Tribunal holds financial creditor could not demand premature redemption of optionally convertible debentures; also finds claimed interest below IBC threshold and dismisses penalty plea under Section 65.
The National Company Law Tribunal (NCLT), Kolkata Bench, has dismissed a Section 7 insolvency petition filed by Pink City Fincap Private Limited against Arthmate Tech Private Limited, holding that the financial creditor had no contractual right to seek premature redemption of optionally convertible debentures (OCDs).
The Bench of Smt. Bidisha Banerjee, Member (Judicial), and Ms. Rekha Kantilal Shah, Member (Technical), ruled that the early redemption clause in the subscription terms vested the right exclusively with the corporate debtor. Since the debentures were to mature only after 24 months from issuance, and the creditor attempted redemption before maturity, the Tribunal found that no debt had become due and payable on the date of filing.
According to the order, the corporate debtor had issued 120 OCDs of Rs. 1 lakh each, while the financial creditor claimed Rs. 1.2 crore as principal along with Rs. 7 lakh as interest. The creditor argued that the debtor had breached the service agreement and debenture terms, and that it was entitled to invoke early redemption. It also raised concerns over non-payment of interest, absence of a debenture trustee, and non-compliance with provisions relating to debenture redemption reserve.
However, the Tribunal held that the contractual documents did not confer any such right on the creditor. Referring to the terms of subscription, it noted that the debentures were scheduled to mature in March 2026, whereas the insolvency petition was filed in 2025. The notices issued by the creditor seeking early redemption were therefore ineffective in law.
On the issue of interest, the Tribunal observed that the coupon rate was subject to monthly reconciliation and commercial adjustments, and there was no evidence that such reconciliation had been completed. It further held that even assuming the interest claim was payable, the amount fell below the minimum pecuniary threshold of Rs. 1 crore prescribed under Section 4 of the Insolvency and Bankruptcy Code, 2016.
The Bench also rejected the corporate debtor’s request for penalty under Section 65 of the IBC, which penalises fraudulent or malicious initiation of insolvency proceedings. The Tribunal said such allegations require strict pleading and proof, and the material on record did not establish malicious intent on the part of the financial creditor.
Citing recent NCLAT rulings, including Mosco International Commodities Pvt. Ltd. v. SBEC Sugar Ltd. and J & K Integrated Textiles Park Ltd. v. Silklon Processors Pvt. Ltd., the Tribunal reiterated that default must exist on the date of filing and that penal proceedings under Section 65 cannot be invoked on suspicion alone.
In the result, both the interlocutory application filed by the corporate debtor and the main insolvency petition were dismissed.
Bottom Line :
The Financial Creditor cannot seek premature redemption of Optionally Convertible Debentures (OCDs) when the contractual terms exclusively vest the right of early redemption with the Corporate Debtor.
Statutory provision(s): Section 3(12), Section 4, Section 5(8), Section 7, Section 65 of the Insolvency and Bankruptcy Code, 2016, Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, Section 71 of the Companies Act, 2013
