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

Ashok Bhushan, J.

Interlocutory Application (“IA”) No.1709 of 2022 has been filed by Punjab National Bank and Indian Bank, praying for following reliefs:

An affidavit dated 20.10.2022 has been filed by Respondent No.1 to bring on record the recategorization of Jharkhand Road Projects Implementation Company Limited (“JRPICL”) from a “Green” Entity to a “Red” Entity. A counter affidavit to the affidavit dated 20.10.2022 has also been filed. An additional affidavit has also been filed by the Objectors and supplementary affidavit was filed by Respondent No.1.

IA No.1709 of 2022 relates to Jharkhand Infrastructure Implementation Company Ltd. (hereinafter referred to as the “JIICL”) and the Application has been filed by the Lenders, objecting to recategorization of JIICL.

In Company Appeal (AT) No.346 of 2018, after the interim order passed by this Tribunal on 15.10.2018, Union of India has filed an affidavit in the Appeal. List of IL&FS Group Entities was also submitted in the Appeal. Affidavit dated 11.02.2019 was filed by the Union of India along with which list of Group Entities as well as other relevant details were filed. JIICL as well as JRPICL were included in the list of Indian IL&FS Group Entities filed as Annexure-E, which contained the list of 22 Group Companies, which were marked as Green Entities. This Tribunal noted the relevant details and categorization of different Group Companies in its order dated 11.02.2019. With regard to Green Entities, Amber Entities and Red Entities, following was noticed in paragraph 8:

The JIICL was categorized as “Green” Entity and included in Annexure-E. The JRPICL was referred to as “Amber” Entity in order dated 11.02.2019, but by subsequent order dated 19.09.2019, the JRPICL was categorized as “Green” Entity. An affidavit dated 31.03.2022 was filed by IL&FS - Respondent No.1 where JIICL was claimed to be reassessed by the Resolution Consultant for 12 months, i.e. from January 1, 2022 to December 31, 2022 and in the affidavit it was requested that Tribunal may take on record the change in solvency categorization of JIICL from “Green” to “Red”. In paragraph 13 of the affidavit, following has been stated:

Lenders of JIICL filed objections to the said affidavit and thereafter filed I.A. No.1709 of 2022, objecting to recategorization from “Green” to “Red”. In IA No.1709 of 2022, reply on behalf of Respondent No.1 as well as rejoinder affidavit has been filed.

Similarly, with regard to JRPICL, an affidavit dated 20.10.2022 has been filed by Respondent No.1, wherein it was stated that Resolution Consultant pursuant to cashflow based solvency test for the period January 1, 2022 to December 31, 2022 observed that JRPICL did not receive any annuity payments since April, 2022. The Resolution Consultant stated that JRPICL would have to be recategorized from “Green” Entity to “Red” Entity for the testing period from January 1, 2022 to December 31, 2022. In paragraph 13 of the affidavit, following has been stated:

A counter affidavit to the affidavit dated 20.10.2022 has been filed on behalf of L&T Infra Credit Limited, the Lender and an affidavit by Asset Reconstruction Company India Limited (“ARCIL”) claims to be assignee of the debt of one of the Lenders, i.e., L&T Infra Credit Limited by Assignment Agreement dated 29.12.2022.

The learned Counsel for the Applicant in IA No.1709 of 2022 Shri Sanjay Bajaj and Shri Arun Kathpalia, learned Senior Counsel appearing for objectors to the affidavit dated 20.10.2022 with regard to JRPICL submit that Respondent No.1 and the IL&FS Entities on its own has no right to recategorized the Entity from “Green” to “Red”. This Tribunal having recognized both the Entities as “Green”, which is reflected in order dated 11.02.2019 and 19.09.2019, Respondent No.1 had no authority or jurisdiction to unilaterally categories the Entity as “Red”. Categorization as “Red”, is only with the object to deny the repayment to the Lenders, which is the obligation of the IL&FS Entities as per the facility document. It is submitted that the basis of the affidavit filed with regard to JIICL and JRPICL was the ground that annuity was not received from the State of Jharkhand, whereas subsequent to filing of affidavit, annuities have been received from the State of Jharkhand. With regard to JIICL, out of 08 outstanding annuities, six have already been received, therefore, there is no reason to presume that two pending outstanding annuities will not be received. With regard to JRPICL, annuities have been received of INR 232 Crores as of 18.03.2023, which clearly makes the Entity fully solvent and to enable to discharge its obligations.

Shri Ramji Srinivasan, learned Senior Counsel appearing for the Respondent submits that recategorization of the JIICL and JRPICL was due to reason that they were unable to serve their debt obligations and other dues and both were only able to discharge their obligation to keep it as a going concern. Hence, recategorization was on the basis of recommendation made by the Resolution Consultant. Shri Ramji Srinivasan does not dispute that in the year 2023, both the Entities have received annuities from the State of Jharkhand. It is submitted that the affidavit dated 10.02.2023 filed by Respondent No.1 as per direction of this Tribunal on 19.01.2023 where it has been stated that from Government of Jharkhand annuities amounting to INR 109,41,11,200/- have been received. It is further submitted that despite the receipt of the above annuity, substantial annuities still remain overdue. It is submitted that outstanding principal of the Senior Lenders as on date is a substantial amount, which JIICL is unable to clear as on date. With regard to JRPICL, Shri Ramji Srinivasan submits that from Government of Jharkhand annuities of INR 232 crores has been received as on 18.03.2023 and on the basis which the solvency test was conducted again by the Resolution Consultant and in view of New Board in its meeting dated 24.03.2023 has provided a conditional approval for recategorization of JRPICL to “Green”, subject to receipt of additional annuities of INR 58 crores by March 2023.

We have considered the submission of learned Counsel for the parties and have perused the record.

We have noticed above that categorization of the IL&FS Entities was noticed by this Tribunal in its order dated 11.02.2019 and 19.09.2019. the categorization was noticed and recorded on the basis of affidavit filed before this Tribunal. The order passed by this Tribunal does not indicate that the categorization could be changed by the Entities themselves, without any reference to the Tribunal. When the Entities are categorized in “Green”, the object is that the Entity should continue to discharge its all obligations, including the obligation to Lenders and the Entities should be incentivize by all including the Lenders to continue the categorization as a “Green”. If the entity is given liberty to change its categorization from “Green” to “Red”, there will be no obligation on the Entity to carry on its categorization as “Green”. We thus are of the view that Entity itself, which is categorized as “Green” cannot be permitted to change its categorization unilaterally. It was open for Respondent No.1 or any such Entity to bring necessary material before the Tribunal and asking leave of the Tribunal to recategorize the Entity.

Now coming to the JIICL, from the facts brought on the record, it does appear that the Entity has received annuities from the Government of Jharkhand last by March 2023. The cash balance in the escrow account of the Entity has increased to INR 158 crores. The Respondent themselves has come with the case that the Resolution Consultant has recommended for its categorization into “Green” subject to certain waivers to be granted by Lenders. In the note which has been submitted on behalf of Respondent No.1 during the course of submission with regard to JIICL, following has been stated:

The Resolution Applicant having itself recommended to categorize the Entity as “Green”, subject to obtaining certain waivers from the Lenders, we are satisfied that the JIICL be declared as “Green” Entity, subject to appropriate orders being passed by Lenders as noted in (iii) above. The IA No.1709 of 2022, thus deserves to be allowed in the above manner.

Now coming to the JRPICL, it has been brought on record that Government of Jharkhand has released the substantial annuities of INR 232 Crores as on 18.03.2023. An affidavit has been filed on 25.04.2023 and in the note submitted by Respondent No.1 during the course of submission, with regard to affidavit dated 25.04.2023, following has been stated:

The Resolution Consultant having already recommended and the New Board in its meeting dated 24.03.2023 having already decided to grant conditional approval of recategorization of JRPICL to “Green”, subject to receipt of additional annuities of INR 58 Crores in March 2023, we are satisfied that JRPICL has to be treated as a “Green” Entity. Insofar as the financial liability as referred to on the basis of arbitral award is concerned, suffice it to notice that the note itself mentions that arbitral award is under process of challenge. The arbitral award being under process of challenge, that cannot be any ground to refuse categorization of JRPICL as “Green”. We, however, grant liberty to Respondent No.1 to seek leave of this Tribunal for recategorization in event any liability falls on the JRPICL on the basis of arbitral award and it is unable to discharge its liabilities.

In view of the foregoing discussions, we dispose of the IA No.1709 of 2022 as well as the affidavit and objection with regard to JRPICL in following manner:

Ordered accordingly.