The Delhi High Court recently appointed retired Supreme Court judge Justice MR Shah as the sole arbitrator in a dispute between Vistra ITCL (India) Private Limited and Ansal Properties & Infrastructure Limited (APIL).
The order was passed by Justice V Kameswar Rao in response to a petition filed by Vistra, a debenture trustee.
A project was undertaken by APIL involving development of a group housing project, spread over 41.16 acres situated in Ghaziabad, Uttar Pradesh.
The project was carried out by Ansal Urban Condominiums Private Limited (AUCPL), which was primarily owned by APIL associates Ansal Landmark Townships Private Limited (ALTPL) and Ansal Landmark (Karnal) Townships Private Limited (ALKTPL).
Indostar Capital Finance Limited, a non-banking financial corporation, agreed to invest ₹150 crore in AUCPL, the principal borrower, by subscribing 1,50,00,000 secured, unlisted, redeemable, non-convertible debentures with a face value of ₹100 each. AUCPL agreed and accepted to repay the amounts owed on the due dates, which included the subscription amount, interest, and default interest.
On the last day of the 24th month following the closing date, AUCPL was required to pay back one-third of the total. It was expected to pay back half of the total on the last day of the 30th month. On the last day of the 36th month following the closing date, the remaining balance was due.
A debenture trust deed (DTD), which named Vistra as the trustee of the debentures to act on behalf of the debenture holders, including Indostar, was also signed at the same time as the debenture subscription agreement (DSA).
Due to the transferrable nature of the debentures, Indostar subsequently sold them to IIFL Income Opportunities Fund (IIFL) in October 2015.
By the end of 2015, AUCPL had redeemed 50,000 of IIFL’s debentures, leaving IIFL with 100,000 of them. Another holder of debentures, ICICI Prudential Real Estate AIF-II (IPRU), notified the debtors, including APIL, in 2016 that a sum totaling 6,23,25,599 was due and payable on account of unpaid interest on 57,00,000 debentures.
AUPCL was then instructed to pay IPRU within a week, but it failed to do so. AUCPL was required to redeem a third of the outstanding face value of the debentures, plus accrued and unpaid interest, on July 31, 2017. AUCPL missed this deadline, which caused a default event to occur.
On October 16, 2017, IPRU sent out a notice to all debtors, including AUCPL, requesting that they repay a sum totaling 60,07,15,385 for unpaid interest and redemption within seven days.
The respondent requested more time to make payments in response to the letter on December 8, 2017, citing a financial crisis.
On December 15, 2017, IPRU accelerated the repayment of 83,00,000 debentures under the DSA in response to the occurrence of the default and demanded that AUCPL and each of the guarantors, including APIL, repay the full amount of outstanding face value of debentures in addition to the default IRR of 27% within 7 days.
Vistra issued a letter on February 12, 2018, instructing the debenture holders to invoke the deeds of personal guarantee (DPG) due to AUCPL’s failure to make payments.
Afterward, Vistra and the personal guarantors entered arbitration proceedings, and a single arbitrator issued a ruling against the guarantors ordering them to make payments totaling 187,50,93,000 jointly and severally from December 11, 2018, until repayment, with a default annual IRR of 27%.
The debentures were given to Palm Products Pvt. Ltd. between 2016 and 2020.
SREI, another debenture holder, gave the petitioner instructions to ask AUCPL and the personal guarantors to make the unpaid payments by August 31, 2020, on August 24, 2020.
However, up until the date the petition was filed, only 22.5 crore had been deposited with the holder of the debenture. Vistra went to the High Court after becoming irate over the unpaid debts.
