Case Law Details
Shubham Corporation Private Limited Vs Kotoju Vasudeva Rao (NCLAT Chennai)
In the case of Shubham Corporation Private Limited vs. Kotoju Vasudeva Rao, the National Company Law Appellate Tribunal (NCLAT) in Chennai adjudicated on whether Compulsory Convertible Debentures (CCDs) issued by Navayuga Infotech Private Limited to Shubham Corporation Private Limited (the Appellant) should be treated as financial debt under the Insolvency and Bankruptcy Code, 2016 (IBC).
Background and Facts of the Case: Navayuga Infotech Private Limited (the Corporate Debtor) had defaulted on its financial obligations, leading Vajra IOT Private Limited (Operational Creditor) to initiate insolvency proceedings under Section 9 of the IBC. During the Corporate Insolvency Resolution Process (CIRP), the Interim Resolution Professional (IRP) admitted claims from creditors, including Shubham Corporation Private Limited, based on CCDs issued to them by the Corporate Debtor in lieu of unsecured loans.
The main contention arose when Shubham Corporation Private Limited sought inclusion in the Committee of Creditors (CoC) as a financial creditor, arguing that their CCDs constituted financial debt under the IBC. However, the IRP’s decision to include them was challenged by the Operational Creditor, arguing that CCDs, which mandatorily convert into equity shares and do not involve repayment obligations, should be treated as equity rather than debt.
Key Arguments and Findings:
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