In a significant clarification under the Insolvency and Bankruptcy Code (IBC), the Supreme Court on Tuesday dismissed EPC Constructions India Limited’s appeal against Matix Fertilizers and Chemicals Limited, holding that preference shareholders cannot claim to be financial creditors. The Bench of Justices J.B. Pardiwala and K.V. Viswanathan ruled that funds invested through Cumulative Redeemable Preference Shares (CRPS) are part of a company’s share capital not a debt capable of triggering insolvency proceedings.
Background
The dispute stemmed from a 2009 engineering contract between EPC Constructions (then Essar Projects India) and Matix Fertilizers for setting up a massive ammonia and urea complex in West Bengal. EPC claimed dues exceeding ₹570 crore for project work. In 2015, instead of immediate payment, both sides agreed to convert ₹400 crore of the outstanding receivables into 8% Cumulative Redeemable Preference Shares.
Matix later issued CRPS worth ₹250 crore to EPC, redeemable within three years. But when Matix failed to redeem them, EPC through its liquidator approached the National Company Law Tribunal (NCLT) under Section 7 of the IBC, alleging default on “financial debt”. The NCLT and later the NCLAT both rejected EPC’s plea, calling the transaction an equity investment, not a borrowing. EPC then appealed to the Supreme Court.
Court’s Observations
Justice Viswanathan, writing for the Bench, stressed that “a preference shareholder remains a shareholder and cannot, as a matter of course, exercise the rights of a creditor.” He cited settled company law principles that dividends on preference shares are payable only from profits, and redemption can occur only out of profits or fresh share issues. If a company has no profits or reserves, redemption cannot create a liability equivalent to debt.
“The amounts paid on preference shares are not loans,” the bench observed, adding that “non-redemption does not transform a shareholder into a creditor.”
The Court also rejected EPC’s argument that the conversion of dues into CRPS masked an underlying borrowing. “The board resolution clearly shows EPC took a conscious decision to convert its receivables into equity capital. The egg having been scrambled, it cannot be unscrambled,” Justice Viswanathan remarked with a touch of wit.
The Bench noted that accounting entries or the treatment of CRPS as a “financial liability” in Matix’s books could not override the legal character of the instrument. “Accounting standards cannot supersede statutory definitions,” the judgment cautioned.
Decision
Upholding the concurrent findings of the NCLT and NCLAT, the Supreme Court dismissed EPC’s appeal, ruling that preference shareholders cannot maintain insolvency petitions under Section 7 of the IBC. “A preference shareholder, by virtue of holding share capital, does not satisfy the definition of a financial creditor,” the Court concluded, closing a long-running debate over whether CRPS can ever qualify as financial debt.
The appeal was accordingly dismissed with no order as to costs.
Case Title: EPC Constructions India Ltd. (through Liquidator) v. Matix Fertilizers and Chemicals Ltd.
Citation: 2025 INSC 1259 (Supreme Court of India)
Coram: Justices J.B. Pardiwala and K.V. Viswanathan
Date of Judgment: 28 October 2025
