Redeemable Preference Shares – Debt or Equity?

In EPC Constructions vs. Matix Fertilizers, the Supreme Court ruled that redeemable preference shares (RPS) constitute equity, not "debt". Consequently, RPS holders cannot initiate insolvency as financial creditors under the IBC. The Court emphasized that non-redemption is not a legal default, since the Companies Act strictly restricts redemption to distributable profits or fresh share issues. Although Ind AS 32 classifies mandatory RPS as financial liabilities, the Court held that this accounting treatment cannot override statutory legal character,. Ultimately, RPS classification depends on the specific statute: while Income Tax and Stamp Duty treat RPS as equity, FEMA regulations explicitly classify them as debt.

INTRODUCTION

In EPC Constructions India Ltd. vs. Matix Fertilizers and Chemicals Ltd. [2025] 260 Comp Case 766 (SC), the Supreme Court has delivered a significant judgment clarifying the legal character of cumulative redeemable preference shares and their treatment under the Insolvency and Bankruptcy Code, 2016 (IBC). The Court unequivocally held that preference shares, being part of a company’s share capital, do not constitute “debt” and that a preference shareholder cannot assume the status of a financial creditor for the purposes of i