Preference Shareholder Can’t File IBC Plea as CRPS Are Share Capital Not Debt | SC

Case Details: EPC Constructions India Ltd. vs. Matix Fertilizers and Chemicals Ltd. - [2025] 179 taxmann.com 650 (SC)

Judiciary and Counsel Details

• J. B. Pardiwala & K.V. Viswanathan, JJ.

Facts of the Case

In the instant case, the appellant/EPCC entered into engineering and construction contracts with the respondent for the setting up of a fertiliser complex. About Rs. 572.7 crores became due to the appellant under these contracts. The parties discussed converting a portion of receivables into a subordinate debt.

The Respondent proposed converting up to Rs. 400 crores of outstanding dues into preference shares, appellant’s board approved conversion into 8% Cumulative Redeemable Preference Shares (CRPS), and respondent thereafter allotted 25 crore CRPS of Rs. 10 each aggregating to Rs. 250 crores, on terms including cumulative 8% dividend and redemption at par at end of three years (with issuer’s discretion to redeem earlier).

The appellant accepted, and CRPS were issued accordingly. Thereafter, the appellant filed a petition under Section 7 of the IBC against the respondent for failure to pay the redemption amount of about Rs. 310 crores, claimed to be payable on the maturity of CRPS. The NCLT dismissed the Section 7 application. The NCLAT, by the impugned order, dismissed the appeal. Thereafter, an appeal was made before the Supreme Court.

It was noted that the CRPS were at a stage where the redemption period had expired, which would not lend greater weight to the appellant’s case. Further, appellant, being a preference shareholder, was not a creditor and an application by it under Section 7 of the Act was not maintainable.

Supreme Court Held

The Supreme Court observed that the treatment in accounts due to the prescription of accounting standards will not be determinative of the nature of the relationship between parties as reflected in documents executed by them. Further, the paid-up money on shares, being ‘share capital’ they does not constitute debt.

The Supreme Court held that, since shares could be redeemed only out of profits or with any amount kept apart for dividends, which was not the situation in the instant case, further argument that redemption was due was also not meritorious. Thus, the appeal against the impugned order was to be dismissed.

List of Cases Reviewed

• Radha Exports (India) Private Limited v. K.P. Jayaramand [2020] 118 taxmann.com 560/[2021] 163 SCL 210 (SC)(para 37) followed
• Sanjay D. Kakade v. HDFC Ventures Trustee Company Ltd. [2023] 157 taxmann.com 629 (NCLAT- New Delhi)(para 41)
• Global Credit Capital Ltd. v. Sach Marketing (P.) Ltd. [2024] 161 taxmann.com 751/184 SCL 506 (SC)
• Pioneer Urban Land and Infrastructure Ltd. v. Union of India [2019] 108 taxmann.com 147/155 SCL 622 (SC)(para 42) distinguished
• Order of National Company Law Appellate Tribunal in Company Appeal (AT) (Insolvency) No. 1424 of 2023 dated 09.04.2025 (para 50) affirmed

List of Cases Referred to

• Pioneer Urban Land and Infrastructure Ltd. v. Union of India [2019] 108 taxmann.com 147/155 SCL 622 (SC) (para 15)
• Global Credit Capital Ltd. v. Sach Marketing (P.) Ltd. [2024] 161 taxmann.com 751/184 SCL 506 (SC) (para 15)
• Sanjay D. Kakade v. HDFC Ventures Trustee Company Ltd. [2023] 157 taxmann.com 629 (NCLAT- New Delhi) (para 15)
• Lalchand Surana v. Hyderabad Vanaspathy Ltd. 1988 SCC OnLine AP 290 (para 27)
• Innoventive Industries Limited v. ICICI Bank [2017] 84 taxmann.com 320/143 SCL 625 (SC) (para 35)
• Radha Exports (India) Private Limited v. K.P. Jayaramand Another [2020] 118 taxmann.com 560/[2021] 163 SCL 210 (SC) (para 37)
• CIT v. Rathi Graphics Technologies Ltd. [2015] 64 taxmann.com 65/[2016] 235 Taxman 550/[2015] 378 ITR 107 (Delhi) (para 40)
• Union of India v. Association of Unified Telecom Service Providers of India [2019] 110 taxmann.com 457 (SC) (para 45)
• Anuj Jain, Interim Resolution Professional for Jaypee Infratech Limited v. Axis Bank Limited [2020] 114 taxmann.com 656 (SC) (para 48).