NCLT admits L&T Finance plea against Tikona Infinet over unpaid dues
The Mumbai bench of the National Company Law Tribunal (
NCLT
) has admitted L&T Finance's application to initiate
bankruptcy proceedings
against
Tikona Infinet
. The financial creditor has alleged a default of ₹116.01 crore in unpaid coupon payments on Series 'E'
Compulsorily Convertible Debentures
(CCDs).
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The tribunal, while admitting a wireless broadband services provider company, also appointed Dhiren Shantilal Shah as the interim resolution professional (IRP) of the company.
"CCDs can be hybrid instruments and can have the effect of debt inherent in them. The determination of the nature of the instrument shall depend on the facts and circumstances of each case," observed a bench of judicial member KR Saji Kumar and Technical Member Anil Raj Chellan in its 44-page order.
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"While it may be correct that certain CCDs are structured for mandatory conversion into equity shares at a specified date or upon certain events without any obligation for repayment of principal, it can still qualify as
financial debt
so long as the payment of the coupon is an absolute obligation on the corporate debtor (Tikona Infinet)," added the tribunal in its order of May 1, which was made available recently. Before the tribunal's order, senior counsel Mustafa Doctor, along with Murtaza Kachwalla of Argus Partners, appeared for L&T Finance and argued that the company failed to honour the coupon payments on Series 'E' CCDs held by the petitioner.
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The parties entered into a share subscription agreement (SSA) in August 2017, which was subsequently revised in 2018. The lender argued that the broadband internet provider defaulted on its dues in August 2024.
Countering this, advocate Shyam Kapadia and Munaf Virjee of law firm AMR Law appeared for Tikona Infinet and argued that the Series E Convertibles have been classified as equity instruments in the balance sheet of the company and not as financial liabilities.
"The Transaction documents impose no obligation on the corporate debtor (Tikona) to redeem or repay the principal amount of the Series 'E' CCDs," argued Tikona Infinet. "Accordingly, the claim for coupon payments cannot qualify as financial debt, and in the absence of financial debt, the present application under Section 7 of the Code is legally untenable," it further added.
Nipun Singhvi, founding partner of NSA Legal, said It's an interesting and important judgement as the irrespective of conversion, CCD have been held to be financial debt. "This gives hope to several investors who have invested in hybrid instruments and can now trigger insolvency proceedings. Further, it also puts to rest arguments of alternative remedies upholding financial creditor initiation," said Singhvi.
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