Supreme Court Defines Financial Creditor and Excluded Preference Shareholders
IBC – Preference Shareholders are not “financial creditors”
On 11.12.2009, there was EC contract between the appellant EPCC and the respondent Matix for establishment of a fertilizer complex.
The sum of Rs.572.72 crores became payable by the respondent to the appellant under the contracts.
Matix requested EPCC to convert Rs.400 crores in Cumulative Redeemable Preference Shares. This was accepted and CRPS were issued.
On 20.4.2018, CIRP was initiated against the appellant and RP was appointed.
On 24.8.2018, the respondent informed EPCC that it has unilaterally adjusted the total liability of CRPS of Rs.310 crores against the purported claim against EPCC. Matix filed revised claim of Rs.537.87 crores before RP.
On 27.10.2018, the appellant through RP send demand notice for payment of Rs.632.71 crores including Rs.310 crores of CRPS.
Matix disputed the demand.
The appellant filed Section 7 IBC petition against Matix for redemption amount of Rs.310 crores on maturity of CRPS.
NCLT dismissed the said petition on 29.8.2023 and this was confirmed in appeal on 9.4.2025.
HELD that CRPS were at a stage when the redemption period had expired, the preference share holders do not enjoy the status of the creditors of the company and therefore, do not fulfil the definition of financial creditor for Section 7 IBC.
In view of issuance of CRPS, the earlier outstanding stood extinguished and the nature of relationship of the appellant with the respondent became that of preference share holder. There is no question of there being any underlying contrary intent as the only intent was to convert the debt into preferential shareholding. The egg having been scrambled, the attempt to unscramble it must necessarily fail.
Judgment dated 28.10.2025 of the Supreme Court of India in Civil Appeal No.11077 of 2025 of EPC Constructions India Ltd Vs. M/s Matix Fertilizers and Chemicals Ltd
