NCLT Chennai Admits Ozone Projects To CIRP Over ₹212 Cr Default, Says Trustee Can Initiate Proceedings

The Chennai National Company Law Tribunal (NCLT) has held that a financial creditor can invoke Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) to initiate Corporate Insolvency Resolution Process (CIRP) where the existence of financial debt and default is established, and that a pending appeal against the insolvency proceedings does not prevent the Tribunal from deciding the petition.

A Bench comprising Judicial Member Sanjiv Jain and Technical Member Venkataraman Subramaniam rejected Ozone Projects Private Limited's application under Section 65 of the IBC, which permits the Tribunal to act where insolvency proceedings have been initiated fraudulently or with malicious intent, and admitted the company into CIRP on a petition filed by IDBI Trusteeship Services Limited, acting as debenture trustee. It held:

“To summarise we find that Section 65 application filed by Corporate Debtor is not maintainable, debt and default are established and the Company Appeal pending before does not come in the way in deciding the Section 7 petition.”

IDBI Trusteeship Services Limited approached the Tribunal under Section 7 of the IBC on behalf of Indiabulls Real Estate Fund and Patni Healthcare Limited, the debenture holders. Under a Debenture Trust Deed, Ozone Projects had issued 1,263 secured, redeemable and interest-bearing non-convertible debentures worth Rs. 126.30 crore, which the two debenture holders subscribed to.

The debentures were originally redeemable on 29 October 2019. At Ozone Projects' request, the redemption date was extended seven times, with the final extension granted until 30 September 2021. Despite the extensions, Ozone Projects failed to discharge its repayment obligations. IDBI Trusteeship claimed that the total outstanding amount stood at Rs. 212.31 crore as of 31 July 2022.

Ozone Projects opposed the insolvency proceedings and filed a separate application under Section 65 of the IBC, alleging that IDBI Trusteeship had initiated the insolvency proceedings fraudulently and with malicious intent.

It argued that the financing formed part of an evergreening exercise by the Indiabulls Group, with funds from new loans allegedly being used to repay existing loans owed by other Ozone entities to Indiabulls Group companies. It also alleged that the Ozone Group was forced to acquire four loss-making entities, with the Indiabulls Group financing the acquisitions despite the stated purpose of the loans being real estate development or general corporate purposes.

The Tribunal rejected these allegations, finding that Ozone Projects had failed to establish any fraudulent intent, malice or mens rea on the part of IDBI Trusteeship. It also rejected Ozone Projects' contention that IDBI Trusteeship could not initiate insolvency proceedings on behalf of the debenture holders.

Referring to the Debenture Trust Deed, the Tribunal found that it permitted the financial creditor to take enforcement action upon an event of default. It held:

“On perusal of the clauses of Debenture Trust Deed, we find that there is no express prohibition of petitioner as debenture trustee from initiating legal action or filing petition under Section 7 of IBC.”

The Bench also rejected the objection based on Securities and Exchange Board of India (SEBI) guidelines, observing that the regulations may not strictly apply as there was no evidence that the debentures were actually listed. It further noted that Ozone Projects failed to repay the dues despite seven extensions and subsequent demand notices. It held:

“Section 7 petition has been filed which is a statutory remedy available to financial creditor. Hence initiation of CIRP proceedings by petitioner cannot be construed as a recovery measure.”

On the objection concerning earlier insolvency proceedings against Ozone Projects, the Tribunal noted that the National Company Law Appellate Tribunal (NCLAT) had clarified that IDBI Trusteeship's Section 7 proceedings were independent and could be considered separately.

Finding that IDBI Trusteeship had established the existence of financial debt and default, the Bench admitted the Section 7 petition and initiated CIRP against Ozone Projects Private Limited.

Accordingly, the NCLT appointed Ashok Mittal as the Interim Resolution Professional.

For Petitioner: Senior Advocate P.V Balasubramaniam, Advocates Ankit Rajgarhia, Adith Nair and Prajjwal Chauhan

For Respondent: Senior Advocate S.R Rajagopal and Advocate Chandramouli Prabhakar