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

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  • Last Updated on 31 October, 2025

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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.

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Author: Taxmann

Taxmann Publications has a dedicated in-house Research & Editorial Team. This team consists of a team of Chartered Accountants, Company Secretaries, and Lawyers. This team works under the guidance and supervision of editor-in-chief Mr Rakesh Bhargava.

The Research and Editorial Team is responsible for developing reliable and accurate content for the readers. The team follows the six-sigma approach to achieve the benchmark of zero error in its publications and research platforms. The team ensures that the following publication guidelines are thoroughly followed while developing the content:

  • The statutory material is obtained only from the authorized and reliable sources
  • All the latest developments in the judicial and legislative fields are covered
  • Prepare the analytical write-ups on current, controversial, and important issues to help the readers to understand the concept and its implications
  • Every content published by Taxmann is complete, accurate and lucid
  • All evidence-based statements are supported with proper reference to Section, Circular No., Notification No. or citations
  • The golden rules of grammar, style and consistency are thoroughly followed
  • Font and size that's easy to read and remain consistent across all imprint and digital publications are applied