- within Corporate/Commercial Law topic(s)
- with readers working within the Law Firm industries
- within Corporate/Commercial Law, Real Estate and Construction and Technology topic(s)
- with Senior Company Executives and HR
The Supreme Court, through its judgment dated 28.10.2025 in EPC Constructions India through its Liquidator – Abhijit Guhathakurta v. M/s Matix Fertilizers and Chemicals Limited1, held that holders of preference shares ("PS") does not fall under the definition of financial creditors as envisaged under the IBC, as PS do not constitute financial debt.
Referring to Section 43 of the Companies Act, the Supreme Court observed that PS forms part of a company's share capital, and the amounts paid thereon are not loans. Since the company had neither made profits nor created reserves or fresh share proceeds for redemption, the PS had not become due or payable, therefore, no default had occurred.
The Supreme Court clarified that preferential shareholders, who have not redeemed their shares shall remain investors and not creditors. It was further held that for a Section 7 application to be maintainable under the IBC, there must exist a financial debt disbursed against the time value of money, which was absent in the case of PS.
Footnote
1. Civil Appeal no. 11077 of 2025.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
