NATIONAL COMPANY LAW APPELLATE TRIBUNAL

PRINCIPAL BENCH, NEW DELHI

Company Appeal (AT) (Insolvency) No. 460 of 2023

[Arising out of order dated 24th March, 2023 passed by the Adjudicating
Authority (National Company Law Tribunal), Mumbai Bench, Court III in C.P.
No. (IB)560/MD-III/2022]

IN THE MATTER OF:

HARISH RAGHAVJI PATEL

SUSPENDED DIRECTOR OF
RAJESH ESTATES AND NIRMAN PRIVATE LIMITED,
HAVING HIS OFFICE AT 139, SEKSARIA CHAMBERS,
2ND FLOOR, N.M. ROAD FORT, MUMBAI-400023
…Appellant
Versus

1. CLEARWATER CAPITAL PARTNERS

SINGAPORE FUND IV PRIVATE LIMITED
FINANCIAL CREDITOR 1
A PRIVATE LIMITED BY COMPANY SHARES
INCORPORATED IN SINGAPORE, HAYING ITS
OFFICE AT 6 TEMASEK BOULEYARD #38-03 SUNTEC
TOWER FOUR, SINGAPORE 03898

2. CLEARWATER CAPITAL PARTNERS

SINGAPORE FUND V PRIVATE LIMITED
FINANCIAL CREDITOR 2
A PRIVATE LIMITED BY INCORPORATED COMPANY
SHARES IN SINGAPORE, HA YING ITS
OFFICE AT 6 TEMASEK BOULEYARD #38-03 SUNTEC
TOWER FOUR, SINGAPORE 03898

3. RAJESH ESTATES AND NIRMAN PRIVATE

LIMITED
THE CORPORATE DEBTOR A COMPANY
INCORPORATED UNDER THE COMPANIES ACT, 2013,
HAVING ITS REGISTERED OFFICE AT 139, SEKSARIA
CHAMBERS, 2ND FLOOR N.M. ROAD FORT, MUMBAI-
400023

4. DIVYESH DESAI
INTERIM PROFESSIONAL
FLOOR, N.M. ROAD FORT, HAVING HIS REGISTERED
 2

OFFICE AT B2, 402B MARATHON INNOVA, OFF

GANPATRAO KADAM MARG, LOWER PAREL (W),
MUMBAI - 400013 …Respondents

Present:

For Appellant: Mr. Arun Kathpalia, Sr. Advocate, Mr. Samarth

Chowdhary, Mr. Rohan P., Mr. Mustafa Nulwala,
Ms. Diksha Gupta, Advocates.

For Respondents: Mr. Ramji Srinivasan, Sr. Advocate, Mr. Samar

Kachwaha, Ms. Ekta Bhasin, Mr. R. Sudhinder,
Ms. Aastha Trivedi, Ms. Namrata Saraogi, Mr.
Kartik Pandey, Advocates for R-1 and R-2.

Mr. Tishampati Sen, Ms. Riddhi Sancheti, Mr.

Anurag Anand, Mr. Himanshu Kaushal, Mr. Mukul
Kulhari, Advocates for R-4.

JUDGMENT

ASHOK BHUSHAN, J:

1. This Appeal by a Suspended Director of the Corporate Debtor, Rajesh

Estates and Nirman Pvt. Ltd. has been filed against the Order dated 24th

March, 2023 passed by National Company Law Tribunal, Court-III, Mumbai

Bench (hereinafter referred to as “The Adjudicating Authority”) by which

Section 7 Application under Insolvency and Bankruptcy Code, 2016

(hereinafter referred to as “The Code”) filed by the Financial Creditors

(Respondent No. 1 and 2 herein) has been admitted.

2. Brief facts of the case necessary to be noticed for deciding this Appeal

are:-

Company Appeal (AT) Ins. No. 460 of 2023

 3

I. Debenture Trust Deed (DTD in short) was entered between Vistara

ITCL Limited (Debenture Trustee) and the Corporate Debtor. The

Corporate Debtor issued Non-Convertible Debentures (NCDs in short)

of Rs. 432 Crores of which Financial Creditors (Respondent No. 1 and

2 herein) subscribes to NCDs of Rs. 129 Crores i.e. 29.8% of the total

issued capital. As per Debenture Trust Deed, payment of principal

amount under the DTD was to be made on 31st December, 2020.

Corporate Debtor could not make the payment of principal amount and

the interest. Financial Creditor issued a notice dated 30th May, 2021

(Facility Acceleration Notice). Notice mentioned that there being total

overdue amount of Rs.10,68,37,203/- (with regard to Respondent No.

1) event of default has occurred hence facility is accelerated for entire

outstanding in respect of facility as on 30th May, 2021 becomes due

and be paid. Similarly notice dated 31st May, 2021 was issued by

Respondent No. 2 mentioning that total overdue being

Rs.58,45,30,759/- facility is accelerated and entire amount be paid

within one business day.

II. After Facility Acceleration Notice, the Respondent Nos. 1 and 2 the

Financial Creditors (Debenture Holders) filed Section 7 Application

before the Adjudicating Authority claiming total amount as on 31st

March, 2022 is Rs.77,59,57,957/- and date of default was mentioned

as 01st June, 2021. Along with Section 7 Application working for

computation of amount and days of default in tabular form was also

annexed as Exhibit K. Reply was filed to Section 7 Application by the

Company Appeal (AT) Ins. No. 460 of 2023

 4

Corporate Debtor. Corporate Debtor in its Reply has taken the plea

that the application is barred by Section 10A and further Debenture

Holders the Respondent Nos. 1 and 2 had no right to file Section 7

Application. It was pleaded that it is only Debenture Trustee who can

file the Section 7 Application after receiving the approved instructions

from Debentures Holders. The Respondent Nos. 1 and 2 being minority

debenture holders could not themselves have initiated Section 7

Proceedings.

III. The Adjudicating Authority after hearing the parties, by impugned

order, admitted Section 7 Application. The Adjudicating Authority

repelled the submission of the Corporate Debtor that Application is

barred by Section 10A holding that date of default in the Section 7

Application being 1st June, 2021 i.e. due date for payment of

outstanding amount demanded by Acceleration Notice dated 31st May,

2021 the Application is not barred by Section 10A. It was held that

apart from first default in the redemption schedule i.e. 31st December,

2020 which was for payment of only 10% of total outstanding that

dates in the redemption schedule are beyond the Section 10A period.

The Adjudicating Authority held that as there is a default even after

Section 10A period claim should not be held to be barred under Section

10A. The Adjudicating Authority after returning a finding of debt and

default admitted Section 7 Application.

Company Appeal (AT) Ins. No. 460 of 2023

 5

3. We have heard Mr. Arun Kathpalia, Sr. Advocate appearing for the

Appellant and Mr. Ramji Srinivasan, Sr. Advocate appearing for Financial

Creditors.

4. Learned counsel for the Appellant submits that the entire basis of the

Financial Creditors’ case for existence of default is the Facility Acceleration

Notice dated 30th May, 2021/31st May, 202, however as Acceleration Notice

is illegal, contrary to the provisions of the Debenture Trust Deed, there is no

default on the part of the Corporate Debtor. It is submitted that Facility

Acceleration Notice has been issued by the Debenture Holders whereas under

the Debenture Trust Deed it is Debenture Trustee who along is entitled to

declare event of default and issue a Facility Acceleration Notice after

approved instructions received from Debenture Holders. Mr. Kathpalia has

referred to Clause 9.2 of the Debenture Trust Deed. It is submitted that

approved instruction has to be approved by 50% of the Debenture Holders

by value. The Financial Creditors i.e. Respondent Nos. 1 and 2 hold only

29.8% of the non-convertible debentures hence they were not eligible to

initiate proceedings under Section 7 of the Code. When the Debenture Trust

Deed require something to be done in particular manner it has to be done

only in that manner. Facility Acceleration Notice issued by financial Creditors

is non-est. Facility Acceleration Notice was designed with the ulterior

objective of disguising the fact that debt claim has fallen due not within

Section 10A period, hence, no application could have been filed for such

default. The Facility Acceleration Notice could never be the date of default.

Company Appeal (AT) Ins. No. 460 of 2023

 6

The Facility Acceleration Notice itself mentioned that default interest has

been levied and is unpaid. Obviously, the date of default is prior to May,

2021. Referring to the table of computation filed by the Financial Creditors

along with Section 7 Application it is submitted that date of default is actually

October, 2020 to December, 2020 i.e. during 10 A period. The right of

Debenture Holders to initiate Section 7 Proceedings is not in doubt but the

question is whether minority Debenture Holders could have issued a Facility

Acceleration Notice contrary to the Debenture Trust Deed and make it basis

for default claimed in the petition. The Financial Creditors reliance on Clause

9.8 of Debenture Trust Deed is misplaced.

5. Mr. Ramji Srinivasan, Learned Sr. Counsel refuting the submissions

of Learned Sr. Counsel for the Appellant submits that Debenture Holders

have rightly proceeded to initiate Section 7 Proceeding. He has referred to

Clause 9.8 of Debenture Trust Deed to support his submissions. It is

submitted that Debenture Holders have unqualified right to independently

and separately take action under applicable law. It is submitted that

company petition filed by Financial Creditors is not hit by Section 10A. It is

submitted that even if 31st December, 2020 is the date of default, it was

default of 10% of total outstanding and 90% default of outstanding amount

happened beyond 10A period, when the default has been committed within

10A period and subsequent to 10A period application can very well be filed

for default subsequent to 10A period. It is submitted that Acceleration Notice

itself mentions that there was existing default of more than

Company Appeal (AT) Ins. No. 460 of 2023

 7

Rs.10,68,37,203/- and Rs.58,45,30,759/-, respectively and on account of

default, event of default had occurred and on basis of which Facility

Acceleration Notice was issued recalling the entire amount. It is submitted

that there being default even after subsequent to 10A period application

under Section 7 is fully maintainable. It is submitted that Altico Capital who

is a majority Debenture Holder has already initiated Section 7 Application

against the Corporate Debtor which makes it clear that majority debenture

holder has proceeded to initiate proceedings under Section 7 against the

Corporate Debtor. No payments have been made by Corporate Debtor even

after 10 A period. Present is a case for initiation of CIRP against the Corporate

Debtor.

6. From the submissions of Learned Counsel for the parties and materials

on record, following are the questions which arise for consideration in this

Appeal:-

i. Whether the Application filed by the Financial Creditors under

Section 7 of the Code was hit by Section 10A of the Code?

ii. Whether the Debenture Holders have right to initiate proceedings

under Section 7 of the Code?

iii. Whether the Facility Acceleration Notice dated 30th May, 2021/31st

May, 2021 was incompetent and not in accordance with Debenture

Trust Deed dated 19th March, 2018?

Company Appeal (AT) Ins. No. 460 of 2023

 8

iv. In event, Facility Acceleration Notice dated 30th May, 2021/31st

May, 2021 is held to be not in accordance with Debenture Trust

Deed, whether the Application under Section 7 deserves to be

dismissed?

v. Whether the Order passed by the Adjudicating Authority admitting

Section 7 Application needs interference in this Appeal?

Question No. i

7. We may first notice the Part-IV of Section 7 Application where amount

claimed to be in default and date of default was mentioned. Part-IV of the

Application, Sr. No. 2 of the Application is as follows:

2. AMOUNT AMOUNT CLAIMED TO BE IN

CLAIMED TO BE DEFAULT
IN DEFAULT AND
THE DATE ON The total amount claimed to be in
WHICH THE default as on March 31, 2022 is
DEFAULT Rs. 30,90,63,124/- (Rupees
OCCURRED thirty crores ninety lakhs sixty
(ATTACH THE three thousand one hundred and
WORKINGS FOR twenty four) for Clearwater
COMPUTATION Capital Partners Singapore Fund
OF AMOUNT AND IV Private Limited.
DAYS OF
DEFAULT IN The total amount claimed to be in
TABULAR FORM) default as on March 31, 2022 is
Rs. 1,77,59,51,957/- (Rupees
one hundred and seventy seven
crores fifty nine lakhs fifty one
thousand nine hundred and fifty
seven) for Clearwater Capital
Partners Singapore Fund V
Private Limited.

Company Appeal (AT) Ins. No. 460 of 2023

 9

DATE OF DEFAULT

The date of default is considered

as June 1, 2021 i.e. the due date
for payment of outstanding
amount demanded vide the
Acceleration Notices dated May
31, 2021, whereunder the entire
outstanding amount was
repayable within 1 (one) day
from date of the notice. The notice
was emailed and couriered to the
Corporate Debtor on June 1,
2021 as evidenced in Exhibit
H&J.
The working for computation of
amount and days of default in
tabular form is annexed to the
present application as Exhibit-
K.

8. In part-IV, in addition to mentioning of default as 1st June, 2021, the

Financial Creditors have also annexed the computation of amount and days

of default in tabular form as exhibit K. In the Appeal, the Appellant has

himself brought the said table as Annexure A-3 to the Appeal at Page 194 to

199. When we look into the table annexed along with the Appeal, it is clear

that under the Debenture Trust Deed, principal amount was due on 31 st

December, 2020 whereas interest accrued month to month after issuance of

Debenture Trust Deed. The table indicates that default of principal and

interest accrued both during 10A period and subsequent to 10A period. The

Application was filed by the Financial Creditors after issuance of Facility

Acceleration Notice and date of default was mentioned as 01st June, 2021

when according to the Financial Creditors entire amount became due to be

paid by the Corporate Debtor.

Company Appeal (AT) Ins. No. 460 of 2023

 10

9. The Law is well settled that no application for initiating proceedings

under Section 7 can be initiated for default which is committed during

Section 10A period. In this context, we refer to the Judgment of Hon’ble

Supreme Court in Ramesh Kymal Vs. Siemens Gamesha Renewable

Power Pvt. Ltd., (2021) 3 SCC 224, but the question which is up for

consideration is as to whether application under Section 7 which was filed

on basis of default as on 1st June, 2021 is hit by Section 10A.

10. It is well settled that when default is committed during Section 10A

period and subsequent to Section 10A period, application is fully

maintainable for any default subsequent to Section 10A period. Learned

Counsel for the Respondents has relied on Judgment of this Tribunal in Mr.

T. Prabhakar Vs. Mr. S Krishnan, C.A.(AT) (CH) Ins. No. 217 of 2021.

Reliance has also been placed on the Judgment of this Tribunal in

Dharmesh S Jain Vs. SREI Equipment Finance Pvt Ltd, 2023 SCC

OnLine NCLAT 6 where default was both during 10A period and subsequent

to Section 10A period. In paragraph 12, following was noticed:

“12. Now we come to the question of debt and default. The

Adjudicating Authority in the impugned order in paragraph 8 of
the judgment has held that default on or after 05.04.2020 was
for an amount of Rs.1,12,73,387/-. The learned counsel for the
financial creditor submitted that even after the period covered
by Section 10A came to an end, no payments are yet been made
to the Financial Creditor by the Corporate Debtor. It is submitted
by Financial Creditor that huge dues have been accumulated
against the corporate debtor as on date. In the 3rdstatus report,

Company Appeal (AT) Ins. No. 460 of 2023

 11

the IRP has stated that in pursuance of the Public

Announcement claims of Financial Creditors have been received
of Rs. 1930 crores in addition to claims of homebuyers of Rs.
29,43,69,469/- . There is no material brought on record except
to the letter of the Swamih Investment Fund dated 03.06.2021,
which provided for approval of fund subject to several
conditions. The Financial Creditor submits that one o the
condition was that NOC of Financial Creditor was required to
be obtained, whereas no NOC have been obtained from
Financial Creditor for the said fund.”

11. The Application under Section 7 being filed for default which was on

basis of default occurred subsequent to Section 10A period, we are of the

view that application was not hit by Section 10A.

Question No. ii

12. In the present case, it is Debenture Holders who have filed Section 7

Application. Learned Counsel for the Respondents has relied on Clause 9.8

to support his submission that Debenture Holders are fully entitled to avail

remedies available to them. Learned Counsel for the Respondent has relied

on clause 9.8 of the Debenture Trust Deed which is as follows:

“9.8 Other Remedies under Applicable Law

Notwithstanding anything to the contrary contained in this
Deed, the Issuer acknowledges the Debenture Trustee’s
and Debenture Holders’ unqualified right, to take all such
actions as may be available to them under various policies
and schemes promulgated by the RBI from time to time
(including but not limited to such actions in accordance with

Company Appeal (AT) Ins. No. 460 of 2023

 12

the RBI’s Strategic Debt Restructuring Scheme under the

RBI’s Distressed Assets Framework to convert the Secured
Obligations into paid-up equity share capital of the Issuer
and other measures available (therein) and other remedies
available to lenders in general in accordance with the
provisions of the Applicable Laws, at any time until the Final
Settlement Date”

13. Learned Counsel for the Appellant tried to distinguish clause 9.8 on

the submission that Debenture Holders unqualified right to take all such

action as may be available to them with reference to various policies and

schemes promulgated by the RBI hence clause 9.8 is not attracted in the

present case. When we look into the last sentence of the clause which begins

with words “other remedies available to lenders in general in accordance with

the provisions of the applicable law, at any time until the Final Settlement

Date”. The above clause in addition to Debenture Holders unqualified right

as mentioned in first part of the clause thus remedies available in general

are very much available to the Debenture Holders and one of the remedies

available to Debenture Holders is to take proceeding under Section 7.

Debenture Holders are the financial creditors which is undisputed fact.

14. Learned Counsel for the Respondent has relied on Judgment of this

Tribunal in Mr. T. Prabhakar Vs. Mr. S Krishnan, C.A.(AT) (CH) Ins. No. 217

of 2021. In paragraph 48 of the Judgment, following has been stated:

“48. It cannot be gainsaid that the Debenture Holders

even in the absence of Debenture Trustees’ is entitled to file

Company Appeal (AT) Ins. No. 460 of 2023

 13

an Application under the I&B Code seeking necessary relief.

In short, the right of the 2nd and 3rd Respondent is very much
saved in the ‘Debenture Trust Deed’. It is to be remembered
that in the present case the Section 7 Application under the
Code was filedby the 100% Debenture Holders and they are
the Financial Creditors under the I&B Code. As such, this
Tribunal holds that they do have a valid and legal right to
file the Section 7 Application under the I&B Code, 2016.”

15. Another Judgment relied by Learned Counsel for the Respondent is

Mayur Suchak Vs. Catalyst Trusteeship Limited &Anr. C.A.(AT) Ins. No. 448

of 2023 in which case Debenture Holders have assigned their rights in favour

of Catalyst Trusteeship Limited who filed the Application under Section 7

where this Tribunal had occasion to consider similar clause like clause 9.8.

In the above case, it is also relevant to notice that acceleration notice given

by Financial Creditor was also held to be justified noticing all other creditor

i.e. Clearwater Capital Partner Singapore Fund V Pvt Ltd have also initiated

proceeding under Section 7. We may notice paragraph 14 of the Judgment

which is to the following effect:

“14. After looking into the different clauses of the

Debenture Trust Document and Inter-Creditor Agreement, it
is clear that the Financial Creditor was fully entitled to issue
Acceleration Notice issued on 26.07.2022. The Debenture
Trustee having already issued Notice of Demand on
13.07.2022, the argument of the Appellant that action has
to be taken by Debenture Trustee loses its significance. As
noted above, other creditor i.e. Clearwater Capital
Singapore Fund V Pvt. having already initiated action under

Company Appeal (AT) Ins. No. 460 of 2023

 14

Section7, both the creditors are unanimous in taking action

against the Corporate Debtor. The submission of the
Appellant that there is no majority opinion of the Financial
Creditor to take action under Debenture Trust Document
against the Corporate Debtor loses its significance.
Furthermore, Clause 9.8 begins with the words
“Notwithstanding anything to the contrary contained in this
Deed….”. Clause 9.8, thus has overriding effect which
reserves rights in lender to take all action and seek remedy
as available. We, thus, do not find any substance in
submission of learned counsel for the Appellant that the
Financial Creditor was not entitled to issue Acceleration
Notice dated 26.07.2022. We do not find any infirmity in the
initiating proceeding against the Corporate Debtor under
Section 7, there being debt and default undisputed and
clearly proved by the fact as noted above. The Financial
Creditor stepped in the shoes of the Debenture Holder on
the basis of Assignment Deed dated 04.03.2021. In view of
the foregoing consideration, we do not find any substance
in grounds raised by the Appellant to interfere with the
impugned order. There is no merit in the Appeal. Appeal is
dismissed.”

16. We have already noticed that Altico i.e. majority Debenture Holder has

already initiated Section 7 proceeding hence all Debenture Holders were

unanimous in their view to proceed against the Corporate Debtor and this

Tribunal upheld the initiation of proceeding against the Corporate Debtor by

the Financial Creditors.

Company Appeal (AT) Ins. No. 460 of 2023

 15

Question No. iii, iv & v

17. The submission which has been much pressed by the Appellant is that

Facility Acceleration Notice dated 30th May, 2021 and 31st May, 2021 was

not in accordance with Debenture Trust Deed.

18. We may first notice the certain provisions of the Debenture Trust Deed.

The Debenture Trust Deed dated 09th March, 2018 defines certain terms

under the heading of Definition in Clause 1.1 of approved instruction has

been defined as following:

“approved instruction shall mean the prior written

instructions of the Debenture Holders to the Debenture
Trustee which has been approved pursuant to provisions
has to be in Schedule III”

19. Clause 9 of the Debenture Trust Deed defines events of default. Clause

9.1(a) which is relevant for present case is as follows:

“9.1 Events of Default

The occurrence of any of the events specified below shall
constitute an Event of Default:
(a) Non Payment
Failure of the Issuer or any other Obligor or any Land Owner
to make payments of the Secure Obligations on any Due
Date or otherwise, when due, of any amounts in relation to
the Debentures or under any of the Transaction Documents
in accordance with the terms thereof on the relevant due
date at the place and in the currency in which it is expressed
to be payable.”

Company Appeal (AT) Ins. No. 460 of 2023

 16

20. Clause 9.2 deals with consequence of default which is as follows:

“9.2 Consequences of Default

On and at any time after the occurrence of a Default, in

addition to the levy of Default Interest in accordance with
Clause 9.6 (Default Interest), the Debenture Trustee may
upon the delivery of 1 (one) Business Days’ Notice, which
notice the Issuer acknowledges herein as being reasonable,
take any or all of the following actions:

(a) declare that: (i) the Debentures shall automatically and

without any further action, become due for redemption at
the outstanding Redemption Amount and the accrued
Interest for each Debenture; and (ii) all other Secured
Obligations under the Debenture Documents to be
immediately due and payable, whereupon they shall
become immediately due and payable and/or

(b) enforce all or any Security; and/or

(c) enforce all rights of the Debenture Trustee under the

Transaction Documents; and/or

(d) invoke the Guarantee; and/or

(e) notwithstanding any other provision of any Transaction

Document, the Debenture Trustee shall be entitled to
enforce/present/endorse and demand payment under the
Demand Promissory Note; and/or

(f) encash any and all instruments which are in the favour
of or in the custody of the Debenture Trustee; and/or

(g) convert, at the option of each Debenture Holder, all or part

of the Secured Obligations (proportional to the Debentures
held by such Debenture Holder) into fully paid up equity
shares of the Issuer in accordance with Clause 9.3

Company Appeal (AT) Ins. No. 460 of 2023

 17

(Conversion of outstanding debentures into shares) below

and the Issuer shall forthwith take all necessary action to
ensure that such conversion is in compliance with the
Applicable Law; and/or

(h) stipulate such other conditions or amend any terms of the

Transaction Documents as the Debenture Trustee considers
necessary; and/or

(i) the Debenture Trustee may (but shall not be obliged to),
at its sole discretion and option enter into, on behalf of the
Obligors/Security Providers such third party arrangements
with such parties as the Debenture Trustee deems fit, for
the purposes including but not limited to: (A) completing the
construction and development of the Project Embassy; (B)
sale/disposal of units or plots in the Project Embassy; or (C)
any other measures to ensure the servicing and repayment
of the Secured Obligations; and/or

(j) exercise such other rights as may be available to the

Debenture Trust under the Debenture Documents or under
Applicable Law;

in accordance with the Approved Instructions. The Issuer

further …and shall ensure that the other Obligors agree)
that the Debenture Trustee has the right to exercise any or
more than one or all of the rights stated in this Clause 9.2
simultaneously or in any order of priority at the sole
discretion of the Debenture Trustee. The Issuer agrees that
all costs and expenses in relation to the foregoing shall be
to the account of the Issuer.”

21. The submission of Learned Counsel for the Appellant is that the

Debenture Trust Deed can initiate proceeding only on the basis of approved

Company Appeal (AT) Ins. No. 460 of 2023

 18

instructions which approved instructions has to be issued by majority of

Debenture Holders. Provisions of meeting the Debenture Holders is provided

in Schedule III and as per Part-B of the Schedule III “provision of written

consent of the Debenture Holders” following is provided:

“PART B
PROVISIONS FOR THE WRITTEN CONSENT
OF THE DEBENTURE HOLDERS
For any written consent of the Debenture Holders, the
Debenture Trustee (or as applicable the Issuer or a
Debenture Holder) shall provide a notice in writing to the
last available address of each Debenture Holder at least 10
(ten) calendar days prior to the date on which any decision
is required to be made or consent to be provided, or such
shorter time period if consent is accorded thereto by the
holder(s) of not less than 50% (fifty percent) of the
outstanding face value of the Debentures.”

22. Mr. Arun Kathpalia, Learned Sr. Counsel for the Appellant has also

placed reliance on Judgment of this Tribunal in C.A.(AT) Ins. No. 658 of

2022, Rakshit Dhirajlal Doshi Vs. IDBI Bank Ltd. decided on 15th

November, 2022 in support of his submission that financial Creditors i.e.

minority debenture holders were not entitled to issue Facility Acceleration

Notice. It is submitted that in Rakshit Dheerajlal case the Corporate Debtor

was extended loan facility from consortium of banks led by Bank of Baroda

consisting of three other banks i.e. Union Bank of India, Standard Chartered

Bank and IDBI Bank, there were inter se agreement between the banks which

provided that if there is default the Lender has to act through the security

Company Appeal (AT) Ins. No. 460 of 2023

 19

trustee in order to take enforcement order in the said case. Section 7

Application was filed by the IDBI Bank which was questioned. Learned

Counsel for the Appellant has relied on paragraph 29 and 30 of the Judgment

which is to the following effect:

"29. From the above discussion, it is clear that the

Respondent IDBI Bank was not entitled to act
independently in declaring an ‘Event of Default’ in respect
of its individual loan and recalling the loan advanced by it
to the borrower Doshion and seeking repayment of the said
loan from the guarantor FIPL. We are, therefore, of the view
that the locus standi of the Respondent IDBI Bank in taking
unilateral action for declaring an ‘Event of Default’ in the
repayment of the loan advanced by it is not established as
the IDBI Bank being a participating bank of the Bank of
Baroda consortium was bound to act under the
clauses/provisions of the Inter-se Agreement and the
Security Trustee Agreement.

30. We also consider the argument of the Appellant that

Article 7.6 (e) of the Security Trustee Agreement stipulates
that any lender which proposes to opt out of the consortium
or reduce its share of facilities, shall be entitled to opt out
and reduce its facilities only after the said lender has
arranged with the borrower and ensure the substitution of
the said lender, replenishment of facilities to the extent of
the proposed reduction. We find strength in the argument of
the Appellant that Standard Chartered Bank, a participant
of the Bank of Baroda consortium, did not honour its
promise for restructuring of the loan and therefore, the
restructured loan package did not materialise. We are of the
opinion that this issue is not relevant in the adjudication of

Company Appeal (AT) Ins. No. 460 of 2023

 20

section 7 application and would like to leave this issue at

this stage only. We also feel that the arguments of the
Learned Counsel for Appellant regarding the applicability of
sections 129 and 133 of the Indian Contract Act in the
present case would not be relevant in so far as adjudication
of application 7 is concerned.

23. From the facts and sequence of events as noticed above it is clear that

the facility acceleration notice issued by the Debenture Holders cannot be

said to be in accordance with the Debenture Trust Deed. The notice was not

issued by Debenture Trustee and issued by Debenture Holders.

24. We having held that Facility Acceleration Notice was not issued in

accordance with the terms and conditions of Debenture Trust Deed, the next

question to be considered is as to whether after the aforesaid holding whether

the Section 7 Application deserves dismissal.

25. While noticing the clauses of Debenture Trust Deed, we have noticed

that Debenture Trustee has to initiate proceeding after occurrence of event

of default in pursuance of the approved instructions by the Debenture

Holders has to be obtained in meeting with fifty percent vote share as per the

clauses of Debenture Trust Deed as noticed above. The Financial Creditors

who have filed Section 7 Application were minority debenture holders having

only 29.8 percent. Majority Debenture Holder is the Altico Capital. In the

Reply which has been filed by the Financial Creditors it has been pleaded

that Altico the majority NCDs holder had already initiated proceeding under

Company Appeal (AT) Ins. No. 460 of 2023

 21

Section 7 of the Code against the Corporate Debtor being CP(IB) 79(MB)2021.

Altico has transferred its debt to Asset Care and Reconstruction Enterprise

Pvt. Ltd. who has also initiated Section 7 Proceeding against the Corporate

Debtor being CP(IB)-926(MB)2021. The Above facts have been pleaded in

paragraph 15.13 of the Reply of the Financial Creditor which is as follows:

“15.13. Further, the only person who can have a grievance

on this is the majority NCD holder i.e. Altico. Respondent
Nos. 1 & 2/Financial Creditors are minority NCD holders (as
they hold 29.8% of the NCDs by value (Rs. 129 crores of Rs.
432 crores). Altico has not challenged the issuance o the
Acceleration Notice. In fact, interestingly, Altico itself
initiated a Section 7 Proceeding against the Respondent No.
3/Corporate Debtor (Company Petition-CP(IB)79(MB)2021
for the same 432 NCDs under the same DTD. Whilst the
aforesaid Company Petition filed by Altico was pending
before the Hon’ble NCLT Mumbai Bench, a company petition
under Section 7 filed by Steel Investments Private Limited
against the Respondent No. 3 was admitted on July 16,
2021. Altico filed its claim before the insolvency resolution
professional (“IRP”) appointed by the Hon’ble Tribunal. An
appeal was filed against the admission order in this Hon’ble
NCLAT and eventually consent terms were filed between
the parties and the appeal was disposed off. In the
meanwhile, Altico transferred its debt to Assets Care and
Reconstruction Enterprise Limited (“ACRE”). Also ACRE has
now initiated a Section 7 Proceeding against the
Respondent No. 3/Corporate Debtor (Company Petition –
CP(IB)/926(MB)/2021 for the same 432 NCDs under the
same DTD, which is pending before the Hon’ble NCLT,
Mumbai Bench. This shows that the NCD holders reading of

Company Appeal (AT) Ins. No. 460 of 2023

 22

the DTD is also clear that an NCD holder can issue

Acceleration Notice(s) and that is in fact exercised by all the
NCD holders. This is what was contractually agreed
between the parties. If not for this
understanding/agreement, the Corporate Debtor would
have immediately responded to the Acceleration Notice and
contended that it is defective as is south to be now alleged.
ACRE has also filed its claims before the IRP.”

26. When the majority Debenture Holder has already initiated Section 7

Proceeding against the Corporate Debtor prior to filing of Section 7

Application by the present Financial Creditors Respondent No. 1 and 2 it is

clear that majority Debenture Holder has decided to proceed against the

Corporate Debtor in insolvency proceedings and the submission of the

Appellant that notice for acceleration of facility was required to be given only

by Debenture Trustee on approved instructions of Debenture Holders is only

an argument of the Appellant that Majority Debenture Holder has not given

approved instruction to Debenture Trustee to accelerate facility. The fact

remains that majority Debenture Holder having already initiated Section 7

Proceeding, all debenture holders are unanimous in their actions to proceed

against the corporate debtor for the defaults committed. We have already

held while considering Question no. i that application under Section 7 was

not hit by section 10A since the application under Section 7 was not confined

to the default committed during Section 10A period rather the Application

was filed on the basis of date of default dated 01st June, 2021 consequent to

Company Appeal (AT) Ins. No. 460 of 2023

 23

Facility Acceleration Notice dated 30th May, 2021 and 31st May, 2021 as well

as other defaults as explained in Section 7 Application.

27. From the Section 7 Application Part-IV of the Application as noticed

above it is clear that in addition to mentioning 1st June, 2021 as date of

default, financial creditors have given working for computation of the amount

and days of default in tabular form which was annexed as Exhibit-K.

Appellant has filed that exhibit K along with the Appeal which contains the

default in tabular form for both the financial creditors. Respondent No. 1 has

disbursed 90 Crores on 28th March, 2018 and Respondent No. 2 has

disbursed 110 Crores on 28th March, 2018. Debenture Trust Deed indicates

that payment of the interest on the Facility accrued on day to day basis.

Clause 4.3 of the Debenture Trust Deed provides for interest and first interest

period for the Debenture shall start from relevant deemed date of allotment

and shall end on June 30, 2018 and subsequent interest after first interest

period shall start from first date of calendar quarter and end on the last day

of the calendar quarter. Clause 4.3 is as follows:

“4.3 Interest

4.3.1 Rate of Interest

(a) Interest shall accrue at the Interest Rate on the entire

outstanding Debenture Amount from the relevant Deemed
Date of Allotment.

(b) Interest, Default Interest and other charges shall accrue

from day to day and shall be computed on the basis of a
365 (three hundred and sixty five) or 366 (three hundred

Company Appeal (AT) Ins. No. 460 of 2023

 24

and sixty six) days’ year, as the case may be, and the
actual number of days elapsed.

4.3.2 Interest Periods

(a) First Interest Period: The first Interest Period for the
Debentures shall start from the relevant deemed date of
allotment and shall end on June 30, 2018.

(b) Subsequent Interest Periods: All subsequent Interest

Periods, after the first Interest Period, shall start on the first
day of the calendar quarter and shall end on the last day of
that calendar quarter.

(c) Last Interest Period: The last interest period for the
Debentures shall start from the first day of the calendar
quarter and shall end on the final settlement date.”

28. For sake of argument if we do not take 1st June, 2021 as date of default,

the default on the payment of interest after end of the 10A period i.e. after

24th March, 2021 there is clear default on the payment of interest and

payment of default in the interest of both the Financial Creditors is more

than Rs. 1 Crore which is threshold amount for filing of the Application under

Section 7. The tabular chart given in Exhibit K contains the details of interest

accrued interest paid and interest outstanding even if we take period after

10A period i.e. period from 31st March, 2021 as mentioned in the tabular

chart total overdue interest after 10A period is much more than threshold

amount of Rs.1 Crore. Details of overdue interest has been captured in the

tabular form in exhibit K. For example, with regard to Respondent No. 1

overdue interest on 31st March, 2021 was Rs.4,17,36,492/- and overdue

interest on 30th June, 2021 was Rs.5,45,41,732/- thus the defaulted

Company Appeal (AT) Ins. No. 460 of 2023

 25

amount during this quarter was itself more than Rs. 1 Crore. Similarly, with

regard to Respondent No. 2 overdue interest on 31st March, 2021 was

Rs.29,47,74,305/- and overdue interest on 30th June, 2021 was

Rs.42,01,93,862/-. The date of default in payment of interest after there are

several date of default in payment of interest after Section 10A period which

is captured in the tabular form filed as Exhibit K in Part-IV of the Application,

Financial Creditors have also filed the working for computation of the amount

and days of default in tabular form thus the date of default cannot be

confined only to date 1st June, 2021 as mentioned in Part-IV. The date of

default which is mentioned in the tabular form cannot be ignored it is clear

that there was default of more than Rs.1 Crore i.e. threshold period in

payment of default by the Corporate Debtor after Section 10A period.

29. The above default is very much there even if we ignore the default on

the basis of Facility Acceleration Notice dated 30th May, 2021/31st May,

2021. We thus are of the view that even after Section 10A period there being

default in payment of interest which was more than threshold amount, the

Application under Section 7 deserves to be admitted.

30. For the aforesaid reasons, we are of the view that order of the

Adjudicating Authority admitting Section 7 Application need no interference

in this Appeal.

31. In view of the foregoing discussions, we arrive at following conclusions:

Company Appeal (AT) Ins. No. 460 of 2023

 26

i. Application filed by Financial Creditors was not barred by

Section 10A period.

ii. The Debenture Holders have right to initiate proceeding under

Section 7 of the Code.

iii. Facility Acceleration Notice dated 30th May, 2021 and 31st

May, 2021 was not issued in accordance with Debenture Trust

Deed dated 19th March, 2018.

iv. Even if 01st June, 2021 which is date of default as per Facility

Acceleration Notice is ignored as per the computation of

default filed as Exhibit K along with Section 7 Application,

there was default of payment of interest after Section 10A

period which is more than threshold amount of Rs. 1 Crore

committed by the Corporate Debtor, on the basis of which

default no infirmity is found in admission of Section 7

Application.

In view of the above conclusions, we do not find any merit in the Appeal,

the Appeal is dismissed.

[Justice Ashok Bhushan]

Chairperson

[BarunMitra]
Member (Technical)

New Delhi
21st December, 2023

Basant B.

Company Appeal (AT) Ins. No. 460 of 2023