NCLT Ahmedabad declines DSRA withdrawal amidst doubts over missing FDs

Background of the dispute

Catalyst Trusteeship Limited, acting as Debenture Trustee, moved Interlocutory Application No. 129 of 2025 before the NCLT, Ahmedabad Bench. The application sought modification of the ex parte order dated 28.05.2025 in Company Petition No. 33 of 2025, to the limited extent of allowing ICICI Bank Limited to release an amount of ₹9.15 crore lying in the Debt Service Reserve Account (DSRA) of Blu-Smart Charge Private Limited. This DSRA balance was stated to be fixed deposit-based and lien-marked in favour of the Debenture Trustee under the debenture transaction documents.

The debentures in question were secured non-convertible debentures issued by Blu-Smart Charge Private Limited, aggregating to ₹124.50 crore. Security was created through:

  • A Debenture Trust Deed
  • A Debenture Trustee Agreement
  • A Deed of Hypothecation
  • Corporate Guarantees from group entities
  • Registered charges over specified assets and bank accounts

A first-ranking charge over the “Subscription Account” and other secured assets, including the DSRA, was registered with the Ministry of Corporate Affairs under Charge ID No. 100826351. ICICI Bank had, by its letter dated 31.01.2024, expressly confirmed that the DSRA of ₹9.15 crore was lien-marked in favour of Catalyst Trusteeship Limited and would be released to it on demand, without any requirement of further consent from Blu-Smart Charge Private Limited.

Subsequently, serious allegations of diversion and misuse of funds involving Gensol Engineering Limited and various BluSmart entities resulted in regulatory and governmental action. SEBI passed an interim order on 15.04.2025, followed by a confirmatory order, and the Union of India initiated investigations under Sections 210 and 219 of the Companies Act, 2013. Parallelly, by order dated 28.05.2025, the NCLT, Ahmedabad, in CP No. 33 of 2025, froze the assets of multiple respondents, including Blu-Smart Charge Private Limited, to prevent dissipation of assets during the ongoing investigations.

Against this backdrop, the Debenture Trustee approached the Tribunal, contending that the DSRA was a ring-fenced fund created solely for servicing debenture obligations and ought not to be covered by the general asset-freeze, especially when a first-ranking charge in its favour was undisputed.

Applicant’s case before NCLT

Security structure and DSRA creation

The Applicant explained the transaction structure as follows:

  • Blu-Smart Charge Private Limited had resolved to issue 1,245 Senior, Secured, Unrated, Unlisted, Redeemable Non-Convertible Debentures aggregating to ₹124.50 crore.
  • The Applicant was appointed Debenture Trustee under a Debenture Trustee Agreement dated 07.12.2023.
  • A Debenture Trust Deed dated 07.12.2023 (amended on 16.01.2024) set out the terms of the debenture issue and security package.
  • A Deed of Hypothecation dated 07.12.2023 (also amended on 16.01.2024) created a first-ranking exclusive and continuing charge in favour of the Debenture Trustee over:
    • The Subscription Account and Designated Account maintained with ICICI Bank Limited
    • All monies and investments flowing from the subscription proceeds
    • Funds infused by the sponsor
    • The DSRA amount of ₹9.15 crore maintained as fixed deposits

In furtherance of the security creation:

  • Notices of Charge were served on ICICI Bank in respect of the Subscription and Designated Accounts.
  • ICICI Bank acknowledged these notices and accepted the creation of a first-ranking charge.
  • The charge for ₹124.50 crore was duly registered with MCA as Charge ID No. 100826351.

ICICI Bank, through its communication dated 31.01.2024, confirmed that:

  • An amount of ₹9.15 crore in the form of DSRA fixed deposits stood lien-marked in favour of the Debenture Trustee.
  • The bank would release the DSRA amount to the Debenture Trustee on demand, without requiring any confirmation from Blu-Smart Charge Private Limited.

Default, SEBI proceedings and protective steps

According to the Applicant:

  • Credit rating downgrades of Gensol-related entities and defaults triggered concern about the financial health of BluSmart group entities in early 2025.
  • SEBI passed an interim order on 15.04.2025 against Gensol Engineering Limited, its promoters, and associated BluSmart entities, recording findings of fund rerouting and irregularities.
  • Under the Debenture Trust Deed, this SEBI order and the underlying defaults collectively amounted to an “Event of Default”.

In response, the Debenture Trustee:

  1. Issued a Notice of Event of Default dated 18.04.2025 to Blu-Smart Charge Private Limited and other obligors, demanding repayment of outstanding dues of approximately ₹130.11 crore within one calendar day.
  2. Requested ICICI Bank to:
    • Freeze the Subscription and Designated Accounts to prevent any debit or transfer of secured monies.
    • Liquidate or withdraw monies from the fixed deposits, including the DSRA, for adjustment against debenture dues.