NCLT Initiates CIRP Against Vatika IT Parks Over ₹233.75 Cr. Default, Rejects Debenture Conversion Claim

The Delhi Bench of the National Company Law Tribunal (NCLT) on 9 October admitted the insolvency petition filed by Beacon Trusteeship Ltd. against Vatika IT Parks Pvt. Ltd., finding that the company had defaulted on debenture redemption obligations of Rs. 233.75 crore.

A Bench comprising Judicial Member Manni Shankariah Shanmuga Sundaram and Technical Member Reena Sinha Puri held that merely issuing a conversion notice does not convert optionally convertible debentures into compulsorily convertible debentures without compliance with the prescribed statutory procedures. It stated:

“In view of above, the non-redemption of debentures upon the issuance of put notice constitutes default in terms of Clause 11 of the DTD. Since, the debt and default stands established in the present matter, we are inclined towards admitting the present Petition.”

Beacon Trusteeship acted as debenture trustee for Asset Reconstruction Company (India) Ltd. The debt arose from 12,50,000 Optionally Convertible Debentures (OCDs) of Rs. 1,000 each, issued under a Debenture Trust Deed (DTD) dated 29 July 2019 and subsequent amendments. The DTD provided a put option to redeem the debentures after 60 months.

On 7 January 2025, the debenture holder exercised the put option and demanded redemption of the OCDs by payment of the outstanding Rs. 233,75,19,372 within seven days. Vatika IT Parks disputed the demand, contending that the debenture holder could not exercise the put option until the right to convert the OCDs into equity shares or compulsorily convertible debentures (CCDs) expired.

Beacon Trusteeship argued that the purported conversion of the OCDs into CCDs was invalid because the company had not fulfilled statutory requirements, including maintaining an active International Securities Identification Number (ISIN), allotting the converted securities and filing Form PAS-3. It contended that the OCDs therefore continued to qualify as debt instruments under Section 5(8)(c) of the Insolvency and Bankruptcy Code, 2016.

Vatika IT Parks maintained that it had converted the OCDs into CCDs through notices dated 6 January 2021 and 5 January 2024, followed by resolutions dated 28 December 2024. It argued that the conversion extinguished the debt liability and made the debenture holders equity participants. It also invoked the doctrine of estoppel to challenge the exercise of the put option after conversion and disputed the basis of the Rs. 233.75 crore claim.

The Tribunal examined Section 29 of the Companies Act, 2013, and Rule 9B of the Companies (Prospectus and Allotment of Securities) Rules, 2014, concerning the dematerialisation of securities and the associated ISIN requirements. It noted that the debenture holder's ISIN had expired on 2 July 2024.

It rejected Vatika IT Parks' contention that the ISIN had lapsed because the debenture holder failed to approve its renewal. It observed that the issuing company was responsible for initiating the ISIN application process. It also relied on Beacon Trusteeship Ltd. v. Arcturus Developers Pvt. Ltd., which upheld the validity of a put option despite an inactive ISIN.

The Bench held that issuing a conversion notice alone did not complete the conversion and that compliance with the prescribed procedures was necessary. It consequently concluded that the OCDs retained their character as debentures and that the debt and default stood established.

Accordingly, the NCLT admitted the petition, initiated the Corporate Insolvency Resolution Process against Vatika IT Parks Pvt. Ltd., appointed Megha Agrawal as Interim Resolution Professional and imposed a moratorium. It also directed the continuation of essential supplies and prohibited the suspension of licences and permits during the moratorium.