Unconverted OCDs Remain Financial Debt, NCLAT Upholds Insolvency Proceedings Against Arcturus Developers
The National Company Law Appellate Tribunal (NCLAT) has recently upheld insolvency proceedings against real estate firm Arcturus Developers Pvt. Ltd., holding that its debentures were never converted into shares and continued to remain financial debt.
A Bench of Justice Ashok Bhushan and Technical Member Barun Mitra dismissed an appeal filed by the company's suspended director, Arvind Kumar.
The case concerned 50,00,000 Optionally Convertible Debentures issued by the company in 2019 to raise funds.
The debenture holder issued conversion notices in January 2021 and January 2024, granting time to convert the debentures into equity shares.
However, no conversion was completed.
On 7 January 2025, Beacon Trusteeship Ltd., the debenture trustee, exercised the put option and demanded Rs. 1,258,73,33,609 within seven days.
The company replied that the conversion period ran till July 2025 and that conversion could not be effected because the ISIN had expired in July 2024.
The National Company Law Tribunal, New Delhi Bench (Court-II), admitted the Section 7 insolvency petition, noting that there was no actual allotment of shares and no completion of statutory compliances.
Before the appellate tribunal, the company argued that the debentures stood deemed converted once the conversion notice was issued.
The NCLAT rejected the argument.
It held that conversion required actual issuance of equity shares and compliance with statutory procedures.
Since that did not happen, the debenture holder continued to remain a creditor and was entitled to exercise the put option.
The Bench observed, “Be that as it may, when fact remains that OCDs were never converted into CCDs, Debenture Holder continues to remain Debenture Holder and had every right to exercise put option.”
As the debentures were not redeemed after the put notice, default stood established.
Finding no error in the NCLT, New Delhi Bench (Court-II)'s order admitting the Section 7 petition, the appellate tribunal dismissed the appeal.
For Appellants: Senior Advocates Virender Ganda, Arun Kathpalia, Krishnendu Datta with Advocates Vishal Ganda, Ayandeb Mitra, Diksha, Ishita Singh, Riya Palnitkar, Harsh Gurbani, Harshit Chaudhary, Yash Tandon,
For Respondent: Senior Advocate Abhijeet Sinha, with Advocates Gaurav Mitra, Meghna Mishra, Nikhil Ratti Kapoor, Yashodhara Gupta, Kevin Chadha for R-1; Senior Advocate Kunal Tandon, with Advocate Prateek, for R-2