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Judgment
[ PER: BENCH]
APPLICATION
The present petition is filed under Section 7 read with Section 60(2) of the Insolvency and Bankruptcy Code, 2016/IBC/Code by Union Bank of India, including its erstwhile entity Andhra Bank, being the Financial Creditor/FC herein, seeking initiation of the Corporate Insolvency Resolution Process against M/s GMP Infrastructure Private Limited hereinafter referred to as the Corporate Debtor/Corporate Guarantor to the Borrower Company, i.e., M/s. Panduranga Energy Systems Private Limited.
The Corporate Debtor bearing CIN: U40108TG2010PTC066737 was incorporated on 20.01.2010 (originally as M/s Panduranga Energy Systems Private Limited). Its registered office is at Plot No. 146/A, Road No.10, Prashasan Nagar, Jubilee Hills, Hyderabad - 500034.
The financial relationship between the parties began in 2010, when the Borrower Company approached the FC for financial assistance for implementation of its power project.
Pursuant thereto, the FC, on 20.05.2010, sanctioned multiple credit facilities to the Borrower Company including Term Loan–I (Senior Debt of Rs. 100.00 Crore) together with ILC/FLC/Trade Credit of Rs. 100.00 Crore, Term Loan–II (Subordinate Debt) of Rs. 15.00 Crore, Bank Guarantee of Rs.45 Crore, and ILC/FLC/Trade Credit of Rs.80 Crore against Letters of Credit from other member banks.
Thereafter, on 29.10.20101, Union Bank of India sanctioned additional facilities to the Borrower Company which comprised of a Term Loan of Rs. 44.00 Crore along with ILC/FLC of Rs. 44.00 Crore and Subordinate Debt of Rs. 6.00 Crore. In furtherance thereof, comprehensive loan, security and guarantee documentation was executed on 20.12.2010 by M/s. Panduranga Energy System Private Limited/Borrower Company, along with the Personal Guarantors and the Corporate Guarantor.
It is stated by the Financial Creditor, that a Common Loan Agreement was entered into between the Borrower Company, the Financial Creditor and the consortium lenders, governing the terms and conditions of the facilities availed. Personal Guarantees were furnished by Mr. Chinta Panduranga Reddy and Smt. Madhavi Kothapalli, and a Corporate Guarantee was executed by M/s GMP Infrastructure Private Limited/CD herein.
It is averred that, the loan facilities advanced by the Financial Creditor to the Borrower Company are secured by way of extending the creation of first pari-passu charge on all immovable properties of the company, by virtue of extension of Memorandum of Entry dated 20.12.2010 (Registration with SRO on 28.12.2010), executed in favour of the Financial Creditor. The execution of the said documents was duly authorized by Board Resolutions dated 17.12.2010.
It is further averred that, in the year 2013, in view of the escalation in project from earlier 100 MW to 116.10 MW combined cycle gas-based power project, the Borrower Company sought additional financial assistance. Accordingly, during the year 2013, further facilities were sanctioned, including Term Loan–III (Senior Debt) of Rs. 44.16 Crore and Term Loan–IV (Subordinate Debt) of Rs. 5.08 Crore by erstwhile Andhra Bank on 04.02.2013, and Term Loan–III of Rs. 19.62 Crore and Term Loan–IV of Rs. 1.90 Crore by Union Bank of India on 01.01.2013.
It is submitted that, in order to give effect to the enhanced facilities, the Financial Creditors namely Andhra Bank, Allahabad Bank, Indian Bank, Canara Bank, Union Bank Of India, entered into an agreement called First Amendment Agreement Dated 24.06.2013 to the Inter Creditors Agreement dated 20.12.2010 and First Amendment Agreement dated 24.06.2013 to the Lenders Agent Agreement dated 20.12.2010 was executed by the Borrower Company, duly supported by Board Resolutions of the Borrower Company and Corporate Guarantor. The Borrower Company also executed the necessary amendments, including cancellation of prior mortgage entries, as part of the loan restructuring documentation.
The Applicant has stated that due to the persistent delay, in project implementation and escalation of project costs, necessitated further restructuring. Thus, during May–July 2014, additional facilities were sanctioned, including FITL–I and FITL–II aggregating to Rs. 70.07 Crore by erstwhile Andhra Bank, and FITL–I of Rs. 23.67 Crore and FITL–II of Rs. 3.53 Crore by Union Bank of India.
Consequentially, Second Amendment Agreements dated 24.07.2014 were executed to all principal financing and security documents, together with extension of Memorandum of Entry, promoters’ undertakings and declarations, duly approved by Board Resolutions dated 22.07.2014.
It is submitted that subsequent amendments were carried out in relation to the personal guarantee agreements as well as the corporate guarantee agreement of the borrower company, along with the creation of mortgage charges over the immovable properties of M/s GMP Infrastructure Private Limited.
Subsequently, the loan accounts were classified as Non-Performing Assets (NPA) on 30.04.20142. Accordingly, proceedings under the SARFAESI Act were initiated for enforcement of the security interest in the scheduled property mortgaged to the Financial Creditor.
Later, despite of the repeated restructuring efforts made by the consortium of lenders under the Corporate Debt Restructuring (CDR) mechanism in 2014 and continued financial support by them, the project failed to achieve financial viability, and the Borrower Company continued to remain in persistent default of its repayment obligations. Owing to the continued financial stress, the lenders were constrained to consider further restructuring measures.
Furthermore, in December 2016, the lenders implemented Strategic Debt Restructuring (SDR), which included, inter alia, revalidation of existing working capital limits and sanction of additional facilities such as Term Loan–V and Bank Guarantees. The said restructuring was formally documented through the Loan Conservation Agreement dated 09.02.20173, the Master Joint Lenders’ Forum Agreement dated 23.03.20174, and the Third Amendment to the Common Loan Agreement and the Deed of Pledge. Despite the aforesaid restructuring and continued financial support extended by the lenders, the Borrower Company failed to regularize its accounts and discharge its repayment obligations.
A notice under Section 13(2) of the SARFAESI Act, 2002 was issued by the Financial Creditor on 25.01.2019, calling upon the Corporate Debtor, Corporate Guarantor and the Personal Guarantors to repay the outstanding amounts. Thereafter, a legal notice dated 11.06.2019 was issued to the Corporate Debtor and Corporate Guarantor demanding payment of dues amounting to Rs.8,50,78,72,493/. The Borrower Company replied to the said notice on 26.06.2019; however, the dues remained unpaid.
It is also important to mention herein that the credit facilities sanctioned to the Borrower Company were renewed on several dates i.e.
3 At pages 1103-1139 of the Application
4 At pages 1140-1151 of the Application 07.02.2019 and 07.01.2020 and the revival letters were executed by the Borrower Company on these two occasions. However, till date the Borrower Company nor the Corporate Guarantor herein has settled the debt dues towards the Financial Creditor. Hence the present application under Section 7 of the Insolvency and Bankruptcy Code, 2016.
COUNTER
It is submitted by the Corporate Debtor herein that had extended a Corporate Guarantee dated 20.12.2010, amended on 24.06.2013 and 24.07.2014, in favour of M/s. Panduranga Energy Systems Pvt. Ltd. (“Borrower Company”) in respect of the credit facilities availed by the Borrower Company from the Petitioner and other lenders, as detailed hereunder.
It is averred that the Borrower Company is a Special Purpose Vehicle incorporated on 20.01.2010 under the Companies Act, 1956 and is, inter alia, engaged in the business of development of clean energy portfolio of gas and renewable energy, including the conceptualization and operation of a 470 MW gas-based power plant situated at Annadeverapeta, West Godavari District, Andhra Pradesh, in two phases, namely:
Phase I – 116 MW Combined Cycle Gas Based Power Project (“Project”); and
Phase II – 354 MW Combined Cycle Gas Based Power Project.
It is submitted that pursuant to the New Exploration Licensing Policy5 (NELP), Reliance Industries Limited and Niko Resources were granted rights to explore the KG-D6 offshore gas basin, wherein natural gas deposits were discovered in the year 2002 with estimated reserves of approximately 10.3 TCF and 681.4 BCF in specified fields.
The said discovery was projected by the Government of India as substantially increasing domestic natural gas output, and gas from the KG-D6 Basin was envisaged to be transported through pipelines administered by GAIL to gas-based power plants. The Project was strategically located proximate to the KG-D6 Basin and was conceived, sanctioned, and implemented entirely on the basis of Government assurances regarding domestic gas supply.
It is also submitted by the CD that the production projections were approved by the Directorate General of Hydrocarbons, Ministry of Petroleum and Natural Gas, and the Project was undertaken based on multiple assurances and representations of the Government of India, including constitution of the Empowered Group of Ministers, issuance of the Gas Allocation Policy dated 08.01.2009, EGoM minutes dated 28.05.2008, statements made in the Lok Sabha on 03.08.2009, EGoM minutes dated 20.07.2010, GAIL’s letter dated 05.07.2012, and the 42nd Report of the Parliamentary Standing Committee on Energy, which accorded priority to gas-based power projects.
LOANS AVAILED BY THE BORROWER COMPANY
It is submitted that the Project was initially estimated at Rs.450.03 crores and was subsequently revised to Rs.646 crores. Accordingly, the Borrower Company approached the Petitioner and other lenders, including Allahabad Bank, Canara Bank and Indian Bank (collectively, “Lenders”), for credit facilities.
Pursuant thereto, the Petitioner issued sanction letters dated 20.05.2010 and 18.09.2010 aggregating to Rs. 165 crores, pursuant to which a Common Loan Agreement dated 20.12.2010 was executed and amended from time to time. As a condition precedent, personal guarantees were executed by the promoters, and a corporate guarantee was executed by the Respondent on 20.12.20106, which was subsequently amended on 24.06.2013 and 24.07.2014.
It is further submitted that prior thereto, on 29.04.2010, the Borrower Company had leased the Project land from the Corporate Debtor, which land was thereafter mortgaged in favour of the Lenders as security for the said credit facilities.
PHASE I AND UNFORESEEN GAS UNAVAILABILITY
The CG has averred that the Phase I of the Project was completed in August 2013 with installation of GE 6FA gas turbines, Shin Nippon steam turbine, HRSG from Thermax and other equipment. The Project was monitored by the Lenders’ Independent Engineer (“LIE”). Subsequently, on 01.01.2014, the LIE certified that Phase I was ready for commercial operation subject to gas supply.
It is submitted that gas production from the KG-D6 Basin sharply declined between 2011–2013 and gas supply became unavailable. GAIL informed that gas could not be supplied due to non-availability. The Lead Bank, by letter dated 01.02.2014, informed the RBI that COD could not be declared solely due to lack of gas supply and sought regulatory dispensation. It is submitted that although the lenders restructured the debt, a major fire incident in June 2014 damaged GAIL pipelines, further delaying gas supply.
OBJECTIONS TO MAINTAINABILITY OF THE COMPANY PETITION
The Respondent submits that the alleged default arose solely due to non-availability of gas attributable to failure of Government agencies, and that the Borrower Company had completed the Project within stipulated timelines. Reliance is placed on the 42nd Parliamentary Standing Committee Report, which recorded that gas-based power plants were stressed due to non-fulfilment of Government commitments.
It is submitted that the lenders themselves acknowledged absence of any wilful default, and that a forensic audit confirmed no diversion of funds or fraud. Additionally, due to force majeure circumstances, the very substratum of the contract stands frustrated, attracting Sections 56, 62, and 134 of the Indian Contract Act, 1872.
Reliance is placed on Vidarbha Industries Power Ltd. v. Axis Bank Ltd. (2022), wherein the Hon’ble Supreme Court held that admission under Section 7 of IBC is discretionary.
The alleged claim of Rs. 5,80,24,53,258.78/- along with interest is false, erroneous, and baseless. Parts I–III of Form-I are formal or relate to the proposed Interim Resolution Professional and do not merit substantive reply, and the Petitioner has failed to enclose the requisite IBBI certificate, disclosure form, and Authorization for Assignment, rendering the Petition incomplete.
Moreover, the Respondent has fully performed all contractual obligations, completed the Project, and is in no manner liable to make any payment to the Petitioner. Therefore, the present Company Petition is devoid of merit, constitutes abuse of process of law, and is liable to be dismissed.
Rejoinder
Apart from reiterating the contents of the Application, it is stated that the pendency of civil suits and interim applications filed by the personal and corporate guarantors before the City Civil Court, Hyderabad, does not affect the jurisdiction of this Tribunal.
The Applicant has relied upon the Sections 63 and 231 of the Insolvency and Bankruptcy Code, 2016, wherein the jurisdiction of civil courts is expressly barred in respect of matters over which the Adjudicating Authority has jurisdiction under the Code.
We have gone through the entire records including the written submissions/memos and heard both the Learned Counsels for the parties.
FINDINGS
A bare reading of the provision under Section 7 of the IBC shows that in order to initiate CIRP under Section 7, the Applicant is required to establish that there is a financial debt and that a default has been committed in respect of that financial debt. The Code requires this Tribunal to ascertain and record satisfaction in a summary adjudication regarding the occurrence of default before admitting the application.
Existence of Financial Debt:
M/s GMP Infrastructure Pvt. Ltd., in the capacity of Corporate Guarantor, had executed a guarantee in favour of M/s Panduranga Energy System Pvt. Ltd. (the Borrower Company), which was incorporated in 2010 as a Special Purpose Vehicle.
The Borrower Company had availed financial assistance from the Petitioner and other lenders in the form of term loans, guarantees, and trade credit. Later, due to financial distress, the Borrower Company approached the lenders for restructuring of its debt, resulting in amendments to the loan agreements. The total financial debt claimed in Part IV of this Petition stands at Rs. 5,80,24,53,258.78 as on 31.08.2022, which has been acknowledged through the revival letters executed by the Borrower Company.
The aforesaid facts, duly admitted and supported by the documents on record, unequivocally establish that the Borrower Company availed various credit facilities from the Financial Creditor and that a valid, subsisting, and enforceable financial debt exists between the parties within the meaning of Section 5(8) of the Insolvency and Bankruptcy Code, 2016.
On default of Debt:
From the facts stated hereinabove, it is evident that the Financial Creditor had sanctioned loan facilities to the Borrower Company, who subsequently defaulted on repayment of outstanding amount, as a result of which the loan account was classified as Non-Performing Asset (NPA) on 28.02.2018.
Consequent thereto, the Financial Creditor has issued a notice dated 25.01.2019, under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002, recalling the payment of outstanding dues amounting to Rs. 8,07,94,21,727.97/-.
The Borrower Company submitted a One-Time Settlement (“OTS”) offer of Rs. 55 crores on 07.05.2019, which was rejected by the lenders on 13.05.2019 as being substantially lower than the outstanding dues of Rs. 807.94 crores. Subsequently, the Borrower Company submitted a revised OTS offer of Rs. 60 crores, which was not responded by the lenders.
Owing to the continued and persistent defaults of the Borrower Company, the Financial Creditor, together with Canara Bank and Indian Bank, filed O.A. No. 462 of 2020 before the Debt Recovery Tribunal (DRT-I), Hyderabad on 10.12.2020. The application is currently pending adjudication.
It is observed that the Borrower Company has failed to discharge its liability and continued to remain in default. Accordingly, the aforesaid facts clearly establish the occurrence of default within the meaning of Section 3(12) of the IBC, 2016.
We now proceed to decide whether the Corporate Guarantor herein can be put into the Corporate Insolvency Resolution Process.
We are of the considered view that the Corporate Guarantor has explicitly undertaken joint and several liability for the debt availed by the borrower company. The relevant Clause of the guarantee agreement dated 20.12.20107, is attached as follows.
“15.The Guarantor agrees that any admission or acknowledgement in writing signed by the Borrower of the liability or indebtedness of the Borrower or otherwise in relation to the Loan Facility and/or any part payment as may be made by the Borrower towards the principal sum hereby guaranteed or any judgment, award or order obtained by the Security Trustee/Lenders against the Borrower shall be binding on the Guarantor and the Guarantor accepts the correctness of any statement of account that may be served on the Borrower which is duly certified by any officer of the Security Trustee/Lenders and the same shall be binding and conclusive as against the Guarantor also and the Guarantor further agrees that in the Borrower making an acknowledgment or making a payment, the Borrower shall in addition to its personal capacity be deemed to act as the Guarantor’s duly authorised agent in that behalf for the purposes of Sections 18 and 19 of the Limitation Act of 1983.”
In this regard, reliance can be placed on the judgment of the Hon’ble Supreme Court of India in Laxmi Pat Surana vs. Union of India reported in Civil Appeal No. 2734 of 2020, wherein it was held that, the Corporate Guarantor is responsible for the debt borrowed by the principal borrower/borrower company and the right to proceed against the principal borrower as well as guarantor is in equal measure, in case, principal borrower commits default in repayment of the amount of debt.
Next, we address the question of limitation. We note that the Corporate Guarantee was invoked in 25.01.2019 and the application for recovery of the debt due from the Corporate Guarantor under ‘Recovery of Debts Due to Banks and Financial Institutions Act, 1993’ was filed by the Petitioner before the DRT-I, Hyderabad on 10.12.2020. The present Company Petition, filed under Section 7 of the Insolvency and Bankruptcy Code, 2016, was instituted on 17.10.2022, whereas the prescribed period of limitation would have ordinarily expired on 24.01.2022.
However, during the subsistence of the said limitation period, the Hon’ble Supreme Court, by orders passed in Suo Motu Writ (Civil) No. 3 of 2020, directed the exclusion of the period from 15.03.2020 to 28.02.2022 for the purposes of computation of limitation. Consequently, the limitation period ran only for 747 days, i.e., from 28.02.2018 to 14.03.2020, and was suspended thereafter. Upon exclusion of the aforesaid period. The present application before us is well within the limitation period.
The Corporate Debtor has also raised contentions with reference to the directions of the Hon’ble High Court of Telangana dated 05.09.2023, whereby an interim order was passed directing that no coercive steps be taken against the Corporate Debtor for a period of four weeks.
We place our reference on the order passed by us, wherein we have already considered and conclusively decided the issue concerning the directions of the Hon’ble Telangana High Court, as referred to hereinbelow:
“ORDER
Company Petition IB/306/2022
Present:
Mr. PBA Srinivasan, Ms. Srishti Bansal, Adv Sumit Swami & Adv Aanchal Pundir, Ld. Counsel for the Financial Creditor, Ms. Siva Praneetha, Ld. Counsel for the Corporate Debtor.
Ld. Counsel for the Respondent has placed on record a memo along with order dated 24.07.2024 vide which interim order was extended till further orders. From the perusal of the original interim order dated 05.09.2023, it is clear that the Respondents including the present petitioner have been asked not to take coercive step against the applicant. Thus, proceeding in the petition/Application has not been stayed and moreover proceedings further in the present petition/application do not amount to taking any coercive steps. For hearing, matter is adjourned to 03.04.2025.”
We also draw support from the ruling of the NCLT Mumbai in the matter of V Hotels Limited Vs. Asset Reconstruction Company (India) Limited, (2019) ibclaw.in 41 NCLT, held that:
“The Code is not a coercive measure for the Corporate Debtor but for the defaulting management. What is sought to be achieved in the code is not shutting down of the Corporate Debtor, but reviving it by ousting the defaulter promoter/directors who were in control and management of the company, which took it down on its knees.”
We further rely, on the judgement of the Apex Court in Swiss Ribbons Pvt. Ltd. & Ors. V. Union of India & Ors. [Writ Petition (Civil) No. 99 of 2018], Order dated 25.01.2019 upholding the Constitutional validity of IBC, wherein it was held that:
“Therefore, maximization of value of the assets of such persons so that they are efficiently run as going concerns is another very important objective of the Code. ……
Above all, ultimately, the interests of all stakeholders are looked after as the corporate debtor itself becomes a beneficiary of the resolution scheme – workers are paid, the creditors in the long run will be repaid in full, and shareholders/investors are able to maximize their investment. Timely resolution of a corporate debtor who is in the red, by an effective legal framework, would go a long way to support the development of credit markets…………….
12.It can thus be seen that the primary focus of the legislation is to ensure revival and continuation of the corporate debtor by protecting the corporate debtor from its own management and from a corporate death by liquidation. The Code is thus a beneficial legislation which puts the corporate debtor back on its feet, not being a mere recovery legislation for creditors. The interests of the corporate debtor have, therefore, been bifurcated and separated from that of its promoters / those who are in management……….”
In view of the above decision, we are inclined to interpret the order of Hon’ble Telangana High Court, as not applying to the present proceedings due to the fact that mere filing of Insolvency Application does not prejudice the corporate Debtor, as it is an efficacious remedy available to both the Financial Creditor as well as the Corporate Debtor, beneficial for both.
The existence of a financial debt meeting the threshold, the admitted default, stand conclusively established, and the application is found to be within limitation and maintainable under Section 7 of the Insolvency and Bankruptcy Code, 2016. Additionally, the pendency of proceedings before the Hon’ble Telangana High Court does not bar initiation of CIRP of the Corporate Debtor.
Accordingly, the present Petition i.e. CP(IB)/306/7/HDB/2022 is admitted and the Insolvency Resolution Process stands initiated against the Corporate Guarantor M/s. GMP Infrastructure Private Limited viz. the Respondent herein. We hereby direct as follows;
ORDER
Corporate Debtor, M/s GMP Infrastructure Private Limited, is admitted in the Corporate Insolvency Resolution Process under section 7 of the Insolvency & Bankruptcy Code, 2016.
We hereby prohibit 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;
That the supply of essential goods or services to the Corporate Debtor, if continuing, shall not be terminated or suspended or interrupted during the moratorium period.
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.
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.
That the order of moratorium shall have effect from the date of this order till the completion of the Corporate Insolvency Resolution Process or until this Tribunal 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.
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.
The Financial Creditor has proposed the name of Shri Sivanagaraja Taduvai as the Interim Resolution Professional in Part-III of the Petition. We hereby appoint Shri. Sivanagaraja Taduvai having Registration No. IBBI/IPA-003/IP-N00065/2017-2018/10551 as Interim Resolution Professional, whose contact details are: E-mail ID: [email protected], Address: Plot No 16(11-20-18), Shop Cum Flat, Huda Complex Kothapet, Telangana, 500035, as Interim Resolution Professional (IRP) to carry the functions as mentioned under the Insolvency & Bankruptcy Code.
Proposed IRP has filed written communication that his Authorisation for Assignment is valid till 31.12.2026. This information is available on the 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.
The Registry is directed to furnish certified copies of this order to the parties as per Rule 50 of the NCLT Rules, 2016.
The petitioner is directed to communicate this order to the proposed Interim Resolution Professional.
Registry of this Tribunal is directed to send a copy of this order to the Registrar of Companies, Hyderabad for making appropriate remarks against the Corporate Debtor on the website of the Ministry of Corporate Affairs as being under Corporate Insolvency Resolution Process.
Accordingly, this Petition is admitted.