Union Bank Of India vs Supreme Manor Wada Bhiwandi Infrastructure Private Limited

Per: H.V. Subba Rao, Member (Judicial)

This is a Company Petition filed under section 7 (“the Petition”) of the Insolvency and Bankruptcy Code, 2016 (IBC) by Union Bank of India Limited ("the Financial Creditor"), seeking to initiate Corporate Insolvency Resolution Process (CIRP) against Supreme Manor Wada Bhiwandi Infrastructure Private Limited ("the Corporate Debtor ").

The present Petition was filed on 23.08.2018 before this Adjudicating Authority on the ground that a total loan of Rs.168,83,00,000/- (Rupees One hundred Sixty-eight crores eight-three lakhs only) was granted to the Corporate Debtor and the Corporate Debtor has defaulted in repayment of the same.

The Corporate Debtor is company incorporated on 04.01.2010 under the Companies Act, 1956, with the Registrar of Companies, Maharashtra, Mumbai. Its registered office is at Supreme House, Pratap Gadh, Plot No. 94/C, Opp. IIT, Powai, Mumbai - 400076 MH. Therefore, this Bench has jurisdiction to deal with this petition.

The Financial Creditor submits that the total amount of Debt granted is Rs.168,83,00,000/- (Rupees One hundred Sixty-eight crores eight-three lakhs only) and the amount claimed to be in default in Part IV of the Petition is Rs.165,19,44,296.81. The date of default stated to be is 31.07.2018. The date of filing of this Petition is 23.08.2018. The debt thus, is not time-barred. Working of computation of amount and days of default as on 31.07.2018 is annexed to the Petition as Exhibit – A

The Ld. Counsel for the Petitioner submits that the Financial Creditor granted and disbursed the following facilities:

The Financial Creditor submits that it is a scheduled Public Sector Bank having its Branch office, through which the distribution of the loan facilities was sanctioned, situated at IFB Branch, Mumbai, Union Bank Bhavan, First Floor, 239, Vidhan Bhavan Marg, Nariman Point, Mumbai – 400021.

The Corporate Debtor is a Special Purpose Vehicle (”SPV”) promoted by Supreme Infrastructure India Limited.

The Govt. of Maharashtra (‘GOM”) through its Public Works Department had granted the Corporate Debtor a concession for a period of 22 (Twenty Two) years and 10 (Ten) months by way of exclusive right, license and authority for construction, operation, maintenance and handing over of 4 (four) laning of Manor Wada Bhiwandi section from SH-35 km 49.10 to 89.01 Manor Wada SH No.34 km, 29.55 to 53.18 in Taluka Wada/Bhiwani/Palghar, District Thane (hereinafter referred to as “Project”), on build, operate and transfer (‘BOT’) basis. In this regard on 08.03.2010, the GOM and the Corporate Debtor executed a Concession Agreement (“Concession Agreement”) for implementing the Project. A copy of the Concession Agreement is annexed to the Petition at Exhibit – D pgs.42-539)

The total cost of the Project was estimated at INR 430,00,00,000 (Indian Rupees Four hundred Thirty crore).

In order to fund the Project, the Corporate Debtor availed a rupee term loan facility of Rs.322,50,00,000/- (Rupees Three hundred Twenty Two Crore Fifty Lakhs only) (Term Loan – I) from the Financial Creditor other lenders forming a part of a consortium led by the Financial Creditor.

On 30.08.2010, a common loan agreement (Common Loan Agreement), was executed by and between the Corporate Debtor, Allahabad Bank, Bank of India, Indian Overseas Bank, L&T Infrastructure Finance Company Limited, Oriental Bank of Commerce, State Bank of India, State Bank of Patiala and the Financial Creditor (hereinafter collectively referred to as the (Consortium Lenders) and Union Bank of India (as Erstwhile Security Trustee). As per the terms of the Common Loan Agreement, out of the total amount availed, the Financial Creditor’s share granted to the Corporate Debtor was INR 60,00,00,000/- (Indian Rupees Sixty Crore only). Copy of Common Agreement is annexed to the Petition as Exhibit – F (pgs. 606-706)

The following documents were executed for securing the Term Loan – I:

The Ld. Counsel submits that the Corporate Debtor missed the original commercial operation date for the Project and subsequently, the scope of the Project was changed by the GOM vide its order dated 20.07.2013, whereby the Corporate Debtor was mandated to undertake construction and development of the bypass State Highway at Vishwabharti Phata Bhinar Vdpa Junction from 0.000 kms to 7.900 kms District Thane State of Maharashtra on BOT basis (Bypass Project).

For the purpose of part financing the Bypass Project, another common loan agreement was executed on 30.07.2013 (“Second Common Loan Agreement”) between the Corporate Debtor, the Financial Creditor (“New Lenders”), the Lender’s Agent and the Security Trustee for availing the additional facility of INR 83,66,00,000/- (Indian Rupees Eighty-Three crores Sixty Six lakhs only) (Term Loan – II). Copy of the Second Common Loan Agreement dated 30.07.2013 is annexed to the Petition as Exhibit – N (pgs. 994-1126)

The following documents were executed for securing the Term Loan – II

The Financial Creditor submits that the Corporate Debtor continued to encounter difficulties in meeting its debt obligations in a timely manner. Considering the enormous debt obligation of the Corporate Debtor, the Financial Creditor along with the other Consortium Lenders on 18.02.2015, approved a restructuring package wherein it was agreed to restructure the debt of the Corporate Debtor and make available to the Corporate Debtor loans for an aggregate principal amount not exceeding INR 414,18,00,000/- (Indian Rupees Four hundred fourteen crore eighteen lakhs only) hereinafter referred to as “JLF Restructuring Package”.

Out of the overall JFL Restructuring Package, the Financial Creditor’s share was as follows:

The Financial Creditor issued a sanction letter on 23.03.2015, approving the terms of the JLF Restructuring Package. In furtherance of the same, on 27.03.2015, a Master Restructuring Agreement (Master Restructuring Agreement) was executed by and between Corporate Debtor, the Financial Creditor, other Consortium Lenders, SBICAP Trustee Company Limited (acting as the project security trustee, bypass security trustee and debenture trustee, bypass debenture trustee and debenture trustee and hereinafter referred to as the “Security Trustee”. Copy of the Master Restructuring Agreement dated 27.03.2015 is annexed to the Petition as Exhibit -U (pgs 1345-1412).

On 27.03.2015, a Debenture Trust Deed (Debenture Trust Deed) was executed by and between the Corporate Debtor and SBICAP Trustee Company Limited in the capacity of Debenture Trustee. Copy of the Debenture Trust Deed is annexed to the Petition as Exhibit – AA (pgs 1549-1619)

As per the terms of the Master Restructuring Agreement, the Corporate Debtor was required to issue to the Financial Creditor secured, unlisted, redeemable, non-convertible debentures in consideration of the JLF RESTRUCTURING Package. Accordingly, the Corporate Debtor allotted the Financial Creditors NCDs of an aggregate nominal value of INR 12,45,00,000/- (Indian Rupees Twelve Crore Forty-Five lakhs only). Copy of the Non-convertible Debenture Certificate dated 06.03.2015 is annexed to the Petition as Exhibit – BB (pages 1620-1626

The following documents were executed to secure the JLF Restructuring Package:

However, since the Corporate Debtor was unable to pay the debt owed to the Financial Creditor and the other Consortium Lenders and accordingly was declared a Non-Performing Asset (NPA) on 24.11.2016.

The Corporate Debtor has also acknowledged its debt which was due and payable by executing and signing a Revival Letter on 22.01.2018 (Revival Letter) in favour of the Financial Creditor and the other Consortium Lenders. Copy of the same is annexed to the Petition as Exhibit – SS (pgs 2062-2071)

On 01.06.2018, the Financial Creditor issued as Recall Notice on the Corporate Debtor, recalling the entire facilities granted by the Financial Creditor and demanding an immediate payment of INR 160,80,69,112/- (Indian Rupees One hundred and Sixty crore Eighty lakhs Sixty nine thousand one hundred and twelve only) due and payable as on 30.04.2018. the Recall Notice was duly acknowledged by the Corporate Debtor. Copy of the said Notice is annexed to the Petition as Exhibit – C (pg. 34-41)

Further, the Corporate Debtor has admitted in the audited Balance Sheet for FY 2016-17 the debt due and payable to Financial Creditor.

It is submitted that on perusal of the aforesaid facts it is evident that the Corporate Debtor has duly availed the Financial Debt from the Financial Creditor and other Consortium Lenders lead by the Financial Creditor and utilized it for its Project as stated above. Further it is clear that the Corporate Debtor has defaulted in repaying its debt to the Financial Creditor. Despite having granted several opportunities by way of additional funds and restructuring of loans, the Corporate Debtor has failed to regularize the account and committed defaults under the Transaction Documents and failed to clear the dues of the Financial Creditor.

The Corporate Debtor has also executed and signed the Revival Letter (at Exh-11 Pg.2062 of the petition) wherein the Corporate Debtor and its promoters have acknowledged their liability towards the lenders for payment of their outstanding dues under the Facilities.

The Corporate Debtor has also admitted the default in audited Balance Sheet for FY 2016-17 with respect to the said debt due and payable to the Financial Creditor in audited Balance Sheet.

The Petitioner submits that the Corporate Debtor in its Additional Affidavit dated 20^th February 2023 (Additional Affidavit) has purportedly sought to contend that, as per the terms of the Concession Agreement dated 08.03.2010, and the Substitution Agreement dated 31.08.2010, there is no debt due from the Corporate Debtor to the Financial Creditor.

The Corporate Debtor relied on the terms under the Concession Agreement under Article 16 which provides for ‘Events of Default’ and ‘Termination’. According to the Corporate Debtor as per the terms of the Concession Agreement, default is defined to be either (a) ‘Concessionaire Event of Default’ and (b) GOM Event of Default. Further, it has been contended that as per the terms of the Concession Agreement a ‘Termination Payment’ was due and payable on the occurrence of any event of default and same was towards the ‘Debt Due’.

The Petitioner in response to the aforesaid defense of the Corporate Debtor submits that the Corporate Debtor is trying to confuse the terms ‘Default’ and ‘Debt Due’ in respect of a financial debt availed from a Financial Creditor as required under Sec.7 of the I&B Code with its own ‘Default’ in performance of the terms and conditions of the Concession Agreement with a third party namely GOM. It is further submitted that the Corporate Debtor has admittedly availed the Financial Debt/Credit Facilities from the Financial Creditor under an independent transaction.

It is submitted that the two are independent transactions which are governed by terms and conditions of their respective agreements. The default under the Concession Agreement is in the context of failure of the Concessionaire (being the Corporate Debtor in the present case) to fulfil or comply with its obligations under the Concession Agreement, whereas, the default under the Transaction Documents is, as contemplated under section 7 of the Code, in discharge of financial debt under the Financial Debt/Credit facilities availed by the Corporate Debtor from the Financial Creditor.

Further, in support of the aforesaid submissions, reliance is placed on the order of this Tribunal in the case of Union Bank of India vs. Rajahmundry Godavari Bridge Ltd. C.P. No.2677/I&BP/2018. Wherein a similar question of facts and law were before this Tribunal for consideration. The relevant paragraphs are reproduced below for reference:

The learned Counsel for the Financial Creditor submits that the Corporate Debtor in its Additional Affidavit has purportedly sought to contend that the Financial Creditor has already taken steps under the Substitution Agreement for the Substitution of the Respondent with a new concessionaire.

At the outset the Corporate Debtor submits that, there is no debt due from the Respondent to the Applicant and hence, this Petition merits dismissal. The Corporate Debtor submits that the Petition filed by the Financial Creditor is liable to be dismissed for the following among other preliminary grounds:

In the present instance, a Concession Agreement dated 8th March 2010 (hereinafter referred to as “CA”) was entered into by the Government of Maharashtra through its Public Works Department with the Respondent for the construction, operation, maintenance and hand over of a four-lane road in Bhiwandi. To facilitate the financing of this project, a Substitution Agreement (hereinafter referred to as “SA”) was subsequently entered into amongst the Government of Maharashtra, the Respondent and the Applicant (as lead bank for the consortium) on 31st August 2010. It is submitted that a perusal of the terms of these contracts makes it evident that there is no debt due from the Respondent to the Applicant and the debt stands assigned to GOM and to be paid by the GOM to Lenders.

Article 16 of the CA dealt with the “Events of Default and Termination”. Under Article 16.1, an event of default was defined to be either (a) a “Concessionaire Event of Default” or (b) a “GOM Event of Default”. Article 16.2 then made a provision for termination of each of the events of default. Subject to the provisions of the SA, the Government of Maharashtra was entitled to terminate the CA for a Concessionaire Event of Default and the Respondent herein was entitled to terminate the CA for a GOM Event of Default. However, irrespective of whether it was a Concessionaire Event of Default or a GOM Event of Default and irrespective of whether the CA was terminated by the Government of Maharashtra or by the Respondent herein, the CA envisaged the concept of a ‘Termination Payment’.

The Corporate Debtor submits that Article 16.2(a)(3) reads as follows:

The term ‘Termination Payment’ was in turn described in Article 16.4 of the CA in the following fashion,

Therefore, it is urged that on the occurrence of any of the events under Articles 15 or 16 of the CA, the Government of Maharashtra was liable to pay the Respondent a sum by way of ‘Termination Payment’. Importantly, it was not material under the CA whether the Government of Maharashtra or the Respondent herein was responsible for the default. As long as there was a default, whether it be by the Government of Maharashtra or by the Respondent, a ‘Termination Payment’ was due and payable. Moreover, in both cases, this ‘Termination Payment’ was towards the ‘Debt Due’, a defined term under the contract. Keeping this contractual set-up in mind, it is important to now refer to certain material provisions of the SA.

Further the Corporate Debtor had invited our attention to Article 3.2 of the SA which reads as,

In the backdrop of the aforesaid clauses, for all intents and purposes, upon the termination of the CA, the debt would stand taken over by the Government of Maharashtra and there would be nothing due from the Respondent herein.

Further, it is the Corporate Debtor’s contention that the CA has been terminated by the GoM by a letter dated 11th October 2019 and Respondent invoked arbitral proceedings and the same are pending at the stage of cross examination and huge amount is recoverable from PWD/Govt. of Maharashtra as stated above. In any event, the termination payment is due and payable by the Govt. of Maharashtra and therefore, the present case is squarely covered by the judgment of the Hon’ble Supreme Court in the matter of Vidharbha Industries.

It is submitted that the invocation of pledge of 51% shares - which are more than the total debt amount/facility extended by the Applicant to the Corporate Debtor.

Substitution of Concessionaire – On 24.08.2022, the Petitioner has already taken steps under the SA for substitution of the Respondent with new concessionaire and identified two prospective parties as proposed concessionaires. The Petitioner has addressed a letter dated 24.08.2022 to the Govt. of Maharashtra requesting the Govt. to restore its rights under the SA including the right of the lenders to substitute the concessionaire for the residual concession period.

OTS proposal at advanced stage – The Respondent vide its letter dated 12.07.2022 has offered Rs. 128 crores as one time settlement amount through induction of an investor by change in management via substitution route under the SA and the same is at the advanced stage. The Respondent’s offer has been discussed by the lenders in the JLM. It is submitted that even in the JLM dated 29.10.2022 the Petitioner along with other lenders have agreed to request the Respondent to enhance the offer and the revised proposal is pending for approval before the concerned authorities of the lenders which means same is at a such an advanced stage. In the event such an offer is accepted then there will not be any obligation on the Respondent in any manner whatsoever under either CA or SA.

Heard the Ld. Counsel for the Financial Creditors and the Ld. Counsel for the Corporate Debtor and perused the records.

Upon perusal of records, this Bench is of the considered opinion the Counsel for Petitioner through his arguments articulated the existence of debt and default which are corroborated from the records annexed to the Petition. It is not disputed that the amount was disbursed to the Corporate Debtor and the Corporate Debtor has defaulted in repaying the amount.

Coming to the defenses raised by the Corporate Debtor, it is contended that under the Concession Agreement and Substitution Agreement, it is immaterial whether the default occurs at the behest of the Corporate Debtor or the Government of Maharashtra. The liability to repay the Corporate Debtor falls on Government of Maharashtra. The Ld. Counsel for the Corporate Debtor has submitted there was a concept of Termination Payment envisaged under the said contracts, and the obligation to make the Termination Payment to Corporate Debtor i.e. Concessionaire was on the GOM.

The aforesaid contention of the Corporate Debtor cannot be taken into consideration, as the Financial Debt as claimed by the Financial Creditor herein arises from a different transaction and the distinct finance documents executed between the Financial Creditors as the Lenders and the Corporate Debtor as the borrower. The default arising out these transactions falls within the meaning of Financial Debt under Section 5(8) of the Code and cannot be equated with the Debt Due under the concession Agreement or the Substitution Agreement for that matter.

The Respondent contends that arbitration proceedings have been invoked and the same pending at the stage of cross examination. This Adjudicatory Authority while adjudicating matters under Section 7 is only required to examine the existence of debt and default. The Hon’ble Supreme Court in E.S. Krishnamurthy vs Bharath Hi-Tecch Builders (P) Limited 2022 3 SCC 161

In Innoventive Industries (supra), a two-judge Bench of this Court has explained the ambit of Section 7 of the IBC, and held that the Adjudicating Authority only has to determine whether a “default” has occurred, i.e., whether the “debt” (which may still be disputed) was due and remained unpaid. If the Adjudicating Authority is of the opinion that a “default” has occurred, it has to admit the application unless it is incomplete. Speaking through Justice Rohinton F Nariman, the Court has observed:

(emphasis supplied)

Further the Corporate Debtor has relied on the judgement of the Hon’ble Apex Court in Vidharbha Industries Power Limited vs Axis Bank Limited Civil Appeal NO. 4633 OF 2021 wherein the Hon’ble Supreme Court has held that discretionary power vests with this Tribunal under Section 7 (5)(a). Further, it was held while discretion is conferred on the Adjudicating Authority, such discretionary power cannot be exercised arbitrarily or capriciously. The relevant provisions are reproduced herein

below:

In the present case, the Corporate Debtor merely states that the dues are receivable from the Government of Maharashtra and the dispute arising from the said issue is subject matter of arbitration. Hence, the dues receivable are yet to be crystallized. In the aforesaid backdrop of distinct facts, reliance placed by the Corporate Debtor on the Judgment Vidharbha Industries is misplaced.

Further, the Hon’ble Supreme Court in M. Suresh Kumar Reddy vs Canara Bank & Ors. Civil Appeal No. 7121 of 2022 wherein the Apex Court has again clarified the position of law and has held as under:

Since, in the present case the debt and default stands established, we have no option but to admit this Petition and initiate CIRP against the Corporate Debtor.

The Financial Creditor has proposed the name of Mr. Sudip Bhatacharya, Registration No.IBBI/IPA003/IP-N0080/2017-18/10703, as the Interim Resolution Professional of the Corporate Debtor. He has filed his written communication in Form 2 as required under rule 9(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016.

The application made by the Financial Creditor is complete in all respects as required by law. It clearly shows that the Corporate Debtor is in default of a debt due and payable, and the default is more than minimum amount stipulated under section 4(1) of the IBC. Therefore, the debt and default stands established and there is no reason to deny the admission of the Petition. In view of this, this Adjudicating Authority admits this Petition and orders initiation of CIRP against the Corporate Debtor.

It is, accordingly, hereby ordered as follows: -