# In the matter of VBC Industries Limited CP(IB) No. 302-7-HDB-2017

> NCLT judgment dated 2018-04-13. Citation: TCN-2018-NCLT-01547. IFCI Limited filed a petition under Section 7 of the IBC Code, seeking to initiate the…

- **Court:** NCLT
- **Order date:** 13 Apr 2018
- **Citation:** TCN-2018-NCLT-01547
- **Category:** IBC
- **Source page:** https://caseease.in/cases/ibc/nclt-chandigarh/vbc-industries-limited-cpib-no-302-7-hdb-2017-8006b031

## Summary

### Background

IFCI Limited filed a petition under Section 7 of the IBC Code, seeking to initiate the insolvency resolution process against VBC Industries Limited due to defaults in payment of debentures. IFCI had sanctioned a sum of Rs. 57 crores to VBC Industries for buying out IFCI's existing shareholding in Konaseema Gas Power Limited (KGPL). VBC Industries executed a Debenture Subscription Agreement (DSA) in favor of IFCI. VBC Industries failed to create a subservient charge and defaulted on payments, leading to IFCI classifying the account as a Non-Performing Asset (NPA). IFCI issued a recall notice for Rs. 100,10,21,715/-. VBC Industries argued that the petition was not maintainable as there was no financial debt due to IFCI, claiming the debentures were for buyback of shares

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## Facts

IFCI Limited sanctioned Rs. 57 crores to VBC Industries Limited for the purpose of buying out IFCI's existing shareholding in Konaseema Gas Power Limited (KGPL). VBC Industries executed a Debenture Subscription Agreement (DSA) in favor of IFCI. Personal guarantees were provided by Shri M.S.P.Rama Rao and Shri M.S.Laxman Rao. IFCI later sanctioned a Funded Interest Term Loan (FITL) on the outstanding Non-Convertible Debentures. VBC Industries failed to create a subservient charge and defaulted on payments. IFCI classified VBC Industries as a Non-Performing Asset (NPA) and issued a recall notice for Rs. 100,10,21,715/-. VBC Industries argued that the debentures were for share buyback and not a financial debt, and that IFCI should have pursued the sale of pledged shares

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## Issues and analysis

### Issue 1: Whether the amount covered by the Debenture Subscription Agreement (DSA) dated 30.03.2013 amounts …

**Ratio:** Section 5(8)(c) of the IBC defines 'financial debt' to include any amount raised pursuant

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**Reasoning:** The NCLT reasoned that the debentures issued by VBC Industries to IFCI fall under the

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**Interpretation:** The interpretation of Section 5(8)(c) is that any amount raised through

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**Application:** The NCLT applied this ratio to the facts of the case, noting that VBC

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## Parties

- **Judges:** BIKKI RAVEENDRA…
- **Appellants:** M/S. IFCI L…
- **Respondents:** VBC Industries…; M/s VBC Industries…

## Timeline

- **2013-03-25 — Letter of Inte…**: IFCI sanctioned an amount of 57 crores by way of subscription of non-convertible…
- **2013-03-30 — Debenture Subscription…**: VBC Industries Limited executed a Debenture Subscription Agreement, dated 30.03.2013 in…

## Legal provisions

- [Insolvency and Bankruptcy Code, 2016, Section 5(8) — Definitions](https://caseease.in/legal-provisions/insolvency-and-bankruptcy-code-2016/section-5)

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