Petition U/S 7 Of IBC Can't Be Entertained During Moratorium Period Under Accepted Restructuring Proposal: NCLAT
Mohd Malik Chauhan
17 April 2025 6:42 PM IST
The National Company Law Appellate Tribunal (NCLAT) bench of Justice Ashok Bhushan (Judicial Member) and Mr. Barun Mitra (Technical Member) has held that once the debenture holders have acted upon the restructuring proposal given by the Corporate Debtor, which included a moratorium on its repayment obligations, they cannot be permitted to file an application under Section 7...
The National Company Law Appellate Tribunal (NCLAT) bench of Justice Ashok Bhushan (Judicial Member) and Mr. Barun Mitra (Technical Member) has held that once the debenture holders have acted upon the restructuring proposal given by the Corporate Debtor, which included a moratorium on its repayment obligations, they cannot be permitted to file an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (Code), until the expiry of the moratorium period proposed under the restructuring plan especially when the Corporate Debtor had fulfilled its obligations under the said proposal to which the financial creditors had consented.
Brief Facts:
On 20.03.2018, Catalyst Trusteeship Ltd.(Appellant) was appointed as the Debenture Trustee on behalf of the Debenture Holders with the Edelweiss group as the majority bond-holders holding 84.67% of the debentures. The Edelweiss group comprised of ECL Finance ('ECLF'), Edelweiss Investment Adviser Ltd and Edelweiss Rural and Corporate Services Ltd with vote share of 28.17%, 29.17% and 27.33% respectively.
On 27.03.2018, a Debenture Trustee Deed (“DTD-I”) was executed between the Appellant-Catalyst Trusteeship Ltd. (“CTL”) and Ecstasy Realty Pvt. Ltd. (“ERPL/Corporate Debtor).
Following the execution of DTD-I, Series-A debenture were fully subscribed by Debentures Holders for an amount of Rs 600 Cr. On 28.03.2018, the entire amount of Series-A debentures was disbursed to the Corporate Debtor. The Series-B debentures amounting to Rs 250 Cr. were never issued.
On 06.06.2022, the Appellant informed the Debenture Holders about the Corporate Debtor's restructuring proposal for approval/rejection. On 10.06.2022, the Appellant notified the Corporate Debtor that 94.84% of Debenture Holders had rejected the proposal. On 30.06.2022, ECLF assigned their debt to Asset Restructuring Company (India) Ltd. via an Assignment Agreement.
On 21.07.2022, the Appellant issued a Loan Recall Notice demanding Rs 1203.55 Cr, and on 27.05.2022, filed an application under section 7 of the Code before the Adjudicating Authority which was rejected.
Contentions:
The Appellant submitted that the Appellant as Debenture Trustee was responsible for protection of interest of all Debenture Holders and therefore the discussion between the Corporate Debtor and ECLF was not binding on the Appellant. No moratorium had been granted since the procedure prescribed under Clause 33 of the DTD-I had not been followed for modification of the DTD-I.
It was further submitted that when moratorium was not granted to the Corporate Debtor in terms of the DTD-I, the debt qua the Financial Creditor had become due and payable. In the facts of the case, the Corporate Debtor ought to have been admitted into CIRP in terms of Section 7 of IBC.
Per contra, the Respondent submitted that the Appellant's prayer for initiating Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor is unsustainable, as no payments were due due to the moratorium granted until September 2023.
It was also contended that the Edelweiss Group, holding 84.67% of the Debenture Shares, had already extended the moratorium, meaning no payments were due until September 2023.
Lastly, it was submitted that after the Respondent fulfilled its obligations, including the deposit of Rs 152 Cr, the Appellant reneged on their commitments by arguing that any amendment to the DTD-I required a two-thirds majority under Clause 33 of DTD.
Observations:
The Tribunal at the outset noted that the Appellant was aware of the restructuring proposal is evident from the communication dated 28.03.2022, which clearly mentions the Corporate Debtor's request for a NOC and the Appellant's confirmation to issue the same upon receipt of Rs.152 Cr in the Escrow Account.
It further added that the letter, marked to all debenture holders, reaffirms that both the Debenture Holders and the Appellant Debenture Trustee were keeping each other informed on the restructuring and moratorium proposal.
Based on the above, it held that these correspondences show that before finalisation of the Sapphire transaction, the Corporate Debtor, the Appellant, and the Edelweiss Group were in discussions regarding the restructuring, moratorium proposal, and term sheet. They reflect a clear intention among the parties about restructuring of debt, moratorium, and reciprocal steps to be taken.
It held that the Appellant was always aware of the ongoing negotiations, and these correspondences and discussions were part of the record before the Adjudicating Authority.
The Tribunal further said that Coming to the communication dated 30.03.2022 from ECLF to the Corporate Debtor regarding the release of charge on the property by the Appellant in the context of the Sapphire transaction, the letter clearly states that the NOC had been issued by the Appellant a day earlier.
It further opined that this confirms that the Bandra plot was released upon instructions from ECLF pursuant to the agreement for modification of DTD-I. Notably, Clause 28.3 of the DTD is not mentioned in the communications dated 29.03.2022, indicating that the Appellant and the Debenture Holders were ad idem and acting in concert on the actionable steps under the restructuring and moratorium proposal.
Based on the above, it held that the Appellant not only confirmed the release of charge and mortgage but also filed the Memorandum of Satisfaction of Charge on the RoC portal as part of the restructuring. The letter was also shared with Variegate Realestate, a sister concern of the Corporate Debtor not party to DTD-I, further showing the Appellant's intent to act on and implement the proposal. Hence, the reference to Clause 28.3 appears to be a weak defence and an afterthought, deserving little consideration.
The Tribunal further observed that the Appellant and the Debenture Holders, by their express conduct, had agreed to implement the restructuring and moratorium proposal. No material has been placed on record to show that the Appellant ever questioned ECLF regarding the instructions issued in furtherance of the moratorium, nor did the Appellant raise any objection that ECLF could not speak on behalf of the other Edelweiss Group entities.
It also opined that there is sufficient substance to believe that ECLF and the Appellant were acting in tandem to implement the restructuring proposal agreed upon with the Corporate Debtor. The intent behind the Corporate Debtor entering into the Sapphire transaction was to provide financial flexibility to meet its debt obligations under the restructured plan.
It further added that with the conclusion of the Sapphire transaction, the moratorium came into effect, and no debt was due or payable until September 2023. Consequently, there was no default by the Corporate Debtor. The Adjudicating Authority, therefore, rightly concluded that the restructuring and moratorium proposal had commenced with the completion of the Sapphire transaction.
Accordingly, the present appeal was dismissed.
Case Title: CATALYST TRUSTEESHIP LTD. Versus ECSTASY REALTY PVT. LTD
Case Number: Company Appeal (AT) (Insolvency) No. 467 of 2023
Judgment Date: 16/04/2025
For Appellant : Mr. Abhijeet Sinha Ld. Sr. Counsel along with Mr. Ritesh Kumar, Mr. Ankit Banati, Mr. Aditya Shukla, Ms. Heena Kochar and Mr. Naman Gowda, Advocates.
For Respondent : Dr. Ashwani Kumar Ld. Sr. Advocate with Mr. Virag Gupta, Mr. Aman Kacheria, Ms. Shefali Sangwan, Ms. Sakshi Dube, Mr. Rishabh Dhanuka, Mr. Shaurya Tiwari, Mr. Vishal Mishra, Mr. Zeeshan Hashmi and Mr. Ankit Prashar, Advocates.
Mr. Sunil Trilokchandani and Ms. Drishti Bhindra, Advocates for proposed respondent.