NCLAT: Corporate Debtor’s Obligations Under Debenture Deed Remain Unaffected in Absence of Trustee’s Approval for Debt Transfer
Pranav B Prem
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi comprising Justice Ashok Bhushan (Judicial Member), Mr. Arun Baroka (Technical Member) and Mr. Barun Mitra (Technical Member), has reaffirmed that the rights and obligations under a Debenture Trust-cum-Mortgage Deed (DTMD) cannot be transferred by a Corporate Debtor without the prior written consent or approval of the Debenture Trustee. The Tribunal ruled that such a transfer without approval is unenforceable, and the Corporate Debtor’s liabilities towards the debenture holders remain intact despite any acquisition arrangement.
The appeal was filed by the suspended director of Future Ideas Company Limited (“Corporate Debtor”), challenging the NCLT Mumbai’s order dated 09.04.2025, which admitted a Section 7 application filed by Axis Trustee Services Limited (“Financial Creditor”). The Appellant also challenged the dismissal of IA Nos. 18 and 29 of 2023 that sought rejection of the Section 7 application on the ground that the liabilities under the Non-Convertible Debentures (“NCDs”) were allegedly transferred to Rivaaz Trade Ventures Pvt. Ltd. (RTVPL).
Background and Contentions
As per the records, a DTMD dated 15.10.2018 was executed between the Corporate Debtor and Axis Trustee Services Ltd., acting as the Debenture Trustee. On 29.08.2020, the Corporate Debtor entered into an Acquisition Agreement with RTVPL wherein RTVPL purportedly acquired the debt of ₹122.83 crores under the NCDs issued by the Corporate Debtor. The Debenture Trustee and the Debenture Holders were not parties to this Acquisition Agreement.
The Appellant argued that after this acquisition, the Debenture Holders participated in various correspondences and even voted in relation to the Composite Scheme of Arrangement involving Future Group and Reliance entities, thus ratifying the transfer of debt to RTVPL. It was further contended that the Acquisition Agreement was a valid and binding contract, unaffected by the failure of the Composite Scheme's approval by the NCLT.
On the contrary, the Respondent contended that Clause 2.2 of the Acquisition Agreement itself required prior approval or no-objection from the Debenture Trustee, which was never obtained. It was argued that neither the DTMD nor the Acquisition Agreement permitted the Corporate Debtor to unilaterally transfer its obligations without such consent, and the entire arrangement under the Composite Scheme had failed as the scheme was never sanctioned by the NCLT.
Tribunal’s Observations and Findings
The Tribunal carefully analyzed Clause 12.3 of the DTMD, which expressly prohibited the Corporate Debtor from assigning its rights, duties, or obligations without prior written consent from the Debenture Trustee. On the other hand, Clauses 12.1 and 12.2 allowed debenture holders to freely transfer their rights — establishing a clear distinction between the rights of the issuer and the rights of the holders.
The NCLAT noted that no approval or no-objection was ever obtained from Axis Trustee Services Ltd., the Debenture Trustee, as required under Clause 2.2 of the Acquisition Agreement. Merely informing the debenture holders or forwarding copies of the agreement did not satisfy this essential requirement.
Additionally, the Tribunal referred to the emails and correspondences between the Corporate Debtor and Debenture Holders. These included balance confirmation requests and statements regarding RTVPL’s outstanding exposure but were found insufficient to establish any form of consent or waiver from the Debenture Trustee or the Debenture Holders.
Regarding the issue of jurisdiction, the Tribunal rejected the Appellant’s plea that the Adjudicating Authority exceeded its jurisdiction by adjudging the validity of the Acquisition Agreement. It held that since the Corporate Debtor itself had invoked the Acquisition Agreement in its defense under Section 7 of the IBC, the Adjudicating Authority was justified in examining its validity against the backdrop of the DTMD.
Section 10A Defence Rejected
The Corporate Debtor had also argued that the application was barred under Section 10A of the IBC as the alleged default pertained to the pandemic period. However, the Tribunal observed that the date of default clearly mentioned in the Section 7 application was 30.04.2021 — after the Section 10A protection period — and hence, the bar under Section 10A was not attracted.
Balance Sheets and Financial Statements
The Tribunal took note of the audited financial statements of the debenture holders, which continued to reflect the liability of the Corporate Debtor under the NCDs. These statements did not recognize RTVPL as the obligor of the NCDs, thereby indicating that the assignment claimed by the Corporate Debtor was never perfected in law.
The NCLAT concurred with the Adjudicating Authority’s decision to accept these financial statements on record, rejecting the Corporate Debtor’s objection that such documents caused prejudice or were inadmissible.
Verdict
The NCLAT conclusively held that in the absence of the mandatory approval/no-objection from the Debenture Trustee, the Acquisition Agreement dated 29.08.2020 could not discharge the Corporate Debtor’s obligations under the DTMD dated 15.10.2018. Consequently, the transfer of debt liabilities to RTVPL was declared void in law concerning the DTMD, and the Corporate Debtor’s liabilities towards the debenture holders remained undischarged. Accordingly, the appeal was dismissed, and the admission of the Section 7 application by the NCLT Mumbai Bench was upheld, along with the appointment of an Interim Resolution Professional (IRP).
Appearance
For Appellant: Mr. Arun Kathpalia, Sr. Advocate with Ms. Petrushka Dasgupta, Mr. Harsh S. Moorjani, Mr. Mridul Yadav, Ms. Krishna Baruah, Mr. Anand Singh Sengar, Mr. Raghav Mittal, Advocates
For Respondents: Mr. Krishnendu Datta, Sr. Advocate with Ms. Suchitra Valjee, Mr. Varun Nathani, Mr. Sanidhya Kumar, Mr. Ankit Lohia, Ms. Palak Damani, Mr. Kartik Nagarkatti, Ms. Rajyi Shah, Advocates for R1.
Ms. Priyanka Jain, Ms. Swastika Mukherjee, Advocates for R-2 (IRP).
Cause Title: Anil Biyani Suspended Director of Future Ideas Company Ltd. V. Axis Trustee Services Ltd. & Anr.
Case No: Company Appeal (AT) (Insolvency) No. 611 of 2025
Coram: Justice Ashok Bhushan [Judicial Member], Mr. Arun Baroka [Technical Member], Mr. Barun Mitra [Technical Member]
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