TMI Blog2021 (5) TMI 274X X X X Extracts X X X X X X X X Extracts X X X X ..... n order to oversee the entire corporate documentation pertaining to various meetings and activities including meetings of the Board of Directors in order to safeguard the interest of the Investor Company. Therefore, the Investor cannot be and need not be treated as a Financial Creditor . Whether the alleged debt is a 'financial debt' and applicant as a financial creditor under the provisions of Section 5(8) of the IBC? - HELD THAT:- Admittedly, the entire amount due and payable under the application arises out of Investment-cum-Shareholders Agreement dated 07.09.2013 which was subsequently and mutually agreed between the parties and a Settlement Agreement dated 06.09.2016 was arrived at. Further, the applicant admits that the entire amount as agreed between the parties has been repaid by the Corporate Debtor. This alleged amount mentioned in the application is only towards the outstanding interest between the parties arising out of the Settlement Agreement dated 06.09.2016. Hence, an Investment Agreement which subsequently converted into a Settlement agreement with a payment schedule between the parties fails to fall within the definition of a 'financial debt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of clause 7.1.1 of the Investment Agreement, a subsequent Amendment Agreement was executed on 08.03.2014. (page 384 to 387). (iii) Pursuant to disbursal of entire debt, the Corporate Debtor failed to utilize the debt as per the terms of Investment Agreement. At the request of the Corporate Debtor, the Financial Creditor extended the period between 15.10.2014 and 24.04.2015 for utilization of the investment amount. Since the Corporate Debtor failed to utilize the invested amount even during the extended time period, the Applicant issued letters on 23.11.2015 and 11.03.2016 seeking refund of the investment amount. (iv) By virtue of the Settlement Agreement dated 06.09.2016, the Corporate Debtor admitted to the repayment of an amount of ₹ 32,57,00,000/- towards redemption of CCDs, settlement of outstanding interest payable on CCDs, Class-B Equity Shares held by the Financial Creditor and other interest amount payable. As per clause-2 of Settlement Agreement, the CCDs stood converted into Non-Convertible Debentures (NCDs). In respect of Clause-7, the promoter of Corporate Debtor agreed to provide Demand Promissory Note for the amount of ₹ 11,50,00,000/-. (v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isputes between the parties. After various rounds of discussions, the Applicant and the Corporate Debtor entered into a Settlement Agreement dated 06.09.2016. Based on the Settlement Agreement, it was mutually decided to repay a sum of ₹ 32,57,00,000/- out of that a sum of ₹ 29,32,00,000/- has been towards redemption/purchase of Compulsorily Convertible Debentures (CCDs); ₹ 84,39,000/- towards interest payable on CCDs and ₹ 2,40,61,000/- towards buyback/purchase of ₹ 5 lakh equity shares issued. The payment schedule was made in accordance with clause-2 of the Settlement Agreement. Clause-3 provides for payment of ₹ 21,07,00,000/- by the Corporate Debtor upon signing the agreement. By virtue of clause-7 of the agreement, the promoter agreed to provide Demand Promissory Note for the balance amount of ₹ 11,50,00,000/- as security. 5. The Respondent further states that the total amount agreed to be renewed and as per the Settlement Agreement was to be paid on or before 31.03.2017. In the meanwhile, a renewed payment schedule was arrived at between both the parties on 25.11.2016. As per the modified amount, a sum of ₹ 32,80,41,000/- was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplicant herein has invoked arbitration and has filed a petition before the Hon'ble Gujarat High Court in R/IAAP-(PETN. UNDER ARBITRATION ACT) No. 60 of 2020 which is pending on the file of the Hon'ble Gujarat High Court for appointment of Arbitrator. 8. As may be seen from the application and counter affidavit and submissions made during the course of hearing, the said transactions are derived from Investment-cum-Shareholders Agreement dated 07.09.2013. On a careful scrutiny of the Investment-cum-Shareholders Agreement, we appreciate that this agreement has been so carefully drafted so as to take care of the interest of the Investor in order to safeguard their investment. It contains several measures which include the following significant clauses: Clause 1 - 'use of proceeds' Use of proceeds means the requirement for utilization of the Investment Amount in relation to the Business in accordance with the manner as stipulated in the Annexure-4, and or/such Annual Business Plans approved by Investor and adopted by the Company from time to time, and or and/or such amended Annual Business Plans approved by the Investor and adopted by the Company from time t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... minate 3 directors on the Board (collectively Promoter Director(s) ) Clause 11.1.2.2 - Until such time as the Investor holds 1% of the Share Capital, the Investor shall be entitled to nominate atleast one director on Board. On and from the First Closing Date, Investor shall, be entitled to note 2 directors on the Board (collectively Investor Director(s) ) and such nomination rights shall be calculated as per the provisions of Clause 11.1.2.3. Clause -11.1.4 Observer The Investor shall be entitled to nominate one observer to the Board from the First Closing Date, who shall be an employee, officer or director of the Investor and who shall subject Investor's confidentiality obligations, receive all materials supplied to the Directors ( Investor Observer ). Once nominated, the Investor Observer shall be entitled to receive notices and minutes of the meetings of the Board and all other documents and information in the same manner and to same extent as furnished to the other members of the Board. Further, the Investor Observer shall be entitled to participate (but not vote) at the meeting of the Board but shall not have any voting rights. Any discussions at any meet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s arrived at. Further, the applicant admits that the entire amount as agreed between the parties has been repaid by the Corporate Debtor. This alleged amount mentioned in the application is only towards the outstanding interest between the parties arising out of the Settlement Agreement dated 06.09.2016. Hence, an Investment Agreement which subsequently converted into a Settlement agreement with a payment schedule between the parties fails to fall within the definition of a 'financial debt' and the Applicant herein is a not a Financial Creditor as per the provisions of the IBC. The Applicant has also hopelessly failed to satisfy, regarding date of default . 11. This application is filed under Section 7 of the IBC which defines 'debt' and 'default' as follows: Section 3 (11) debt means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt; Section 3 (12) default means non-payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not 1 [paid] by the debtor or the corporate debtor, as the case may be; 12. Based on t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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