NCLT Mumbai Admits CIRP Against Reliance Ornatus Guarantor; Holds ₹133.88 Crore OCD Liability Not Contingent
NCLT Mumbai Admits CIRP Against Reliance Ornatus Guarantor; Holds ₹133.88 Crore OCD Liability Not Contingent
Introduction
The National Company Law Tribunal, Mumbai Bench, has admitted a Section 7 application filed by Creative Ashtech Engineering Projects Private Limited against Reliance Ornatus Enterprises and Ventures Private Limited (now ROEVPL Ventures Private Limited), holding that a financial debt of ₹133.88 crore and default stood duly established. The Bench comprising Judicial Member Nilesh Sharma and Technical Member Sameer Kakar initiated Corporate Insolvency Resolution Process (CIRP) against the corporate debtor.
Factual Background
The dispute originated from issuance of 11,10,000 zero coupon compulsorily convertible debentures (CCDs) aggregating to ₹111 crore by AAA Vibgyor Entertainment Private Limited on March 15, 2018. Initially subscribed by Edico Ventures Private Limited, Creative Ashtech subsequently stepped into the shoes of the subscriber under a Framework Agreement.
Between January and June 2023, pledged shares were enforced, resulting in recovery of ₹66.05 crore and reducing the principal outstanding to ₹44.94 crore. Thereafter, the debentures were restructured as optionally convertible debentures (OCDs).
To secure repayment, Reliance Ornatus Enterprises and Ventures Private Limited executed a corporate guarantee on June 15, 2023 in favour of the financial creditor. The guarantor later changed its name to ROEVPL Ventures Private Limited on November 30, 2023. The final redemption date was fixed as September 30, 2024. Upon failure to redeem the debentures, demand notices were issued in October 2024 invoking the corporate guarantee.
Procedural Background
Creative Ashtech filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 seeking initiation of CIRP against the guarantor. The respondent opposed the plea, contending that the liability remained contingent owing to the conversion feature attached to the debentures.
Issues
1. Whether the financial debt of ₹133.88 crore stood established.
2. Whether the liability under optionally convertible debentures was contingent or crystallized.
3. Whether default had occurred warranting admission under Section 7 of the IBC.
Contentions of the Parties
The financial creditor contended that the debentures, having been restructured as OCDs, carried a fixed and determinable redemption obligation. It was submitted that the option to convert vested solely with the creditor and in absence of its exercise, redemption became mandatory on the agreed date. Upon non-redemption, the corporate guarantee was validly invoked.
The corporate debtor argued that the liability was contingent due to the conversion feature and therefore did not constitute a crystallized financial debt capable of triggering insolvency proceedings.
Reasoning and Analysis
The tribunal rejected the contention that the liability was contingent. It observed that the original conversion date had been consciously deferred by mutual agreement and that the parties had expressly novated the contractual terms by restructuring the instrument as OCDs with a fixed redemption obligation.
The Bench held that the option to convert vested exclusively with the creditor. Since the option was not exercised, redemption became mandatory. Consequently, the obligation matured on September 30, 2024 and the failure to redeem constituted default. Finding that both debt and default were clearly established, the tribunal concluded that the requirements under Section 7 of the IBC stood satisfied.
Decision
The NCLT admitted the application under Section 7 of the IBC and initiated CIRP against ROEVPL Ventures Private Limited. A moratorium under Section 14 was declared. NPV Insolvency Professionals Pvt Ltd was appointed as the Interim Resolution Professional. The financial creditor was directed to deposit ₹3 lakh towards initial CIRP costs.
In this case the applicant was represented by Mr. Amir Arsiwala, Mr. Mithila Damle i/b Actus Lit Partners. Meanwhile the respondent was represented by Ms. Namrata Sharma, Advocate.
