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Judgment
Ashok Bhushan, J.
These three Applications have been filed by the State Bank of India.
Brief facts necessary to be noticed for deciding these Applications are:
The State Bank of India (“SBI”) is one of the Secured Financial Creditors of IL&FS Tamil Nadu Power Co. Ltd. (hereinafter referred to as “ITPCL”). The ITPCL being one of the Group Company of IL&FS was categorized as “Amber Company”. The claim of the Applicant to the extent of INR 555.57 crores was accepted by the Claims Management Advisor. After interim order passed by this Tribunal on 15.10.2018, the IL&FS has not been servicing the debt of the Applicant from October 2018. IA No.3730 of 2023 has been filed by the State Bank of India praying for interim distribution of funds lying in the Escrow Account of the Company, in which notices were issued on 21.08.2023.
The steps were taken for restructuring of ITPCL, which was required to be done as per RBI (Prudential Framework for Resolution of Stressed Assets) Direction, 2019. As per the above directions, Liquidation Value was also to be required to be communicated at the time of approval of Resolution Plan. The Liquidation Value has not been provided by the Lead Bank to the Applicant. The Liquidation Value due to each Lender has to be provided and Resolution Plan has to be sent to all Lenders for their consideration. Restructuring Plan and Restructuring Resolution Plan was submitted to the Applicant, but Lead Bank failed to provide the Liquidation Value. In the Joint Lenders Meeting, SBI requested the Lead Bank to provide Liquidation Value, but the Lead Bank started taking steps to implement the Restructuring Plan without providing the Liquidation Value to the Applicant. Hence, IA No.4453 of 2023 has been filed by the Applicant, wherein following prayers have been made:
“a)This Hon’ble Tribunal may be pleased to direct the IL&FS/Board of ITPCL/lead Bank PNB to strictly comply with the Clause 7.2 of the applicable RBI Circular 07.06.2019, read with Clause 7.2 of the ICA by providing for the Liquidation Value prior to the approval of the Resolution Plan.; and
b)Pass such other orders as this Tribunal may deem fit in this case.”
On persistent demand, the Lead Bank in its JLF Meeting dated 16.10.2023 appraised the Lenders that it has received Liquidation Value from M/s GAA Advisory and M/s Kakode Associates Consulting Pvt. Ltd. of Rs.4580.03 crores and Rs.6188.66 crores. There being difference between the two Liquidation Value, the Lead Bank engaged third Valuer for calculating the Liquidation Value. The Liquidation Value was calculated as on 15.10.2018. The Applicant requested the Lead Bank i.e., Punjab National Bank (“PNB”) to provide latest Liquidation Value as on 22.09.2023. The third Valuer has provided the Liquidation Value of Rs.5192.43 crores, hence, the average Liquidation Value as on 15.10.2018 is Rs.4886.23 crores. The Lead bank having calculated the Liquidation Value on 15.10.2018, IA No.5112 of 2023 has been filed by the Applicant praying for following reliefs:
“a)This Hon’ble Tribunal may be pleased to stay further distribution of fund and/or further payout as per the approved restructuring plan till Liquidation Value as on date of execution of Master Restructuring Agreement is provided by Lead Bank PNB & ITPCL to the Applicant Bank and appropriate clause with respect to the treatment of dissenting lenders wherein payment in cash in priority to the assenting lenders is incorporated in the Restructuring Plan in compliance with RBI Circular & ICA agreement;
b)To direct the Lead Bank PNB & ITPCL to calculate and provide liquidation value as on the date of execution of the Master Restructuring Agreement; and
c)Pass such other orders as this Tribunal may deem fit in this case.”
Reply has been filed on behalf IL&FS Tamil Nadu Power Company Limited in IA No.5112 of 2023.
We have heard Shri Krishnan Venugopal, learned Senior Counsel appearing for the Applicant(s) – State Bank of India and Shri Ramji Srinivasan, learned Senior Counsel appearing for the Respondent/ IL&FS and Shri Sanjay Bajaj, learned Counsel appearing for Respondent/Punjab National Bank.
The learned Senior Counsel for the Applicant submits that as per RBI (Prudential Framework for Resolution of Stressed Assets) Direction, 2019, the Resolution Plan should provide for payment not less than the Liquidation Value due to the Dissenting Lenders and Resolution Plan has to be implemented within 180 days from the end of review period. The learned Senior Counsel for the Applicant has also referred to Inter-Creditor Agreement dated 04.07.2019, which also required Resolution Plan to provide the Liquidation Value due to each Lender. Shri Venugopal submits that the Liquidation Value obtained by the Lead Bank is as on 15.10.2018, whereas, Liquidation Value was to be calculated as on 31.03.2023. it is submitted that Liquidation Value obtained by the Lead Bank is not in accordance with the RBI (Prudential Framework for Resolution of Stressed Assets) Direction, 2019 and Inter-Creditor Agreement. It is submitted that Liquidation Value ought to have been provided to the Applicant along with the Resolution Plan, which Liquidation Value was not provided. The Lead Bank has provided five years’ old Liquidation Value, which is not in accordance with law and five years’ old value is of no use of the Applicant for taking a commercial decision on the implementation of Restructuring Plan. It is submitted that due to the aforesaid, the Applicant has not yet communicated either his ‘consent’ or ‘dissent’ vote on the Restructuring Plan. It is submitted that Master Restructuring Agreement (“MRA”) having been signed on 22.09.2023, the Lead Bank may be directed to provide the latest Liquidation Value as on 22.09.2023.
Learned Senior Counsel for Respondent No.1 refuting the submissions of the learned Counsel for the Applicant submits that insofar as IA No.3730 of 2023, which asked for interim distribution of funds is concerned, it is submitted that Restructuring Plan having been prepared and submitted, the question of interim distribution of funds, does not arise and the said Application has become infructuous. Insofar as IA No.4453 of 2023 is concerned, by which Application the Applicant has prayed for issuing direction to the Lead Bank to provide Liquidation Value, it is submitted that prior to the approval of Resolution Plan, Liquidation Value having already been communicated to the Applicant, the said Application has also become infructuous. Coming to IA No.5112 of 2023, it is submitted that Master Restructuring Agreement has already been signed in which Lenders have already distributed the amount, the Applicant has not communicated his ‘consent’ or ‘dissent’ vote. The Applicant is signatory to Inter-Creditor Agreement, where it is clearly provided that Lead Lender shall not be under any obligation to provide Liquidation Value to any Lender prior to submission of Resolution Plan for approval by the Lenders. The Resolution Plan shall provide for payment of not less than Liquidation Value, due to the dissenting Lender. The computation of Liquidation Value as on 30.09.2018 is in accordance with RBI Circular. It is submitted that this Tribunal in its order dated 15.10.2018, which was affirmed by 12.03.2020 has mentioned that 15.10.2018 is the cut-off date and the Lenders with majority of 94.21% agreed to treat 30.09.2018 as the date for calculation of Liquidation Value on account of it being the closet quarter end date. The Liquidation Value of ITPCL as on 30.09.2018 has already been assessed and provided to the Applicant, which is clear from the Minutes of the Meeting dated 16.10.2023. The valuation methodology as well as the date for computation of the liquidation was voted and approved by all Lenders except SBI. Based on the Liquidation Value, in the event SBI clarifies its stand, SBI’s share would be Rs.373.97 crores towards 100% satisfaction of its debt, which will be payable by ITPCL. SBI can still provide his ‘consent’ or ‘dissent’ to get entitlement as per the terms of the ITPCL Restructuring Plan. The submission of the Applicant that Liquidation Value is to be computed as on 31.03.2023 is without any basis. Further, the SBI has failed to provide any reasoning or basis for calculation of Liquidation Value as on date of MRA. The MRA is in compliance of RBI Circular. The RBI Circular itself provide that decision taken for implementation of the Plan representing 75% by value of the total outstanding credit facilities and 60% of Lenders by number, will be binding on all Lenders. The Restructuring Plan having been approved by 94.21% Lenders, the same is also binding on the SBI and the Applicant cannot pray for different yardstick for calculation of Liquidation Value.
Shri Sanjay Bajaj, learned Counsel appearing for Punjab National Bank also supported the submissions advanced on behalf of Respondent No.1. He placed reliance on the order dated 12.03.2020 passed by this Tribunal, where cut-off date is mentioned as 15.10.2018. Clause 10 of RBI Circular has also been referred to. It is further submitted that MRA was signed by the Lenders forming 91.67% by value as on date and 75% by numbers. The calculation of Liquidation Value is as per cut-off date set by this Tribunal is in accordance with law.
We have heard learned Counsel for the parties and perused the records.
The main issue which has arisen between the parties is with regard to date on which Liquidation Value has to be taken for distribution of amount to the creditors. The Liquidation Value which has been relied by the Lead bank and which Liquidation Value was submitted by Valuers was as on 30.09.2018. The learned Senior Counsel for the Applicant has referred to Clause 7.2 and 8.1 of the Inter-Creditor Agreement, which are as follows:
“7.2The Lead Lender shall, along with the Resolution Plan, provide the Liquidation Value due to each Lender as computed by the Registered Valuer(s) appointed by the Lead Lender. For avoidance of doubt, it is clarified that the Lead Lender shall not be under any obligation to provide the Liquidation Value to any Lender prior to submitting the Resolution Plan for approval by the Lenders.
8.1The Resolution Plan shall provide for payment of not less than Liquidation Value due to the Dissenting Lenders. Such payment shall be made in accordance with the terms of the approved Resolution Plan.”
RBI Circular dated 07.06.2019 has been referred to and relied by both the parties, which is Prudential Framework for Resolution of Stressed Assets. Under heading (b), ‘Implementation of Resolution Plan’, Clauses 9 and 10 have been relied, which are as follows:
“B. Implementation of Resolution Plan
9.All lenders must put in place Board-approved policies for resolution of stressed assets, including the timelines for resolution. Since default with any lender is a lagging indicator of financial stress faced by the borrower, it is expected that the lenders initiate the process of implementing a resolution plan (RP) even before a default. In any case, once a borrower is reported to be in default by any of the lenders mentioned at 3(a), 3(b) and 3(c), lenders shall undertake a prima facie review of the borrower account within thirty days from such default (“Review Period”). During this Review Period of thirty days, lenders may decide on the resolution strategy, including the nature of the RP, the approach for implementation of the RP, etc. The lenders may also choose to initiate legal proceedings for insolvency or recovery.
10.In cases where RP is to be implemented, all lenders shall enter into an intercreditor agreement (ICA), during the above-said Review Period, to provide for ground rules for finalisation and implementation of the RP in respect of borrowers with credit facilities from more than one lender. The ICA shall provide that any decision agreed by lenders representing 75 per cent by value of total outstanding credit facilities (fund based as well non-fund based) and 60 per cent of lenders by number shall be binding upon all the lenders. Additionally, the ICA may, inter alia, provide for rights and duties of majority lenders, duties and protection of rights of dissenting lenders, treatment of lenders with priority in cash flows/differential security interest, etc. In particular, the RPs shall provide for payment not less than the liquidation value6 due to the dissenting lenders.”
In pursuance of the RBI Circular, Inter-Creditor Agreement has been entered between the parties, according to which any decision agreed by Lenders with 75% by value of total outstanding credit facilities and 60% of Lenders by number, shall be binding upon all the Lenders. It is a case of Respondents that 94.21% Lenders have approved ITPCL Restructuring Plan. The learned Counsel for the Respondent has relied for cut-off date on the order passed by this Tribunal on 12.03.2020. Paragraph 67 of the order dated 12.03.2020 passed by this Tribunal in the Appeal provides as follows:
“67.So far as cut-off date is concerned, for the present 15th October, 2018 being the date of interim order, we accept the cut-off date for distribution of the asset because the said date is the date of initiation of the resolution process of the Companies. Hence, the said date should be treated as initiation of the resolution process of the IL&FS and Group Companies.”
It is further relevant to notice that this Tribunal in the same order dated 12.03.2020 in paragraph 61 has noted the highlights of the key of the Resolution Framework. In paragraph 61, following has been noticed:
“61.The Union of India on the basis of the present procedure as is followed under the guidance of this Appellate Tribunal and under the supervision of Hon’ble Justice (Retd.) D.K. Jain, has highlighted the key of the Resolution Framework as follows: -
“Key Highlights of the Resolution Framework
Initial Resolution Framework
(1)As set out above, the Initial Resolution Framework and the First Addendum were filed by the Appellant with this Hon’ble Tribunal vide the January 25 Affidavit.
(2)The Initial Resolution Framework sets forth that an ‘asset by asset’ solution, being explored through various methods i.e., an “Asset Level Resolution” (and in some cases, the sale of the business vertical comprising of a basket of companies) is the most feasible option for the resolution of Respondent No.1. Group.
(3)Set out below are the salient features of the Initial Resolution Framework:
(i)Crystallisation of claims as of “Cut-Off Date” (i.e. October 15, 2018): No interest, additional interest, default interest, penal charges or other similar charges to accrue after the Cut-Off Date of October 15, 2018.
(ii)Appointment of valuers for determining the fair value and liquidation value: Two valuers to be appointed to determine the fair value and liquidation value in respect of “Sale Companies” (i.e., entities being monetized as part of the ‘Asset Level Resolution’).
(iii)Categorisation of entities (Category I and Category II): Based on the H1 bid value received, a Sale Company would either be, a:
(a)Category I Company i.e., where the bidder is willing to assume all liabilities of the Sale Company whether operational or financial without compromise of the debt; or
(b)Category II Company i.e., where the financial bid amount offered by the applicant is less than all the liabilities of the Sale Company.
(iv)Constitution of a Creditors’ Committee: In respect of the relevant Sale Company, Creditors’ Committee will be constituted (in lieu of individual creditor consents, which are to be dispensed with) in the following manner:
(a)For a Category I Company, the Creditors’ Committee shall constitute all the financial creditors of the Respondent No.1 Group Company (including Respondent No.1 Group Companies that have provided financial debt to such Respondent No.1 Group Company) which is the “selling shareholder(s)” of that Sale Company;
(b)For a Category II Company, the Creditors’ Committee shall constitute all the financial creditors of the Sale Company (including Respondent No.1 Group Companies that have provided financial debt to such Respondent No.1 Group Company).
(c)Each member of each Creditors’ Committee will have voting rights (by value of the financial debt owed to that member) and will be called upon to only consider the highest bid in respect of the Sale Company. Specifically, the Creditors’ Committee would not have the ability to determine distribution of the bid amounts.
(v)Decision by the New Board: The decision of the Creditors’ Committee to either approve or reject the highest bid for a Sale Company will be placed before the New Board for its consideration.
(vi)Approval of Justice (Retd.) D.K. Jain: If the New Board approves a sale proposal, the same will be placed before Justice (Retd.) D.K. Jain (appointed by this Hon’ble Tribunal vide order dated February 11, 2019) for his approval.
(viii)Approval of the Hon’ble NCLT: Upon receipt of approval of Justice (Retd.) D.K. Jain, the proposal will be placed with the Hon’ble NCLT for its approval. Upon receipt of approval of the Hon’ble NCLT and payment of consideration by the successful bidder, the shares/assets of the relevant Sale Company will be transferred free and clear of all encumbrances, liens, third party rights to the successful bidder.””
The Liquidation Value as on 30.09.2018 is as per order dated 12.03.2020 where this Tribunal has accepted 15.10.2018 as the cut-off, we do not find any error in fixing the Liquidation Value as on 30.09.2018. Furthermore, the Lenders with the requisite majority has already taken a decision to approve Restructuring Plan, the SBI, who is also one of the Lender, cannot be permitted to wriggle out of the terms of the ITPCL Restructuring Plan and as per decision taken by the majority, prescribed in Clause 10 of the RBI Circular, the Restructuring Plan and the Liquidation Value taken therein is binding on the Applicant.
The learned Senior Counsel for the Applicant in support of his submission has raised various submissions with regard to relevant date on which Liquidation Value has to be taken. The learned Senior Counsel for the Applicant has referred to paragraphs 10, 11 and 12 of the RBI (Prudential Framework for Resolution of Stressed Assets) Direction, 2019. Paragraph 10, we have already quoted above, paragraphs 11 and 12, are as follows:
“11.In respect of accounts with aggregate exposure above a threshold with the lenders, as indicated below, on or after the ‘reference date’, RP shall be implemented within 180 days from the end of Review Period. The Review Period shall commence not later than:
(a)The reference date, if in default as on the reference date; or
(b)The date of first default after the reference date.
12.The reference dates for the above purpose shall be as under:
| Aggregate exposure of the borrower to lenders mentioned at 3(a), 3(b) and 3(c) | Reference date |
|---|---|
| Rs. 20 billion and above | Date of these Directions |
| Rs.15 billion and above, but less than Rs.20 billion | January 1, 2020 |
| Less than Rs.15 billion | To be announced in due course” |
Paragraphs 11 and 12, on which reliance has been placed by learned Senior Counsel for the Applicant do not throw any light on the date on which Liquidation Value has to be computed. What has stated in the above paragraphs is that Resolution Plan shall be implemented within 180 days from the end of Review Period. As noted above, in the present case, cut-off date has already been laid down by this Tribunal in the order dated 12.03.2020 and the Liquidation Value as fixed by the Lead Bank cannot be said to be erroneous.
The learned Senior Counsel for the Applicant also referred to Clauses 7 and 8 of the Inter-Creditor Agreement, which are as follows:
“7. APPROVAL OF RESOLUTION PLAN
7.1Each Resolution Plan shall be presented by the Lead Lender and/or the process advisor or resolution advisor appointed by the Lead Lender, to all the Lenders for their consideration.
7.2The Lead Lender shall, along with the Resolution Plan, provide the Liquidation Value due to each Lender as computed by the Registered Valuer(s) appointed by the Lead Lender. For avoidance of doubt, it is clarified that the Lead Lender shall not be under any obligation to provide the Liquidation Value to any Lender prior to submitting the Resolution Plan for approval by the Lenders.
… … …
8. DISSENTING LENDERS
8.1The Resolution Plan shall provide for payment of not less than Liquidation Value due to the Dissenting Lenders. Such payment shall be made in accordance with the terms of the approved Resolution Plan.”
Clause 7.1, deals with the ‘Approval of Resolution Plan’ and Clause 7.2 states that the Lead Lender shall, along with the Resolution Plan, provide the Liquidation Value due to each Lender as computed by the Registered Valuer(s) appointed by the Lead Lender. The relevant fact which is brought to the notice here is that the Valuers’ report was received by the Lead Bank and thereafter third Valuer was engaged due to difference in the valuation by the Valuers and all the process was noticed and discussed in the Joint Lenders Meeting. There is no dispute that Liquidation Value as per the Valuers’ Report submitted by Lead bank has been communicated to the Applicant. We, thus, do not find any error in the Master Restructuring Plan having based on Liquidation Value as on 30.09.2018.
In result, IA No.3730 of 2023 and IA No.4453 of 2023 are dismissed as infructuous. IA No.5112 of 2023 is dismissed.