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Judgment
PER BENCH
This is an Application filed by Axis Bank Limited under section 7 of the I&B Code, 2016. The Petitioner/ Axis Bank Limited is a company incorporated under the Companies Act, 1956, on 27.04.1995, having its registered office at: Trishul, 3rd Floor, Opp Samatheshwar Temple, Near Law Garden, Ellis Bridge, Ahmedabad, and having its Corporate Banking Branch at Hyderabad as described above.
The respondent/ GVK Power (Goindwal Sahib) Limited is a limited company incorporated under the provisions of the Companies Act, 1956. It is, inter alia, engaged in the business of establishment of power projects.
The present application is filed by the financial creditor/ Axis Bank against the Corporate Debtor/ GVK Power (Goindwal Sahib) Limited, for default of financial debt of Rs.442,20,14,321.40 (Rupees four hundred forty two crore twenty lac fourteen thousand three hundred twenty one and paise forty only). The said sum includes interest and penal interest (i) on Term Loans I, II, III and IV and (ii) on Working Capital facilities.
Hence, this Petition is filed under Section 7 of Insolvency and Bankruptcy Code, 2016, read with Rule 4 of Insolvency & Bankruptcy (Application to the Adjudicating Authority) Rules, 2016, seeking admission of the petition, initiation of Corporate Insolvency Resolution Process (CIRP), granting moratorium and appointment of Interim Resolution Professional as prescribed under the Code and Rules thereon.
Term Loans I, II, III and IV and Working Capital facilities granted to the Corporate Debtor, brief stated, are as under:
(i) TERM LOANS:
| Term Loan No. | Facility Agreement | Amount in Rupees | Purpose of the facility granted. |
|---|---|---|---|
| I | First Agreement dated 01.02.2010 and Amendment Agreement dated 23.10.2015 (ANNEXURE 5) | 200,00,00,000 (Rupees two hundred crore) | Part-financing cost for setting up of coal-fired thermal power plant at Goindwal Sahib, District Taran Taran, Punjab. |
| II | Bilateral Term Loan Agreement dated 24.12.2014 and Second Facility Agreement dated 07.08.2015 (ANNEXURE 6`) | 41,00,00,000 (Rupees forty one crore) | Part-financing the cost overrun. |
| III | Sanction Letter dated 22.09.2015 and Third Facility Agreement dated 15.04.2016. (ANNEXURE-7) | 40,25,00,000 (Rupees forty crore and twenty five lacs) | Part-financing further cost overrun due to further delays in implementing the project. |
| IV | Sanction letter dated 27.03.2017, Bilateral Term Loan Agreement dated 28.03.2017 and Fourth Facility Agreement dated 21.07.2017. (ANNEXURE-8) | 12,30,00,000 (Rupees twelve crore and thirty lacs) | Part-financing the further cost overrun. |
(ii) WORKING CAPITAL FACILITIES :
The Financial Creditor vide its Sanction Letter dated 20.06.2016 had sanctioned Rs.32,20,00,000/- (Rupees thirty two crores and twenty lacs only) with non-fund based limit of Rs.6,44,00,000/-. By virtue of the above Sanction Letter, vide Deed of Accession dated 29.06.2016, the Financial Creditor became party to the Working Capital Consortium Agreement dated 15.04.2016.
The Financial Creditor had enhanced the Cash Credit Limit from Rs.32,20,00,000/- to Rs.61,50,00,000/- (Rupees sixty one crore and fifty lacs only), vide Sanction Letter dated 27.03.2017.
Subsequently, Supplemental working Capital Consortium Agreement dated 21.07.2017 had been executed among the Corporate Debtor, the Rupee Lenders and IDBI Bank. Copies of all the above documents related to Working Capital Facilities are at ANNEXURE-9.
Based on the Term Loan facilities and Working Capital facilities an amount of Rs.328,45,00,000/- has been disbursed by the Financial Creditor to the Corporate Debtor. Statements of Accounts for Term Loans-I, II, III and IV and in respect of Working Capital Cash Credit Facilities are at ANNEXURE-10.
When the Corporate Debtor had defaulted in payment of instalments under Clause 2.4.1 of the Master Amendment Agreement dated 31.08.2017, the Financial Creditor issued Default/ Recall Notice dated 17.12.2019 (ANNEXURE-11) declaring all the amounts under Term Loans-I, II, III and IV and Working Capital Cash Credit Facilities to be immediately due and payable.
The Corporate Debtor / GVK Power (Goindwal Sahib) Limited has filed (FIRST) REPLY 26.05.2020 contending that:
The Corporate Debtor stood as the successful bidder to build, own and operate coal-fired thermal power project in the international competitive bidding process initiated by the Government of Punjab. The Corporate Debtor has been incorporated as a Special Purpose Vehicle (SPV) and on 08.02.2006, Memorandum of Understanding (MoU) was executed between the Corporate Debtor and PSEB.
Voicing difficulties experienced in getting coal supplies; proceedings before Punjab State Electricity Regulatory Commission (PSERC) and Appellate Tribunal for Electricity (APTEL) the Corporate Debtor and allied aspects, the Corporate Debtor attributed such adversities to ‘force majeure’ or an act of God.
In the meanwhile the decision dated 25.08.2014 of the Hon’ble Supreme Court in the case of Manohar Lal Sharma Vs. the Principal Secretary & Others, (2014) 9 SCC 516 read with consequential order dated 29.09.2014, had resulted into cancellation of coal blocks allotted to various projects in the country including the project of the Corporate Debtor.
The matter was referred to Arbitral Tribunal. The Tribunal has delivered award dated 10.04.2017, holding that:
“We have decided in the proceeding (sic.) paragraphs that ‘force majeure’ events which were beyond reasonable control of the claimant/ petitioner did exist under some of the circumstances which have been summarised in par 86 above. Delay in achieving SCOD (Schedule Commercial Operation Date) is due to such ‘force majeure’ events. Accordingly, the claimant/ petitioner is entitled for extension of SCOD from 4.1.2010 to 25.6.2014 as prayed for. .. ..”
PSERC, vide judgment dated 17.01.2020 (ANNEXURE-4), has fixed Annual Fixed Cost (AFC) of the project (Tariff Order), which was lower than Provisional Tariff. The respondent/ Corporate Debtor carried the matter before APEL and also filed an IA seeking status quo order. However, the APTEL dismissed the said IA, vide order dated 26.02.2020 (ANNEXURE-5), holding that the tariff be paid as per the Tariff Order.
The respondent/ Corporate Debtor has alleged suppression of facts on the part of the applicant herein. The Corporate Debtor has quoted several agreements and relevant clauses contained therein to drive home the point that the Project Lenders including the applicant herein had consented for priority repayment to the Priority Lenders. As such obligation of the respondent to repay the Project Lenders starts when Priority Lenders are paid in full. When the debt owed to Priority Lenders is still outstanding and has not been fully paid, the applicant cannot initiate any proceedings against the respondent including the present proceedings under I&B Code, 2016.
Besides, the applicant had sought certain directions in IA No.116 of 2020 I CP IB No.43/7/ HDB/ 2020 and this Tribunal vide order dated 25.02.2020 has rejected the said IA vide following observations:
“16.We have referred to various clauses of the agreements and there is no dispute that the applicant is also a party to the said agreements. Then the same are binding on the applicant and the applicant cannot be permitted to seek relief against the terms of the agreements. The relief prayed for by the applicant cannot be granted in light of various agreements referred to hereinabove. The application deserves to be dismissed.”
There were Reserve Bank of India (RBI) Circular carried in appeal before the Hon’ble Apex Court, proceedings before Hon’ble Telangana High Court, RBI Directions of 2019. The Consortium of Lenders including the applicant herein deliberated said RBI Directions 2019 and concluded that Resolution Plan outside I&B Code would be a better option. Inter-creditor Agreement dated 06.07.2019 (ANNEXURE-21, page 1141 of the Reply filed by the respondent) was also executed in pursuance of RBI Directions 2019. It is submitted Clause 7.3 (b) read with Clause 13 of ICA dated 06.07.2019, provide that no lender including Dissenting Lender can initiate any legal action against the respondent. By the ICA all the lenders have agreed to maintain ‘Standstill’ period during implementation of Resolution Plan under RBI Directions 2019. Thus, the present proceedings is in violative of said Clause 7.3 (b) of the ICA. The applicant has suppressed the fact of execution of ICA.
It is submitted that if the present Company Petition is admitted and CIRP commenced it will lead to serious erosion of value of assets and Banks/ financial institutions will sustain losses. Said fact has been acknowledged by the Project Lenders in Minutes of several meetings.
The applicant has filed Rejoinder dated 04.06.2020, wherein it is submitted that:
As regards Clause 3.1 of the Inter-creditor Agreement, it is submitted that notwithstanding any agreement between any of the parties, Section 7 of the I&B Code, 2016 confers a substantive right on any Financial Creditor a right to move an application with the Adjudicating Authority in the event of occurrence of default.
As regards the contention of the respondent/ Corporate Debtor that until priority lenders are paid in full, the project lenders cannot be paid, it is submitted by the Financial Creditor that on date of filing of the Company Petition, the account of the priority lenders and bondholders was current and there were no outstanding dues payable to them. On the other hand an amount of Rs.442.20 crore was outstanding in view of the defaults committed by the respondent/ Corporate Debtor, while servicing the debt owed to the applicant. Thus, the Financial Creditor dismisses the plea of the Corporate Debtor that until the amounts which were due and payable to the priority lenders are paid in full, the applicant cannot initiate the present proceedings under the I&B Code.
As regards the allegation of suppression of material facts levelled by the Corporate Debtor including suppression of various agreements entered into between the applicant/ Financial Creditor and other stakeholders, the applicant Financial Creditor submitted that the applicant has filed all the financing documents, viz. Facility Agreements and Working Capital Agreements to which the Financial Creditor is a party and also filed loan account statements to establish default committed by the Corporate Debtor.
The applicant/ Financial Creditor ridiculed and dismissed the averment of the Corporate Debtor that it had paid Rs.38 crores to the project lenders as against the outstanding dues owed by the Corporate Debtor to the project lenders amounting to Rs.800 crores as on 31.03.2019.
As regards the contention of the Corporate Debtor that Clause 13 of the Inter-creditor Agreement dated 06.07.2019 mandates standstill, the applicant/ Financial Creditor submits that the said clause does not bar the applicant from filing the present proceedings under the I&B Code, 2016. It is further submitted by the Financial Creditor that a perusal of Clause 13(2) of the ICA dated 06.07.2019, would reveal that the standstill provision will be for an initial period of 30 days from commencement of the Review Period and would only be extended to a further period of 180 days, in the event of lenders deciding on implementation of Resolution Plan. However, in the present case there was no decision on formulation of Resolution Plan. Therefore, ‘standstill’ clause does not apply beyond 30-day review period and even if it is applied to 180-day period, the same is not binding on the applicant.
As regards the contention of the respondent/ Corporate Debtor that the applicant/ Financial Creditor cannot initiate present proceedings without consent/ consensus of the majority lenders or Joint Lenders Forum, the applicant/ Financial Creditor submitted that the Financial Creditor is not bound to seek such consent. The applicant relied on order dated 22.12.2017 of the Hon’ble NCLT, Kolkata Bench in Bank of Maharashtra Vs. Visa Power Limited, rendered in CP IB No.574/KB/2017. The Hon’ble Kolkata Bench while rejecting the contention of the Corporate Debtor therein that the Financial Creditor therein did not have consent of majority lenders/ Joint Lenders Forum admitted the said petition relying on the judgment of the Hon’ble Supreme Court in Innoventive Industries Ltd Vs. ICICI Bank, 2017 SCC OnLine SC 1025, wherein it was held by the Hon’ble Apex Court that,
“30... .. in the case of a corporate debtor who commits a default of a financial debt, the adjudicating authority has merely to see the records of the information utility or other evidence produced by the financial creditor to satisfy itself that a default has occurred. It is of no matter that the debt is disputed so long as the debt is “due” i.e. payable unless interdicted by some law or has not yet become due in the sense that it is payable at some future date. It is only when this is proved to the satisfaction of the adjudicating authority that the adjudicating authority may reject an application and not otherwise.”
The respondent/ Corporate Debtor has filed (Second) Reply dated 22.07.2020 in response to Rejoinder dated 04.06.2020 filed by the applicant, gist of which is discussed hereunder:
The information filed by the applicant herein obtained from National E-Governance Services Limited (NeSL) by way of IA No.339 of 2020, has been taken on record vide order dated 05.06.2020, without prejudice to the rights of the Corporate Debtor to challenge accuracy of such information. It is contended by the respondent/ Corporate Debtor that the said information is based on the inputs provided by the applicant/ Financial Creditor and as such no authenticity can be attached thereto. It is submitted that NeSL maintains Information Utility under the Code in a manner as received by the sender. In the present case the sender of information is the applicant/ Financial Creditor. NeSL neither gathers any information through its own sources no does it verify veracity of the same. Therefore, this Tribunal is not obligated to consider such reports submitted by NeSL.
Trust and Retention Account (TRA) cannot be frozen. Operational expenses incurred by the respondent have to be discharged from cash flows of the company, which were deposited in TRA, under the control of the Account Bank, as per the Trust and Retention Account Agreement. The TRA Agreement stipulates that the Account Bank is required to release payments from TRA on approval of the Priority Lender under Inter-Creditor Agreement. However, the Account Bank is holding back funds even after approval given by the Priority Lenders. It is further submitted that Facility Agreements and Inter-Creditor Agreements executed by the respondent/ Corporate Debtor, project lenders including the applicant and priority lenders, when read together harmoniously it would require all concerned to mutually fulfil the reciprocal promises.
The respondent/ Corporate Debtor has alleged that the Account Bank had debited wrongfully certain amounts from TRA and redeposited the same in the TRA. Such unauthorised debits and redeposits without interest constitute events of fundamental default.
The respondent/ Corporate Debtor reiterated the submissions made earlier with regard to standstill period Inter-creditor Agreement dated 06.07.2019. It is emphasised that the applicant could not have withdrawn from Inter-Creditor Agreement in violation of RBI Directions, 2019 and that the present Company Petition having been filed within 180-day standstill period deserves dismissal.
It is submitted that IDBI Trusteeship Services Limited (Bond Trustee) has filed a Commercial Suit before the Hon’ble High Court of Bombay for release of a sum from the TRA, to enable the respondent/ Corporate Debtor to pay the outstanding dues to priority lender. However, during pendency of said suit certain amounts were withdrawn. This would defeat the priority rights of priority lender and it would further defeat the contractual obligation of the respondent/ Corporate Debtor to repay to the priority lender.
However, subsequently, when the above Commercial Suit came up before the Hon’ble High Court of Bombay for hearing, the Hon’ble High Court passed order dated 26.06.2020 (Annexure-35, pages 83-85) restraining all the lenders from withdrawing any amount from TRA of the respondent.
10, The respondent/ Corporate Debtor has filed (Third) Additional Reply dated 16.02.2022, bringing on record below mentioned additional facts claimed to have occurred subsequent to filing of Additional Reply:
Post filing of the present Company Petition, priority lender representing by IDBI Trusteeship Services Limited in its capacity as Bond Trustee has filed a Commercial Suit before the Hon’ble High Court of Bombay on 20.06.2020 for release of 292.70 crores from the trust and Retention Account for repayment of debt payable by the respondent to the Priority Lender-II. In compliance with the order of the Hon’ble High Court of Bombay dated 19.08.2020 (Annexure-38, Pages 7-9 of this Reply), said priority lender-II was paid in full.
Thereafter, the Corporate Debtor had entered into 6th Amended and Restated Trust an Retention Account Agreement dated 08.03.2021 (‘TRA Agreement’ for brevity) [Annexure 39 of this Reply] with the existing lenders including the applicant herein.
It was agreed under Clause 3.1.2(g)(i) of the said 6the Amended TRA dated 08.03.2021 that 25% of revenue generated from Punjab State Power Corporation Limited (PSPCL) was to be utilised for serving the loan repayments to the existing lenders.
The respondent/ Corporate Debtor does not have any control over the TRA Account and entire revenue generated by the respondent is being deposited into TRA Account.
PSPCL had issued a preliminary default notice dated 29.10.2021 and termination notice dated 26.01.2022 terminating the Power Purchase Agreement executed with the Corporate Debtor. The Corporate Debtor has challenged the said notices before the Punjab State Electricity Regulatory Commission. The Commission vide order dated 09.02.2022 (Annexure-40) has granted interim suspension of said termination notice dated 26.01.2022.
The Lenders’ Agent had issued Notice dated 01.02.2022 (Annexure-41) to PSPCL for substitution of the respondent/ Corporate Debtor under the Power Purchase Agreement.
The Financial Creditor has filed WRITTEN SUBMISSIONS dated 07.03.2022, the substance of which is as under:
The Financial Creditor has sanctioned loans totalling to Rs.3,55,05,00,000/- to the Corporate Debtor, comprising of four term loans and one working capital loan, from the year 2010. Apart from the petitioner herein, twelve other financial institutions also sanctioned loans to the Corporate Debtor, the list of which is given in para 2 of this Written Submissions. All these 13 financial institutions are known as ‘Senior Lenders’.
As the project could not be implemented in time, there were four cost overruns, all of which were financed by the Senior Lenders vide three additional loan facilities.
On 21.07.2017, Inter Creditor Agreement (ICA) was entered into between 13 Senior Lenders and 2 priority lenders, viz. Deutshce Bank AG and DB International (Asia) Ltd. delineating rights and liabilities among themselves. The Corporate Debtor was not a party thereto.
On the same day, Senior Lenders entered into a Master Amendment Agreement with the Corporate Debtor, inter alia amending certain clauses in the facility agreements.
Since the Corporate Debtor failed adhere to repayment schedule Master Amendment Agreement dated 21.07.2018, the Financial Creditor issued Loan Recall Notice dated 17.12.2019.
The Financial Creditor has furnished proof of debt and proof of defaults at subparas I(A) and (B) of the Written Submissions to demonstrate that debt and default as defined under section 3(11) and 3(12) of the Code are established.
The Corporate Debtor has filed WRITTEN SUBMISSIONS dated 07.03.2022, the substance of which is as under:
The Corporate Debtor has relied on Reserve Bank of India (Prudential Framework for Resolution of Stressed Assets) Directions, 2019 dated 07.06.2019 (placed at pages 1106-1131, Vol. 6 of the reply of the Corporate Debtor), more particularly, Directions 9, 10 of the said directions. It is contended that the Financial Creditor has filed the present petition in violation of those Directions.
The Corporate Debtor has also relied on Inter Creditor Agreement dated 06.07.2019, more particularly, Clauses 13 and 7.3(b) thereof.
There is no default on the date of filing of the present petition. Cashflows from the Trust and Retention Account (TRA) shall be first utilised to pay the priority lenders in full and the Corporate Debtor has discharged all its obligations.
It is contended that the Financial Creditor has filed this petition in breach of the below mentioned deeds/ agreements:
Priority Lender Debenture Trust Deed dated 30.04.2018 (pages 728-896 of the reply), more particularly Clauses 5.6, 24.3(a), 24.23, and 6.1.
Trust and Retention Account Agreement dated 21.07.2017.
Inter Creditor Agreement dated 30.04.2017/ Restated Agreement dated 21.07.2017.
The Corporate Debtor has filed additional written submissions dated 27.04.2022, contending that:
The applicant has entered into (pages 15-55 of rejoinder by Financial Creditor), more particularly Clauses (H), (J) and (K) thereof and also agreed to statutory variation in terms of RBI Directions (pages 1106-1131 of Vol.6 of the reply of the Corporate Debtor). Having done so, the Financial Creditor cannot rely on facility agreements.
Clause 13 and Clause 7.3(b) of Inter-Creditor Agreement dated 06.07.2019, provide that during implementation of the Resolution Plan, each lender agreed not to initiate any legal action or proceeding including proceeding under I&B Code against the respondent for a period of 180 days commencing from 06.07.2019 till 06.01.2020.
Thus, having agreed to waive the options for recovery available to them under the facility agreements or otherwise, the Financial Creditor cannot file this petition. In this regard the Corporate Debtor has relied on decision in Babulal Badriprasad Varma Vs. Surat Municipal Corporation and others, (2008) 12 SCC 401, paras 42-29.
The applicant/ Financial Creditor having entered into Inter-Creditor Agreement dated 06.07.2019, executed in pursuance of RBI Directions dated 05.06.2019 cannot file the present petition.
In the light of the contest as above the Point that require due consideration by this Adjudicating Authority is:
Whether the financial debt claimed by the financial creditor as due and payable by the corporate debtor was neither due nor payable, as on the date of filing this application in view of the RBI directions dated 05.06.2019 and the provisions of ICA dated 06.07.2019, if so, is there any default?
We have heard Shri Vivek Reddy, learned senior counsel who is assisted by Ms. Neha Pandey, learned advocate for the petitioner and Shri Niranjan Reddy, learned senior counsel who is assisted by Ms. Rubaina S. Khatoon and Shri Rusheek Reddy K.V., learned advocates for the respondent. Perused the record, written submissions and the case law.
Point.
Whether the financial debt claimed by the financial creditor as due and payable by the corporate debtor was neither due nor payable, as on the date of filing this application in view of the RBI Circular dated 05.06.2019 and the provisions of ICA dated 06.07.2019, if so, is there any default?
There is no quarrel as regards sanction of loans aggregating to Rs.355.4 crores by the financial creditor in favour of the Corporate Debtor towards four Term Loans and one Working Capital facilities granted to the Corporate Debtor commencing from the year 2010. In addition, twelve other financial institutions along with the applicant also have advanced loans to the Corporate Debtor, aggregating to more than Rs.3000 crores, so as to part-finance the costs for setting up of 540 MW coal-fired thermal power plant at Taran Taran, Punjab and to finance the working capital requirements of the Corporate Debtor. For the sake of convenience, the applicant herein and twelve other financial institutions are collectively referred as “Senior Lenders”.
There were four cost overruns and these cost over runs were also financed by the Senior Lender. The cost overruns were also made by the Senior Lenders by way of three additional loan facilities, namely, Facility Agreement dated 07.08.2015, Facility Agreement dated 15.04.2016 and Facility Agreement dated 21.07.2017, apart from the Original Rupee Loan Facility Agreement dated 01.02.2010. Working capital loan was also extended vide Working Capital Consortium Agreement dated 15.04.2016, by the Senior Lenders, including the applicant herein.
In the year 2017, Deutsche Bank AG, extended a loan to the Corporate Debtor with a condition that they would be recognized as a priority lender with priority rights. Also, DB International (Asia) Limited vide Debenture Trust Deed dated 30.04.2017, subscribed to the bonds issued by the Corporate Debtor, thereby becoming a Priority Bond Holder and was represented by IDBI Trusteeship Services Limited, in its capacity as a Bond Trustee.
All the lenders of the Corporate Debtor i.e., 13 Senior Lenders and the 2 priority lenders i.e., Deutsche Bank AG and DB International (Asia) Limited entered into an Amended and Restated Inter Creditor Agreement dated 21.07.2017, herein after referred to as ‘ICA’, delineating the rights and liabilities amongst themselves. It is pertinent to note that the Corporate Debtor is not a party to the above ICA dated 21.07.2017. On the very same day viz, on 21.07.2017, the Senior Lenders entered into a Master Amendment Agreement dated 21.07.2017, with the Corporate Debtor, inter-alia amending certain clauses in the Facility Agreements entered by and between them, especially the repayment schedule. As per Clause 2.1 of the said Agreement, the Corporate Debtor undertook to repay the facilities advanced by the Senior Lenders in 78 structured quarterly instalments commencing from 31.10.2017 to 31.01.2037, as set-out in the repayment schedule therein.
According to the Ld. Sr. Counsel for applicant as the Corporate Debtor failed to make payments in terms of the repayment schedule set-out in the Master Amendment Agreement dated 21.07.2017 and thereby committed default to all the Senior Lenders including the applicant herein, it has issued a Loan Recall Notice dated 17.12.2019, and as the same was not complied by the corporate debtor, filed this application. In support of its contention that the Corporate Debtor has committed default has produced record of default from the information utility, viz., National E-governance Services Limited.
Ld. Sr. Counsel also relied on the Minutes of the Joint Lenders Meeting dated 11.01.2022, and contended that the same clearly depict that other Senior Lenders also proposed to file an application in NCLT for initiation of CIRP against the Corporate Debtor, as the Corporate Debtor situation is not improving despite several opportunities given to it. This shows that the Senior Lenders are also supporting the stand taken by the applicant herein to file application under section 7 of the I&B Code, 2016 against the Corporate Debtor.
The Ld. Sr. Counsel for the respondent has also brought to the notice of this Tribunal that the loan advanced by Deutsche Bank AG has already been fully repaid by the Corporate Debtor and withdrawal of the Interlocutory Application I.A. No. 488 of 2020 filed by the Bond Trustee seeking to implead and opposing the above Company Petition, on account of payment made by the Corporate Debtor.
Strongly refuting the submissions as above made by the learned senior counsel for the applicant herein, the learned senior counsel for the Corporate Debtor would contend that, initiation of the present proceedings itself is in violation of Reserve Bank of India (Prudential Framework for Resolution of Stressed Assets) Directions 2019 dated 07.06.2019 and the Inter Creditor Agreement dated 06.07.2019 executed pursuant the RBI Directions, 2019. In this regard, learned senior referred to directions 9 and 10 of the RBI directions, 2019, which are as below:
Direction 9.
“All lenders must put in place Board-approved policies for resolution of stressed assets, including the timelines for resolution. Since default with any lender is a lagging indicator of financial stress faced by the borrower, it is expected that the lenders initiate the process of implementing a resolution plan (RP) even before a default. In any case, once a borrower is reported to be in default by any of the lenders mentioned at 3(a), 3(b) and 3(c), lenders shall undertake a prima facie review of the borrower account within thirty days from such default (“Review Period”). During this Review Period of thirty days, lenders may decide on the resolution strategy, including the nature of the RP, the approach for implementation of the RP, etc. The lenders may also choose to initiate legal proceedings for insolvency or recovery.”
Direction 10.
“In cases where Resolution Plan is to be implemented, all lenders shall enter into an inter-creditor agreement (ICA), during the above-said Review Period, to provide for ground rules for finalisation and implementation of the Resolution Plan in respect of borrowers with credit facilities from more than one lender. 5 The ICA shall provide that any decision agreed by lenders representing 75 per cent by value of total outstanding credit facilities (fund based as well non-fund based) and 60 per cent of lenders by number shall be binding upon all the lenders. Additionally, the ICA may, inter alia, provide for rights and duties of majority lenders, duties and protection of rights of dissenting lenders, treatment of lenders with priority in cash flows/differential security interest, etc. In particular, the RPs shall provide for payment not less than the liquidation value due to the dissenting lenders.”
According to the learned senior counsel, the direction 11 of the RBI Directions supra, envisages that Resolution Plan shall be implemented within a period of 180 days from the end of review period, which is 180 days from 07.07.2019, i.e. by 06.01.2020. The RBI Directions dated 07.06.2019 are to be scrupulously followed as the same have statutory force and any deviation thereof is deemed to be a statutory violation.
The learned senior counsel for the Corporate Debtor further contended that in pursuance of the RBI Directions dated 07.06.2019 the creditors including the applicant herein had agreed to implement a Resolution Plan, and the creditors entered into a Inter Creditor Agreement dated 06.07.2019, which has been executed pursuant to the above RBI Directions dated 07.06.2019. As per the said RBI Directions dated 07.06.2019, thirty days is the review period, within which resolution has to be formulated and thereafter, the lenders shall not commence any civil action or proceedings under I&B Code, 2016 for a period of 180 days pursuant to the Lenders deciding that they will implement the Resolution Plan as per the regulatory framework.
Clauses 7.3 (a) and (b) of the RBI Circular provide that:
“(a)the Resolution Plan that is approved by the Majority Lenders shall be final and binding on all the Lenders and each Lender (including the Dissenting Lenders) agrees and undertakes to be bound by the approved Resolution Plan;
(b)during the resolution process and during the implementation of the Resolution Plan that has been approved by the Majority Lenders in accordance with this Agreement and the Regulatory Framework, each Lender (including if such Lender is a Dissenting Lender) agrees that it shall not initiate any legal action or proceedings (including proceedings under IBC) against the Borrower or any other person that may jeopardise the successful implementation of the Resolution Plan in accordance with the terms of such Resolution Plan;”
According to the Ld. Sr Counsel, as per Clause 10.2 of the ICA Agreement enables termination of the agreement by any creditor only if it is approved by the majority. Therefore, on reading Clause 13.2 of the ICA Agreement in conjunction with the RBI Circular, it becomes evident that only if the Resolution Plan is to be implemented, all lenders shall enter into an inter creditor agreement. Since in the case on hand, Inter-creditor Agreement dated 06.07.2019 has been entered, only because it was decided by the creditors to implement the Resolution Plan. Learned senior counsel further contended that as per Clauses 7.3 and 13 of the ICA Agreement. during the Resolution process, viz. during the validity of the ICA dated 06.07.2019, any dissenting Lender cannot initiate any Legal action or initiate proceedings under IBC of 2016.
As regards the contention of the applicant/ Bank, the standstill period will not be applicable in this case as there was no decision to implement Resolution Plan within 30 days, learned senior counsel for the respondents submitted that the very execution of the Inter Creditor Agreement dated 06.07.2019 in accordance with the RBI Circular itself amounts implementation of Resolution Plan which was to be contemplated and agreed upon by the Lender. He contended that the said process was underway as is evident from the various meetings of the Joint Lenders Forum as recorded under Minutes of Meeting of JLF dated 02.07.2019, 15.11,2019 and 21.01.2020. Learned senior counsel further contended that even dissenting lender who wants to withdraw from ICA also prohibited from taking any action independently when the resolution plant is under active persuasion by remaining lenders. Therefore, according to learned senior counsel the Demand Notice by the applicant/ Bank is in complete derogation of the RBI Circular and the Inter Creditors Agreement referred to above.
Learned senior counsel also submitted that there was no default on the date of filing of the present Company Petition since as long as priority creditor dues are not settled there is obligation on the part of the Corporate Debtor to meet the repayment schedule as well as Trust and Retention Account Agreement dated 21.07.2017.
Learned senior counsel for the respondent has also contended that Inter Creditor Agreement dated 30.04.2017 and Restated Agreement dated 21.07.2017 were executed in accordance with the Priority Facilities availed by the respondent and as such the terms of the Inter Creditor Agreement are in consonance with the payment’s terms of the Priority Facility Agreements, as such the applicant is not entitled to demand repayment of instalments as per the earlier agreements, which clearly shows the mala fide, intent of Financial Creditor in filing the present Company Petition.
Learned senior counsel for the respondent also contended that by virtue of Priority Debenture Agreement dated 30.04.2017 and TRA dated 21.07.2017, the Priority Lenders have priority over the proceeds of the Corporate Debtor and only after the Priority Lenders’ obligation/debt is met/satisfied, the other lenders such as the present Financial Creditor have a right over the proceeds of the Corporate Debtor. In support of this contention the learned senior counsel referred to Clause F of the recitals as well as Clause 3.1, which shows Payment Ranking & Priority. Clause 3.2 stipulates that:
“ .. .. whether or not an Event of Default is continuing, until the Account Bank is notified otherwise by the Priority Lenders, the Account Bank shall not act to any contrary instruction from any Party. .. ..”
Clause 3.4(c) of the said Agreement reads as under:
“Clause 3.4(c) – Application of Proceeds.
The Priority Lenders will have priority charge on Cashflows and all bank accounts of the Borrower (including Trust and Retention Account and all its sub accounts including Enforcement Proceeds Account) and the Obligations owed to it (including both principal and interest) will be paid and discharged in priority over other Creditors.”
The learned senior counsel for the respondent also referred to Clause 3.1 and 3.4(c) of the above referred agreements, which stipulate that:
“ .. .. the Project Lenders including the Applicant bank had consented for a priority repayment to the Priority Lenders and that they shall be entitled to any payment from the Respondent only after the Priority Lenders are paid in full. Thus, the obligation of the Respondent to repay the Project Lenders starts/resumes after the Priority Lenders are paid in full.” and contended that the action of the present applicant in approaching this Tribunal is not with clean hands and thereby in violation of provisions of the above referred agreements and only after priority lenders’ claims were settled other lenders can claim their moneys.
Learned senior counsel for the respondent further contended that the applicant herein submitted that the priority lenders were satisfied/paid on 19.08.2020. However, this application was filed on 19.12.2019. As such there was no debt due and payable on that date. This application therefore, can be dismissed on this ground itself. Learned senior counsel for the Corporate Debtor has also submitted that the respondent/ company has been making payments to the existing Lenders including the Financial Creditor since the year 2017 till date. In fact, the Respondent Company has paid an amount of Rs. 606 crores to the existing Lenders and the Financial Creditor itself had received an amount of Rs. 47,61,03,669/- from the Respondent Company.
Learned senior counsel for the respondent further contended that 6th Amended Trust and Retention Account Agreement dated 08th March 2021 it was agreed that 25% of the revenue generated by the Respondent Company from the sale of power to Punjab State Power Corporation Limited (PSPCL) was to be utilized for the purpose of servicing the loan repayments to the existing Lenders as per Clause 3.1.2 (g) (i) and the Respondent is acting in compliance of the same. The present applicant is also a signatory to the said TRA Agreement and the same is binding on the Financial Creditor.
Learned senior counsel for the Corporate Debtor contended that reliance placed by the Financial Creditor on the Minutes of Meeting of Joint Lenders Forum on 11 January 2022 is entirely misconceived and misplaced. In the said Minutes of Meeting, it was recorded that in view of the issuance of preliminary default notice dated 29.10.2021 by PSPCL, other Lenders were of the opinion that if the Respondent fails to obtain any Interim Orders of stay on the said default notice, then the other Lenders are likely to proceed to file proceedings under the IBC. However, the Respondent had approached the Punjab State Electricity Regulatory Commission (PSERC) vide Petition No. 4 of 2022 wherein the PSERC vide Order dated 09.02.2022 was pleased to grant another Suspension Order dated 26.01.2022, which was issued in pursuance of the default notice dated 29.10.2021. As such it is clear from the above interim suspension order that other Lenders have no intention of initiating any proceedings against the Corporate Debtor. Thus submitting the learned senior counsel for the Corporate Debtor has pleaded for dismissal of the Company Petition filed by the Financial Creditor.
This Tribunal after having heard the submissions of the learned senior counsels for both the sides, on 11.04.2022, reopened the matter and sought clarification on the following points from both sides.
Whether the Inter-Creditor Agreement dated 06.07.2019 overrides the clause under the Facility Agreement entered by the Corporate Debtor?
Having admitted the applicability of the RBI Directions, 2019, can the applicant maintain the present application?
Whether the directions of RBI 2019, which came into effect from 07.06.2019 being mandatory can withdrawal of the Financial Creditor from the process has any impact?
The fact that the other Joint lender on 11.01.2022, taken decision to initiate CIRP against the present Corporate Debtor is indicative of the fact that the said lenders have complied the process under RBI Directions, 2019 and thereafter having failed to get any resolution plan in terms of RBI Directions, have resorted to CIRP2019? If that be so, whether the present action of the Application is premature, hence violative of RBI Direction, 2019.
Pursuant thereto, the Ld. Sr. Counsel for the Financial Creditor has submitted as under:
Whether the Inter-Creditor Agreement dated 06.07.2019 overrides the clause under the Loan Facility Agreement entered by the Corporate Debtor?
The ICA was executed by certain consortium lenders of the Corporate Debtor, including the Financial Creditor herein, in furtherance of RBI Directions, 2019. The stated purpose of the RBI Directions, 2019 is for “providing a framework for early recognition, reporting and time bound resolution of stressed assets.” Under the RBI Directions, 2019, for those accounts where the aggregate exposure to lenders is over INR 2,000 crores, the lenders are required to undertake a prima facie review of the borrower’s account within 30 days from the date of the said directions, being 07.06.2019 (“Review Period”) and decide on a resolution strategy which is to be implemented within 180 days of the Review Period. The RBI Directions, 2019 also provides that, in the event that the lenders consider pursuing a resolution plan, the lenders are to enter into an inter-creditor agreement, which is to provide a framework for finalization and implementation of a possible resolution plan and the ICA, dated 06.07.2019 was executed by certain consortium lenders of the Corporate Debtor to provide a framework for possible resolution. It is important to note that that RBI Directions, 2019 does not mandate a particular mode of resolution and also leaves open the possibility of the lenders pursuing proceedings under the IBC.
a. ICA does not in any way override the obligations of the Corporate Debtor under the Loan Facility Agreement for the following reasons:
The Corporate Debtor is not a party to the ICA, which is an inter-se agreement among the lenders that aimed to consider a framework for resolving the distressed debts of the Corporate Debtor. There is no clause in the ICA that provides that the ICA overrides any of the obligations of the Corporate Debtor under the Loan Facility Agreement. In fact, it was due to the Corporate Debtor defaulting on its obligations under the Loan Facility Agreement that certain consortium lenders entered into the ICA with the goal of attempting to achieve a resolution plan under extant RBI guidelines. It is submitted that the Corporate Debtor, not being a party to the ICA, cannot take shelter under the ICA in order to evade its obligations under the Loan Facility Agreement.
The purpose of the ICA and the RBI Directions, 2019 was to facilitate a time bound resolution. The terms of the RBI Directions, 2019 and the ICA required the lenders to agree in principle to a resolution plan within the 30-day Review Period (ending on 7.07.2019) provided under the RBI Directions, 2019. In this regard, Clause 3 of the ICA provides as follows:
“As soon as practicable during the Review Period, the Lead Lender shall engage with the Borrower and give the Borrower an opportunity to cure the default as well as an opportunity to consult with the other lenders to decide on a resolution strategy to be adopted in respect of the Borrower. If the Lead Lender receives any proposal from the Borrower within the Review Period, then the Lead Lender shall convene a meeting of the Lenders and place the proposal before them. At the meeting, if the Majority Lenders are agreeable in-principle with the Borrower’s proposal, then the Lead Lender shall take steps for approval and implementation of the Borrower’s proposal expeditiously and in case the Majority Lenders are not agreeable with the Borrower’s proposal, then the Lenders may decide on the appropriate resolution strategy with respect to the Borrower.”
It is submitted that no resolution plan was agreed in principle by the Majority Lenders during the Review Period and, in fact, no resolution plan has been agreed by any of the consortium lenders to date. As a consequence, the Financial Creditor withdrew itself from the ICA on 01.10.2019 as no resolution plan was put forth and, as of 01.10.2019, no lenders’ meetings had also been convened by the Lead Lender post execution of the ICA to decide on a resolution plan/strategy. Following its withdrawal from the resolution process under the ICA, the Financial Creditor issued a recall notice to the Corporate Debtor on 17.12.2019, declaring all amounts, i.e., INR 442 crores as being immediately due and payable to the Financial Creditor, and thereafter filed the present Company Petition.
It is submitted that the Hon’ble National Company Law Tribunal, Mumbai Bench in Bank of India v. TD Toll Road Private Limited CP (IB) 2803/MB/2019, held that the Insolvency and Bankruptcy Code, 2016 (“IBC”) is not subservient to the inter-creditor agreement as the only requirement is to establish debt and default beyond doubt as provided under Section 7 of the IBC and in light of the Hon’ble Supreme Court’s decision in Innoventive Industries Limited v. ICICI Bank reported in 2017 SCC OnLine SC 1025. Further, the Bench had also discussed Section 238 of the I&B Code, 2016, which provides that:
“The provision of this Code shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law.”
In view of the overriding effect of the Code, the Inter-Creditor Agreement that has been entered between some of the consortium members, at no stretch of imagination, will come in the way of admission of the petition under Section 7 of the Code when debt and default is proved beyond doubt. The petitioner having consented and executed the Inter Creditor Agreement has not waived its statutory rights by a contractual agreement, but have only envisaged a mechanism/procedure to jointly enforce the loan as a consortium.
Further, an appeal was sought by Amitabh Kumar Jha, Director of TD Toll Road Private Limited before the Hon’ble National Company Law Appellate Tribunal in Company Appeal (AT) (Insolvency) No. 1392 of 2019, wherein the Hon’ble National Company Law Appellate Tribunal held that :
“……notwithstanding the fact that neither the claims barred by law nor do such Financing Documents clothe the ‘Corporate Debtor’ with a right to disentitle the ‘Financial Creditor’ from enforcing its claim, in its individual capacity, despite being a member of the consortium of lender.” Further, the statutory right across the ambit of Section 7 of the IBC cannot be curtailed or made subservient to any inter-creditor agreement and accordingly the appeal was dismissed.”
In light of the above decisions and the fact that the Corporate Debtor is not even a party to the ICA, it is submitted that the statutory rights of the Financial Creditor provided under the IBC cannot be barred by virtue of any inter-creditor agreement. Further, the ICA, which is an inter-se agreement among lenders, does not and cannot have any overriding effect over the obligations of the Corporate Debtor under the Loan Facility Agreement.
Having admitted applicability of the RBI Directions, 2019, can the Applicant maintain the present application?
As stated in response to clarification (1) above, it is submitted that the RBI Directions, 2019 are applicable to the Corporate Debtor’s account and the ICA was executed in furtherance of the RBI Directions, 2019. However, it is submitted that nowhere in the RBI Directions, 2019 does it state that a lender may not take action under Section 7 of the IBC in cases where the RBI Directions, 2019 may be applicable. In fact, paragraph 9 of the RBI Directions, 2019 explicitly provides that “During this Review Period of thirty days, lenders may decide on the resolution strategy, including the nature of the RP, the approach for implementation of the RP, etc. The lenders may also choose to initiate legal proceedings for insolvency or recovery.” Further, it is submitted that the right to initiate insolvency proceedings under Section 7 of the IBC is a statutory right that cannot be taken away on the basis of a circular issued by the RBI.
It is further submitted that in light of the time bound nature of resolution process prescribed under the RBI Directions, 2019, the time period for operation of the stand-still in the ICA is provided in Section 13(2) of the ICA as follows:
“The aforesaid standstill period will be operative for an initial period of 30 days from the commencement of the Review Period. In the event that the Lenders decide on implementation of the Resolution Plan as the resolution strategy in accordance with the Regulatory Framework, then the standstill provision shall extend during the implementation of the Resolution Plan (which is currently 180 (One hundred and eighty) days from the end of the Review Period or such other period as may be prescribed for implementation of the Resolution Plan under the Regulatory Framework) provided that the standstill shall immediately lapse on implementation of the Resolution Plan or if resolution process is terminated by the Majority Lenders.”
As stated above, the “Review Period” in the ICA is based on the definition of Review Period in the RBI Guidelines, 2019 and refers to the period of 30 days from the reference date, being the date of the RBI Directions, 2019 (i.e., 07.06.2019). From a plain reading of Clause 13(2) of the ICA dated 06.07.2019, it is clear that the standstill provision was for an initial period of 30 days from the commencement of the Review Period and would be extended to a further period of 180 days only in the event of lenders deciding on implementation of the Resolution Plan. It is submitted that in the instant case, there was no decision on formulation of a resolution plan and there was no decision to implement any resolution plan. Accordingly, the stand still clause in Clause 13(2) did not apply beyond the 30 days review period which commenced on 07.06.2019. Therefore, the Financial Creditor has every right to pursue all available legal remedies to it, including initiating the present proceedings.
It is submitted that in the absence of the consortium of lenders deciding on the implementation of any Resolution Plan within the Review Period, the stand still clause in the ICA did not bar the Financial Creditor from moving this Hon’ble Tribunal with the above Company Petition.
Ld. Sr. Counsel placed reliance on the ruling of Hon’ble Supreme Court in Innoventive Industries Limited v. ICICI Bank reported in 2017 SCC OnLine SC 1025, wherein it held that in the case of a Corporate Debtor who commits a default of a financial debt, “the adjudicating authority has to merely to see the records of the information utility or other evidence produced by the financial creditor to satisfy itself that a default has occurred”.
Ld. Sr. Counsel submitted that, as the Financial Creditor has produced record of default from the information utility i.e., National E-governance Services Limited, along with I.A. No. 339 of 2020 the default in this case stands established.
Whether the directions of RBI 2019, which came into effect from 07.06.2019, being mandatory can withdrawal of the Financial Creditor from the process under the said directions, has any impact?
According to the Ld. Sr. Counsel, certain consortium lenders, including the Financial Creditor herein, executed the ICA, in furtherance of the RBI Directions, 2019. The Financial Creditor subsequently withdrew from the ICA after the completion of the Review Period. It is submitted that under the terms of the ICA and the RBI Directions, 2019, the lenders were to agree in principle to a resolution plan within the 30-day Review Period. As no in-principal agreement among the Majority Lenders was reached within the Review Period, the stand still under the ICA no longer applied and the Financial Creditor was entitled to withdraw from the resolution process provided under the ICA.
It is further submitted that the RBI Directions, 2019 provide for a time bound resolution of stressed assets. In light of the fact that no resolution was reached within the timeline stipulated under the RBI Directions, 2019 and no resolution has been reached between the Corporate Debtor and consortium lenders to date, it is submitted that the Financial Creditor cannot be prevented from filing the present Company Petition. Therefore, as the standstill lapsed after the Review Period, the Financial Creditor was well within its rights to withdraw from the ICA and initiate insolvency proceedings against the Corporate Debtor under the IBC.
Ld. Sr. Counsel would submit that the mere fact that the other Joint lenders’ decision taken on 11.01.2022, to initiate CIRP against the present Corporate Debtor is indicative of the fact that the said lenders have first resorted to the process under RBI Directions, 2019 and thereafter having failed to get any resolution plan in terms of RBI Directions, 2019 has resorted to CIRP as such the present Application is premature, hence violative of RBI Direction, 2019 is unsustainable. Ld. Sr. Counsel submits that the RBI Directions, 2019 do not contain any provision which restricts any lender from approaching this Hon’ble Tribunal under the provisions of the IBC. It is a lenders’ prerogative to approach this Hon’ble Tribunal by exercising its statutory right under the IBC and each lender has the right to decide the point in time at which it is ready to approach this Hon’ble Tribunal. The RBI Directions, 2019 do not restrict the exercise of this statutory right.
Further, Section 238 of Insolvency & Bankruptcy Code, 2016 states that:
“238.The provisions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such Law.” Therefore, in view of the overriding effect of the IBC, it cannot be said that the Financial Creditor is barred from filing the present Company Petition in light of the RBI Directions, 2019. By consenting to and being part of the ICA, the Financial Creditor has not waived its statutory rights provided under the IBC over a contractual agreement which only proposes a procedure to jointly recover the loan as a consortium, which in the instant matter was not fruitful.
It is further submitted that, even assuming (without admitting) that the RBI Directions, 2019 and the execution of the ICA may have initially prevented the Financial Creditor from approaching this Hon’ble Tribunal, Clause 13.2 of the ICA is very clear that the stand-still applies only for the duration of the 30-day Review Period. As no resolution plan was agreed in-principle by the Majority Lenders within the Review Period, the Financial Creditor was free to withdraw from the resolution process and file the instant Company Petition. As a consequence, the filing of the Company Petition is in no way premature as it was filed after conclusion of the Review Period under the ICA and the RBI Directions, 2019.
It is submitted that the facilities extended by the senior lenders, including the Financial Creditor, have been classified as non-performing assets since 29.11.2017. As can be seen from the minutes of the Joint Lender Forum dated 11.01.2022, the other consortium lenders are also considering initiating proceedings under the IBC. The fact that other consortium lenders are considering initiating proceedings, further demonstrates that no resolution outside of the IBC is feasible and that this Company Petition, which has been pending for over two years, deserves to be admitted without any further delay.
In the above backdrop, we proceed to decide the Point, by referring at the outset to Direction 9 of the Reserve Bank of India (Prudential Framework for Resolution of Stressed Assets) Directions 2019, wherein it is stated that :
“In any case, once a borrower is reported to be in default by any of the lenders mentioned at 3(a), 3(b) and 3(c), lenders shall undertake a prima facie review of the borrower account within thirty days from such default (“Review Period”). During this Review Period of thirty days, lenders may decide on the resolution strategy, including the nature of the RP, the approach for implementation of the RP, etc. The lenders may also choose to initiate legal proceedings for insolvency or recovery.”
Therefore, it is manifest from the above The Reserve Bank of India (Prudential Framework for Resolution of Stressed Assets) Directions 2019 (‘RBI Directions, 2019’ for brevity), which came into effect on 07.06.2019, the lenders shall mandatorily undertake a prima facie review of the borrower’s account within 30 days from such default and decide on a resolution strategy and in the event of Lenders deciding to adopt a possible resolution plan, the Lenders to enter into an ‘Inter Creditor Agreement’ providing framework for finalization and implementation of a possible resolution plan.
Since some of the Senior Lenders of the Corporate Debtor entered into an Inter Creditor Agreement, for short ‘ICA; dated 06.07.2019, Ld. Sr. Counsel for the Corporate would contend that the same signifies that the lenders have decided to adopt a possible resolution plan, therefore, Clause in terms of clause 13.2 of the ICA, which says that the standstill provision shall extend during the implementation of the Resolution Plan (which is currently 180 days from the end of the Review period, i.e. upto 19.08.2020, however, the Company Petition having been filed on 19.12.2019, well before the completion of 180 days is not only premature but also in violation of the Stand Still Clause 13 of the ICA dated 06.07.2019 hence not maintainable.
Learned senior counsel in this regard also placed reliance on Clauses 7.3 (a) and (b) of the RBI Circular which provide that:
“(a)the Resolution Plan that is approved by the Majority Lenders shall be final and binding on all the Lenders and each Lender (including the Dissenting Lenders) agrees and undertakes to be bound by the approved Resolution Plan;
(b)during the resolution process and during the implementation of the Resolution Plan that has been approved by the Majority Lenders in accordance with this Agreement and the Regulatory Framework, each Lender (including if such Lender is a Dissenting Lender) agrees that it shall not initiate any legal action or proceedings (including proceedings under IBC) against the Borrower or any other person that may jeopardise the successful implementation of the Resolution Plan in accordance with the terms of such Resolution Plan;”
Having examined the above along with relevant provisions/clauses in RBI Directions, 2019 and the ICA dated 06.07.2019, supra, we are unable to subscribe to the view of the Ld. Sr. Counsel for the corporate debtor as, Clause 13.2 of the ICA, categorically states that in the event the Lenders decide on implementation of a Resolution Plan the standstill period shall extend during the implementation of the Resolution Plan (which is currently 180 (one hundred and eighty) days from the end of the Review period, thus making the approval of the resolution plan if any within 30 days imperative and only upon such approval the stand still period gets extended to 180 days. Therefore, the sine qua non, for extension of the standstill period from initial 30 days to 180 days, the lenders should decide to implement the Resolution Plan, lest the initial period of 30 days will not get enlarged to 180 days.
During the course of hearing, we have specifically inquired with the learned Senior counsel for the financial creditor whether any resolution plan as contemplated under the RBI Directions, supra, has been received from the Corporate Debtor within the initial period of 30 days, to which the learned senior counsel submitted that no resolution plan has been received by the Senior Lenders, however, discussions in this regard have happened with the Senior Lenders, in the JLF Meetings held on 02.07.2019, 15.11.2019 and 21.01.2020. Therefore, it is overwhelmingly clear that no Resolution Plan has been submitted by the Corporate Debtor within the initial standstill period of 30 days which had commenced on 07.06.2019, as such enlargement of time of 180 days as pleaded is unsustainable and untenable.
65.Now coming to the other submission of the learned counsel for the Corporate Debtor that the fact that the creditors have entered into Inter-creditor Agreement (ICA) itself is indicative of the fact that the lenders intend to consider implementation of the Resolution Plan, as such it is imperative for the lenders to wait till completion of the standstill period of 180 days for taking recourse to recovery of their dues, it is to be stated that we have already held that the submission of the Resolution Professional that within the initial 30 days’ time is, sine qua non, for enlargement of initial standstill period of 30 to 180 days and in the case on hand as no such Plan has been submitted the question of enlargement of time beyond 30 days does not arise. We may therefore, add herein that the embargo in terms of Clause 13.2 of the ICA insofar as the case on hand is concerned at the best may have prevented the Financial Creditor from initiating recovery proceedings only during the initial 30 days period and not beyond.
66.That apart, it is apt to refer herein to Clause 10 of the ICA which provides for exit from Resolution process in the above back drop of no resolution plan having been received by the lenders, which is as below.
“10.2At the end of the standstill period specified in Clause 13.2 below, each lender shall be entitled to take necessary actions in accordance with the Regulatory Framework including taking any enforcement action under IBC or otherwise and to this extent, this Agreement shall prevail over the terms of the Amended and Restated Inter Creditor Agreement. It is clarified that no notice or waiting period shall be applicable to any Lender for taking any necessary actions including enforcement action against the borrower after the expiry of the standstill period specified in Clause 13.2 below.” More over Clause 13.3 of the ICA says that:
“The aforesaid standstill provision shall not preclude the lenders from initiating or continuing any action against the borrower or its promoters/ directors/ officials or other persons for criminal offences.” Hon’ble NCLAT in re. Amitabh Kumar Jha Vs. Bank of India, supra, held that:
“ .. .. The Clauses in the ‘Inter-Creditor Agreement’ would not supersede the rights and obligations of Rupee Lenders in their independent capacity and this is further reinforced by Clause 1.3 of the ‘Inter-Creditor Agreement”. The ruling below, in re, relied on by the Ld. Sr. Counsel for the Applicant wherein it was held that;
“……notwithstanding the fact that neither the claims barred by law nor do such Financing Documents clothe the ‘Corporate Debtor’ with a right to disentitle the ‘Financial Creditor’ from enforcing its claim, in its individual capacity, despite being a member of the consortium of lender.” Further, the statutory right across the ambit of Section 7 of the IBC cannot be curtailed or made subservient to any inter-creditor agreement and accordingly the appeal was dismissed.”
67.The submission of the learned senior counsel for the Financial Creditor that, even if there is violation of the terms of ICA, the parties to the said ICA alone can initiate action against the applicant herein and the Corporate Debtor who admittedly is not a party cannot take shelter under any of the clauses in ICA, is not without force, as the said clause was incorporated to protect the interests inter se, all the lenders, and the Corporate Debtor especially when they fail to submit any resolution plan with the standstill period, cannot have any locus standi, to fall back on the said clause.
68.We are therefore, are not convinced with the submission of the Ld. Sr. Counsel for the Corporate Debtor that the present application as filed is premature, violative of RBI Directions and the clauses in ICA, as such the same is not maintainable.
69.Now coming to the yet another contention of the Corporate Debtor that unless the obligations of the priority lenders are met by the Corporate Debtor the other lenders like the applicant cannot raise their demand for discharge of their loans, and as the present demand having been raised before the priority lenders were discharged, the same is not maintainable, we are not convinced by the said submission inasmuch what priority lenders can get under the agreement is priority in payment of their dues over other lenders and nothing more. It is pertinent to note that even though the priority lenders’ claims have been satisfied, since no worthwhile payment has been made to other Senior Lenders, including this applicant the applicant has preferred this application.
70.Therefore, in light of the above discussion, upon considering the submissions of the learned senior counsel, we are of the view that the applicant herein has established that neither the directions of the RBI nor the terms of ICA create any legal embargo for repayment of the debt that was admittedly due and payable by the Corporate Debtor. The applicant herein is able to prove existence of a financial debt which is over Rs.1 crore and its default, hence the application as filed by the Financial Creditor is found to be fit for admission. Accordingly the application is allowed. The Corporate Debtor was put under CIRP forthwith.
71.Hence, the Adjudicating Authority admits this Petition under Section 7 of IBC, 2016, declaring moratorium for the purposes referred to in Section 14 of the Code, with following directions:-
(A)Corporate Debtor, M/s GVK Power (Goindwal Sahib) is admitted in Corporate Insolvency Resolution Process under section 7 of the Insolvency & Bankruptcy Code, 2016,
(B)The Bench hereby prohibits the institution of suits or continuation of pending suits or proceedings against the Corporate Debtor including execution of any judgment, decree or order in any court of law, Tribunal, arbitration panel or other authority; transferring, encumbering, alienating or disposing of by the Corporate Debtor any of its assets or any legal right or beneficial interest therein; any action to foreclose, recover or enforce any security interest created by the Corporate Debtor in respect of its property including any action under Securitization and Reconstruction of Financial Assets and Enforcement of Security interest Act, 2002 (54 of 2002); the recovery of any property by an owner or lessor where such property is occupied by or in possession of the corporate Debtor;
(C)That the supply of essential goods or services to the Corporate Debtor, if continuing, shall not be terminated or suspended or interrupted during moratorium period.
(D)Notwithstanding anything contained in any other law for the time being in force, a license, permit, registration, quota, concession, clearances or a similar grant or right given by the Central Government, State Government, local authority, sectoral regulator or any other authority constituted under any other law for the time being in force, shall not be suspended or terminated on the grounds of insolvency, subject to the condition that there is no default in payment of current dues arising for the use or continuation of the license, permit, registration, quota, concessions, clearances or a similar grant or right during the moratorium period.
(E)That the provisions of sub-section (1) of Section 14 shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator.
(F)That the order of moratorium shall have effect from 26th June 2020 till the completion of the Corporate Insolvency Resolution Process or until this Bench approves the Resolution Plan under Sub-Section (1) of Section 31 or passes an order for liquidation of Corporate Debtor under Section 33, whichever is earlier.
(G)That the public announcement of the initiation of Corporate Insolvency Resolution Process shall be made immediately as prescribed under section 13 of Insolvency and Bankruptcy Code, 2016.
(H)That this Bench hereby appoints Shri Ravi Sethia, having Registration No. IBBI/ IPA-001/ IP-P01305/ 2018-2019/ 12052, as Interim Resolution Professional, whose contact details as mentioned in the application are: e-mail: [email protected] Address: Ravi Sethia C/o BSRR & Co. TH 8 Floor, Building 10, Tower-C DLF Cyber City, Gurgaon Haryana – 122002. as Interim Resolution Professional to carry the functions as mentioned under the Insolvency & Bankruptcy Code.
(I)Proposed IRP has filed Form-2 at Annexure-4. His Authorisation for Assignment is valid upto 04.01.2023. This information is also available in IBBI Website. Thus, there is compliance of Regulation 7A of IBBI (Insolvency Professionals) Regulations, 2016, as amended. Therefore, the proposed IRP is fit to be appointed as IRP since the relevant provision is complied with.
72.Registry of this Tribunal is directed to send a copy of this order to the Registrar of Companies, Hyderabad for marking appropriate remarks against the Corporate Debtor on website of Ministry of Corporate Affairs as being under CIRP.
73.Accordingly, this Petition is admitted.