NCLAT empowered by Section 71(10) of Companies Act 2013 to direct Company to redeem debentures

NCLAT empowered by Section 71(10) of Companies Act 2013 to direct Company to redeem debentures

The Appellate Tribunal disposed of the appeal against the NCLT order with a direction to Tierra Farm Assets Company Pvt. Ltd. to repay the amounts due and payable to Akhil R Kothakota and Madadi Rinda within two months

In the matter of Tierra Farm Assets Company Pvt. Ltd.(Respondent), the National Company Law Appellate Tribunal(NCLAT) has disposed of the appeal against the Order of the NCLT, Bengaluru Bench, with the direction to the Respondent Company to repay the amounts due and payable to the Appellants(Akhil R Kothakota & Madadi Rinda) within a period of two months, failing which it will be open to the Appellants to take steps as deemed fit, in accordance with the Law.

Herein, the Respondent Company had issued certain secured Non-Convertible Debentures. On 17th December, 2015, a Debenture Trust Deed was executed between the Respondent and Vistra ITCL (India) Limited, which is the Debenture Trustee to issue debentures against certain properties listed in Schedule II of the Deed. Later, an Allotment Letter was issued to the first Appellant for 75 secured Non-Convertible Debentures for a purchase amount of Rs. 15,00,000 and on 30th March, 2017, another Allotment Letter was issued for 150 secured Non-Convertible Debentures for a purchase amount of Rs. 30,00,000.

The second Appellant was issued an Allotment Letter for 75 secured Non-Convertible Debentures for an amount of Rs. 15,00,00.It was the case of the Appellants that the Company was due to pay a quarterly interest amount but no such interest payments had been made subsequent to 1st January, 2018, and the Company made only certain interest payments to the petitioners.

The Appellants vehemently contended that the NCLT had not given any specific direction of repayment and had only disposed of the Petition with the direction to the Company to 'explore all possibilities of settlement' without giving any timeline for repayment.

According to the Appellants, Section 71(10) of the Companies Act 2013 specifically empowers the Tribunal to 'direct, by Order, the Company to redeem the debentures forthwith on payment of principal and interest due thereon' when a Company has failed to pay interest on debentures when it is due. They further contended that no particulars were pleaded or provided by the 'Respondent Company' regarding any efforts made towards settlement either by way of Arbitration or sale of properties.

The Appellate Tribunal observed that Section 71(11) of the Companies Act 2013 speaks of Penalty for Default. Section 71(12) provides a contract with a Company to take up & pay for any debentures of the Company may be enforced by a decree of 'Specific Performance'.

Section 73 of the NCLT Rules, 2016 relates to 'Applications' under Sections 71(9), 71(10), 73(4) and Section 74(2) & Section 76(2) of the Companies Act 2013.

The AA also mentioned that the relief for 'Specific Performance' is allowed as a 'rule' when there is no other relief which would meet the circumstances of the given case.

It was opined that in the Mamta Kothari V/s. Bharat Hydro Power Corporation Ltd., Section 117(4) of the 1956 Companies Act (equivalent to Section 71 of the Companies Act 2016) had been discussed at length by the CLB, Kolkata. Apart from holding that the Application was not barred by limitation, the Respondent Company was directed for redemption of the debentures covered by the Applications by Payment of the Principal amount and interest due thereon as per the terms and conditions of the issue of such debentures.

A perusal of the Reply filed by the Respondent Company in the Company Petition before the Tribunal showed that there was a clear admission by the Respondent that there was a default of payment of interest on the Non-Convertible Debentures and that they proposed to settle the dues and that the matter was under due process.

As per the AA, the record showed that the Tribunal had taken into consideration the Financial Status of the Company the interest of all Stake Holders and had given a direction for settlement. However, the fact remained that the Respondent did not make any effort to settle the matter nor was there any representation on their behalf before this Tribunal, despite service of notice.

Section 71(10) provides a clear mechanism for issue and repayment of debentures, including the enforcement of repayment obligations. Section 71(10) provides that the Tribunal may hear the Parties concerned and direct, by Order, the Company to redeem the debentures forthwith on payment of principal and interest due thereon.

The AA found force in the contention of the Appellant that Section 71(10) does not empower the Tribunal to ascertain the financial condition of the default Party or grant any other relief than the relief provided for under the said Section. It was also seen that there was no Arbitration clause in the Debenture Trust Deed.

Thus, having regard to the prayer of the Appellant, the provisions of Section 71(8) read with Section 71(10) of the Companies Act 2013 and also the fact that no concerted efforts had been made by the Respondent to explore the possibilities of settlement and also the fact that the time of six months' granted by the NCLT had lapsed, the Appellate Tribunal disposed of this Appeal with the aforementioned directions.