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EPC Constructions India Limited vs M/s Matix Fertilizers And Chemicals Limited

Not available · 2025 INSC 1259Decided 28 Oct 2025
Not available
Justice J.B. Pardiwala · Justice K.V. Viswanathan

Background

EPC Constructions (formerly Essar Projects) had executed a large fertilizer-plant construction contract for Matix Fertilizers, under which roughly Rs. 572 crores became due. Because Matix was facing a funding crunch, the parties agreed in 2015 to convert Rs. 250 crores of these dues into Cumulative Redeemable Preference Shares (CRPS) issued by Matix to EPC, so Matix could show the equity infusion its lenders required. Years later, EPC (by then in liquidation) filed an application under Section 7 of the IBC against Matix, claiming the CRPS amount as a "financial debt" and seeking to trigger insolvency proceedings. Both the NCLT and NCLAT rejected the application, holding the CRPS represented an investment, not a debt currently due.

Decision Breakdown

The Supreme Court agreed with the tribunals, holding that once the outstanding contractual dues were converted into CRPS, the earlier debt was extinguished and EPC's relationship with Matix became that of a preference shareholder, not a creditor: "the egg having been scrambled," it could not be unscrambled to revive the old debt claim. The Court held that a preference shareholder, as such, does not qualify as a "financial creditor" under the IBC's definitions, and an application under Section 7 (which only a financial creditor can bring) was therefore not maintainable. It rejected the argument that entries in Matix's books of account treating the CRPS as a liability were determinative, noting that accounting-standard treatment does not override the true legal nature of the transaction as reflected in the documents actually executed by the parties. The appeal was accordingly dismissed.

Lesson Learnt

Converting outstanding commercial dues into preference shares by mutual agreement extinguishes the original debt: the shareholder cannot later treat the same amount as a debt to invoke insolvency proceedings; how a transaction is booked in accounts does not change its real legal character.

Official source (sci.gov.in)View Judgment (PDF)

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