If Rights Under Debenture Deed Are Transferred Without Prior Approval From Holders, Liabilities Of Corporate Debtor Remain Undischarged: NCLAT
Mohd Malik Chauhan
16 Jun 2025 3:25 PM IST
The National Company Law Appellate Tribunal (NCLAT) New Delhi bench of Justice Ashok Bhushan (Judicial Member), Mr. Arun Baroka (Technical Member) and Mr. Barun Mitra (Technical Member) has held that when a debenture deed mandates prior approval of the Debenture Trustee for any transfer of rights or liabilities, any such transfer made through an Acquisition Agreement without obtaining...
The National Company Law Appellate Tribunal (NCLAT) New Delhi bench of Justice Ashok Bhushan (Judicial Member), Mr. Arun Baroka (Technical Member) and Mr. Barun Mitra (Technical Member) has held that when a debenture deed mandates prior approval of the Debenture Trustee for any transfer of rights or liabilities, any such transfer made through an Acquisition Agreement without obtaining the required approval is in contravention of the principal deed and, therefore, unenforceable. Consequently, the Corporate Debtor cannot claim that its liabilities towards the debenture holders stood discharged merely by entering into such an agreement.
Brief Facts:
A Debenture Trust-cum-Mortgage Deed (“DTMD”) dated 15.10.2018 was signed and executed between Debenture Trustee – Axis Trustee Services Ltd. (Respondent No.1 herein) and the Corporate Debtor – Future Ideas Company Limited. Schedule I of the DTMD mentions the names of the initial Debenture Holders.
On 29.08.2020 an Acquisition Agreement was entered into between Corporate Debtor (CD) and Rivaaz Trade Ventures Pvt. Ltd. (“RTVPL”), where debt amounting to Rs.122.83 crores under the Non Convertible Debentures (“NCD”) issued by CD was acquired by RTVPL. In the Acquisition Agreement, neither the Debenture Trustee nor the Debenture Holders were party.
The Respondent issued a notice to the Corporate Debtor (CD) and its Personal Guarantor. On 01.07.2022, the Debenture Trustee issued a Demand Notice seeking full repayment following an “event of default.” Subsequently, on 20.10.2022, the Financial Creditor filed an application under section 7 of the Insolvency and Bankruptcy Code, 2016 (Code), claiming a debt of ₹122.83 crores as of 27.09.2022.
The CD filed its reply on 29.12.2022, along with IA No. 29 of 2023 (seeking dismissal on the ground that RTVPL had acquired the NCDs) and IA No. 18 of 2023 claiming the petition was barred by Section 10A of the Code. The Application under section 7 was admitted. This order has been challenged in the present appeal.
Contentions:
The Appellant submitted that the voting by the Debenture Holders on units transferred to RTVPL clearly acknowledges the transfer of debt under the NCDs to RTVPL. The Debenture Trustee cannot dispute the Acquisition Agreement when the Debenture Holders have accepted it through various correspondence with the Corporate Debtor.
It was further submitted that the Acquisition Agreement was a concluded contract and was not contingent upon the scheme being approved. The fact that scheme has not been approved by the NCLT, does not have any effect and consequence on the Acquisition Agreement dated 29.08.2020. The contractual issues between the Debenture Holders, the CD and RTVPL are the questions, which cannot be examined and decided by the Adjudicating Authority and the remedy lies in the Civil Court only.
Per contra, the Respondent submitted that the Acquisition Agreement relied by the Appellant itself in Clause 2.2 requires the CD to obtain approval/ no objection from the Debenture Trustee. No objection having not been obtained from the Debenture Trustee, the Acquisition Agreement has not even come into force.
It was also submitted that the composite scheme provided that debt under the NCDs would transfer to FEL via Rivaaz only after NCLT approval. Since the scheme required regulatory and stakeholder approval and was not sanctioned, the acquisition arrangement failed.
Observations:
After referring to the relevant materials, the Tribunal observed that Section 7 Application can very well be filed by a Financial Creditor on defaults committed by the CD, which defaults are committed subsequent to 10A period. The present is a case where Section 7 Application clearly mentions the date of default as 30.04.2021, hence, the Adjudicating Authority has rightly not accepted the submission of the CD that Application is barred by Section 10A.
It further said that Clause 12.3 of the transaction documents prohibits the Company from assigning any of its rights, duties, or obligations. In contrast, Clauses 12.1 and 12.2 permit debenture holders to freely transfer their rights. This clear distinction shows that DTMD never intended the Company to assign its obligations. Nevertheless, the Company entered into the DTMD Acquisition Agreement with Rivaaz, despite Clause 2.2 requiring prior approval or no-objection from the Debenture Trustee.
The Tribunal further observed that the Corporate Debtor argued that debenture holders, after confirming the principal outstanding of ₹1004.24 crores, voted on a scheme concerning the transferred NCDs. However, the correspondence relied upon by the Corporate Debtor does not amount to approval or no-objection to the acquisition.
It further added that the internal email dated 29.12.2021 merely responded to a balance confirmation request and summarized RTVPL's outstanding exposure. Other emails only sought the Acquisition Agreement and information on NCD exposures, and cannot be construed as consent or no-objection from the debenture holders.
It further said that since the Acquisition Agreement was not complied with—specifically the requirement to obtain approval or no-objection from Axis Trustee Services Limited—the Corporate Debtor's claim that obligations under the NCDs stood transferred to Rivaaz cannot be accepted.
It further held that the Debenture Trustee, appointed to protect the interests of debenture holders, was a party to the DTMD Agreement dated 15.10.2018. The Acquisition Agreement dated 29.08.2020 also expressly required the Trustee's approval or no-objection. Hence, in the present case, there is no basis to claim waiver or acquiescence by the debenture holders.
The Tribunal further opined that the debenture holders' vote against the scheme publicly announced by the Future Group cannot be construed as waiver or acquiescence regarding the Acquisition Agreement. The Adjudicating Authority rightly observed that the Acquisition Agreement was part of a broader composite scheme involving the transfer and merger of Future Group entities into Reliance. Since the scheme failed to obtain regulatory approval, the Acquisition Agreement must be viewed as a step within that integral, yet unfulfilled, process.
It further observed that when the Corporate Debtor itself relied on the Acquisition Agreement to claim it had no further obligations under the NCDs, the Adjudicating Authority was well within its jurisdiction to examine the validity and implications of that agreement. Therefore, the appellant's contention that the authority exceeded its jurisdiction by observing the Acquisition Agreement to be void is untenable.
The Tribunal concluded that when the corporate debtor was relying on the conduct and correspondence by the debenture holders for relying on the consent of the debenture holders to the Acquisition Agreement, opposition to the receiving of the financial statements of the debenture holders is unexplainable. The adjudicating authority has rightly accepted the financial statements of the debenture holders and held that the objections raised by the corporate debtor were without any substance.
Accordingly, the present appeal was dismissed.
Case Title: Anil Biyani Suspended Director of Future Ideas Company Ltd. Versus Axis Trustee Services Ltd. & Anr.
Case Number: Company Appeal (AT) (Insolvency) No. 611 of 2025
Judgment Date: 19/05/2025
For Appellant : Mr. Arun Kathpalia, Sr. Advocate with Ms. Petrushka Dasgupta, Mr. Harsh S. Moorjani, Mr. Mridul Yadav, Ms. Krishna Baruah, Mr. Anand Singh Sengar, Mr. Raghav Mittal, Advocates
For Respondents : Mr. Krishnendu Datta, Sr. Advocate with Ms. Suchitra Valjee, Mr. Varun Nathani, Mr. Sanidhya Kumar, Mr. Ankit Lohia, Ms. Palak Damani, Mr. Kartik Nagarkatti, Ms. Rajyi Shah, Advocates for R1.
Ms. Priyanka Jain, Ms. Swastika Mukherjee, Advocates for R-2 (IRP).