JSA defended Ozone Propex Private Limited (“OPPL”) in proceedings under Section 7 of the Insolvency and Bankruptcy Code, 2016 (“the Code”) initiated by Urban Infrastructure Trustees Limited (“UITL”) before the National Company Law Tribunal, Bengaluru Bench (“NCLT”).
The NCLT held that where an instrument has been entered into for the sole purpose of acquiring equity and control over management of a company, the relationship between the parties cannot be that of a financial creditor and debtor.
The main issue for consideration before the NCLT was whether UITL, being 50% shareholder and comprising of 50% of the board of directors of OPPL, could claim to be a financial creditor basis Optionally Fully Convertible Debenture Certificates (“OFCDs”).
Referring to Phoenix Arc Private Limited v. Spade Financial Services Limited & Ors., (2021) 3 SCC 475 NCLT held that in order to unearth the real nature of the transaction, facts leading to the relationship between the parties can be examined in a Section 7 proceeding.
NCLT noted the deep & pervasive control of UITL over OPPL, and the OFCDs were aimed at acquiring equity and control of OPPL. As such the relation between the parties was not of a financial creditor and debtor but of investor/shareholder. Hence, application under Section 7 of the Code is not maintainable and parties were relegated to arbitration.
Deal Value: Approx. USD 147.3 million
JSA team comprised Lead Partner – Dheeraj Nair, Principal Associate – Kumar Kislay, and Associate – Avni Sharma.
Dheeraj is a Partner with JSA since 2009. Dheeraj has over two decades of experience advising and representing clients on complex arbitrations, litigations and regulatory proceedings.