Case Note & Summary
The appeal arose from an order of the NCLT Bengaluru Bench admitting Coffee Day Enterprises Limited (the corporate debtor) into Corporate Insolvency Resolution Process (CIRP) under Section 7 of the Insolvency and Bankruptcy Code, 2016, filed by IDBI Trusteeship Services Limited as debenture trustee. The appellant, Malavika Hegde, a shareholder and director of the corporate debtor and widow of the late founder V.G. Siddhartha, challenged the admission order. In March 2019, the corporate debtor issued 2000 non-convertible debentures on private placement, aggregating to INR 200 crores. A Debenture Trustee Agreement was executed on 22.03.2019, appointing IDBI Trusteeship Services Limited as debenture trustee. Two investors subscribed to 1000 debentures each. Following the untimely death of V.G. Siddhartha in July 2019, the appellant took steps to revive the business, but the COVID-19 pandemic severely impacted operations. The debenture trustee, acting under instructions of 100% debenture holders, issued a notice of default on 28.07.2020 and a notice of sale of pledged shares on 01.03.2021, demanding payment of outstanding dues. The appellant contended that the default had occurred on 30.09.2019, much earlier, and that the notice of sale could not reset limitation. She further argued that clause 10 of the Debenture Trust Deed, read with Schedule II, mandated unanimous consent of debenture holders for enforcement, thus barring the trustee from initiating CIRP under Section 7. The NCLT had admitted the petition, finding debt, default, and that the petition was within limitation, and imposed moratorium under Section 14. The appellant raised these issues before the NCLAT, which examined the interplay between contractual clauses and statutory rights, and the question of limitation based on the date of default.
Headnote
A) Insolvency Law - CIRP Initiation by Debenture Trustee - Section 7 Insolvency and Bankruptcy Code, 2016 - Debenture Trust Deed Interpretation - The appellant, a shareholder and director of the corporate debtor, challenged the admission of CIRP, contending that the Debenture Trust Deed clause 10 read with Schedule II required unanimous resolution of debenture holders for enforcement, thereby barring the debenture trustee from unilaterally filing the Section 7 application; the court examined whether contractual provisions could override statutory rights under the IBC (Paras 1-8). B) Insolvency Law - Date of Default and Limitation - Section 7 IBC - The appellant argued that the admitted default dated back to 30.09.2019, much before the notice of sale of pledged shares on 01.03.2021, and if the earlier date is considered, the petition would be time-barred; the court considered the impact of the notice of sale on the date of default for limitation purposes (Paras 8-9).
Issue of Consideration
Whether clause 10 of the Debenture Trust Deed dated 22.03.2019 creates a bar on initiation of proceedings under Section 7 of the I&B Code, 2016, and whether the petition was within limitation given the date of default
Law Points
- Interpretation of Debenture Trust Deed clauses
- date of default
- limitation
- moratorium under Section 14
- initiation of CIRP under Section 7
- interplay between contractual provisions and statutory rights
