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2026 Supreme(Online)(NCLAT) 272

NATIONAL COMPANY LAW APPELLATE TRIBUNAL
ASHOK BHUSHAN, J
Arvind Kumar – Appellant
Versus
Beacon Trusteeship Limited – Respondent
Company Appeal (AT) (Insolvency) No. 171 of 2026 | CP(IB) -209/ND/2025

Advocates:
For the Appellants/Petitioners:Mr. Virender Ganda, Sr. Advocate, Mr. Arun Kathpalia, Sr. Advocate, Mr. Krishnendu Datta, Sr. Advocate, Mr. Vishal Ganda, Mr. Ayandeb Mitra, Ms. Diksha, Ms. Ishita Singh, Ms. Riya Palnitkar, Mr. Harsh Gurbani, Mr. Harshit Chaudhary, Mr. Yash Tandon
For the Respondents:Mr. Abhijeet Sinha, Sr. Advocate, Mr. Gaurav Mitra, Ms. Meghna Mishra, Mr. Nikhil Ratti Kapoor, Ms. Yashodhara Gupta, Mr. Kevin Chadha, Mr. Kunal Tandon, Sr. Advocate, Mr. Prateek

Conversion of optionally convertible debentures into equity requires actual allotment and statutory compliances; mere notice does not extinguish debt, allowing put option exercise and Section 7 admission on default.

Headnote:(A) Insolvency and Bankruptcy Code, 2016 - Section 7 - Optionally Convertible Debentures - Debenture Trust Deed - Conversion notice issued by debenture holder does not automatically convert debentures into equity shares unless statutory compliances including allotment, activation of ISIN, filing of forms with RoC, and updating registers are completed - Mere issuance of board/shareholder resolutions or entries in balance sheet insufficient without actual conversion - Failure to convert constitutes event of default entitling debenture holder to exercise put option for redemption after expiry of tenure - Debt and default established where put option notice issued and payment not made, justifying admission of petition. (Paras 4, 5, 12-19)

(B) Contract Interpretation - Deeming provisions in trust deed (e.g., treating debentures as equity from conversion notice date) require completion of mandatory corporate actions and statutory procedures; cannot override actual issuance and allotment - Put option exercisable post-tenure expiry despite pending conversion period if conversion not effected. (Paras 13-16)

Facts of the case:
Suspended director of corporate debtor challenged admission of Section 7 petition by financial creditor (debenture trustee). Corporate debtor issued optionally convertible debentures under trust deed with 60-month tenure. Conversion notices issued (36 months extended to 54 months), but no actual conversion due to inactive ISIN and non-completion of statutory steps. Put option notice issued post-60 months demanding redemption amount; non-payment led to petition admission.

Findings of Court:
No actual allotment of equity shares or completion of corporate actions occurred; debenture holder retained creditor status with right to exercise put option. Default proved on non-redemption post put notice.

Issues: Whether conversion notices automatically converted debentures into equity extinguishing debt; validity of put option exercise during alleged conversion window; existence of debt and default for Section 7 admission.

Ratio Decidendi: Conversion effective only upon statutory compliances (allotment, ISIN activation, RoC filings); deeming clause pegs date post-completion, not automatic on notice. Non-conversion triggers default, allowing put option and Section 7 petition on proved debt/default.

Result: Appeal dismissed.

Table of Content
1. appeal challenges nclt admission of section 7 petition (Para 1)
2. factual timeline of ocd issuance, conversion notices, put option (Para 2 , 7 , 8 , 9 , 10 , 11)
3. appellant argues automatic conversion under clause 6(b) (Para 4 , 12 , 17)
4. respondent: no conversion without statutory compliance (Para 5 , 18)
5. clause 6(b) requires actual issuance and compliances (Para 13 , 14 , 15 , 16)
6. default exists; section 7 admission upheld (Para 19 , 20)

JUDGMENT

ASHOK BHUSHAN, J.

This Appeal by a Suspended Director of the Corporate Debtor (“CD”) – Arcturus Developers Pvt. Ltd. has been filed challenging the order dated 20.01.2026 passed by National Company Law Tribunal, New Delhi Bench (Court-II) admitting a Section 7 petition filed by Beacon Trusteeship Ltd. (the Financial Creditor).

2. Brief facts giving rise to the Appeal needs to be noted.

(i) The CD - Arcturus Developers Pvt. Ltd. a real-estate Company decided to raise funds by issuance and allotment of 50,00,000 Optionally Convertible Debentures (“OCDs”) of a face value of Rs.1000/- each.

(ii) On 29.07.2019, the CD entered into a Debenture Trust Deed (“DTD”) with Respondent No.1/ Debenture Trustee, setting out the terms and conditions of the issue of debentures, rights and powers of the Debenture Trustee. The tenure of the debentures was 60 months from the date of allotment. Redemption was at the end of 60 months from the date of allotment along with redemption premium. Date of allotment was 12.06.2019. The amendment to DTD was affected on 17.01.2020, where redemption provision was revised. Second amendment to the DTD took place on 16.01.2024.

(iii) On 06.01.2021, Debenture Holder issued first conversion notice calling upon the CD to convert OCDs into equity shares/CCDs within 36 months from the date of receipt of first conversion notice. On 05.01.2024, second conversion notice was issued by Debenture Holder calling upon the CD to convert the OCDs into equity shares/ CCDs within 54 months from the date of receipt of the first conversion notice, i.e. upto 05.07.2025.

(iv) By the second amendment, the DTD tenure was changed from 60 months to 108 months from the date of allotment. Due to end of 60 months the original stipulated tenure of debentures ISIN (International Security Identification Number) expired. The CD passed a Board Resolution on 28.12.2024 and also passed a Shareholder’s Resolution, converting OCDs into CCDs.

(v) On 07.01.2025, Respondent No.1 issued a notice, exercising put option under Clause 10 of the DTD and calling upon the CD to pay a sum of Rs.1258,73,33,609/- within seven days of the receipt of the notice. In reply, the CD by letter dated 24.01.2025 stated that Debenture Holder has extended the time period to 54 months to convert the OCDs to equity shares, which expires on 06.07.2025 and the Company has right to convert the OCDs till 06.07.2025 and during the subsistence of this right of the Company, the Debenture Holder cannot exercise put option. It was further stated that Company could not have converted the said OCDs to equity shares without a active ISIN, which expired on 11.07.2024.

(vi) The Company, i.e. CD having not made any payment as required by notice dated 07.01.2025, the Financial Creditor filed an petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the “IBC”) on 17.03.2025. The Adjudicating Authority issued notice to the CD. The CD filed a limited reply to Section 7 petition.

(vii) The Adjudicating Authority after hearing both the parties by the impugned order admitted Section 7 petition. The Adjudicating Authority held that in the absence of actual allotment of the converted securities (equity shares) and completion of corporate actions including activation of ISIN, credit of securities to the account of Debentures Holders, the right to issue put notice was not lost. When on issuance of put notice, the debentures are not redeemed, the default is established. The debentures constitute financi

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2026 Supreme(Online)(NCLAT) 272

NATIONAL COMPANY LAW APPELLATE TRIBUNALASHOK BHUSHAN, JArvind Kumar – AppellantVersusBeacon Trusteeship Limited – RespondentCompany Appeal (AT) (Insolvency) No. 171 of 2026 | CP(IB) -209/ND/2025

Conversion of optionally convertible debentures into equity requires actual allotment and statutory compliances; mere notice does not extinguish debt, allowing put option exercise and Section 7 admission on default.

NATIONAL COMPANY LAW APPELLATE TRIBUNAL
ASHOK BHUSHAN, J
Arvind Kumar – Appellant
Versus
Beacon Trusteeship Limited – Respondent
Company Appeal (AT) (Insolvency) No. 171 of 2026 | CP(IB) -209/ND/2025