A Preference Shareholder is not a Financial Creditor unless Cumulatively Redeemable Preference Shares (CRPS) become due for redemption – EPC Constructions India Ltd. Through its Liquidator – Abhijit Guhathakurtha Vs. Matix Fertiliser and Chemicals Ltd. – NCLT Kolkata Bench
In this important judgment, NCLT Kolkata Bench held that:
(i) A Preference Shareholder is a Member and Shareholder of a company who is also entitled to enjoy voting rights in every resolution placed before the company.
(ii) The non-redemption of preference shares does not result in preference shareholders becoming creditors or the carrying value of preference shares and dividends becoming a debt. Therefore, a Preference Shareholder cannot step into the shoes of a creditor of the Company unless their Preference Shares become redeemable in above terms.
(iii) If payment against CRPS is not due, no liability can be said to arise.
(iv) The necessary corollary would be that unless Cumulatively Redeemable Preference Shares (CRPS) is payable, nonpayment against CRPS cannot be termed as a default.
(v) The non-redemption of preference shares does not result in preference shareholders becoming creditors or the carrying value of preference shares and dividends becoming a debt.
(vi) a Preference Shareholder is not a Financial Creditor unless the Preference Shares (CRPS) become due for redemption.