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In JCT Limited v. BSE Limited & SEBI, the Securities Appellate Tribunal dealt with whether shares issued by JCT Limited to Phoenix ARC Private Limited against a portion of its loan interest could be treated as cash or non-cash consideration under the SEBI ICDR Regulations 2018.

 JCT, which was in serious financial trouble and facing winding-up proceedings, entered into a restructuring arrangement with Phoenix ARC. Originally, the loan carried 19% interest, which was very high and could make the company financially unviable. To reduce this burden, both parties agreed to restructure it as follows:

• 16% interest → to be paid normally in cash
• 3% interest → not to be paid in cash, but instead converted into equity shares

As part of this arrangement, instead of paying a portion of interest (3%) in cash, JCT proposed to issue equity shares by converting that liability into share capital, calculated on a discounted (NPV) basis.

However, BSE Limited and Securities and Exchange Board of India rejected the proposal and closed the application, arguing that the transaction was effectively cash-based and did not qualify for the exception under Regulation 169(1), which allows allotment without upfront cash only in cases of “consideration other than cash.”

The Tribunal disagreed with this view and held that settling a genuine liability (even a future interest obligation) through issuance of shares is a valid form of non-cash consideration. It clarified that the law does not require an unnecessary step of first paying cash and then receiving it back for shares.

 The SAT emphasized that such transactions should be viewed from a commercial and practical perspective, especially when a financially distressed company is trying to restructure its obligations and continue operations. It also noted that where two interpretations are possible, the one that supports legitimate business decisions and economic revival should be preferred.

Accordingly, the Tribunal set aside the decisions of BSE and SEBI and allowed the appeal, clearly establishing that conversion of liabilities into equity qualifies as “consideration other than cash”, and such transactions cannot be rejected merely on technical or narrow interpretations.