Catalyst Trusteeship Ltd. vs Riyasat Towers Private Limited

This is an application filed by the M/s Catalyst Trusteeship Limited, the Applicant seeking to initiate corporate insolvency resolution process ("CIRP") of the Respondent company M/s Riyasat Towers Pvt. Limited, under Section 7 of the Insolvency and Bankruptcy Code 2016 ("the Code") for the alleged default on the part of the respondent company in settling the amount of Rs. 217.77 crores given by the Applicant to the Respondent for the real estate development projects. The details of transactions leading to the filing of this petition as averred by the petitioner are as follows:

The Respondent with a view of augmenting its resources for meeting the requirement of funds to carry its business operations, development of the Project (i.e. construction of residential building(s)/commercial building with the name of 'Raheja India Towers' at Sector 88A. Gurugram with minimum FAR/FSI of 636,388 sq. ft in case of Independent Floor/2708,207 sq. ft. in case of TOD on the project land except 71,700 sq. ft. of saleable area allocated to land owners as a consideration of purchase of land) had issued 2600 numbers of secured redeemable non-convertible debentures (“Debentures”) with face value of INR 5,00,000/- (Rupees Five Lakhs Only) each (more particularly detailed in table below) and had accordingly appointed the Applicant to act as the trustee for the holders of the Debentures.

For the purpose of acting as trustee of the debenture holders, the Respondent obtained the consent of the Applicant by a letter dated 17.02.2017 and accordingly the Respondent and the Applicant executed the Trustee Agreement dated 12.04.2017.

The aforesaid Debentures were issued by Respondent in the following manner

Debenture-I

The Debenture-I was issued by the Respondent to the debenture holders, for the purpose of raising INR. 95.00 crores (Rupees Ninety Five Crores Only) in terms of the Disclosure Document dated 18.04.2017 issued by the Respondent and the Debenture Trust Deed dated 18.04.2017 executed between the Respondent (as “Company”/ “Issuer”/ “Mortgage No.1”/ “Obligor No.1”), Raheja Developers Limited (as “Guarantor”/ “Obligor No.2”) and the Applicant (as “CTL”/ “Trustee”/ “Debenture Trustee”).

The aforesaid Debenture I inter alia carried the following terms:

a. Coupon/interest as follows:

Starting from the end of 7th month, 12% p.a shall be payable monthly (“Coupon”) on the last day of month (“Interest Payment Date”). If it is a non-business day then immediate preceding business day shall be the Interest Payment Date (the Interest will be calculated on daily basis and year being 365 days/366 days as may be applicable).

Additionally, (over and above the monthly interest payment) redemption premium and interest for the first 6 months would be payable to Subscriber on the partial/full face value of the debenture redeemed to achieve (“Minimum Assured IRR”) of 20.96% (excluding arranger fees).

Notwithstanding the above, at the time of redemption of Debentures part/full, the Issuer shall ensure and pay such minimum redemption price which shall give the Minimum Assured IRR to the Investor.

The minimum Assured IRR shall not include any payments made by the Issuer towards Arranger Fees, Default Interest or towards any other expenses incurred towards the financial assistance.

b. Default Interest as follows:

2% p.a. for the period of default. The default interest shall be over and above the Applicable Interest Rate for default period and the default amount.

c. Tenure

The tenure of the Debenture shall be 60 months.

The issuer shall redeem the debentures in 10 equal quarterly installments commencing from the last day of 33rd month from the Date of Allotment of Debentures.

In case the Issuer is unable to get License under TOD policy and it goes ahead with development of independent housing, tenure of the debentures to be reduced to 48 months.

The issuer shall redeem the Debentures in 6 equal quarterly installments commencing from the last day of the 33rd month from the first subscription of the Debentures.

Debenture-II

The Debenture-II was issued by the Respondent to the debenture holders for the purpose of raising INR. 35.00 Crores (Rupees Thirty Five Crores Only) in terms of the Disclosure Document dated 12.10.2017 issued by the Respondent and the Debenture Trust Deed dated 12.10.2017 executed between the Respondent (as “Company”/ “Issuer”/ “Mortgage No.1”/ “Obligor No.1”), Raheja Developers Limited (as “Guarantor”/ “Obligor No.2”) and the Applicant (as “CTL”/ “Trustee”/ “Debenture Trustee”).

The aforesaid Debenture II inter alia carried the following terms:

a. Coupon/Interest as follows:

Starting from the end of 7th month, 12% p.a shall be payable monthly (“Coupon”) on the last day of month (“Interest Payment Date”). If it is a non-business day then the immediate preceding business day shall be the Interest Payment Date (the Interest will be calculated on daily basis and year being 365 days/366 days as may be applicable).

Additionally, (over and above the monthly interest payment) redemption premium and interest for the first 6 months would be payable to subscriber on the partial/ full face value of the debenture redeemed to achieve (“Minimum Assured IRR”) of 20.96% (excluding arranger fees).

Notwithstanding the above, at the time of redemption of Debentures part/full, the Issuer shall ensure and pay such minimum redemption price which shall give the Minimum Assured IRR to the Investor.

The minimum Assured IRR shall not include any payments made by the Issuer towards Arranger Fees, Default Interest or towards any other expenses incurred towards the financial assistance.

b. Default interest as follows:

2% p.a for the period of default. The default interest shall be over and above the Applicable Interest Rate for default period and the default amount.

c. Tenure

The tenure of the Debenture shall be 60 months.

As per the terms of issue of the said Debentures, Respondent (being the Issuer) was required to pay interest and other dues in accordance with the terms contained in the Debenture Trust Deeds. However, the Respondent committed, inter alia, the following defaults in performance of the terms of the Debenture Trust Deeds:

Due to the aforesaid defaults and breach of terms and conditions of the Debenture Trust Deeds including default in payment of interest and other monies, the Applicant acting as trustees for the Debenture holders had become entitled to issue a Default Notice with ref. no. CTL/19-20/RTPL/3294 dated 02.05.2019 thereby, calling for redemption of the Debentures, repayment of subscription amount and payment of interest and all other amounts due in respect thereof and accordingly, declaring that the entire amount in respect of the Debentures has become due and payable by the Respondent to the Debenture Holders immediately and the Securities have become enforceable. Accordingly, the amounts of the Debentures together with interest, default interest etc. aggregating INR 217.77 Crores (Rupees Two Hundred and Seventeen Crores and Seventy Seven Lakhs Only) as on 30.04.2019, are immediately due and payable by the Respondent to Debenture Holders.

Consequent to the issuing of notices by this Tribunal the Respondent has filed its reply in which the following contentions are made:

There is no debt under Section 3(11) of the IBC, 2016 as no amount is due or payable by the Respondent and the Applicant failed to place any evidence on record that amount is due or payable by the Respondent. Therefore, the onus is on the applicant to discharge this obligation and satisfy this Hon'ble Adjudicating Authority that any amount is due or payable by the Respondent. The present Application is liable to be rejected on this ground alone.

There is no default under Section 3(12) of the IBC, 2016, as the Respondent is regularly servicing the alleged debt by paying interest and the said interest is being accepted by the applicant without any protest or demur. The present Application is liable to be rejected on this ground alone.

There is no financial debt under Section 5(8) of the IBC, 2016, as there is no debt payable by the applicant in the first place and otherwise also there is no consideration for the time value of the money and applicant has failed to prove the same. The present application is liable to be rejected on this ground alone.

Further, the alleged debt claimed by the applicant being a disputed debt, cannot be adjudicated in a summary proceedings as contemplated under the Insolvency & Bankruptcy Code and it requires evidence to be led by the parties. There is no default on the part of Respondent and no amount is legally due or payable to the applicant.

The initiation of Corporate Insolvency Resolution Process (“CIRP”) in the present case would not serve and achieve the objects of the Code as the Respondent is already a solvent company. It is due to land owners and debenture holders being hands in glove and their nefarious design and the unethical practices of the debenture holders that the Respondent is not able to carry on its business operations and pay off its liabilities accordingly. That in fact, initiation of CIRP against the Respondent would be detrimental to the assets and business of the Respondent. The Respondent has already filed a suit in this regard before the Hon’ble District Court, Gurugram and the Hon’ble Court is seized with the matter. The land owners. Applicant and the debenture holders have been arrayed as parties in that suit and upon issuance of notice, have appeared before that court and pursuing the matter.

The commercial project on piece of 4.05 acres of land was to be developed by Raheja Developers Ltd under two licenses as agreed but the land owners never came forward for demarcation of land so that two licenses could be applied. All these facts delayed the commercial project that effected the cash flow to service the debt. The slump in the market further aggravated that condition. That in view of the aforesaid facts and circumstances, it is submitted that without going into the merit or substance of the amount, it has always been the endeavor of the Respondent to repay the amounts that are outstanding against it.

The Applicant in his rejoinder to the reply filed by the Respondent has categorically refuted the points raised by the Respondent in its reply. He has contended the following points:

a. It is specifically denied that the applicant herein does not fall within the definition of Applicant as defined under Section 5(7) of the Insolvency and Bankruptcy Code. It is further denied that there is no financial debt. It is vehemently denied that there is no default in the present case. It is necessary to consider the following:

It is further stated, as per Section 3(11), the debt is defined to mean a liability or obligation in respect of the claim. Admittedly, the Respondent with a view of augmenting its resources for meeting the requirement of funds to carry its business operations, development of the Project (i.e construction of residential building(s)/ commercial building with the name of 'Raheja India Towers' at Sector 88A, Gurugram with minimum FAR/FSI of 636,388 sq. ft in case of Independent Floor/2708,207 sq. ft. in case of TOD on the project land except 71,700 sq. ft. of saleable area allocated to land owners as a consideration of purchase of land) had issued 2600 numbers of secured redeemable non-convertible debentures ("Debentures") with face value of INR 5,00,000/- (Rupees Five Lakhs Only) each (more particularly detailed in table below) and had accordingly appointed the Applicant to act as the trustee for the holders of the Debentures.

That for the purpose of issuance of the said Debentures, Debenture Trust Deeds dated 18.04.2017 and 12.10.2017 ("Debenture Trust Deeds") were executed between the Respondent ("Issuer"), Raheja Developers Limited and Applicant ("Debenture Trustee") along with other transaction documents were executed between these parties. The Respondent admittedly, committed various defaults and breached various terms and conditions of the Debenture Trust Deeds including default in payment of interest, default interest and other monies.

That owing to the said defaults the Applicant acting as trustee for the Debenture holders had issued a Default Notice dated 02.05.2019 calling for redemption of the Debentures, repayment of subscription amount and payment of interest and all other amounts due in respect thereof in terms of the Debenture Trust Deeds and accordingly, declared the entire amount in respect of the Debentures as due and payable by the Respondent to the Debenture Holders immediately. Accordingly, Applicant is under a default for non-payment of amounts of the Debentures together with interest, default interest etc. aggregating INR 217.77 crores (Rupees Two Hundred and Seventeen Crores and Seventy Seven Lakhs Only) as on 30.04.2019, which has become due and payable by the Respondent to the Debenture Holders.

It is vehemently denied that no sum is due or payable by the non-applicant/Respondent at this stage. It is pertinent to mention that in terms of Clause 6 of the Debenture Trust Deeds, the Debenture Trustee on behalf of Debenture Holders on happening of one or more events of default can declare the principal amount and all accrued interest on the debentures to be due and payable.

It is further denied that there is no default on the part of Respondent, on the contrary at the sake of repetition it is reiterated that the Respondent has committed following defaults in terms of the Debenture Trust Deeds against which default notice dated 02.05.2019 has been issued:

That the aforesaid events fall within the definition of "Events of Default" as provided under Clause 6 of the Debenture Trust Deeds.

It is further denied that Respondent is regularly servicing that debt by paying interest and that the said interest is being accepted by the Applicant. On the contrary the Applicant has put on record the defaults committed by the Debtor in servicing the amount payable under the debenture trust deed as well as the failures committed in completing the obligations as agreed under the said deeds.

It is further stated that the suit filed in Gurugram is of no consequence to the present proceedings, as the same does not preclude Section 7. It is that financial debt, is not affected by any dispute till the time it is due and payable.

We have gone into the details of documents filed by both the parties including their written arguments filed by the parties and heard the arguments made by the counsels of both sides. The Applicant has established very clearly the facts of financing the project by way of subscribing to the Debentures issued by the Respondent for an amount of Rs. 217.77 crores including 12% interest rate and thereby the existence of financial debt has been well established. The Applicant has also filed the details of defaults in performance of the terms of the Debenture Trust Deeds such as failure to pay the interest and other charges in terms of the Debenture Trust Deeds, failure of the Respondent in achieving the project milestones as provided under Schedule-III of the Debenture Trust Deeds and changing the name from Raheja Towers Private Limited to Riyasat Towers Private Limited without obtaining prior permissions from the Debenture Trustee etc. The arguments put forth by the Respondent that a dispute is pending adjudication in the court is not relevant in a case filed under Section 7 of IBC of Code. Since the Applicant has established the existence of debt and default on the part of the Respondent, this Tribunal initiates CIRP on the Respondent firm with immediate effect.

A moratorium in terms of Section 14 of the Code is imposed forthwith in following terms:

The interim resolution professional ("IRP") proposed by the Applicant is Mr. Harish Taneja (e-mail address: harishtaneja78@gmail.com) and is being confirmed by this Bench. He shall take such other and further steps as are required under the statute, more specifically in terms of Section 15, 17 and 18 of the Code and file his report within 30 days before this Bench.

Renotify this case for report of the IRP on 26.11.2019.