Union Bank of India vs Infrastructure Leasing & Financial Services Ltd.

Ashok Bhushan, J:

These three Applications being inter-related have been heard together and are being disposed of by this common order.

We need to first notice the background facts and sequence of the events leading to filing of above three applications. I.A. No. 1849 of 2021 has been filed by the ‘Union Bank of India’, Lender of Project Rapid Metrorail Gurgaon Limited (hereinafter referred to as ‘RMGL’). I.A. No. 1982 of 2021 has been filed by ‘Haryana Mass Rapid Transport Corporation Limited’ (hereinafter referred to as ‘HMRTC’) and ‘Haryana Shehri Vikas Pradhikaran’ (hereinafter referred to as ‘HSVP’). I.A. No. 284 of 2022 has been filed by the Canara Bank, Leader of Consortium of Lenders for Rapid Metrorail Gurgaon South Limited (hereinafter referred to as ‘RMGSL’).

 HSVP issued a request for qualification (RFQ) and request for proposal (RFP) for development of Metrorail Link from Delhi Metro, Sikanderpur Metro Station to NH-8 (Project No. 1). On acceptance of bid, consortium incorporated RMGL as the entity which undertake, fulfil and exercise the rights of the consortium under the letter of award. On 09^th December, 2019, HSVP entered into a Concession Agreement with RMGL for execution of Project No. 1 for a period of 99 years. In the year 2012, HSVP issued another RFQ/RFP for developing a metro rail link from Delhi Metro Sikanderpur Station on MG Road to Sector 56, Gurugram (Project No. 2). On acceptance of bid submitted by consortium, consortium permitted and incorporated ‘RMGSL’ for the execution of Project No. 2. A Concession Agreement was entered into RMGSL and HSVP on 3^rd January, 2013.

 RMGL completed Project No. 1 on 14^th November, 2013. RMGSL completed Project No. 2 on 31^st March, 2017. On 07^th June, 2019, RMGL issued a notice of termination to HSVP seeking to bring an end to the Concession Agreement dated 09^th December, 2009 in terms of Article 24.5.1 upon the expiry of 90 days. A similar termination notice was also issued by the RMGSL to HSVP in terms of Article 32.5.1 of Concession Agreement dated 03^rd January, 2013. On 1^st August, 2019, RMGL informed HSVP that it has completed the formalities for handover of Project No. 1 and that the Concession Agreement dated 09^th December, 2009 would stand terminated on the expiry of 90 days from the termination notice. A similar Letter was issued by the RMGSL to HSVP in the context of Concession Agreement dated 3^rd January, 2013.

 On 26^th August, 2019, HSVP issued a notice of termination to RMGL and directed RMGL to handover Project No. 1 to HMRTC which in turn would hand it over to Delhi Metrorail Corporation (DMRC). On 06^th September, 2019, Justice D.K. Jain permitted RMGL to handover possession and control of Project No. 1 to HSVP on or before 09^th September, 2019. By a separate Order on the same date, RMGSL was permitted to handover possession and control of Project No. 2 by the same date. On same date, HSVP filed two Writ Petitions in the Punjab and Haryana High Court being Writ Petition No. 2494 and 2495 of 2019 challenging the Notice of Termination dated 07^th June,2019. Punjab and Haryana High Court on 06^th September, 2019 while issuing notice adjourned the proceeding to 09^th September, 2019 and directed that until then operation of the Rapid Metrorail by the RMGL and RMGSL shall continue. The Order was extended till 17^th September, 2019. On 18^th September, 2019, certain proposals were submitted on behalf of the RMGL and RMGSL before the Court, it was also submitted on their behalf that they shall continue its operation and management till 20^th September, 2019. On 20^th September, 2019, response was submitted by HSVP and HRMTC and on 20^th September, 2019 High Court recorded a consensus arrived, issued certain directions which direction was subsequently modified 04.10.2019. In pursuance of the Direction of the Hon’ble High Court, one of the directions in Order dated 20^th September, 2019 was that as far as the date due as defined under the Concession Contract, direction was issued to the Comptroller and Auditor General of India to arrange a team of auditors for the financial audit of the debt due and also for examining the scope of the audit of debt due. Auditing by the HSVP with the assistance of the Auditors appointed by the parties to the lis. Comptroller and Auditor General of India in pursuance of the direction of the High Court submitted a draft audit report to both the parties and asked for their response, no response was given by HMRTC and HSVP. CAG again sought response of HMRTC by Letter dated 18^th March, 2020, 22^nd April, 2020. On 23rnd June, 2020, CAG submitted its report in sealed cover. The Sealed Cover was opened by the High Court and Report was taken on record. It was noticed that audit is limited to the examination of debt due as defined in Concession Agreement. With regard to RMGL, debt due was determined by the CAG as 797.52 Crore and debt due for RMGSL was determined as 1609.88 Crores and affidavit was filed before the High Court by HMRTC objecting to the Audit Report. CAG filed Affidavit in the High Court replying objections of HMRTC. High Court adjourned the hearing on 08^th April, 2021. Special Leave Petition was filed by RMGL and RMGSL in the Hon’ble Supreme Court of India. Hon’ble Supreme Court of India issued notice on 05.02.2021 and permitted the Lenders to file response. Hon’ble Supreme Court after hearing all the parties disposed of Civil Appeal No. 925-926 of 2021, Rapid Metrorail Gurgaon Limited Etc. Vs. HMRTC and Ors.

 In pursuance of the Order of the Hon’ble Supreme Court HSVP/HMRTC deposited an amount of Rs. 638.01 Crore in Escrow Account of RMGL and an amount of Rs. 1287.90 in the Escrow Account of RMGSL. On 18^th August, 2021, RMGL and RMGSL has issued notice invoking arbitration as per the Concession Agreement. On 15.09.2021, HSVP and HMRTC has also given notice invoking the arbitration as per the Concession Agreement.

I.A. No. 1849 of 2021 has been filed by the Union Bank of India on behalf of the Consortium Lenders in the subject matter of Rapid Metrorail Gurgaon which is one of the subsidiary of ILFS. In the Application, following prayers have been made by the Union Bank of India:

In I.A. No. 1849 of 2021, Reply-Affidavit has been filed on behalf of ILFS as well as on behalf of HMRTC and HSVP. Rejoinder-Affidavit has also been filed by the Union Bank of India.

I.A. No. 1982 of 2021 has been filed by HMRTC and HSVP arraying RMGL and RMGSL as Respondent No. 1 and Respondent No. 2. In the Application, following of the prayers made:

In I.A. No. 1982 of 2021, Reply-Affidavit has been filed by the RMGL and RMGSL. Objections have also been filed by the Canara Bank and Union Bank of India in I.A. No. 1982 of 2021.

I.A. No. 284 of 2022 has been filed by the Canara Bank, Lender of Consortium of RMGSL. In the Application, Canara Bank has prayed for following relief:

In I.A. No. 284 of 2022, Reply-Affidavit has been filed by RMGSL and HMRTC and HSVP. Rejoinder has also been filed by the Canara Bank.

We have heard Mr. Dhruv Mehta, Learned Sr. Counsel appearing for Union Bank of India, Mr. Ramji Srinivasan, Learned Sr. Counsel appeared on behalf of RMGL and RMGSL. Mr. Chetan Mittal has appeared for HSVP and Mr. Sanjay Bajaj has appeared for the Canara Bank.

Mr. Dhruv Mehta, Learned Sr. Counsel submits that in pursuance of the Judgment of the Hon’ble Supreme Court dated 26^th March, 2021, HSVP is obliged to deposit 80 % of debt due as determined by Comptroller and Auditor General of India which amount is to protect the interest of Lenders. It is submitted that this Court may permit the Lender to appropriate the amount deposited HSVP in the Escrow Account towards its debt. The Lenders cannot wait indefinitely for receiving the amount to which they are entitled, the amount deposited by the HSVP does not belong to RMGL but the amount belong to Lender. Hon’ble Supreme Court in its Judgment dated 26^th March, 2021 has also observed that money is paid to the Lender and not to the RMGL.

Mr. Ramji Srinivasan, Learned Sr. Counsel appearing for the ILFS submits that the amount deposited in the Escrow Account is to be distributed in accordance with the ‘Revised Distribution Framework’ as approved by this Tribunal vide its Judgment dated 12^th March, 2020. The ‘Revised Resolution Framework’ shall satisfy all stakeholders i.e. secured lenders, unsecured lenders and Operational Creditor. Some sale amount is also to be given to ILFS.

Mr. Chetan Mittal, Learned Counsel submits that in pursuance of the Judgment of the Hon’ble Supreme Court dated 26^th March, 2021, HSVP and HMRTC have not been handed over documents, assets, transfer having not been taken place as per terms of Concession Agreement, RMGL and RMGSL are not entitled to claim any amount out of amount deposited by HSVP. After deposit of 80 % of debt due, RMGL and RMGSL are required to transfer the assets which have not been done so far. It is further submitted that the CAG Report is inconclusive. Shri Mittal further submits that amount deposited in Escrow Account should be kept in the fixed deposit towards interest which may be beneficial to All. Mr. Ramji Srinivasan, Sr. Advocate appearing for RMGL and RMGSL submits that the assets has already been handed over to the HMRTC with effect from 22^nd October,2019 and the Metro Rail is being run with effect from 22^nd October, 2019. In the objection filed, Letters have been issued by RMGL and RMGSL to the HMRTC giving details of the transfer of assets and the documents. HSVP has unduly withheld final certificates which is required to be handed over. It is submitted that CAG report has been upheld by the Hon’ble Supreme Court and as per the Judgment of the Hon’ble Supreme Court, any party aggrieved with CAG Report is free to raise issues in the Arbitration. Mr. Bajaj, appearing for Canara Bank has also adopted the submissions of Mr. Dhruv Mehta and submits that prayer made in the Application I.A. No.284 of 2022 be allowed.

We have considered the submissions of Learned Counsel for the parties and perused the record.

As noted above, in the Civil Appeal filed by RMGL and RMGSL against the Order of Punjab and Haryana High Court, all the parties were heard by detailed elaborate Judgment dated 26^TH March, 2021, all contentions of the parties have been noted and decided. Hon’ble Supreme Court has in its Judgment held that CAG was to determine the debt due and once the debt due determined, 80% of debt due was required to be deposited by HSVP and for rest of the dispute including the dispute regarding Audit Report is to be raised before the Arbitration Proceeding. In this reference, paragraph 46 of the Judgment of the Hon’ble Supreme Court is relevant to be noticed which is to the following effect:

The Hon’ble Supreme Court after noticing the various Articles of the Concession Agreement held that after deposit of 80% in the Escrow Account by HSVP, if any dispute arising out of the audit report, the same would have to be resolved in Arbitration. In paragraph 51, following has been held:

The Hon’ble Supreme Court in its Judgment has also emphasised that money which are committed by the Finance and Financing Institutions towards Financing Infrastructure Projects had to be secured in terms of Concession Agreement which was also held that HSVP and HMRTC cannot be allowed to resile from their obligations. The Hon’ble Supreme Court of India recorded its conclusion in Paragraph 60 which are to the following effect:

The Directions passed by the Hon’ble Supreme Court on 26^th March, 2021 deciding the Civil Appeal are binding between the parties. Objections regarding Audit Report which are sought to be raised before us by Mr. Chetan Mittal has already been dealt by the Hon’ble Supreme Court and the same cannot be allowed to be agitated in this Appeal. Hon’ble Supreme Court has clearly held that all issues pertaining to objections to Audit Report can be raised in the Arbitration Proceeding. We may also notice the submissions of Mr. Chetan Mittal regarding non-compliance of various articles of the Concession Agreement so as to disentitle RMGL and RMGSL from claiming any amount. From the facts which have come on record, it is clear that with effect from 22^nd October,2019, the Metro Rail is not run by RMGL/RMGSL and assets, furniture, plant and machinery as is where is basis with respective locations have been handed over by the RMGL and RMGSL to the HMRTC vide Letter dated 22.10.2019 which letters have been brought on record as Annexure R-6 collectively in the Reply filed by the Rapid MetroRail Gurgaon and Rapid MetroRail Gurgaon South Limited in I.A. No. 1982 of 2021. It is useful to extract the letter dated 22.10.2019 written by RMGL to HMRTC which is to the following effect:

Similar Letters were written by RMGSL on 22.10.2019 to HMRTC. With effect from 22.10.2019, the Metro Rail is being run by HMRTC and Delhi Metro Rail Corporation. After the Judgment of the Hon’ble Supreme Court detailed communication has been issued by RMGL, RMGSL to the HSVP detailing the compliance of the obligations and disinvestment requirement by the RMGL. In the Letter contains detailed chart with respect to article reference, applications of concessional and compliance status which is at pages 122 to 129 of Reply of RMGL and RMGSL in I.A. No. 1982 of 2021. The submissions of Shree Mittal that assets had not been handed over hence RMGL and RMGSL has not complied with the terms of the Concession Agreement, does not commend us. In any view of the matter the deposit of 80% of debt due by the HSVP and HMRTC are under the Judgment of the Hon’ble Supreme Court and that cannot be undone by the any submissions made on behalf of HSVP and HMRTC. All other issues have been left to the parties to agitate in the Arbitration Proceeding which is a mechanism provided in the Concession Agreement to resolve the dispute between the parties. Determination of Debt Due for the purpose of deposit of 80% debt due by HSVP has become final and cannot be allowed to be questioned in these applications. In the present case only concern is the distribution of amount 80% debt due as deposited by HSVP in the Escrow Account of RMGL and RMGSL. The Lenders in their applications have prayed that they be permitted to appropriate the entire 80% deposited towards their debt liabilities as per financing document. Mr. Ramji Srinivasan, Learned Sr. Counsel appearing for ILFS submits that 80% amount deposited has to be in accordance with the ‘Revised Distribution Framework’ as approved by this Tribunal dated 12^th March, 2020. It is submitted that termination amount received from HSVP is an amount which should utilise for satisfying the debt of all lenders including Union Bank of India and Canara Bank. The entire amount cannot be allowed to be appropriated by only two lenders i.e. only consortium of two lenders i.e. Union Bank of India and Canara Bank. It is submitted that ‘Revised Resolution Framework’ has been brought on record in the Appeal by an Affidavit submitted by Union of India. It is submitted that this Tribunal having approved the ‘Revised Distribution Framework’ by its Order dated 12^th March, 2020 the termination amount received in the Escrow Account has to be distributed as per ‘Revised Resolution Framework’. We may also notice that Learned Counsel appearing for HSVP and HMRTC has submitted that First Information Report (FIR) filed against Officials of RMGL and RMGSL and investigation is also pending against them hence they are not entitled for receiving any amount. The Hon’ble Supreme Court has noted above the submissions raised on behalf of HSVP and HMRTC. Hon’ble Supreme Court has observed that underlying wrong doing which was allegedly conducted by the promoters in the erstwhile management of the ILFS needs to be investigated. Following observations have been made in Paragraph 57 of the Judgment:

We are thus of the view that all the investigations and enforcement machinery has to follow to its logical conclusion but the deposit of only 80% debt due have been directed by the Hon’ble Supreme Court. As observed above all issues between the parties has to be sort out by the Arbitration as noticed above both RMGL/RMGSL and HSVP/HMRTC have invoked the Arbitration clause in the Concession Agreement and has given notice to each other which proceeding may take its logical conclusion and the distribution of the 80% debt due is in terms of the Concession Agreement has to be subject to final resolution. We may further notice the Judgment of this Tribunal dated 12^th March, 2020 passed in Company Appeal (AT) No. 346 & 347 of 2018. This Tribunal has noticed the several suggestions given by Lenders and Union Bank of India with regard to manner and procedure for resolution of different companies of ILFS. We may notice paragraph 64 to 66 of the Judgment:

We thus are of the view that distribution of 80% of debt due deposited in the escrow account of RMGL and RMGSL has to be in accordance with the Direction of this Tribunal dated 12^th March, 2020 in paragraph 64 to 66 as notice above. 80% of debt due as determined by CAG is laying in the Escrow Account of RMGL and RMGSL. We permit the interim distribution of the said amount on pro rata distribution as suggested by Union of India and approved by this Tribunal in Paragraph 66 of the Judgment dated 12^th March, 2020. We are of the view that Interim Distribution of the amount shall be amongst the Financial Creditors of both the Project No. 1 and 2. The Interim Distribution shall abide by the final resolution of ILFS Companies after following due procedure as prescribed in ‘Revised Distribution Framework’. In result, we dispose of all these three applications with following directions: