The Supreme Court of India has set aside the orders of the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) which had refused to initiate the Corporate Insolvency Resolution Process (CIRP) against Ecstasy Realty Pvt. Ltd.
A Bench of Justice Sanjay Kumar and Justice K. Vinod Chandran, in the judgment dated February 24, 2026, held that the lower tribunals erred in ignoring the binding terms of a Debenture Trust Deed (DTD) based on informal restructuring negotiations that did not comply with the contractually prescribed procedure.
Background of the Case
The respondent, Ecstasy Realty Pvt. Ltd., issued 850 redeemable non-convertible debentures to fund a residential-cum-retail project in Mumbai. Catalyst Trusteeship Ltd. (the appellant) was appointed as the debenture trustee. Series A debentures worth ₹600 crore were fully subscribed by various entities, including ECL Finance Limited (ECLF) and other Edelweiss group entities.
In March 2022, the respondent proposed a restructuring of the loan to ECLF, seeking an 18-month moratorium. While ECLF indicated an internal process was required for final approval, the respondent claimed a moratorium was already in effect. Subsequently, the debenture trustee issued a demand letter for overdues and eventually a loan recall notice for ₹1203.55 crore after the majority of debenture holders (94.84%) rejected the restructuring proposal.
Tribunals’ Findings
The NCLT Mumbai Bench had dismissed the Section 7 application by the debenture trustee on the premise that a moratorium was already in place due to negotiations with one debenture holder (ECLF). The NCLAT confirmed this view, inferring that the debenture trustee was aware of the restructuring and that its conduct suggested implementation of the moratorium. The NCLAT further remarked that the trustee had “engineered a default” to coerce the company.
Court’s Analysis and Observations
The Supreme Court noted that for an application under Section 7 of the IBC, the adjudicating authority is only required to satisfy itself of the existence of a financial debt and a default. The Court cited Innoventive Industries Limited vs. ICICI Bank (2018), stating:
“The adjudicating authority has merely to see the records… to satisfy itself that a default has occurred. It is of no matter that the debt is disputed so long as the debt is ‘due’ i.e. payable unless interdicted by some law or has not yet become due…”
1. Non-Compliance with DTD Procedures The Court emphasized that Clause 33 of the DTD strictly required “prior written consent” and “approved instructions” from a 75% majority of debenture holders for any modification. The Court observed that the respondent’s talks were with only one individual associated with an Edelweiss group company without express authorization from other debenture holders.
2. Rejection of Estoppel and Legitimate Expectation The Bench rejected the respondent’s plea of ‘estoppel’ and ‘legitimate expectation’, noting that the DTD provided a detailed method for modification which could not be altered by unilateral exchanges. The Court noted:
“The DTD prescribed a detailed method for modification of the terms thereof and would not stand altered by any such expectation based on the unilateral exchange between the respondent company and ECLF…”
3. Role of the Debenture Trustee The Court strongly disagreed with the NCLAT’s adverse remarks against the debenture trustee. It clarified that the trustee’s primary duty under the DTD is to protect the interests of the debenture holders, not the corporate debtor.
“The finding that the debenture trustee acted in unison with the debenture holders in catalysing their dubious designs to drag the respondent company towards insolvency is, therefore, incorrect. The adverse remarks made against the debenture trustee are, accordingly, set aside.”
4. Concurrent Findings and Perversity While acknowledging the rule against reappreciating facts in concurrent findings, the Court stated that an exception exists when findings are perverse.
“We find the present case to be one such case, where the perversity of the findings recorded by the NCLT and by the NCLAT is glaring and manifest… [They] erred in ignoring the binding terms of the Debenture Trust Deed… and in reframing the terms thereof on the strength of surmises, conjectures and assumptions.”
The Decision
The Supreme Court allowed the appeal and set aside the orders of the NCLT and NCLAT. The Court restored the Company Petition (IB) 922/MB/C-I/2022 to the NCLT, Mumbai Bench-I, with a direction that the petition “shall be admitted by way of a separate order” and further steps under the Code be initiated.
Case Title: Catalyst Trusteeship Ltd. vs. Ecstasy Realty Pvt. Ltd.
Case Number: Civil Appeal No. 7424 of 2025
