Union Of India vs Infrastructure Leasing And Financial Services Ltd. & Ors.

Ashok Bhushan, J.

This IA has been filed by Infrastructure Leasing and Financial Services Ltd. (“IL&FS”) and Jharkhand Road Projects Implementation Company Ltd. (“JRPICL”) praying for clarification of the order dated 26.05.2022 passed by this Tribunal in IA No.2114 of 2021 and it is further prayed that Respondent - Sadbhav Engineering Ltd. be restrained from taking any further action to enforce or execute the Arbitral Awards dated 06.08.2020 and 28.03.2023.

This IA has been filed by Edelweiss Alternative Asset Advisors Limited (“Edelweiss”) claiming to be Financial Creditor of JRPICL and IL&FS entity. The Applicant Edelweiss support the reliefs sought in IA No.1288 of 2024 by IL&FS and JRPICL.

This IA has been filed by Sadbhav Engineering Ltd. & GKC Projects Ltd. in IA No.1288 of 2024 praying for certain reliefs. Reliefs claimed in IA No.3262 of 2024 are opposing the prayers, whcih have been made in IA No.1288 of 2024 filed by the IL&FS and JRPICL.

Brief facts to be noticed for deciding these Applications are:

The reply has been filed to the IA No.1288 of 2023 by Sadbhav Engineering Ltd. and Anr., where the Respondents contend that Award holders, i.e. Respondent was entitled to execute the Award. It is submitted that JRPICL was categorized as ‘Green Entity’ and it has been making payment of interest to its related Entities. The Respondent has referred to Audited Financial Report of JRPICL for Financial years 2017-18 to 2022-23, which clearly shows that Applicant No.2 has been making payment of substantial funds towards interest and principal repayment to IL&FS Transportation Ltd. (“ITNL”) against an unsecured loan, who also happens to be the majority shareholder of Applicant No.2. It is pleaded by the Respondent that when JRPICL is Green Entity and is able to meet all its obligation both financial and operation, there was no impediment in making payment to Respondent as per Arbitral Award in favour of the Respondent. It is further pleaded that Applicant No.2 has been earning annuity to the tune of Rs.163.64 crores, annually in respect of two projects, which were completed by Respondent herein. Applicant No.2, although received annuity from the State of Jharkhand because of completion of project by the Respondent, but the amounts which are due to the Respondent from the Arbitral Award is not being discharged by the Applicant.

Shri Ramji Srinivasan, learned Senior Counsel for the Applicant in rejoinder submitted that JRPICL is Red Entity and an IA has already been filed in this Tribunal being IA No.5033 of 2023, which is pending adjudication. It is submitted that as per the revised resolution mechanism resolution framework approved by this Tribunal, the process for resolution of JRPICL and the Respondent shall be paid their dues as per the resolution framework at the time of final resolution of the entity.

We have heard Shri Ramji Srinivasan learned Senior Counsel; Shri Rakesh Dwivedi, learned Senior Counsel and Shri Gopal Jain, learned Senior counsel appearing for the respective parties.

Learned Counsel for the Applicant in support of IA No.1288 of 2024 has contended that the order passed by this Tribunal on 26.05.2022, only modified paragraph 2 of the order dated 11.01.2019, i.e., directing for opening the sealed cover in which the Award was kept, but the stay order was not modified, hence, it cannot entitle the Respondent to proceed to execute the Award, which is being sought to be done by the Respondent. It is submitted that order dated 15.10.2018, which contained the interim directions, are still continuing, which were affirmed by this Tribunal on 12.03.2020, which clearly restrain institution of any proceedings or continuation of suits or any other proceedings by any party against IL&FS and its group companies. The order dated 15.10.2018 having not been modified or tinkered with by order dated 26.05.2022, the enforcement proceedings filed by Respondent in Civil Court (Commercial Division) Ranchi is not maintainable and the same is prohibited by order dated 15.10.2018. As per the resolution frame work the IL&FS and its group entities has to be resolved and the Respondent, who is an Operational Creditor or other creditors have to receive their dues as per the resolution framework and the que cannot be breached by any Respondent by prosecuting enforcement proceedings. It is submitted that JRPICL is now being reclassified as Red Entity, in pursuance of which, IA for re-classification has already been filed and pending, being IA No.5033 of 2023 is pending consideration. JRPICL is not able to discharge its debt as the JRPICL has not received its annuity, which was payable by the Government of Jharkhand from April to September 2023. It is submitted that prayers made in the Application need to be allowed and this Tribunal may clarify that order dated 26.05.2022 does not entitle the Respondent to enforce the Arbitral Award against IL&FS and its group entities and the Respondent be permanently restrained from taking further action to enforce or execute the Arbitral Award dated 06.08.2020 and 28.03.2023.

Learned Senior Counsel appearing for Respondent refuting the submissions, contends that order passed by this Tribunal on 26.05.2022, while directing the opening of the Award from sealed cover has further directed that all contentions and the course of action shall be open to the parties to be taken in accordance with law. When this Tribunal observed that all course of action shall be open for the parties to be taken in accordance with law, the Respondent is fully entitled to file an Application for execution of enforcement of petition for execution of the Award. It is submitted that the Applicant has already in pursuance of the order dated 26.05.2022 has challenged the award before the Delhi High Court under Section 34 of the Arbitration of Conciliation of Act, in which no interim order has been passed in favour of the Applicant by Delhi High Court. Rather, the Delhi High Court has observed that the question of enforcement has to be gone into before the Court, where enforcement petitions have been filed and all contentions of the parties were left open. The Respondent has completed the projects, due to which the Applicants are earning annuity of Rs.163.64 crores annually and it is unfair on the part of the Applicants not to discharge their obligation to the Respondent, which is crystalized in an Award in favour of the Respondent. It is further submitted by the Respondent that now the Applicants have called for EoI from the interested parties to acquire 100% stake in JRPICL. It is submitted that Applicant has been making payment of interest to its related entities like ITNL, which is reflected from the annual financial statement of the JPRICL, which shows that huge amount in crores have been paid by the Applicant No.2 to its related entities, whereas no payment has been received by the Respondent. It is further submitted that moratorium dated 15.10.2018, did not apply to Green Entities, since Green Entities are able to meet all their payment obligations, both financial and operation, as and when they become due. The Respondent, who has completed the projects and their huge dues are pending and due to non-clearance of dues by the Applicant, the Respondent is suffering great hardship. The Applicant No.2 has generated thousands of crores of revenue from the Financial Year 2018-19 to Financial Year 2022-23. It is submitted that order dated 26.05.2022, does not need any clarification.

Learned Senior Counsel for the Sadbhav Engineering Ltd., Shri Rakesh Dwivedi also referred to IA No.3262 of 2024 in which several prayers have been made by the Applicant, i.e., Sadbhav Engineering Ltd. and Anr. In IA No.3262 of 2024, it is submitted that various effective figures have been brought, including the release of amount of Rs.362.7 crores to a related party since Financial Year 2017-18, i.e. ITNL. JRPICL was declared as ‘Green Entity’ on 19.09.2019. It is submitted that with several other entities, whose dues were payable by JRPICL, they have entered into a settlement and made their payments.

We have considered the submissions of learned Counsel for the parties and perused the records.

We need to first notice the extent and remit of the order dated 26.05.2022, clarification with regard to which order is sought by the Applicant in IA No.1288 of 2024. We have already noted above that by order dated 11.01.2019, this Tribunal directed for continuation of pending proceedings before Arbitral Tribunals, which was with a caveat that Arbitral Tribunals are prohibited to pass any order under Section 17 of the Arbitration & Conciliation Act, 1996 against IL&FS or any of its Group Companies. Award passed, if any was to be kept in sealed cover till final decision of the petition under Section 241 and 242 of the Companies Act, 2013 pending before the NCLT. It was further observed that after the Award is given in favour of the IL&FS or any of its Group Companies, in such case, the Award need not be kept in sealed cover, even during the pendency of the Company Petition. An IA No.2114 of 2021 was filed by Respondent - Sadbhav Engineering Ltd. in which following prayers were made:

On IA No.2114 of 2021, this Tribunal passed order on 26.05.2022, which order is prayed to be clarified. The relevant portion of order dated 26.05.2022 is to the following effect:

The order dated 26.05.2022 only directed that Award, which is kept in the sealed cover need to be opened by the Arbitrators and the parties may be communicated the award. It was noted that Award in sealed cover are more than two years ago. This Tribunal in order dated 26.05.2022, clearly observed – “We without entering into the issues and submissions raised by the parties regarding the future actions in consonance with the award, only observe that all contention and the course of action shall be open to the parties to be taken in accordance with law.”.

The observation of this Tribunal was that all contention and course of action shall be open to the parties to be taken in accordance with law. The issue to be noticed is as to whether by order dated 26.05.2022, the injunction which was issued on 15.10.2018 stood modified, which entitled the Respondent to proceed for enforcement of Award. It is to be noted that when the Application IA 1288 of 2024 came for consideration on 06.03.2024, after noticing all IAs order in paragraph 12 to 14, this Tribunal observed as follows:

This Tribunal in the order has observed that the order dated 26.05.2022 clearly indicate that Tribunal did not enter into the issues raised by the respective parties. It was further observed that the observations made in the order dated 26.05.2022 cannot be read to mean that it has in any manner varied the order dated 15.10.2018 passed in the Appeal, which was operating till date. We reiterate that order dated 26.05.2022 neither vary, nor modified the order dated 15.10.2018 or the entire order dated 11.01.2019. The only modification was made in paragraph 2 of the order dated 11.01.2019 that sealed cover be opened, which was directed to be kept till the final decision of the Company Petition filed under Section 241 and 242. When the order dated 15.10.2018 has not been varied or modified, even if an Award has been opened from the sealed cover and communicated to the Respondents, the Respondents are not entitled to enforce the Award during the continuation of the interim direction dated 15.10.2018, which was subsequently affirmed by this tribunal on 12.03.2020. We, thus, clarify our order dated 26.05.2022 to the effect that the said order do not modify the interim injunction order issued on 15.10.2018 and the enforcement of Award, which is declared against the IL&FS was also prohibited by the issue of the order dated 15.10.2018. We have noticed the prayers made in IA No.2114 of 2021 as quoted above, which clearly indicate that what was prayed was that to allow Arbitral Tribunal to open the signed Award from the sealed cover and deliver the same to the parties to the arbitration proceedings. No other prayer was made in the IA 2114 of 202. The rival contentions of the parties, which was noticed in order dated 26.05.2022 was not decided, nor this tribunal intended that by opening of the sealed cover, the Respondents can proceed to enforce the Award against the IL&FS and its group entities.

In view of the above the prayer (a) in IA No1288 of 2024 is allowed as per the above clarification.

Now, we come to the other prayers in IA No.1288 of 2024 and the prayers made in IA No.3262 of 2024. From the facts of the present case, it is clear that the interim order was passed by this Tribunal on 15.10.2018, prohibiting institution or continuation of suits or any other proceedings by any party or person or Bank or Company against IL&FS and its group companies in any Court of Law, Tribunal/ Arbitration Panel or Arbitration Authority.

In IA No.1288 of 2024, prayer (b) of the Applicant is that Respondent be permanently restrained from taking any further action to enforce or execute the Arbitral Awards dated 06.08.2020 and 28.03.2023.

More than five years have been elapsed when the order dated 15.10.2018 was passed. Even in the statutory scheme of IBC for resolution of a Corporate Debtor mechanism, 330 days are allowed. When the order dated 15.10.2018 was passed, it was passed with an intent to protect the IL&FS and its group entities from actions of various creditors to protect the corpus of the IL&FS and its group entities for appropriate resolution. It was never intended that the order dated 15.10.2018 shall continue infinitely and there will be prohibition for all time to come against all persons to institute proceedings or suit against IL&FS and its group companies. We are of the view that sufficient time has elapsed and sufficient time has been given to the Board of IL&FS to take steps to resolve its group companies. It is true that several entities of IL&FS has already been resolved and some are at the final stages of resolution, hence, the protection under order dated 15.10.2018 cannot be allowed to continue for all time to come. We, thus, for considering other prayers made in IA No.1288 of 2024 and IA No.3262 of 2024 deem it proper to put the IL&FS and its group entitles on notice to show cause as to why the order dated 15.10.2018 be, not allowed to continue, after reasonable time, i.e. with effect from 15.10.2024.

In result, while granting prayer (a) in IA No.1288 of 2024, for consideration of other prayers, we direct this Application to be listed again on 14^th October, 2024.

As directed above, the IL&FS and its group entities may show cause, as to why order dated 15.10.2018, may be allowed, not to operate with effect from 15.10.2024.

[Justice Ashok Bhushan]

Chairperson