CCDs wouldn't partake character of Financial Debt, SC refuses to use its own interpretation to grant remedy to Appellant, Read Judgement

02 Dec 2023

The Hon’ble Supreme Court opined that the complexities of commercial documents are such that it is difficult to read into or add to what the document says about a CCD.

It was noted even though it was an unfortunate scenario, however, Courts cannot use its own interpretation.

The Top Court affirmed the view that treating CCDs as a debt would tantamount to breach of the concessional agreement and the common loan agreement. The investment was clearly in the nature of debentures which were compulsorily convertible into equity and nowhere is it stipulated that these CCDs would partake the character of financial debt on the happening of a particular event.

Brief Facts:

The NHAI awarded a highway project in terms of a Concession Agreement with IVRCL Chengapalli Tollways Ltd (ICTL).

A consortium of lenders provided loan to ICTL to execute various documents including the company loan agreement.

The Appellant had agreed to subscribe to the CCDs at the request of ICTL. The project ran into difficulties and hence, Corporate Insolvency Resolution Process was initiated both by the appellant and the State Bank of India and claims were filed under the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “IBC”).

The Resolution Professional rejected the claim of the Appellant. The fundamental principal for rejecting the debt claim was that in view of the appellant having invested the amount as per the CCDs, the same was to be treated as equity.

Contentions of the Appellant:

It was contended that the Appellant was remediless as Appellant was neither treated as shareholder nor as a financial creditor. It was submitted that whether CCDs should be categorized as debt or equity would depend on the status of the maturity of the CCDs and the position of the investor at the inaugural time, and this would vary in the facts and circumstances of each case.

Contentions of the Respondent:

It was argued that CCDs fall under equity. It was urged that ICTL did not have a liability or obligation qua the Appellant because the Appellant was actually an equity participant and did not have a debt to be repaid.

Observations of the Court:

It was observed that the Appellant was provided security under the Debentures Subscription Agreement, but the obligations were of the sponsor company.

It was noted that unless the debt was of the ICTL, the Appellant could not seek a recovery of the amount on the basis of being a creditor of the SPV ICTL.

The Court opined that the complexities of commercial documents are such that it is difficult to read into or add to what the document says about a CCD.

It was noted even though it was an unfortunate scenario, however, Courts cannot use its own interpretation.

Further, the Bench ruled that the NCLAT did touch on the issue of the remedy which was available to the Appellant which, in its view, was not availed within time a time bound process.

As for the jurisdiction of the Courts, it was noted that the law does not envisage unlimited tiers of scrutiny and every tier of scrutiny has its own parameters. Thus, the lis inter se the parties has to be analysed within the four corners of the ambit of the statutory jurisdiction conferred on this Court.

The decision of the Court:

Based on the aforementioned reasons, the Top Court dismissed the appeal.

Case Title: M/S Ifci Limited vs Sutanu Sinha

Case No.: CIVIL APPEAL NO.4929/2023

Citation: 2023 Latest Caselaw 891 SC

Coram: Hon’ble Justice Sanjay Kishan Kaul, Hon’ble Justice Sudhanshu Dhulia, Hon’ble Justice Ahsanuddin Amanullah

Advocate for Appellant: Adv. Sameer Abhyankar

Advocates for Respondent: Advs Avinash B. Amarnath, Sahil Tagotr