Case Note & Summary
The appeal arises from the dismissal of the appellant's application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) by the NCLT and NCLAT. The appellant, EPC Constructions India Limited (formerly Essar Projects India Limited), held Cumulative Redeemable Preference Shares (CRPS) in the respondent, Matix Fertilizers and Chemicals Limited. The appellant had entered into an engineering and construction contract with the respondent, and as part of the consideration, the respondent issued CRPS to the appellant. The CRPS were to be redeemed after a certain period. The appellant filed an application under Section 7 of IBC claiming that the respondent had defaulted in redeeming the CRPS, thereby constituting a debt. The NCLT and NCLAT dismissed the application, holding that the CRPS are in the nature of an investment and not a debt, and that no liability arises as the payment is not due. The Supreme Court, in appeal, examined the nature of CRPS and the definition of 'debt' under Section 3(11) of IBC. The Court held that CRPS are a hybrid instrument with characteristics of both equity and debt, but the redemption amount is a liability and constitutes a debt. The Court further held that the appellant is a financial creditor under Section 5(8) of IBC, as the CRPS represent a disbursal against the time value of money. The Court set aside the orders of the NCLT and NCLAT and remanded the matter to the NCLT for fresh consideration on merits, including the issue of default and limitation.
Headnote
A) Insolvency Law - Financial Debt - Cumulative Redeemable Preference Shares (CRPS) - Section 3(11), Section 5(8), Section 7 of Insolvency and Bankruptcy Code, 2016 - The issue was whether CRPS held by the appellant constitute a 'debt' and whether the appellant is a 'financial creditor' - The Supreme Court held that CRPS are in the nature of debt, as the redemption amount is a liability, and the appellant is a financial creditor entitled to file an application under Section 7 of IBC - The NCLT and NCLAT erred in treating CRPS as an investment and not a debt (Paras 1-42).
Issue of Consideration
Whether Cumulative Redeemable Preference Shares (CRPS) held by the appellant constitute a 'debt' under Section 3(11) of the Insolvency and Bankruptcy Code, 2016, and whether the appellant is a 'financial creditor' entitled to file an application under Section 7 of the IBC.
Final Decision
The Supreme Court allowed the appeal, set aside the orders of NCLT and NCLAT, and remanded the matter to NCLT for fresh consideration on merits, including the issue of default and limitation.
Law Points
- Cumulative Redeemable Preference Shares (CRPS) can constitute debt under Section 3(11) of IBC
- 2016
- redemption of CRPS is a liability
- financial creditor can file Section 7 application
- NCLT/NCLAT erred in treating CRPS as investment
