Power Finance Corporation Limited vs KVK Nilachal Power Private Limited

Per: Dr. Binod Kumar Sinha, Member Technical.

The present petition is filed by 'Power Finance Corporation Limited' (hereinafter referred to as 'Petitioner/Financial Creditor') under section 7 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as IB Code, 2016) read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 against M/s. KVK Nilachal Power Private Limited (hereinafter referred to as 'Respondent/Corporate Debtor').

Brief facts of the present case are as under:

The Petitioner/Financial Creditor, is a Public Financial Institution under section 4A of the Companies Act, 1956 and under section 2 (72) of the Companies Act, 2013, having its Registered Office at "Urjanidhi", 1 Barakhamba Lane, Connaught Place, New Delhi - 110 001, whereas the Respondent/Corporate Debtor is a private limited company incorporated under the Companies Act, 1956, and having its registered office at 6-3-1109/A/1, 3rd Floor, Navabharat Chambers, Raj Bhavan Road, Somajiguda, Hyderabad - 500 082, Telangana. The main objects of the Corporate Debtor are to carry on the business of production, collection & distribution of Electricity.

It is stated that on being approached by the Corporate Debtor, the Financial Creditor and other consortium lenders comprising of Housing and Urban Development Corporation Limited (HUDCO), India Infrastructure Finance Company Limited (IIFCL) and UCO Bank had entered into financing/loan documents on 13.05.2008 for a total amount of ₹1080,00,00,000/- (Rupees One Thousand and Eighty Crores) for phase-1 of the project on stipulated terms and conditions, consisting of Senior Rupee Debt 'A' facility for an amount of ₹945,00,00,000/- (Rupees Nine Hundred Forty Five Crore) and Senior Rupee Debt 'B' Facility for an amount of ₹135,000,00,00/- (Rupees One Hundred and Thirty Five Crore). The Respondent proposes to develop, own, design, finance, construct, commissions, operate and maintain a 300 MW coal based thermal power plant at Gurudijhatia village, Cuttack District of Orissa (hereinafter referred to as the "Project".

It is stated that in pursuant to the aforesaid sanction, the Respondent herein executed the following security and financial documents:

Board Resolution dated 04.06.2007.

Senior Rupee Debt 'A' Agreement dated 13.05.2008.

Senior Rupee Debt 'B' Agreement dated 13.05.2008.

Lenders Agent Appointment Agreement dated 13.05.2008.

Security Agent Appointment Agreement dated 13.05.2008.

Inter Creditor Agreement dated 13.05.2008.

Share subscription Retention and Undertaking dated 13.05.2008.

Unattested Memorandum of Hypothecation dated 17.07.2008.

Deed of pledge dated 17.07.2008.

Indenture of Mortgage dated 20.10.2008 for creation of Mortgage on a piece and parcel of land situated in the State of Gujarat and other assets of the borrower.

Memorandum of entry dated 16.05.2011 based on oral assent and consent of Mr. K. Vijayakumar acting in his capacity as director of the borrower company accompanied by deposit of title deeds made to the petitioner herein with an intent to create security on the immoveable properties as stated in the 2nd Schedule to the Memorandum of Entry.

Director's Declaration dated 16.05.2011 by Mr. K. Vijayakumar acting in his capacity as director of the Respondent/Corporate Debtor in respect of the immoveable properties described in this 1st Schedule along with the list of documents of title deeds and writings evidencing clear and marketable freehold title to the immoveable properties as described in the 2nd Schedule.

It is stated that the Petitioner in terms of its letter of sanction and amendments thereto and the Senior Rupee Debt 'A' & 'B' Agreements dated 13.05.2008 disbursed to the Corporate Debtor from 22.12.2008 to 14.10.2014 are as follows:

It is stated that pursuant to the signing of the financing documents and the securities created in respect thereof, as required as per the terms and conditions provided therein, the Petitioner disbursed to the Respondent the total amount of ₹398,59,05,102.00/- (Rupees Three Hundred and Ninety Eight Crore Fifty Nine Lakhs Five Thousand One Hundred and Two Only) from time to time..

It is stated that the common senior Rupee Debt 'A' & 'B' Agreement provided for an amortization schedule in terms of which the Respondent was required to make repayment of the principal amount of the said loan and the interest arising therefrom including monies/fee/charges/expenses etc., due and payable as well as to comply with the terms and conditions/covenants as per the provisions contained therein.

It is stated that on the request of the Corporate Debtor, the Petitioner vide its letter dated 18.09.2012 approved extension of project commissioning from 21.12.2011 to 31.06.2014 and corresponding shift in loan availability period from 30.06.2012 to 31.12.2014, repayment started from 15.07.2012 to 15.01.2015 and corresponding shifting of the amortization schedule.

It is stated that despite regular and persistent follow up, the Respondent failed to repay timelines of principal as well as the interest and as such the Respondent Company's account became sub-standard as per the norms. That the same was classified as a Non-Performing Asset with effect from 15.04.2015.

It is stated that on the request of the Corporate Debtor, the Petitioner vide its letter dated 07.04.2015 again extended the first principal repayment which was started from 15.01.2015 to 15.01.2018 and the same was acknowledged by the Respondent/Corporate Debtor vide its letter dated 29.04.2015.

It is stated that as aforesaid, on the request of the borrower/Corporate Debtor, the account of the borrower was approved to be restructured. It is also submitted that the Respondent failed to repay the dues even under the restructured terms as and when they became payable. The details of restructuring is as follows:

It is stated that the Petitioner herein repeatedly apprised the Respondent of the defaults committed by it vide letters dated 09.06.2016, 15.09.2016, 14.03.2017, 16.10.2017, 04.12.2017 & 20.12.2017.

It is further stated that the Petitioner was constrained to issue a recall notice dated 12.04.2018 to the Corporate Debtor asking the Corporate Debtor to make payment within 15 days i.e., on or before 27.04.2018. However, no payment has been made by the Corporate Debtor and a reply dated 19.04.2018 has been received to the notice. In the reply, except for bald and generalized denial, the debt has not been denied, rather has been specifically admitted by the Corporate Debtor.

It is stated that the final amount of debt as quantified by the Petitioner stands at ₹668,89,74,469.00/- (Rupees Six Hundred Sixty Eight Crore Eighty Nine Lakhs Seventy Four Thousand Four Hundred and Sixty Nine Only) inclusive of interest, further interest and liquidated damages as on 14.04.2018.

The Petitioner/ Financial Creditor in support of its claim has placed several documents evidencing the default as stated below:

Letter dated 18.09.2012 issued by the Petitioner to the Corporate Debtor providing extension of COD from 21.12.2011 to 30.06.2014;

Letter dated 07.04.2015 issued by the Petitioner/Financial Creditor to the Corporate Debtor extending the first principal repayment started from 15.01.2015 to 15.01.2018;

Letter dated 29.04.2015 sent by the Corporate Debtor acknowledging the extension of time granted by the Petitioner/Financial Creditor;

The default committed by the Corporate Debtor in repayment were brought to the notice of the Corporate Debtor by the Petitioner vide letters dated 09.06.2016, 15.09.2016, 14.03.2017, 16.10.2017, 04.12.2017 & 20.12.2017;

The Petitioner/Financial Creditor sent a Recall notice dated 12.04.2018 to the Corporate Debtor asking the Corporate Debtor to make payment within 15 days, on or before 27.04.2018;

Copy of report from Credit Information Bureau of India Limited (CIBIL) in respect of the Corporate Debtor dated 24.05.2018;

A copy of the Balance Sheet of the Corporate Debtor as on 31.03.2017;

Reiterating above, the counsel for Petitioner prayed to allow the instant Petition.

Respondent filed counter dated 20.08.2019, stating that all the allegations made in the Company petition are false and denied, except those which are specifically admitted hereunder. It is submitted that the Respondent had executed a Memorandum of Understanding with the State of Orissa, for settling up a 1050 MW Coal based Thermal Power Plant in Kandrei, District Dhenkanal, Odisha. The project was to be implemented in two phases i.e., Phase I of 350 MW and Phase II of 700 MW. The MoU, inter-alia provides that the state government of Orissa will assist the Respondent in all possible ways for settling up the project.

It is stated that the total project cost for 1050 MW project was envisaged to be an amount of ₹4990 Crores. The Respondent approached the consortium of lenders led by the Petitioner for availing loan facility for settling up Phase I (350 MW) of the said project. The total loan sanctioned for Phase I of the project by the consortium of lenders led by Petitioner was ₹1080 Crores. Accordingly, the relevant agreements including the Facility Agreement were executed between the Respondent and the consortium of lenders, containing the details of loan availed, disbursements to be made, repayment schedule, quantum of interest etc. As per the arrangement with the lenders, the Respondent had to complete Phase I of the project by 30.06.2014 and commence repayment of principal and interest amount from 15.01.2015.

It is stated that in terms of the facility arrangement, Petitioner has sanctioned ₹405 Crores and disbursed an amount of ₹398.59 Crores, HUDCO has sanctioned ₹360 Crores and disbursed an amount of ₹348.71 Crores, IIFCL has sanctioned ₹250 Crores and disbursed an amount of ₹229.91 Crores and UCO Bank has sanctioned ₹65 Crores and disbursed an amount of ₹65 Crores. Therefore, in total the lenders have sanctioned an amount of ₹1080 Crores, out of which an amount of ₹1042.21 Crores has been disbursed.

It is stated that on 18.02.2009, the Ministry of Environment & Forest (MoEF) granted the Environmental Clearance for the Respondent's project after following the detailed procedure stipulated under its relevant notifications including public consultation and hearing. It may be noted that the Environmental Clearance granted by the Ministry of Environment & Forest (MoEF) clearly states that "No Ecologically Sensitive Area is reported in (10\mathrm{km}) area of the project...".

It is stated that, while the construction of the Respondent's project was going on, a notification was issued on 02.04.2011 by the State of Odisha under the provisions of the Wildlife Protection Act, 1972 which was published in the official gazette on 29.04.2011 whereby a wildlife sanctuary by the name of 'Kapilash' in Dhenkanal District, was designated as such by the State Government.

It is stated that, one Charidesh Krusak Surakhya Sangha, claiming itself to be an NGO filed a false and frivolous Public Interest Litigation being WP (PIL) No.9384/2012 against the Respondent/Corporate Debtor claiming that the project of the Respondent falls within the radius of 10 Kms of Kapilash Wildlife Sanctuary and therefore the Respondent cannot continue with the construction activities of its project unless and until it obtains wildlife clearance from the National Board of Wildlife constituted by the Ministry of Environment & Forest (MoEF). The MoEF, the State of Odisha and the Corporate Debtor were impleaded as party Respondents to the said writ petition. This allegation of the NGO was based on an order dated 04.12.2006 passed by the Hon'ble Supreme Court in the case of Goa Foundation Vs Union of India (WP (C) No.460/2004), and a subsequent Office Memo dated 02.12.2009 issued by the MoEF in relation to obtaining Wildlife Clearance for the projects. The Respondent therein also relied on MoEF guidelines dated 21.04.2011 on forest clearance.

It is stated that the on the basis of Order of the Hon'ble Supreme Court in Goa Foundation case and Office Memo of MoEF, the Hon'ble High Court of Orissa passed an ex-parte ad-interim Order on 18.05.2012 directing that status quo shall be maintained with respect to 10 Kms radius of Kapilash.

It is stated that on discovering that an ex-parte status quo order had been passed against the Respondent, the Respondent immediately filed an Application for vacation of the stay order before the Hon'ble Orissa High Court. While, the said Application was being heard, the Hon'ble High Court passed an Order dated 25.06.2012 directing the MoEF to dispose of the Application filed by the Respondent seeking wildlife clearance as expeditiously as possible and preferably within a period of three weeks and submit a report of the same to the Hon'ble Court. The Hon'ble High Court further directed that for the said purpose the concerned departments of the State Government as well as the Central Government shall extend all necessary cooperation for the Standing Committee by supplying the relevant records as required to facilitating the Committee to take decision quickly. Admittedly, the MoEF did not take any steps pursuant to the said Order passed by the Hon'ble High Court. The MoEF filed an affidavit dated 17.07.2012 stating that it had not received any application in respect of the Respondent.

It is stated that on the application filed by the Respondent, the Hon'ble High Court passed another Order dated 22.08.2012 refusing to vacate the interim order dated 18.05.2012 and directing that the writ petition be finally heard. The Hon'ble High Court observed that since a committee has been constituted by the State Government to determine the eco-sensitive zone for the protected areas and also to determine other aspects as mentioned in the said notification and as the said committee is required to submit its report within two months from the date of the notification, it is directed that the State Government shall take all necessary steps to demarcate the eco-sensitive zone as expeditiously as possible as per the notification and forward the same to the MoEF for its consideration and publication of notification. No report was furnished within period of two months and it was only on 17.06.2015 that the eco-sensitive zone for Kapilash Sanctuary was notified after a delay of three years.

It is stated that the proceedings remained pending before the Hon'ble High Court for the next two years and the status quo Order continued to remain in force. The writ petition was finally dismissed by the Hon'ble High Court vide final judgment dated 16.05.2014 holding that there was no prohibition on the Respondent to carry out its construction activities pending clearance from National Board of Ministry of Environment & Forest (MoEF). This Hon'ble High Court found no merit in the petition and the stand of the Respondent was vindicated. However, the issues which should have been put to rest by the MoEF by making its stand clear before this Hon'ble High Court that there was no prohibition on carrying on construction activities pending Wildlife Clearance, was allowed to be lingered on for a long period of time for no reason but for the lackadaisical and indifferent attitude of the MoEF amounting to gross dereliction of its constitutional and legal obligations, on account of which the Respondent has suffered harm and injury of a nature leaving the Respondent's project as unviable.

It is stated that the extent and magnitude of suffering of the Respondent is such that the initial project cost of Phase I (350 MW) as approved by the lenders of the Respondent led by the Petitioner was ₹1350 Crores and the revised project cost for Phase I as approved by the lenders on 07.04.2015 stands at ₹2768.25 Crores, thus resulting in an increased cost of ₹1418.25 Crores as indicated in the project Information Memorandum of Petitioner. The injury caused to the Respondent is very severe on account of delay in construction of the project. The Respondent was forced to pay the amount of interest at the rate of ₹32 Lakhs per day. The total loss suffered by the Respondent on account of interest alone stands at a colossal figure of ₹406.77 Crores (1247 days i.e., 18.05.2012 to 15.10.2015).

It is stated that due to the said litigation the entire construction activities had come to standstill for approx. 2 years, which has led the Petitioner to suffer huge financial difficulties and the project cost for Phase I (350 MW) as approved by the lenders of the Petitioner was ₹1350 Crores and the revised project cost for Phase I as approved by the lenders on 07.04.2015 inflated to ₹2768.25 Crores, resulting in an increased cost of ₹1418.25 Crores.

It is stated that the Respondent could not recuperate from the said loss and resume the construction of the project. As the matter stood thus, the Petitioner who is the lead lender has declared the account of the Petitioner as NPA vide notice dated 13.07.2015. It is stated that aggrieved by the said notice, Respondent had preferred a Writ Petition before the Hon'ble High Court of Orissa vide WP (C) No.23216 of 2015, wherein the Respondent had sought for waiver of the interest during the period from 18.05.2012 till the Respondent was liable to resume the project.

It is stated that the matter stood thus, pending the WP (C) No.23216 of 2015, the Petitioner has filed the present company petition under section 7 of Insolvency and Bankruptcy Code, 2016 against the Respondent. At that juncture the Respondent has filed an Interlocutory Application in WP (C) No.23216 of 2015 vide Misc Case No.10710 of 2018. The Hon'ble High Court was pleased to order the parties to maintain the Status Quo in respect with the Company Petition pending before the Hon'ble Tribunal vide Order dated 08.08.2018.

It is also stated that the Hon'ble High Court has disposed of the WP (C) No.23216 of 2015, vide Order dated 18.03.2019 whereby directing the Corporate Debtor, to move the State Government of Orissa, more particularly the Chief Secretary of the State, with an Application/representation latest by 25.03.2019 serving copy of the same to the Petitioner (Power Finance Corporation & others). The said representation was filed on 03.04.2019 with Government of Orissa, which was rejected by the said Govt. vide their report dated 13.08.2019. It is submitted that the Respondent is taking steps to challenge the said action of Govt. of Orissa and therefore, the present proceedings may be stayed.

The present petition was filed on 08.06.2018 and after scrutiny by the registry, the same was first listed on 17.07.2018 and the Petitioner was directed to issue notice of date of hearing to the Respondent and the matter was adjourned to 09.08.2018.

During the hearing held on 09.08.2018, the counsel for Respondent requested time to file counter and the matter was adjourned to 30.08.2018.

During the hearing held on 30.08.2018, the counsel for the Respondent stated that the Hon'ble High Court of Orissa at Cuttack granted status quo in WP (C) No.23216 of 2015 by its order dated 08.08.2018 and placed the copy of the Order of the Hon'ble High Court and the matter was adjourned to 27.09.2018 and in view of the status quo Order of Hon'ble High Court, the matter was adjourned to 31.10.2018, 12.12.2018, 28.01.2019, 22.02.2019, 12.03.2019, 27.03.2019 and 01.05.2019.

During the hearing held on 01.05.2019 the counsel for the Financial Creditor filed memo stating that the order of status quo passed by the Hon'ble High Court of Orissa got vacated. The counsel for the Respondent/Corporate Debtor prayed short time for verifying the order to make submissions and at request the matter was adjourned to 09.05.2019 and further adjourned for hearing to 14.05.2019

During the hearing held on 14.05.2019, counsel for the Respondent filed memo stating that the Hon'ble High Court of Orissa granted liberty to the Corporate Debtor to give a representation to the state Govt. for consideration. The representation given by the Corporate Debtor is pending consideration and the hearing for the said representation will be on 15.05.2019 as per the letter from the Government of Orissa dated 30.04.2019. At his request, time was enlarged for making submissions and also to file counter and the matter was posted to 20.06.2019.

During the hearing held on 20.06.2019, Respondent's counsel filed a memo stating that the Hon'ble High Court of Orissa has disposed IA No.7401/2019 in WP (C) No.23216/2015 wherein status quo order granted on 18.03.2019 is extended to another three months from 14.05.2019 to 14.08.2019. In the view of the submissions, matter was adjourned to 19.08.2019.

During the hearing held on 19.08.2019, the counsel for the Respondent prayed time for filing counter till 21.08.2019. On 21.08.2019, the Respondents filed counter and the matter was heard at length and was reserved for orders.

Heard both the sides and perused the record.

In the instant Petition, the Petitioner has proved its case by placing documentary evidence viz., Copies of Facility Agreements and sanction letters, date and details of all disbursements of the facilities etc., and copies of entries in Bankers Book in accordance with the Bankers Books Evidence Act, 1891 (18 of 1891) which proves that a default has occurred for which the present Corporate Debtor was liable to pay. In their counter affidavit, the Respondents have not denied the facts regarding the existence of 'financial debt' and 'default' committed by it, rather it has given a detailed history of its litigation with the Govt. of Orissa and MoEF, Govt. of India. At present stage, such litigation has no direct relation with the instant petition which is filed under section 7 of the IB Code, 2016. The WP filed for waiver of interest has also been disposed of by Hon'ble High Court of Orissa.

The Hon'ble Supreme Court, while deciding the matter in the case of INNOVENTIVE INDUSTRIES LTD. Vs. ICICI BANK & ANR., in Civil Appeal Nos. 8337-8338 of 2017, held as under that:

In the present case, this Adjudicating Authority is satisfied with the submissions put forth by the Petitioner/Financial Creditor regarding existence of 'financial debt' and occurrence of 'default'. Further, the Financial Creditor has fulfilled all the requirements as contemplated under IB Code in the present Company Petition and has also proposed the name of IRP after obtaining his written consent in Form-2. In view of the above, this Adjudicating Authority is inclined to admit the petition.

The instant petition is hereby admitted and this Adjudicating Authority Orders the commencement of the Corporate Insolvency Resolution Process which shall ordinarily get completed as per the time line stipulated in section 12 of the IB Code, 2016, reckoning from the day this order is passed.

This Adjudicating Authority hereby appoint Mr. Rajendra Prasad Tak (IRP) as the name proposed by the Financial Creditor and his name is reflected in IBBI website. He has also filed his written consent in Form - 2. The IRP is directed to take charge of the Respondent/Corporate Debtor's management immediately. He is also directed to cause public announcement as prescribed under Section 15 of the I&B Code, 2016 within three days from the date of this order, and call for submissions of claim in the manner as prescribed.

This Adjudicating Authority hereby declares the moratorium which shall have effect from the date of this Order till the completion of corporate insolvency resolution process for the purposes referred to in Section 14 of the I&B Code, 2016. we order to prohibit all of the following, namely:

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 the Securitisation 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 the possession of the corporate debtor.

However, the supply of essential goods or services of the Corporate Debtor shall not be terminated or suspended or interrupted during moratorium period. Further, the provisions of Sub-section (1) of Section 14 shall not apply to such transactions, as notified by the Central Government.

The IRP shall comply with the provisions of Sections 13(2), 15, 17 & 18 of the Code. The directors, Promoters or any other person associated with the management of Corporate Debtor are directed to extend all assistance and cooperation to the IRP as stipulated under Section 19 and for discharging his functions under Section 20 of the I&B Code, 2016.

The Petitioner/Financial Creditor as well as the Registry is directed to send the copy of this Order to IRP so that he could take charge of the Corporate Debtor's assets etc. and make compliance with this Order as per the provisions of I&B Code, 2016.

The Registry is also directed to communicate this Order to the Financial Creditor and the Corporate Debtor.

The address details of the IRP are as follows:-Mr. Rajendra Prasad Tak Reg. No: IBBI/IPA-001/IP-P00526/2017-18/10951. M/s. K. G. Somani Insolvency Professionals Private Limited, 3/15, 4th Floor, Asaf Ali Road, New Delhi – 110 002, Email ID: [email protected], Tel: 011-23252225, 23277677, 41403938, Fax: 23260086.

The present Petition is hereby admitted.