The Supreme Court held that Cumulative Redeemable Preference Shares (CRPS) represent an equity investment, not a financial debt under the IBC. Preference shareholders are not creditors, and redemption is contingent upon company profits under the Companies Act. Therefore, they cannot initiate insolvency proceedings under Section 7 of the IBC for non-redemption.
Facts Of The Case:
EPC Constructions India Limited (EPCC) held outstanding receivables from Matix Fertilizers and Chemicals Limited for construction work. In 2015, to help Matix meet lender-mandated debt-equity ratios, the parties agreed to convert ₹400 crores of dues into 8% Cumulative Redeemable Preference Shares (CRPS). Matix subsequently allotted CRPS worth ₹250 crores to EPCC. When the shares matured after three years, Matix failed to redeem them. EPCC, then under corporate insolvency resolution process (CIRP), issued a demand notice and later filed an application under Section 7 of the Insolvency and Bankruptcy Code (IBC), 2016, claiming the unpaid redemption amount as a financial debt. Both the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) dismissed the application, ruling that CRPS constitute an equity investment, not a debt, and their redemption is dependent on company profits under the Companies Act, 2013. EPCC appealed to the Supreme Court, arguing the transaction had the commercial effect of a borrowing.
Procedural History:
The procedural history of this case began with EPC Constructions India Limited (under liquidation) filing an application under Section 7 of the Insolvency and Bankruptcy Code (IBC), 2016 against Matix Fertilizers and Chemicals Limited before the National Company Law Tribunal (NCLT), Kolkata. The NCLT dismissed the application on 29.08.2023, holding that Cumulative Redeemable Preference Shares (CRPS) constituted an investment, not a debt, and thus no default existed. The appellant then appealed to the National Company Law Appellate Tribunal (NCLAT), which upheld the NCLT’s order in its judgment dated 09.04.2025. Consequently, the appellant filed a civil appeal before the Supreme Court of India, which was ultimately dismissed, affirming the findings of the tribunals below.
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Court Observation:
The Supreme Court made several key observations in dismissing the appeal. It reaffirmed the fundamental distinction in company law that preference shares are part of a company’s share capital, not a loan, and the amounts paid up on them do not constitute a debt. The Court emphasized that under Section 55 of the Companies Act, 2013, redeemable preference shares can only be redeemed out of distributable profits or proceeds from a fresh issue of shares, and their non-redemption does not transform a shareholder into a creditor. It held that the transaction, evidenced by board resolutions and correspondence, was a conscious conversion of receivables into equity, which extinguished the original debt. Consequently, the appellant, as a preference shareholder, did not meet the definition of a ‘financial creditor’ under Section 5(7) of the IBC, and the alleged default in redemption did not qualify as a ‘debt’ default under Section 3(12), rendering a Section 7 IBC application non-maintainable.
Final Decision & Judgement:
The Supreme Court dismissed the appeal and upheld the decisions of the NCLT and NCLAT. It conclusively ruled that the holder of Cumulative Redeemable Preference Shares (CRPS) is an investor and a shareholder, not a financial creditor under the Insolvency and Bankruptcy Code (IBC). The Court found that the conversion of receivables into CRPS extinguished the original debt and created an equity relationship. Since redemption is contingent upon company profits under the Companies Act, 2013, non-redemption does not constitute a default on a “debt” as defined under the IBC. Therefore, the appellant’s application under Section 7 of the IBC to initiate the Corporate Insolvency Resolution Process (CIRP) against the respondent was not maintainable.
Case Details:
Case Title: EPC Constructions India Limited Through Its Liquidator - Abhijit Guhathakurta vs. M/s Matix Fertilizers And Chemicals Limited Citation: 2025 INSC 1259 Appeal Number: Civil Appeal No. 11077 of 2025 Date of Judgement: 28th October, 2025 Judges/Justice Name: Justice K.V. Viswanathan and Justice J.B. Pardiwala