had a status of a debt, and lodged a claim in that behalf, however, was rejected by the Resolution Professional and an entire amount claimed was refused – NCLT and NCLAT upheld the same holding that any instrument which is compulsorily convertible into shares is regarded as an “equity” and not a loan or debt - Correctness: Held: ICTL does not have a liability or obligation qua the appellant because the appellant is actually an equity participant and does not have a debt to be repaid – Debenture subscription agreement clearly defines ICTL as the special purpose vehicle while IVRCL is the sponsor company and IFCI is the lender – Appellant was provided security under the Debentures Subscription Agreement but the obligations are of the sponsor company, it cannot be of ICTL – Unless the debt is of the ICTL, the appellant cannot seek a recovery of the amount on the basis of being a creditor of the ICTL – Contract means as it reads – It is difficult to read into or add to what the document says about a CCD – There is nothing which the appellant can recover from the sponsor company, there being no assets and funds – While in the ICTL it is being treated as a shareholder and thus, does not benefit as none of the shareholders-original investors and the appellant get any benefit under the scheme which has been approved – In the impugned judgment, it was held that treating them as a debt would tantamount to breach of the concessional agreement and the common loan agreement – Investment was clearly in the nature of debentures which were compulsorily convertible into equity and nowhere is it stipulated that these CCDs would partake the character of financial debt on the happening of a particular event – Amount was treated as an equity alone and not as a debt – Furthermore, the jurisdiction comes from s. 62 – Jurisdiction is restricted to a question of law akin to a second appeal – Law does not envisage unlimited tiers of scrutiny and every tier of scrutiny has its own parameters – Thus, the lis inter se the parties has to be analyzed within the four corners of the ambit of the statutory jurisdiction conferred on this Court – Appeal does not raise any such question of law and that the findings of the courts below are in accordance with settled principles. [Paras 14, 16, 20, 21, 23-26, 30, 31]
Insolvency and Bankruptcy Code, 2016 – s. 3(11) – Definition of Debt under:
Held: Would be the liability or obligation in respect of a claim which is due from any person – Success of a commercial venture pays benefit to the equity participants but with income, which would not inhere in case of the failure of the venture. [Para 14]
Deeds and documents – Interpretation of commercial documents: Held: Complexities of commercial documents depends on the nature of business – These are not layman’s agreements but agreements vetted by experts and thus each of the parties knows its obligations and the benefits which can arise from the agreement – Contract means as it reads – It is not advisable for a Court to supplement it or add to it. [Paras 21 and 23] LIST OF CITATIONS AND OTHER REFERENCES
Narendra Kumar Maheshwari v. Union of India & Ors. (1990)Suppl. SCC 440; Nabha Private Limited Vs. Punjab State Power Corporation Limited [2017] 14 SCR 301 – referred to.
In re Crompton & Co. Ltd. [1914] 1 Ch. 954 – referred to. OTHER CASE DETAILS INCLUDING IMPUGNED
ORDER AND APPEARANCES
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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