SL. No.

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NATIONAL COMPANY LAW TRIBUNAL
HYDERABAD BENCH
COURT HALL NO: II
(PHYSICAL HEARING)
CORAM: JUSTICE TELAPROLU RAJANI – HON’BLE MEMBER (J)
CORAM: SHRI CHARAN SINGH - HON’BLE MEMBER (T)

ATTENDANCE-CUM-ORDER SHEET OF THE HEARING OF NATIONAL COMPANY LAW TRIBUNAL,

HYDERABAD BENCH, HELD ON 17.01.2023 AT 02:30 PM

TRANSFER PETITION NO.

COMPANY PETITION/APPLICATION NO. Company petition IB/19/2022

NAME OF THE COMPANY IVRCL Indore Gujarat Tollyways Ltd
NAME OF THE PETITIONER(S) IFCI Ltd
NAME OF THE RESPONDENT(S) IVRCL Indore Gujarat Tollyways Ltd
UNDER SECTION 7 of IBC

ORDER

This application is dismissed vide separate orders.

Sd/- Sd/-
MEMBER (T) MEMBER (J)

VL
 IN THE NATIONAL COMPANY LAW TRIBUNAL
HYDERABAD BENCH - II

CP(IB) No. 19/07/HDB/2022

U/s. 7 of IB Code, 2016

In the matter of:

M/s. IFCI Limited,

Taramandal Complex,
8th Floor, 5-9-13,
Saifabad,
Hyderabad – 500 004
.... Petitioner /
Financial Creditor

Vs
M/s IVRCL Indore Gujarat Tollways Limited,
M-22/3/RT, Vijaynagar Colony,
Hyderabad – 500 057.
….Respondent/
Corporate Debtor

Date of order: 17.01.2023

CORAM:

Justice Telaprolu Rajani, Member (Judicial)

Shri Charan Singh, Member (Technical)

Counsels present:

For the Financial Creditor : Mr. V.K. Sajith

For the Corporate Debtor : Ms. Vedula Chitralekha

Heard on : 16.01.2023

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 [PER: BENCH]
ORDER

1. This is an application filed by the Petitioner M/s. IFCI Limited,

Financial Creditor (FC) against the Respondent M/s. IVRCL Indore
Gujarat Tollways Limited, Corporate Debtor (CD), seeking to initiate
the Corporate Insolvency Resolution Process (CIRP) against the
Corporate Debtor for the default that it has committed regarding the
debt that is due to the Financial Creditor (FC).

2. Briefly, the facts as mentioned in the application are as follows:

The Financial Creditor and the Corporate Debtor are the companies
incorporated under the Companies Act, 2013. The Corporate Debtor
approached the Financial Creditor with a request for subscription of
Compulsorily Convertible Debentures (CCDs) for an amount of INR
125 Crores towards part finance for the Project. The Financial Creditor
agreed to subscribe to the CCDs and issued a Sanction Letter dated
28.09.2010 which was modified at the request of the Corporate Debtor
vide Sanction Letter dated 20.05.2011. Thereafter, a tripartite
agreement viz; Debenture Subscription Agreement dated 20.05.2011
was entered into between the Financial Creditor, the Corporate Debtor
and IVRCL. As per the terms of the said Agreement, the Financial
Creditor agreed to subscribe and the Corporate Debtor agreed to allot to
the Financial Creditor, INR 125 Crores worth of CCDs with the value
of INR 10/- each. The same was also secured by the Corporate
Guarantee by the IVRCL vide Deed of Corporate Guarantee dated

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20.05.2011. The Corporate debtor had to pay interest at the rate of
10.50% p.a. on quarterly basis in addition to other charges etc. The
IVRCL had agreed to buy-back the CCDs in two tranches anytime
between the end of 3rd year and 6th year from the date of issuance of the
CCDs giving an effective transaction IRR of 14% p.a. if it is exercised
anytime between 3rd and 5th year, else, a rate of 13.5% p.a. would be
applicable between the 5th and 6th year from the date of subscription
disbursement. The IVRCL entered into a Share Buyback Agreement
dated 20.05.2011 undertaking to buy-back the entire CCDs subscribed
by IFCI in two tranches in the 5th and 6th year, amounting to 50% in the
company. The Financial Creditor released the amount of INR 125
Crores towards subscription of the CCDs in order to fund the Project.
However, the Project could not be completed as per the original
schedule. Thereafter, the Corporate Debtor, vide its letter dated
20.10.2014 requested the Financial Creditor to restructure the
outstanding CCDs assistance of INR 125 Crores. As such, it was
restructured vide his letter dated 05.12.2014 by extending the tenure of
the buy-out of the outstanding CCDs to 02.08.2019 from the existing
terminal buy-out dated 02.08.2017. According to the Restructuring, the
buy-out had to take place in two equal tranches on 02.08.2018 and
02.08.2019. Further, the moratorium of two years for coupon payment
from 30.06.2014 to 30.06.2016 was given. The same was accepted by
the Corporate Debtor. However, the Corporate Debtor, along with the
Corporate Guarantor, failed to comply with the terms of the
Restructuring and also failed to pay the coupon payment. As a result,
the loan accounts became irregular and turned into NPA. Owing to the

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 continuous default of the Corporate Debtor, the Financial Creditor was
constrained to revoke the Restructuring Package vide its letter dated
18.01.2018. The CCDs Assistance was secured by irrevocable
Corporate Guarantee of IVRCL Ltd. and Pledge of Shares. The
Financial Creditor was given charge on the residual value of the
secured assets of the Corporate Debtor after the dues of senior lenders
are cleared in full, in case of enforcement of security by senior lenders
of the Corporate Debtor. As per Article III at 3.3(e) of the said
Debenture Subscription Agreement, the Financial Creditor shall have a
right to take recourse to the Corporate Guarantee in the event of default
of the Corporate Debtor in complying with the terms of the said
Debenture Subscription Agreement. The Corporate Debtor is primarily
liable to comply with the terms and conditions of the sanction issued by
the Financial Creditor and the Financial Creditor is at liberty to proceed
against the sponsor in case of default. The Undertaking and Assurances
coupled with warranties executed by the Corporate Debtor had not been
honoured by the Corporate Debtor, resulting in a due amount of INR
531,13,49,391/- by 24.12.2021. The cause of action for this
Application arose on 18.01.2018, when the Financial Creditor revoked
the Restructuring Package and the Corporate Debtor failed to honour
their commitments. Further, in terms of the Order dated 23.03.2020 by
the Hon’ble Supreme Court in the matter of Suo Motu Petition (Civil)
No.3/2020, the period w.e.f. 15.03.2020 stands executed till
14.03.2021. Hence, the application is well within the limitation.

3. On the above facts, this application is sought to be allowed.

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4. The Respondent filed Counter denying the contents of the application
and further contending that as per the terms of the Debenture
Subscription Agreement dated 14.10.2011, executed between IFCI,
IVRCL Assets and Holdings Limited and the Respondent herein, the
IFCI agreed to subscribe to the CCDs of this Respondent in order to
part finance the project for an amount of Rs.125 crores. The terms of
the issue of debentures are incorporated in the said agreement. The
issuance of CCDs in favour of IFCI has already taken place. As per
Clause 2.8 of Chapter-II of the said agreement, the IVRCL Assets and
Holdings shall enter into a buy back agreement with IFCI for buy back
of the CCDs. Accordingly, a share buyback agreement was also
entered into, whereby the sponsor company has agreed to buy back the
entire CCDs subscribed by IFCI in two tranches. It is relevant to see
Clause 2.9 of Article-II of the Debenture Subscription Agreement,
which speaks about the contingency of default of payment of written or
buy back in two tranches. It says that on such eventuality, the
outstanding CCDs, along with the interest, defaulted amount would
automatically get converted into equity shares of the IIGTL at a price
on par with the promoters of IIGTL at a premium of Rs.90/- per share
at the end of 6 years from the date of issue of CCDs. The sponsor
company has merged with its parent company M/s. IVRCL Limited and
even the IVRCL Limited has faced a CIRP before the Hon’ble Tribunal
and ultimately went into liquidation as a going concern. In the course
of auction by the liquidator, the successful bidder has emerged and the
bid was finalised as well as the Respondent herein which is a 100%
subsidiary of IVRCL Limited will be owned by the auction bidder on

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 fulfilment of formalities. As the Respondent herein would be taken
over by the auction bidder, consequent upon the taking over of its
holding company M/s. IVRCL Limited, in pursuance of the auction
held as per the directions of this Hon’ble Tribunal due to the failure of
the CIRP of M/s. IVRCL Limited, there cannot be a separate CIRP
against this respondent by way of the present application u/s 7 of IBC.
The interest of the auction bidder would get affected if the present
application is admitted since the auction bidder has purchased the
holding company M/s. IVRCL Limited, which includes the respondent
company herein. Since, the sponsor company failed to buy back the
CCDs and since the corporate guarantee is in force in favour of IFCI,
the IFCI has already invoked the same and filed its claim with the
liquidator of IVRCL and the same has been admitted by him.

5. The Financial Creditor failed to mention about the automatic

conversion of the CCDs. Thus, the applicant has no right to seek CIRP
u/s 7 of the IBC and hence the application is liable to be dismissed.

6. Rejoinder is filed by the Financial Creditor, contending that it is totally

incorrect to say that on expiry of the tenure of buyout, the CCDs
automatically stood converted into equity shares and upon the request
of the Borrower i.e. Corporate Debtor the timelines for buyout of the
CCDs were extended by two years and further that as on date, none of
the CCDs subscribed to by the Financial Creditor herein have been
converted into equity shares. The Corporate Debtor has also failed to
provide any documents evidencing such conversion of CCDs into

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 equity. Hence, the liability of the Corporate Debtor remains
undischarged. Original dates for buyout of the CCDs in two tranches
were 09.11.2016 and 09.11.2017.

7. The Clause 3.3(e) of the said Debenture Subscription Agreement

provides that “Notwithstanding anything containing contrary in this
Agreement, IFCI shall in the event of default of the Company be free to
take recourse to the Corporate Guarantee issued by Sponsor Company,
IVRCL Assets and Holdings Ltd. Towards the due redemption of the
CCDs along with agreed rate of return, directly in favour of the IFCI
and for the balance dues, pledge of shares would be enforced”. Hence,
the terms of the Agreement are amply clear that the Corporate Debtor is
primarily liable to discharge the debt obligations. However, the
Financial Creditor is also free to take recourse to other security. The
Sponsor-cum-Corporate Guarantor is already undergoing liquidation
proceedings under IBC and hence the Financial Creditor herein is left
with no other option but to pursue the instant application. The
company has filed the Annual reports before the Registrar of
Companies upto the period ending by 31.03.2018, according to which,
the Corporate Debtor is absolutely liable to repay the dues and as per
the judgement of the Supreme Court in the matter of Asset
Reconstruction Company (India) vs. Bishal Jaiswal & Anr (Civil
Appeal No.323 of 2021) dated 15.04.2021 the entries in Balance Sheet
would amount to an acknowledgement of debt. Since there is such an
acknowledgement, the application has to be allowed.

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8. Heard both the counsels. Perused the written submissions filed by the
Respondents.

9. The Counsel for the Petitioner, in the first instance, has submitted
cryptic argument by relying on the contents of the Balance Sheet of the
Respondent wherein according to him, there was a clear admission of
the debt. It is only after the Respondent’s Counsel contended that the
contents of the Balance Sheet would not amount to acknowledgement
that the Counsel for the Petitioner made an argument in respect of the
contentions raised by the Respondent. A perusal of the Balance Sheet
which is primarily relied upon by the Petitioner’s Counsel would be
beneficial. Under the head “For Compulsorily Convertible
Debentures”, it is mentioned that the Company defaulted payment of
interest as per agreed terms and defaulted repayment of principal even
after restructuring. IFCI vide its letter dated 18.01.2018 revoked its
restructuring package and called back the entire outstanding principal
amount of Rs.125 crores lent,, along with interest as on the date of
payment. It is this part of the Balance Sheet that the Petitioner’s
Counsel construes as an acknowledgement.

10. The Counsel for the Respondent submits that the contents of the
Balance Sheet are nevertheless an acknowledgement, but if there is a
qualification, it cannot be treated as an acknowledgement. He takes
support of the Judgement of the Hon’ble Supreme Court reported in
2022(8) Scale between the State Bank of India Vs. Krishidhan Seeds
Pvt. Limited wherein, it was held that an acknowledgement in a
Balance Sheet without a qualification can furnish a legitimate basis for

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determining as to whether the period of limitation would stand
extended, so long as the acknowledgement was within a period of 3
years from the original date of default. In the same judgement, it was
categorically held that an acknowledgement in the Balance Sheet
without qualification can be relied upon for the purpose of proceeding
under IBC. The Hon’ble Supreme Court relied its judgement in Asset
Reconstruction Company and Seshnadh Singh and Laxmi Pat Surana
case. It has to be now seen whether there is any qualification in the
Balance Sheet. The relevant part of the Balance Sheet is extracted
hereunder:

“ For Compulsorily Convertible Debentures:

Compulsorily Convertible Debentures (CCDs) were issued to IFCI
Limited, to part finance the Project of the company. The tenure of
the CCDs is 6 years from the date of disbursal which is extended for
additional 2 years vide the restructuring mechanism sanctioned by
the IFCI. The cut off date for the restructuring scheme is June 30,
2014. Further a moratorium of 2 years has been provided for the
coupon payment from June 30, 2014 to June 30, 2016, which shall
form part of the overall IRR payable to the IFCI. The indicative
coupon rate is 11% p.a. payable half yearly subject to overall yield
to the lender @ 15.75% p.a. IVRCL Limited (the sponsor) shall be
liable to meet the obligation of making the coupon payments. CCDs
are secured by pledge of shares of the company held by the Sponsor
amounting to 49% of the paid up equity share capital, to be
maintained throughout the tenure of the CCDs and subservient
charges on the senior lender assets excluding pledge of shares and
corporate guarantee by IVRCL Limited for INR 125,00,00,000.
Further the additional security in the form of land aggregating to
Acres 9.9 located in Vedurvada Village, Atchutapuram Mandal,
Vishakhapatnam District has been provided and equitable mortgage
has been created favouring IFCI by deposit of title deeds. The
sponsor shall have a call option and IFCI, a put option on the
sponsor for buy out of the CCDs as per the terms specified. The
company defaulted payment of interest as per agreed terms and
defaulted repayment of principal even after restructuring. IFCI vide

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 its letter dated 18.01.2018 revoked its restructuring package called
back the entire outstanding amount Rs.125 crores lent along with
interest as on date of payment.”

11. It only recites the events pertaining to the issuance of the CCDs and the
security provided for. But we are unable to read the above part of the
Balance Sheet as containing any qualification. Hence, we do not
hesitate to hold that there is a clear acknowledgement that the interest
and the principal amount were not paid to the Petitioner and there was a
default in paying the same even after restructuring. Though the term
default is used in the Balance Sheet, it cannot be construed as meaning
the default as defined under the IBC, unless, there is actual default
committed by the Respondents.

12. The sponsor company has merged with its parent company M/s.
IVRCL Limited and even the IVRCL Limited has faced a CIRP before
the Hon’ble Tribunal and ultimately went into liquidation as a going
concern. In the course of auction by the liquidator, the successful
bidder has emerged and the bid was finalised as well as the Respondent
herein which is a 100% subsidiary of IVRCL Limited will be owned by
the auction bidder on fulfilment of formalities. As the Respondent
herein would be taken over by the auction bidder, consequent upon the
taking over of its holding company M/s. IVRCL Limited, in pursuance
of the auction held as per the directions of this Hon’ble Tribunal due to
the failure of the CIRP of M/s. IVRCL Limited, there cannot be a
separate CIRP against this respondent by way of the present application
u/s 7 of IBC. The interest of the auction bidder would get affected if
the present application is admitted since the auction bidder has

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 purchased the holding company M/s. IVRCL Limited, which includes
the respondent company herein. Since, the sponsor company failed to
buy back the CCDs and since the corporate guarantee is in force in
favour of IFCI, the IFCI has already invoked the same and filed its
claim with the liquidator of IVRCL and the same has been admitted by
him.

13. It can be seen from the above that an additional security in the form of
land aggregating to Acres 9.9 located in Vedurvada Village,
Visakhapatnam District was also provided and equitable mortgage was
also created in favour of the Petitioner by deposit of Title Deeds. There
is also a call option on the Sponsor for buy out of the CCDs as per the
terms specified. There is no dispute that there was a restructuring done
as per the request made by the Petitioner by virtue of the letter dated
05.12.2014 and the letter dated 18.01.2018 pertains to the revocation of
the restructuring package. The contention of the Petitioner’s Counsel is
that on the revocation the restructuring package, the original terms of
the agreement get revived and hence the amounts stand to be falling
due to the Petitioner, since the timelines specified therein are crossed
by the respondent.

14. The Counsel for the Respondent, on the other hand, contends that the
period mentioned in the original agreement stands revived and not the
dates. We find some force in the said contention, as, if the revocation
is done beyond the period mentioned in the original package, which is
open for the petitioner to be done, the claims if any arising under the

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 original agreement would be beyond limitation which does not seem to
be just and reasonable. We consider that it is not the dates falling after
the expiry of the periods that are mentioned in the agreement that get
revived, but it is the number of years that get revived from the date of
the revocation.

15. According to the Debentures Subscription Agreement, it is true that the

amount lent to the Respondent on any default would get converted into
equity shares.

Clause 2.9 under the head Conversion into Equity recites the same
which is as under:

“Clause 2.9 – Conversion into equity:

In the event of default of payment of return or buy back of 12.50
Crore CCDs in two tranches anytime between the end of the 3rd year
and 6th year from the date of issue of CCDs giving an effective
transaction IRR (including processing charges payable by the
Sponsor Company) of 14% p.a. if it is exercised anytime between 3rd
and 5th year, else, a rate of 13.5% p.a., would be applicable between
the 5th and 6th year from the date of subscription/first disbursement
(including upfront interest payable by the Sponsor Company), the
outstanding CCDs, along with the agreed IRR, differential interest,
defaulted amount, etc. would automatically get converted into equity
shares of the IIGTL at a price on part with the promoters of IIGTL
i.e. at a premium of Rs.90/- per share of the end of 6 years from the
date of issue (i.e., in case both the Call and the Put Options are not
exercised by the sponsor and the IFCI respectively or, at an earlier
date as per other terms of this Agreement).”

16. But, however the fact remains that no equity shares were allotted to the
Petitioner in spite of there being a default in paying the amount. But,
however, it also can be seen that there was no demand made by the
Petitioner calling upon the Respondent to convert the Debentures into

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 Equity Shares. Under the same agreement, it can be seen that the
remedies in the event of default are also mentioned in Clause 8.1 which
is as under:
“Clause 8.1 – Events of Default:
If one or more of the events specified in this clause (hereinafter
called “events of default”) shall have happened, then the IFCI by a
notice in writing to the Sponsor Company and / or SPV Company
may declare the entire Subscription Amount including interest and
other charges outstanding on the CCDs and upon which declaration
the same shall thereupon become due and payable forthwith and the
security created in terms of Article – III hereof shall become
enforceable notwithstanding anything in this Agreement to the
contrary.”

17. It is this Clause which lays an obligation on the Petitioner to make a

declaration with regard to the default. It categorically says that the
IFCI by notice in writing to the Sponsor Company and / or SPV
Company may declare the entire Subscription Amount, including
interest and other charges outstanding on the CCDs and upon such
declaration, the same shall thereupon become due and payable
forthwith and the security created in terms of Article-III hereof shall
become enforceable notwithstanding anything in this agreement to the
contrary.

18. Hence, unless the Petitioner gives a Notice in writing to the Respondent
or the Sponsor Company and makes a declaration, the amount does not
become due and payable. Even on such notice being given, the remedy
for the Petitioner is to enforce the security created in terms of
Article-III.

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19. Hence, the Petitioner who did not perform his obligations under the
agreement cannot knock the doors of this Tribunal, seeking to take the
Respondent’s Company into Corporate Insolvency Resolution Process.

20. Hence, in view of the same, we are inclined to dismiss the petition.

21. In the result, the CP(IB) No.19/07/HDB/2022 is dismissed.

Sd/- Sd/-
(CHARAN SINGH) (JUSTICE TELAPROLU RAJANI)
MEMBER (TECHNICAL) MEMBER (JUDICIAL)

VL

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