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  • Sidhanth M K Majoo, Arpit Dhingra

CCDs: Balancing Investor Interests and Fairness in Legal Interpretation

[Sidhant and Arpit are students at National Law University Odisha and Vivekananda Institute of Professional Studies, Guru Gobind Singh, Indraprastha University, respectively.]

The utilization of financial instruments such as compulsorily convertible debentures (CCDs) has been pivotal yet contentious. CCDs, which carry the potential to convert into equity under specific conditions, have sparked a heated debate within legal circles, regarding their classification as either debt or equity. This pivotal legal battle unravels complexities, probing the intricacies of commercial agreements, legal definitions, and precedents within the framework of the Insolvency and Bankruptcy Code 2016 (IBC).

This article explores how CCDs are handled in infrastructure financing. It examines legal decisions, considering their impact and offering insights relevant to the changing landscape of commercial law and the intricate web of law and finance.

The Nature and Function of CCDs in Corporate Finance

CCDs represent a unique financial instrument utilized by companies. They combine elements of both debt and equity, issued at a fixed interest rate, with a mandatory conversion into equity at a predetermined time or upon specific events. The ongoing debate revolves around their classification as either debt or equity. Traditionally, debentures are perceived as financial debts under the definition outlined in the IBC.

However, the Companies Act 2013, under Section 71(1), provides companies the flexibility to issue debentures that possess the feature of conversion into shares upon redemption. This feature gives rise to CCDs, creating a pivotal discussion point in relation to their treatment within the framework of the IBC. The interpretation of CCDs within the legal context thus remains a subject of significant deliberation and analysis.

Analyzing the Legal Intricacies in SGM Webtech v. Boulevard Projects

Ziasess Ventures Limited and Green Park Buildwell had engaged in an investment agreement with the corporate debtor on 23 June 2010. As part of this agreement, Ziasess Ventures Limited injected INR 24.99 crores into the corporate entity through issuance of CCDs. Curiously, the corporate debtor's financial records classified this infusion as a long-term borrowing. Adding to the complexity, the balance sheet displayed the deduction of tax deducted at source concerning the interest accrued on these debentures.

When the applicant submitted the claim, the CCDs were not ready for conversion per the original terms. The investment agreement granted the applicant significant rights within the corporate debtor, implying a substantial stake. However, when the CIRP was filed, the claim was rejected on 9 April 2019. The rejection was based on the grounds that CCDs had to be categorized as equity.

However, the National Company Law Tribunal, Principal Bench in New Delhi, ruled differently. The tribunal established that when winding up or initiating a case under the IBC, if debentures are yet to mature and are non-convertible due to an incomplete redemption period, they should be considered non-convertible debentures. Consequently, they will retain their character as debt.

Applying this principle, the tribunal directed the resolution professional to acknowledge the applicant's claim as a 'financial debt' under Section 5(8)(c) of the IBC. This decision emphasized that if CCD’s have not reached maturity or conversion due to an incomplete redemption period, they should be treated as debt during insolvency proceedings.

IFCI Limited v. Sutanu Sinha: A Legal Perspective on CCDs

IFCI Limited extended substantial financial support to IVRCL Chengapalli Tollways Limited through a subscription to CCDs. This commitment involved IFCI subscribing to INR 125 crores worth of CCDs as per the agreement inked on 14 October 2011.

However, the resolution professional overseeing the proceedings rejected IFCI's claim as a financial creditor. This decision was affirmed by the National Company Law Tribunal, Hyderabad Bench – II, through an order dated 14 March 2023. An intriguing facet of the debenture subscription agreement was the inclusion of a put option, granting IFCI the prerogative to request IVRCL to repurchase the CCDs at a specified juncture.

Despite possessing this put option, the period for converting the CCDs into equity lapsed on 9 November 2017. IFCI opted against exercising its put option within this timeframe. In response to the ruling, IFCI pursued an appeal against the order before the National Company Law Appellate Tribunal in Chennai, invoking Section 61 of the IBC to contest the decision. This aimed at challenging the rejection of IFCI's status as a financial creditor.

In this judgment, the appellate tribunal ruled against IFCI thereby holding the CCD’s to be equity. The Supreme Court's position highlighted that CCDs, unlike debentures, do not mandate principal repayment, thus leaning more towards equity than debt. The Supreme Court also emphasized on breaking open the commercial bargains between the parties, thereby also pointing out that the interpretation can variably depend to an extent on the transactional nature and complexities shared in a particular contract.

Taking this route, the Supreme Court ruled that the instruments in question, compulsorily convertible into shares are equity, not debt since there was nothing owed by the respondent to the appellant and there was no repayment obligation involved. It found that the criteria of 'financial debt' under Section 5(8) of the IBC was not met. Thus, the appeal was dismissed.

The Tale of Two Rulings: Dissecting CCD Legal Judgments

In examining the juxtaposition between the SGM Ruling and IFCI Ruling, a nuanced understanding of CCDs emerges. The former case illustrates that CCDs, which have not completed their conversion due to an unfinished redemption period, are maintained as debt. This highlights how the maturity status of CCDs plays a pivotal role in their classification. On the contrary, the IFCI Limited ruling presents a contrasting scenario where the CCDs had matured before the insolvency, thus leaning towards an equity classification.

In the first case, the active participation and rights of Ziasess Ventures within the corporate debtor swayed the decision towards treating CCDs as equity by the National Company Law Tribunal. However, the maturity period being incomplete tilted the tide towards the CCDs being treated as debt only by the National Company Law Appellate Tribunal. In stark contrast, the IFCI Limited case lacked such explicit rights, which could have led to the classification of the CCDs as debt. However, relying on the fact as to the maturity period being complete and the nature of the instrument not requiring principle repayment in its originality, the legal interplay took its stand in favour of the equity classification of CCDs.

These contrasting rulings indicate the delicate balance between debt and equity classifications in the realm of CCDs within insolvency proceedings. The key lies in discerning whether CCDs should be viewed as debt instruments until maturity or inherently aligned with equity due to their convertibility. This points towards challenges in adjudicating the categorization of CCDs within the legal framework, emphasizing the need for precise and clear guidelines in distinguishing the debt and equity features of CCDs in insolvency proceedings under the IBC.

Future Impacts: Understanding the Consequences of CCD Judgments

First, the inconsistency in rulings across different tribunals regarding classification of CCDs creates uncertainty. This variability can lead to inconsistent legal precedents, complicating the predictability and stability in financial law.

The IFCI Ruling highlights an opinion that might be taken recourse to thereby setting a trend of judicial interpretation and pronouncements ahead in favour of treating CCDs as equity. By confining in the belief that their inherent nature lies within the realm of being an equity instrument, the same might act as a guiding principle in deciding disputes relating to such financial tools irrespective of the maturity period. However, the same is a nuanced understanding of two innocent students of the field. Whether the scenario takes up the direction we apprehend or whether the complexities of facts in each case bring light to a new understanding, only time will tell.

Second, there is an added complexity in financial planning for companies issuing CCDs given the unpredictable judicial treatment of these instruments. The impact on the creditors' hierarchy is a significant concern and in instances where CCDs are treated as equity, the prioritization in the repayment ladder during insolvency proceedings can be altered. This shift can adversely affect the recovery prospects of other creditors, leading to a re-evaluation of credit risks and investment strategies.


The exploration of CCDs in insolvency cases shows a complex scenario where debt and equity distinctions are blurred and depend on specific circumstances. Different tribunals' varied rulings on CCDs, influenced by maturity, redemption terms, and investor rights, highlight the dynamic interpretation in law. These cases impact how CCDs are classified, affecting financial recovery in insolvency cases. This situation calls for clear guidelines in financial instrument classification, considering investor interests and fairness in insolvency proceedings. As the law-finance interplay evolves, understanding CCDs' legal interpretations and their varying classifications as debt or equity is crucial, reflecting the changing nature of financial agreements and the need to stay updated on legal developments.


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