Financial Creditor Can't Seek Premature Redemption Of OCDs When Right Vests With Corporate Debtor: NCLT Kolkata

The National Company Law Tribunal (NCLT) at Kolkata recently held that a financial creditor cannot demand premature redemption of Optionally Convertible Debentures (OCDs) when the contractual terms give the right of early redemption exclusively to the corporate debtor.

“Since the right of early redemption of Optionally Convertible Debentures vests exclusively in the Corporate Debtor, the Financial Creditor had no right to seek premature redemption,” the bench observed.

“The terms of the subscription debentures does not confer any such right upon the Financial Creditor.”, it added.

A Division Bench comprising Judicial Member Bidisha Banerjee and Technical Member Rekha Kantilal Shah made the observation while dismissing a Section 7 insolvency petition filed by Pink City Fincap Private Limited against Arthmate Tech Private Limited.

The bench also dismissed an application filed by Arthmate under Section 65 of the Insolvency and Bankruptcy Code (IBC), alleging that the insolvency proceedings had been initiated maliciously.

The dispute concerned 120 OCDs issued by Arthmate, each valued at ₹1 lakh. Pink City claimed ₹1.2 crore towards the principal amount and another ₹7 lakh as interest. It sought redemption of the debentures before their contractual maturity and alleged breaches of the parties' agreements.

The OCDs were issued on March 22, 2024 and were to mature after 24 months, on March 21, 2026. The bench found that the terms gave only Arthmate the right to seek early redemption. Pink City therefore could not make the debentures repayable by issuing redemption notices. pink-city-v-arthmate-1-701986

Since the Section 7 insolvency petition was filed in 2025, the repayment obligation had not yet arisen. The bench consequently found no default under Section 3(12) of the IBC.

The bench also examined Pink City's ₹7 lakh interest claim. The interest was subject to reconciliation and commercial adjustments, but there was no evidence that these had been completed. Even otherwise, the claimed interest was below the Section 4 threshold. pink-city-v-arthmate-1-701986

The bench also found that Pink City's claims about non-compliance with debenture-related requirements under the Companies Act fell outside the scope of the Section 7 proceedings.

Arthmate's Section 65 application was also dismissed. The bench found no concrete material to establish malicious intent, noting that the allegations were largely based on suspicion