It is not in dispute that what the appellant subscribed to was the CCDs, albeit with other debentures being executed simultaneously. The date of conversion into equity from the CCDs was December, 2017. The formal issuance of shares was however, not done after the said date. We may note that the appellant had agreed to subscribe to the CCDs at the request of ICTL and amount of Rs.125,00,00,000/- in terms of a Debenture Subscription Agreement dated 14.10.2011. In terms of the aforesaid agreement, there was a “put option” and thus, in the event of default on part of ICTL during the window period, these CCDs could be sold to a third party but the principal obligation of IVRCL continued to be in place. However, the factual scenario in respect thereof never arose. (Para 2)
It appears that the project ran into financial difficulties and ICTL even suggested a one time settlement which had been agreed to but even terms thereof were not honoured. Corporate guarantees of IVRCL were invoked by the appellant. Corporate Insolvency Resolution Process was initiated both by the appellant and the State Bank of India and claims were filed. The process under the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the said Code) was thereby triggered. (Para 3)
The appellant claimed that the amount owing to it had a status of a debt, and lodged a claim in that behalf. However, this was rejected by the Resolution Professional vide letter dated 09.08.2022. (Para 4)
The entire amount claimed was refused and the reasons for the non-admission were recorded after noting that various inter se correspondence and supporting documents had been supplied. (Para 5)
It will be noticed from the aforesaid that the fundamental principal for rejecting the debt claim was that in view of the appellant having invested the amount as per the CCDs, the same was to be treated as equity. The CCDs had been approved as equity under the financial package for the Concession Agreement dated 25.03.2010 and were towards the part of equity of the project cost approved by the NHAI having a debt equity ratio. There was never any re-categorization of CCDs from equity to debt. The lenders’ consortium had also approved the term of CCDs as equity. The endeavour of the appellant to challenge the position of the Resolution Professional vide IA No.1465/2022 did not succeed in terms of an order dated 14.03.2023, the said order relied upon the judgment of this Court in Narendra Kumar Maheshwari v. Union of India & Ors. [(1990) Suppl. SCC 440] It would be useful to extract that part of the judgment which has also been extracted in the impugned order of National Company Law Appellate Tribunal (NCLAT) as under: “A Compulsory Convertible Debenture does not postulate any repayment of the principle. The question of security becomes relevant for the purpose of payment of interest on these debentures and the payment of principle only in the unlikely event of winding up. Therefore, it does not constitute a ‘debenture’ in its classic sense. Even a debenture, which is only convertible at option has been regarded as a ‘hybrid’ debenture. Any instrument which is compulsorily convertible into shares is regarded as an “equity” and not a loan or debt.” (Para 6)
We may note that the aforesaid order of the National Company Law Tribunal was further assailed before the NCLAT which dismissed the appeal as per the impugned order dated 05.06.2023. In the meantime, the Committee of Creditors (CoC) granted its approval on 08.03.2023 which was followed by the Adjudicating Authority accepting the resolution plan on 01.05.2023. This has not been specifically assailed by the appellant. (Para 7)
Learned senior counsel contends that in effect the appellant is neither treated as shareholder nor as a financial creditor leaving the appellant remediless. (Para 10)
Thus, if it was a simpliciter debenture, it would have fallen under the category of a financial debt along with bonds etc. However, we are not concerned with a debenture per se. (Para 15)
A reading of all the aforesaid leads to a conclusion that the appellant was provided security under the Debentures Subscription Agreement but the obligations are of the sponsor company. That being the position, it is difficult for us to appreciate how the obligation is of the SPV i.e. 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 SPV ICTL. (Para 20)
We must note that the complexities of commercial documents depending 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. We thus find it difficult to read into or add to what the document says about a CCD. (Para 21)
The effect of the aforesaid is that a contract means as it reads. It is not advisable for a Court to supplement it or add to it. It is an unfortunate scenario where the appellant is being left high and dry as there is nothing which it 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 i.e. original investors and the appellant get any benefit under the scheme which has been approved. The debt assigned was of a lower rate, repurchased by a third party. However, these are commercial decisions of the respective parties. The obligations were of the sponsoring company and IVRCL in terms of Clause 2.4. (Para 23)
A significant aspect taken note of in the impugned order is that the terms of the various agreements prohibited the corporate debtor from taking further debt without the consent of the assignees. No such approval was sought or taken. The amount was treated as an equity alone and not as a debt. (Para 26)
The NCLAT has also touched on the issue of the remedy which was available to the appellant which, in its view, was not availed within time a time bound process being of the essence in the Code. The claim of the appellant was rejected on 09.08.2022 and the appellant only sought to again raise the issue which could not extend the period of time. (Para 27)
The jurisdiction is restricted to a question of law akin to a second appeal. The 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. (Para 30)
We are thus of the view that the appeal does not raise any such question of law and that the findings of the Courts below are in accordance with settled principles. (Para 31)
SUPREME COURT OF INDIA
2023 STPL(Web) 455 SC
[2023 INSC 1023]
M/S. IFCI Limited Vs. Sutanu Sinha & Ors.
Civil appeal no. 4929 of 2023-Decided on 9-11-2023
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