NCLAT Upheld The Ruling Of NCLT-Mumbai, Admitting The Realty Developer, M/S Satra Properties (India) Limited In To Corporate Insolvency Resolution Process

Background

The Appellant's company i.e M/s. Satra Properties (India) Ltd. ("SPIL") is engaged in the business of real estate and development of residential and commercial properties, and in order to execute some projects of the corporate debtor it proposed to raise finances up to Rs. 56 crores by way of issuing non-convertible debentures ("NCDs"). Accordingly, Respondents had agreed to subscribe to 5600 secured redeemable NCDs having face value of Rs.1,00,000/- i.e. Rupees one lakh each for a total consideration of Rs. 56 crores.

The said NCDs were to be redeemed after the end of 12 months from the date(s) of issue with interest in accordance with redemption schedule annexed to the Debenture Subscription Agreement. The debentures could not be redeemed in accordance with the redemption schedule provided in the Debentures Subscription Agreement due to financial difficulties being faced by the Appellant. Pursuant to the financial difficulties faced by the Appellant, he entered negotiation with the Respondents for an amicable settlement. The original redemption schedule of the NCDs which was 12 months after the issue of debentures, was extended and the same were to be repaid in five tranches from 2nd April 2019 to 2nd December 2019. Since the Appellant default in its obligation under the facility document, the Respondent file an application under section 7 of the Insolvency and Bankruptcy Code, 2016 ("Code")

The Adjudicating Authority admitted the section 7 application vide the Impugned Order dated 03.08.2022 ("Impugned Order") but the members of the two-member bench differed on the issue of impounding of the Redeemable Non-Convertible Debenture Subscription Agreement and the Debenture Trustee Deed, both dated 1.3.2014 for proper stamping. This two-member bench framed the following question of law and referred the matter to the Hon'ble President of NCLT for adjudication by an appropriate bench or a third member. the third member gave his opinion on the question of law raised by the original two-member bench and held that the proper course of action that needs to be adopted is to dismiss the above Misc. Application without getting into the issue of stamp duty as it is irrelevant and uncalled for a Section 7 Application more so when the 'debt' and 'default' are provided otherwise without looking into those documents. Aggrieved by the order, the Appellant has challenged the impugned order.

Observation

After hearing all the parties, the bench observed that the settlement entered into by SPIL and Praful Satra with the MJS Group and IIFL only covered loan taken from MJS Group upto Rs. 200 crores only and it did not cover the non-convertible debentures and that there was no novation of the NCD subscription agreement as a result of the larger settlement. The Hon'ble Bench further observed that the Non-Convertible Debentures Subscription Agreement and the Debenture Trust Deed are not novated because of the "Settlement" and are relevant in establishing the debt of the corporate debtor as claimed in section 7 application, whose repayment is in default as per clause 11 of the Debenture Trust Deed.

Case: Mr. Praful Nanji Satra vs Vistra ITCL (India) Limited and Ors. Comp Appeal (AT) (INS) No . 713 of 2020

Praful Satra was represented by Mr. Ravindra Kumar, Sr. Advocate with Mr.Malak Bhatt, Mr. Arun Srivastava, Ms. Devanshi Singh, Mr. Rajat Bector, Advocates

Vistra ITCL (India) Limited and Debenture Holders were represented by Mr. Nishit Dhruva, Mr. Prakash Shinde and Ms. Aalisha Sharma of MDP and Partners. Mr. Devarajan Raman, Advocate for IRP