Yes Bank Limited vs Jaypee Healthcare Limited

This Application has been initially filed on 02.12.2019 by the Yes Bank Limited as Applicant Financial Creditor under Section 7 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “I & B Code, 2016”) read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules 2016 against the M/s Jaypee Healthcare Limited (hereinafter referred as ‘Respondent Corporate Debtor’) in Form 1 containing all the information as required in Part I, II, III, IV and V of the Form 1 showing a total financial debt of Rs.378,02,00,000 Crores in default declaring date of default being 01.02.2019.

Subsequent to filing of the Application, as mentioned in para 1 above, an Interlocutory Application, IA No.146/2023 was filed on 23.03.2023 for substituting the name of Applicant in favour of M/s J C Flowers Asset Reconstruction Pvt Ltd. to whom debt was assigned as per assignment deed dated 16.12.2022 replacing Yes Bank Ltd. It is informed by the Ld. Counsel representing the Applicant that as per clause 2.1.1 of this assignment deed as well as the schedule attached therewith, the entire debt of M/s Jaypee Health Care Ltd. has been assigned in favour of the J C Flowers Asset Reconstruction Pvt Ltd. The same counsel who was appearing for the erstwhile Applicant i.e. Yes Bank Ltd. appeared to represent the new Applicant i.e. J.C. Flowers Asset Reconstruction Pvt Ltd and made a statement that this assignment deed has been implemented, therefore J C Flowers Asset Reconstruction Pvt Ltd has to be substituted as the Applicant/Financial Creditor in place of Yes Bank Ltd. After considering the averments made in the IA No.146/2023 and submission made by the Ld. Counsel representing M/s J C Flowers Pvt Ltd as mentioned above, this tribunal passed order dated 06.06.2023 substituting the name of Yes Bank Ltd. by J C Flowers Reconstruction Pvt Ltd. Consequently, in this order, J C Flowers Reconstruction Pvt Ltd. would be referred as Applicant Financial Creditor and Yes Bank Ltd as Lender Bank.

Now, coming to consideration of the averments made in the Application of the Applicant/Financial Creditor filed u/s 7, It is stated in Part-IV of the Application that for the purpose of financing 504 bedded Hospital in Noida (Noida Hospital Project) and other hospital projects, a total credit facility of Rs.400,00,00,000/- (Rupees Four Hundred Crores) have been extended by the Lender Bank to the Corporate Debtor as per the details given below:-

Details of disbursement under the above facilities are given on page 6 to 9 of Part IV in Vol.-I of the Application. Details of securities created on these loans are given in Part V on Pg 11-13 of Vol 1 of the Application.

Subsequently, as stated in the Application, the Corporate Debtor started defaulting in repayment of the principal amounts and interest and other charges in respect of the said Credit Facilities. Details of defaults occurred in the repayment of various loan facilities as stated in the Application are given below: -

Consequent to above defaults occurring on 01.02.2019 in repayment of loans and interest, the Lender Bank classified the account of the Corporate Debtor as NPA on 02.05.2019.

After declaring the loan account of the Corporate Debtor as NPA, the total outstanding amount of Rs.378.02 crore has been computed as on 31.10.2019 as per the particulars given in Annexure D at page 27 of Vol.-I of the Application. This calculation is briefly reproduced as below: -

In respect of the outstanding amount of Rs.378.02 crore, a recall notice dated 08.11.2019 was issued by the Lender Bank calling upon the Corporate Debtor to pay this outstanding amount within 7 days of receipt of the notice i.e. 18.11.2019. However, no payment has been made till date. Therefore, an aggregate outstanding Rs.378.02 Crores is due and payable by the Corporate Debtor as on the date of filing of this Application with the default date being 01.02.2019 on which first default on repayment of principal amount of debt under each loan facility as well as interest amount thereon has occurred.

In the support of the above debt and default, particular of financial debt along with supporting documents, records and evidence of default have been filed as mentioned in Part V of the application, which include NeSL Report generated for all Credit Facilities sanctioned by the Lender Bank in favour of the Lender Bank attached at page1321-1361 of Vol.8 of Petition and Central Repository of Information on Large Credits (CRILC) report dated 14.11.2019 in respect of the Corporate Debtor maintained by the Reserve Bank of India showing that all the aforementioned loan facilities extended by the Lender Bank to Corporate Debtor has moved to the status of Default and declared as on 14.11.2019 to be of the category of SMA-1( Special Mention Account-1) where principal or interest is overdue 31-60 days.

In view of the details and supporting evidences showing a total debt of Rs.378 crores owed by the Corporate Debtor is in default which is more than the threshold limit as averred by the Lender Bank and discussed in aforementioned paras, the present Application u/s 7 of the I & B Code, 2016 has been filed to initiate CIRP against the Corporate Debtor, initially filed on 02.12.2019 by the Lender Bank but later substituted by M/s J.C Flower Asset Reconstruction Pvt Ltd as Applicant Finance Creditor vide order dated 06.06.2023 of this Tribunal after the said debt has been assigned to it as discussed in para 2 of this order.

The Respondent Corporate Debtor filed Reply on 07.11.2021 objecting to the Application u/s 7 as discussed above in compliance to order dated 29.10.2021 passed by the Hon’ble NCLAT in Company Appeal No.889 of 2021 filed by the Corporate Debtor against the order dated 11.10.2021 passed by this tribunal in the instant company petition. This tribunal vide order dated 11.10.2021 rejected the prayer of the Corporate Debtor seeking four weeks’ time to file reply. The Hon’ble NCLAT allowed the Corporate Debtor to file reply in the company petition by 10.11.2021 subject to payment of the cost of Rs.75,000 to Mr. Vaijayant Paliwal, Ld. Counsel of the Yes Bank Limited. The contentions raised in the Reply against the averments made in the Application are briefly discussed as under: -

In view of above directions, Suraksha Reality in Para 23 of its new Resolution Plan has stated to be discussing with Yes Bank Ltd. to explore the possibility of mutually acceptable amicable solution.

The present valuation of assets of JHL is estimated between Rs.1,200-1,500 Crores; whereas the total principal outstanding debts of lenders as on date is Rs.593 Crores (plus outstanding interest). Thus, the dues of lenders are fully secured.

It has also been submitted that operations/revenue of the Corporate Debtor during the FY 2019-20 and 2020-21 were badly affected due to corona pandemic but there is a quantum jump in revenue during FY 2021-2022 and the same are expected to improve further during FY 2022-2023 and thus submitted that JHL is capable of generating sufficient revenue to meet its commitments to pay its debts.

RBI Circular dated 07.06.2019 titled as “Prudential Framework for Resolution of Stressed Assets” and stated that JHL has submitted three restructuring proposals dated 02.07.2019, 15.07.2019 and 09.10.2019 which were in conformity with the RBI Guidelines and no haircut was proposed but still all the proposals were rejected arbitrarily and summarily on the same day on which the proposals were placed for consideration in Lenders’ Meeting dated 09.07.2019, 08.08.2019 and 18.10.2019 on the ground of “uncertainty of implementation” and “plan would not result in immediate up gradation of NPA.

In view of the details and facts submitted in the Reply as discussed above, the Corporate Debtor prayed for not admitting this Petition/Application and/or dismiss it and be further pleased to initiate proceedings under section 65 of I&B Code, 2016 against the Applicant/Petitioner for filing the present Petition/Application for the sole purpose of recovery as rejection of restructuring proposal is in total disregard to RBI Circular dated 07.06.2019 and therefore, the Applicant/Petitioner is interested in recovery of their dues and not rehabilitation of the stressed company so as to preserve and maximise its value, hence in view of the Corporate Debtor, the present Application/Petition is filed with malicious intention in abuse of the legal process.

A Rejoinder has been filed by the Applicant on 18.11.2021 countering all the contentions raised in the Reply of the Corporate Debtor.

Against the argument of the Corporate Debtor that it is financially stable with assets valued between Rs.1200-1500 crores and starting the CIRP against the Corporate Debtor will negatively affect the general welfare, potentially leading to the loss of doctors and other staff, and disrupting the supply of consumables, it is submitted in the Rejoinder that initiating the CIRP will not harm any stakeholder of the Corporate Debtor. In fact, the purpose of the I & B Code is to preserve and maximize the value of the Corporate Debtor's assets and to ensure that all efforts are made to resolve its debts promptly while keeping the Corporate Debtor operational.

a. The Corporate Debtor has not been able to service its electricity dues since January 2019 and an amount of Rs.16.02 crores towards electricity expenses was payable to JIL, as on 29 July 2021. In this regard, JIL issued a letter to the Corporate Debtor on 4 October, 2019 seeking payment of the outstanding electricity dues payable to it. Subsequently, on 29 July, 2021, another letter was issued by JIL seeking payment of outstanding dues of approximately Rs.16.02 crores towards electricity payable by the Corporate Debtor since January 2019.

b. A meeting of the lenders for the Corporate Debtor was convened on 8 August 2019, wherein it was highlighted that owing to the liquidity crunch being faced by the Corporate Debtor, salaries to doctors and other paramedic staff had not been paid which led to the attrition of 69 doctors and 336 nurses. Further, the lenders were also informed that the entire Liver Transplant team, which generated a revenue of about Rs.2 crores alone, had left the Corporate Debtor.

c. On 25 April 2020, the Corporate Debtor wrote to the Internal Monitoring Committee of JIL seeking financial assistance of an amount of Rs.7.04 crores for payment of salaries to doctors, paramedics and other service providers on account of insufficiency of cash flow.

d. On 21 November 2020, a Joint Lenders Meeting was held where it was proposed to start holding/tagging 7.50% of the Corporate Debtor’s revenue. However, on 31 December 2020, due to a liquidity crunch faced by the Corporate Debtor, a request for deferment of the tagging was made to the lendeRs.The lenders were informed that the ongoing Covid-19 pandemic had caused a significant downturn due to restrictions on international patients. Subsequently, on 11 January 2021, another request for deferment of tagging was made.

e. On 24 May 2021, the Corporate Debtor wrote to the Resolution Professional of JIL seeking financial support of approximately Rs.20 crores to clear overdue salaries, pharmacy expenses, statutory dues, and payments to implant suppliers. A copy of the letter dated 24 May 2021 from the Corporate Debtor to the Resolution Professional of JIL is annexed as ANNEXURE R/5 to the rejoinder.

The Applicant further emphasised that the right to proceed under Section 7 of the Code is a statutory right that cannot be overridden by the stipulations of the RBI Circular, particularly due to the non obstante provisions in Section 238 of the Code. In this regard, reliance has been placed by the Applicant on the decision of the Hon'ble National Company Law Appellate Tribunal in Ankit Patni v. State Bank of India & Anr. 2018 SCC Online NCLAT 789, where it was observed that RBI circulars cannot interfere with the statutory remedies available to parties under the Code.

Similarly, the Applicant is not obliged to provide financial assistance to the Corporate Debtor, if it is of opinion that there is no scope of recovery of the same and the asset is not commercially sound. The exercise of such discretion, which is the Applicant's legal right, cannot be construed as using the I & B Code's provisions merely as a recovery tool. The Applicant is simply exercising its statutory right under the Code to initiate the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor.

In the light of the above submissions made in the Rejoinder countering all the objections raised by the Corporate Debtor in its reply, it has been finally submitted by the Applicant that the Reply of the Corporate Debtor ought to be disregarded and Section 7 Application ought to be admitted.

After considering the Reply of the Corporate Debtor as discussed in para 11 of this order and Rejoinder of the Applicant discussed in para 13 of this order and considering the fact that the Resolution Plan of JIL was under consideration at the relevant time before the Hon’ble Principal Bench and it has also been noted that as per Hon’ble Supreme Court Judgment in “Civil Appeal No.3395 of 2020 titled as “Jaypee Kensington Boulevard Apartments Welfare Association & ORs.Vs NBCC (India) Ltd. & Ors.”, the matter of JHL was left for the Resolution by the parties concerned i.e. the lenders of JHL including Yes Bank and the Resolution Applicant of JIL, and JHL to work out a viable solutions and to seek appropriate orders from NCLT as regards mode and modalities on the process carried out, and thereafter this Tribunal passed an order dated 27.06.2022 to keep the matter in this Application in abeyance till the order on the Resolution Plan in case of JIL is passed by the Hon’ble Principal Bench. However, the Corporate Debtor has been directed in the said order of 27.06.2022 to ensure the timely payment of the loan instalments as per the available sources with it and work out the suitable plan to extinguish its liabilities otherwise as it is made clear in the said order that on failing to pay the outstanding debt or not being able to work out any suitable plan in this regard, the Applicant/Financial Creditor will be at liberty to take any action as per law with respect to enforcement of any collateral security included in the loan agreement.

Against the above order dated 27.06.2022 of this Tribunal, the Applicant Lender Bank filed appeal to Hon’ble NCLAT. During the pendency of this appeal, hearing in this case has been kept on being adjourned till the pronouncement of the decision of the NCAT on the appeal against the order dated 27.06.2022 of this tribunal.

Meanwhile, the Corporate Debtor filed 2^nd Supplementary Reply on 12.09.2023 informing that Yes bank Ltd and J.C Flower Asset Reconstruction Pvt. Ltd executed the Deed of Assignment on 16.12.2022 wherein Yes Bank Ltd assigned the debt in favour of the J.C Flower Asset Reconstruction Pvt. Ltd and it moved an IA No.146/2023 seeking substitution of its name as Financial Creditor in this Application/Petition and the same is allowed vide order dated 06.06.2023 of this tribunal. This fact has already been discussed in para 2 of this order. Now, J. C. Flower stands substituted as Financial Creditor in place of Yes Bank Limited and it will be hereinafter referred in this order as “Applicant/Financial Creditor/JCF”.

It has also been informed in this Supplementary Reply that Plan of Suraksha Realty Ltd. has been approved by the Principal Bench, NCLT Delhi vide order dated 07.03.2023 wherein, it is ordered that issue of JHL will be discussed and resolved by Suraksha Reality with the Lenders of JHL. The Condition so imposed is stated in clause 23 which is stated below: -

From above para in the order dated 07.03.2023 of the Principal Bench NCLT, New Delhi in the matter relating to JHL, it is clear that no mutually acceptable amicable solution has been arrived at between Suraksha Realty Ltd. and Yes Bank Ltd.

Besides above, it is also stated that this order has been challenged by various stake holders, which is pending. It is pointed out that Suraksha Reality Ltd. in Annexure -VI (Definitions) of the Resolution Plan has expressly stated the “Approval Date” shall mean date on which the order of the Adjudicating Authority under section 31(1) of the Code has been passed, or the order of the National Company Law Appellate Tribunal or the Supreme Court, if an appeal is made to such tribunal or court against the order of the Adjudicating Authority, having achieved finality.” In view of this condition, the “resolution plan”, though approved by the Principal Bench, appears to be in suspended animation in view of the Corporate Debtor and may not be said to have been “approved” as per the above condition. It is also otherwise argued that the order dated 07.03.3023 cannot be said to have attained finality in view of pendency of various appeals against this order. In view of these facts and circumstances of the case, it has been prayed to keep the present Application in abeyance till the issues in appeal against the order dated 07.03.2023 are finally resolved.

It is also informed that the Corporate Debtor in compliance of the above order dated 27.06.2022, submitted a Restructuring Plan to Yes Bank on 27.07.2022, which is pending for approval with lenders.

With respect to pledging of shares of JHL, it is submitted that Corporate Debtor earlier at the time of taking the loans was wholly owned Subsidiary of the JIL. JIL held 42,75.00.000 shares of JHL. Out of these shares, JIL pledged 27,21,09,231 shares which amounts to 63.65% of total shareholding, in favour of the security trustee of Yes Bank Ltd. and consortium of banks by way of security of credit facilities provided by them to JHL.

These said pledged shares had been invoked by the Yes Bank on 10.03.2023 as well as by the Consortium Members through their Security Trustee VISTRA due to continuing default by the Corporate Debtor. Now, upon enforcing the pledge, the 27,21,09,231 shares (constituting 63.65% of the total issued equity share capital of JHL) have been transferred to the Security Trustees, who are now the beneficial owners of the pledged shares as per the Depository's records. Consequently, JIL is now the beneficial owner of only 15,53,90,769 shares (36.35% of the total issued capital of JHCL) and can exercise voting power solely for these unencumbered shares. The lenders, through their Security Trustee, have the right to exercise voting power corresponding to 63.65% of the shares. Therefore, the majority voting power in JHL now resides with JCF, the assignee of Yes Bank and other lenders, JHCL is no longer a subsidiary of JIL. However, JCF has not yet sold the aforementioned pledged shares.

Therefore, the Corporate Debtor contends that the Financial Creditor i.e JCF is no longer the financial creditor of JHCL and hence, not entitled to pursue the present petition.

The Corporate Debtor has also placed his reliance on the decision of the Hon’ble Supreme Court in Civil Appeal No.4633 of 2021 in case of Vidarbha Industries Power Limited vs Axis Bank Ltd. dated 12.07.2022 wherein as stated by the Corporate Debtor, the word “may” in Section 7(5) of the I & B Code has been analysed making it clear that even if default is assumed, the Tribunal may refuse to admit the Application, if the facts and circumstances of the case so warrant. It is further contended that this judgment can be applied in the present case as the Good Reasons exist in this case to exercise discretion u/s 7(5)(a) and refuse admission of the present Petition/Application keeping in view the law laid down by the Hon’ble Supreme Court in the above judgment.

The above 2^nd Supplementary Reply has been taken up for consideration in the hearing held on 19.09.2023 in which the Ld. Counsel representing the Financial Creditor, JCF sought a short adjournment to file objections with respect to this Supplementary Reply filed by the Corporate Debtor.

Meanwhile, as regards the appeal filed against the order dated 27.06.2022 passed by this tribunal keeping the matter in this Application in abeyance, the Financial Creditor has filed an additional affidavit on 30.10.2023 wherein it has submitted that the judgment dated 13.10.2023 is passed by the Hon’ble NCLAT in the aforesaid appeal. The Hon’ble Appellate Authority has held as under: -

In view of the above order of the Hon’ble NCLAT, proceedings in Section 7 Application in this case has been started by us and 2^nd Supplementary Reply filed by the Corporate Debtor as already been discussed in foregoing paras and objections filed by the Financial Debtor against it discussed in subsequent para have been considered by us to deicide the present Section 7 Application.

The Applicant has filed objections on 26.09.2023 against the 2^nd Supplementary Reply of the Corporate Debtor denying all averments, submissions and contentions raised therein.

With respect to the invocation of pledged shares by the Security Trustee, it is averred by the Applicant Financial Creditor that mere invocation of pledged shares by the security trustee on behalf of the Applicant and the consortium of lenders does not mean that the debt payable to the Applicant stands satisfied and the Applicant is no more a financial creditor of the Corporate Debtor. Until the time the shares are sold and an amount equivalent to the total debt repayable to the Applicant is redeemed in full, the Applicant will continue to be a Financial Creditor of the Corporate Debtor. As per the Applicant Financial Creditor, the contention raised by the Corporate Debtor are in direct contravention to the settled proposition of law as expounded by various forums which clearly states that the power of the pawnee to exercise its power of sale is its sole discretion and till the pawnee exercise his right to sell the pawn after giving notice to pawner, and apply the net proceeds of the sale against the debt, the debt is not discharged. Furthermore, it has also been stated that mere transfer of pledged shares in the name of the ‘beneficial owner’ is different from the ‘actual sale’ of the pledged shares and cannot be treated as a single transaction.

As argued by the Applicant, this position has been well explained by the Hon’ble Supreme Court in the matter of PTC (India) Financial Services Ltd. v. Venkateswarlu Kari, (2022) 9 SCC 704 : (2023) 1 SCC (Civ) 490 : 2022 SCC OnLine SC 608 at page 731 wherein it was held that

On the argument of the Corporate Debtor that the Applicant is no more a Financial Creditor because of becoming beneficial owner of the 63% shares of JHL after invoking them and hence, insolvency proceeding u/s 7 cannot be initiated by it, the Applicant Financial Creditor contended that such arguments are not tenable as the proceeding initiated under insolvency is a separate process for insolvency resolution and revival of the Corporate Debtor and cannot be interlinked and confused with the proceedings of enforcement of security interest which is primarily undertaken for recovery in case of default.

As regards keeping the present proceedings in abeyance till the resolution plan of JIL is finalised after the process for the appellate proceedings are completed, it is submitted by the Applicant that after approval of the resolution plan submitted by Suraksha Realty Limited in JIL vide order dated 07.03.2023, the moratorium imposed in JIL proceedings was lifted by the Ld. Adjudicating Authority on 07.03.2023 and there will not be any hindrance in transfer of shares of the Corporate Debtor held by JIL and hence, insolvency in respect of the Corporate Debtor i.e. JHL can also be resolved. Now, even the Hon’ble NCLAT vide its order dated 13.10.2023 has allowed the proceedings in present Application to continue by observing in the said order that the finding recorded in the impugned order (order dated 27.06.2022 of this tribunal) shall not come in way either of the parties for the purpose of decision of Section 7 application and all the issues shall remain open. Now, there is no ground to keep this proceeding in abeyance and therefore, the proceeding continued duly participated by both, the Financial Creditor as well as the Corporate Debtor.

During the course of the proceeding continuing in the present Application after the order dated 13.10.2023 of the Hon’ble NCLAT, an impleadment application IA No.535/2023 has been filed by the Suraksha Reality Limited (Successful Resolution Applicant of JIL) on 25.10.2023 for its impleadment as Respondents in the captioned Petition/Application u/s 7 being a necessary and proper party as recognised by the Hon’ble Supreme Court in terms of the order dated 24.03.2021 in the matter of Jaypee Kensington Boulevard Apartments Welfare Association and ORs.Vs. NBCC(India) Ltd & Ors 2022 1 SCC 401. In respect of the IA No.535/2023, a detailed order dated 18.04.2024 has already been passed by this tribunal allowing Suraksha Reality Ltd. to be impleaded as Respondent/Intervener with limited right to intervene for the purpose of enabling them to work out a viable plan/ solution for resolving the debt of the Corporate Debtor i.e. JHL due towards the Financial Creditor i.e. JCF. They participated in the proceedings of the present Application from the date of passing of the order dated 18.04.2024 but no plan for resolving the debt of the Corporate Debtor could be produced by them till the completion of the proceedings in the present Application.

With respect to the use of the phrase "may" under Section 7(5)(a) of the Code conferring the Hon'ble Tribunal with discretionary power to reject a Section 7 Application even on the determination of existence of a debt and default on the ground of certain reasons termed as good reasons, the Corporate Debtor has placed reliance on the decisions of Hon’ble Supreme Court in case of Vidarbha Industries Power Ltd. v. Axis Bank Ltd. (2022 SCC Online SC 841) ("Vidarbha Judgment"), Indus Biotech v. Kotak India Venture (Offshore) Fund (2021) 6 SCC 436 (“Indus V. Satabdi Biotech Judgment") and Hytone Merchants Pvt. Ltd. Investments Consultants Pvt. Ltd. CA(AT)(Ins) No.258 of 2021 ("Hytone Judgment") and produced certain financials of the Corporate Debtor to substantiate that the Corporate Debtor is allegedly a financially viable entity.

In this regard, it is contended by the Applicant that Corporate Debtor while relying on the Vidarbha Judgment has failed to mention that a Review Petition was filed by the Axis Bank Limited and the Hon'ble Supreme Court vide order dated 22.09.2022 while disposing of Review Petition was pleased to limit the observations made in the Vidarbha Judgment to the specific facts of the case.

Furthermore, the Hon'ble Supreme Court in the matter of M. Suresh Kumar Reddy v Canara Bank & ORs.(2023 SCC OnLine SC 608) expressly holds that the decision in Vidarbha Judgment was limited to the facts of the case and cannot be read and understood to take a contrary view to the position of law established by the Hon'ble Supreme Court in Innoventive Industries Ltd. v. ICICI Bank Ltd. (2018) 1 SCC 407 ("Innoventive Judgment") and E.S. Krishnamurthy v. Bharath Hi-Tech Builders (P) Ltd., (2022) 3 SCC 161 ("ES Krishnamurthy Judgment").

In compliance of the order dated 06.10.2023 passed by this tribunal, the Corporate Debtor has filed additional Affidavit wherein Audited Annual Accounts of the FY 2020-21, 2021-2022 and 2022-23 are annexed as Annexure-1, 2 and 3 respectively.

Details of overdue interest on borrowings amounting to Rs.14,154.51 lakhs reflected in Note no.21 to the standalone financial statements which were outstanding as at 31^st March, 2021 are given below:

Details of overdue principal repayments of borrowings amounting to Rs.43,504.98 lakhs reflected in Note no.21 to the standalone financial statements which were outstanding as at 31^st March, 2021 are given below:

Details of overdue principal repayments and overdue interest on borrowings from banks & financial institutions amounting to Rs.45,844.61 Lakhs and Rs.22,955.16 Lakhs respectively reflected in Note No.19A to the standalone financial statements which were outstanding as at 31^st March, 2022 are given below:

Details of overdue principal repayments and overdue interest on borrowings from banks & financial institutions amounting to Rs.50,597.81 Lakhs and Rs.33,141.48 Lakhs respectively reflected in Note No.19B to the standalone financial statements which were outstanding as at 31^st March, 2023 are given below:

The above details clearly demonstrate that the Corporate Debtor is in default of huge amount of debts, principal as well as interest amount due towards various banks including the Lender Bank in this case i.e. Yeas Bank Ltd. whose debt is assigned to J.C. Flowers Asset Reconstruction Pvt Ltd which is the Financial Creditor in the present Application making a prayer for admitting the Corporate Debtor for CIRP due to default in repayment of huge amount of debt due to it and the same has been duly found reflected in its audited balance sheet as reproduced above.

We have heard the arguments of Learned Counsels appearing for both Applicant Financial Creditor and Respondent Corporate Debtor and perused the pleadings, records, written submissions and exhibits/annexures marked thereto. Having heard the Learned Advocates appearing for the parties and on perusal of the records, exhibits/annexures and after considering arguments advanced by respective Learned Advocates, the main issues which are before us to be decided in respect of the present Application u/s 7 are:

It is an admitted fact that the Corporate Debtor has availed the Financial Facilities in form of taking various loans and other working capital facilities from the Financial Creditor by entering into loan agreements. The loans of Rs.400 crores are sanctioned through 05 different facility agreements, the details of which have already been discussed in para 3 of this order. The total amount of default as stated in Part-IV of the application is Rs.378.02 crore which includes Principal Amount as well as outstanding interest and dates of default as stated in Part-IV of the Application is 01.02.2019 due to non-repayment of monthly interest of the Term Loan 1, 2, 3 and 4 and the Cash Credit/ Working Capital Facility was recalled vide loan recall notice dated 08.11.2019. All supporting necessary documents as required under Part V of the Application in Form-1 for section 7 application under IBC, have been filed by the Financial Creditor. The Record of Default has been filed by the Financial Creditor in the NeSL shows the date of default as 01.02.2019. The account of the Corporate Debtor was classified as NPA on 02.05.2019. The entire credit facilities were recalled by the Lender Bank i.e. Yes Bank Ltd vide Loan Recall Notice dated 08.11.2019.

Later on, the debt was assigned to the J.C Flowers Assets Reconstruction Private Limited vide Deed of Assignment dated 16.12.2022. Therefore, this tribunal vide order dated 06.06.2023 substituted the Present Financial Creditor in place of Yes Bank Ltd.

The first issue for consideration before this tribunal for the purpose of admission of application under Section 7 of the IBC is whether there is existence of “debt” and “default” committed by the Corporate Debtor.

The Ld. Counsel of the Financial Creditor has argued that there is an admitted debt and default which can be easily evident from the submissions made by the Corporate Debtor in its Reply dated 01.11.2021 in Para 3.04(iii) at Page 13 wherein it is stated that “……….the debt of lenders are fully secured. Under these circumstances it will be unwise on the part of the Applicant/Petitioner to push the company into CIRP just because it has committed default in repayment of its debts due”. The Corporate Debtor has admitted that credit facilities availed from the Financial Creditor is secured and the default in repayment of the credit facilities is due to the liquidity crunch which is temporary in nature. The debt and default further stand corroborated from a perusal of the financial statements of the Corporate Debtor which has been filed by the Corporate Debtor by way of an affidavit dated 14.10.2023. These details are reproduced in para nos. 39 to 43 of this order. Thus, the Corporate Debtor is admittedly in default on repayment of its huge amount of loans of about thousands of crores payable to various banks including the present Financial Creditor, which now have become overdue. Further, as informed by the Financial Creditor, the total amount of debt owed by the Corporate Debtor as on 30.04.2024 is Rs.813 cr. to the Financial Creditor.

It is evident from the documents placed on record such as the CARE Ratings dated 31.01.2019, CRILC Report dated 14.11.2019 stating that the JHL was moved to default category and NeSL records as on 08.06.2020 showing that there is default committed by the Corporate Debtor.

After considering the entire facts of the case so far discussed and taking into account the decisions of the Apex Court in the cases of Innoventive Industries Ltd., E.S. Krishnamurthy etc., we are of the considered opinion that in the present case, default on repayment of the debt has occurred and the Section 7 Petition filed by the Financial Creditor is complete providing all the details of debts and default as required in Part IV of the Application in Form 1 and attaching all the necessary supporting documents including ROD from NeSL as required in Part V of the Application. Considering that all the above criteria are fulfilled as required under the I & B Code, we find that this Application deserves to be admitted u/s 7 for starting CIRP against the Corporate Debtor.

In respect of this issue, the Ld. Sr. Counsel of the Corporate Debtor argued that the Corporate Debtor was fully owned subsidiary of JIL at the time of taking the loans of Rs.400 crores from the Lender Bank, which now has been assigned to the extent of outstanding amount of Rs.378 crores to the Financial Creditor. JIL initially held 42,75.00.000 shares of JHL i.e. Corporate Debtor. Out of these shares, JIL pledged 27,21,09,231 shares by executing Shares Pledge Agreement as a Security in favour of the security trustee of Yes Bank Ltd. and consortium of banks. These said pledged shares had been invoked by the Yes Bank on 10.03.2023 as well as by the Consortium Members through their Security Trustee VISTRA due to continuing default by the Corporate Debtor. Now, upon enforcing the pledge, the 27,21,09,231 shares (constituting 63.65% of the total issued equity share capital of JHL) have been transferred to the Security Trustees, who are now the beneficial owners of the pledged shares as per the Depository's records. Consequently, JIL is now the beneficial owner of only 15,53,90,769 shares (36.35% of the total issued capital of JHCL) and can exercise voting power solely for these unencumbered shares. The lenders, through their Security Trustee, have the right to exercise voting power corresponding to 63.65% of the shares. Therefore, the majority voting power in JHL now resides with JCF i.e the Financial Creditor, the assignee of Yes Bank and other lenders, JHCL is no longer a subsidiary of JIL. However, JCF has not yet sold the aforementioned pledged shares. Therefore, it has been argued that the Financial Creditor i.e JCF is no longer the financial creditor of JHL and hence, not entitled to pursue the present petition.

On the above argument that the Applicant is no more a Financial Creditor because of becoming beneficial owner of the 63% shares of JHL after invoking them and hence, insolvency proceeding u/s 7 cannot be initiated by it, the Ld. Sr. Counsel of the Financial Creditor contended that such arguments are not tenable as the proceeding initiated under insolvency are a separate process for insolvency resolution and revival of the Corporate Debtor and cannot be interlinked and confused with the proceedings enforcement of security interest which is primarily undertaken for recovery in case of default. As regards the pledged shares of JHL invoked from JIL, it is argued that the option available with the Financial Creditor as being pawneee as per the section 176 of the Contract Act, 1872 is either to keep the pledged shares as collateral to the outstanding loans or sell them in the market after giving notice to the Corporate Debtor being the pawnor. Mere invocation of pledged shares does not mean that the debt payable to the Applicant stands satisfied and the Applicant is no more a financial creditor of the Corporate Debtor. Until the time the shares are sold and an amount equivalent to the total debt repayable to the Applicant is redeemed in full, the Applicant will continue to be a Financial Creditor of the Corporate Debtor. In support of his contention, the Ld. Sr Counsel for Financial Creditor relied upon the decision of the Hon’ble Supreme Court in case of PTC (India) Financial Services Ltd. v. Venkateswarlu Kari(supra) (hereinafter referred as ‘PTC Judgment’).

Per Contra, the Ld. Sr. Counsel for the Corporate Debtor has raised the contention that the shares which are invoked on 10.03.2023 are for the purpose of selling them in the market. As per him, the object of invocation of pledged shares is clearly elaborated in judgement passed by the Hon’ble Supreme in PTC Judgment in para 105 wherein it is observed that “Regulation 58(8) of SEBI Regulations entitled the pawnee to record himself as a “beneficial owner” in place of the pawnor and creates special rights including right to sell the pawn to a third party and adjust the sale proceeds towards the debt in terms of Section 176 of the Contract Act”. By quoting from para 119, he submitted that it is also held in this decision that “We would, without hesitation, therefore hold that on becoming the ‘beneficial owner’ in the records of the ‘depository’, the pawnee had complied with the procedural requirement of Regulation 58(8) to enforce the right to sell the shares. Thereafter, such sale should be made according to Section 176 and 177 of the Contract Act”.

Corporate Debtor has further raised the contention that pledged shares were invoked on 10.03.2023. Nearly a year has passed, yet Yes Bank (now J.C. Flowers, as the assignee) has not taken any action to sell the pledged shares. The Financial Creditor's (FC) argument that they can hold onto the invoked pledged shares indefinitely due to the absence of a specific timeline is legally unsustainable.

In this respect Corporate Debtor has placed reliance on the judgment passed in SEBI Vs. Sunil Krishna Khaitan reported in (2022) 234 Comp. Cas. 525 (SC) wherein it is clearly held that where no timeline is laid down in the statute for doing some act, the act must be done within reasonable time. In Para 83 of this Judgment (Page 574-575), the SC has held: “In the absence of any period of time and limitation prescribed by the enactment, every authority is to exercise power within a reasonable period. What would be reasonable period would depend upon facts of each case, such as whether the violation was hidden and camouflaged and thereby the Board or the authorities did not have any knowledge. Though, no hard and fast rules can be laid down in this regard as determination of the question will depend on the facts of each case, the nature of the statute, the rights and liabilities thereunder and other consequences, including prejudice caused and whether third party rights have been created are relevant factors.………….therefore, exercise of power, even when no time is specified, should be done within reasonable time. This prevents miscarriage of justice, misuse and abuse of the power as well as ensures that the violation of the provisions are checked and penalized without delay, thereby effectuating the purpose behind the enactment.”

The Ld. Counsel representing the Corporate Debtor has argued that PTC Judgment relied upon by the Financial Creditor is not applicable in the instant case since those cases pertain to obligation of pawnee before invocation of pledge.

Ld. Counsel for the Petitioner/Applicant reiterated that it is not mandatory for the Financial Creditor to sell the shares of the JHL in order to recover the outstanding debt but rather has the option to do so at any time. In the current situation, the debt is acknowledged by the Corporate Debtor but merely invocation of the pledged shares and becoming its "beneficial owner" does not lead to repayment of debt. It is discretion of the pawnee/financial creditor in this case as to whether and when to sell the pledged goods/shares. For this purpose, reliance is placed on the order of the Hon’ble Supreme in PTC India Judgment. It is also argued that the shares of JHL being not listed, there are difficulties in determining the price and valuation of these shares, especially when its holding company JIL itself is under the process of insolvency resolution. These shares are not traded on Stock Exchanges as not being listed; it is difficult to find a willing buyer. As selling the pledged shares not being a good option given the fact that the shares are unlisted, the Applicant has thought it prudent to invoke the provision of section 7 of I & B Code for revival of the Company through CIR process, therefore, when a resolution plan takes off and the Corporate Debtor is brought back into the economic mainstream, it is able to repay its debts.

We have considered the arguments of both Ld. Sr. Counsels in respect of the effect of invocation of the pledged shares of the Corporate Debtors i.e. JHL held by its holding Company i.e. JIL in the light of the decision of the Hon’ble Supreme Court in case of PTC Judgment.

In this regard, after relying on the PTC Judgment, the argument of the Financial Creditor is that invocation of shares refers to the act of enforcing a pledge on shares, typically undertaken by a lender or financial institution when the borrower defaults on their loan or obligation. In this context, the pledged shares are transferred to the lender as a means of securing the repayment of the outstanding debt. Once invoked, the lender has the right to sell the shares to recover the owed amount. However, the invocation itself does not automatically mean the shares are sold; it merely transfers the control or ownership of the shares to the lender until the debt is settled. Though the Financial Creditor has the discretion to sell the pledged shares of the Corporate Debtor at any point of time, it is not bound to sell them within any prescribed time limit to satisfy the debt. As per Section 176 of the Contract Act, the Financial Creditor in the capacity of Pawnee apart from being entitled to exercise its right to sell the goods pledged (shares in this case) to recover the debt, it also has the option to bring suit against the pawnor (the Corporate Debtor) upon the debt in case of default in payment of debt and retain the goods pledged as a collateral security.

Per Contra, the Corporate Debtor has argued that the pledge has been invoked obviously to sell the shares. The object of invocation of pledge is clear from para 105 of PTC Judgment wherein it is observed that “Regulation 58(8) of SEBI Regulations entitled the pawnee to record himself as a “beneficial owner” in place of pawnor and create special rights including right to sell the pawn to a third party and adjust the sale proceeds towards the debt in terms of section 176 of the Contract Act”. In order to emphasise on his contention, para 119 of this judgment is also referred wherein it is observed that “beneficial owner in the records of the depository, the pawnee had complied with the procedural requirement of Regulation 58(8) to enforce the right to sell the shares. Thereafter, such sale should be made according to Section 176 and 177 of the Contract Act”. After quoting from the decision of the PTC Judgment as above, it has been argued that the Financial Creditor has not sold the pledged shares after invoking on 10.03.2023 despite lapse of almost one year and the contention of the Financial Creditor that since there is no timeline, they can retain the invoked pledged shares as long as they wish, is not sustainable in law as held in the judgment of Hon’ble Supreme Court in case of SEBI vs Sunil Krishan Khetan(supra) that where no time line is laid down in the statute for doing some act, the act must be done within reasonable time. It is then submitted that in the present case, period of one year is more than a reasonable period to effect sale of pledged shares and then by giving the valuation of shares, it is argued that value of the pledged shares is sufficient to discharged the debt liability of the Financial Creditor if they are sold. It is also pointed out that various judgments referred to in para 39 of PTC Judgment relied upon by the Financial Creditor in its Rejoinder are not applicable since those cases pertain to obligation of pawnee before invocation of pledge. Based on his arguments putting emphasis on selling of pledged shares, the Ld. Sr. Counsel for the Corporate Debtor argued that the inaction on the part of the Petitioner to sell the pledged shares within the reasonable time, is a good ground to disentitle the Petitioner from pursuing the present petition as Financial Creditor until the shares are sold.

We find that both Ld. Counsels interpreted the decision of the Hon’ble Supreme Court in PTC Judgment differently to suit their arguments, Financial Creditor saying that after invocation of pledged shares, it can retain them as collateral against the debt and pursue a suit for the recovery of the debt and sale of shares is one of the option as per Section 176 of the Contract Act but not mandatory but contrary to this interpretation, the Corporate Debtor says that after invocation of the pledged shares, the Financial Creditor has to sell them within a reasonable time to recover the debt. To resolve this conflicting arguments taken before us, we have gone through the PTC Judgment carefully so as to decide this issue.

In the PTC Judgment, the Hon’ble Supreme Court on the given facts and circumstances of that case has dealt with the legal issue whether the Depositories Act, 1996 read with the Regulation 58 of the Securities and Exchange Board of India (Depositories and Participants) Regulations, 19961 has the legal effect of overwriting the provisions relating to the contracts of pledge under the Indian Contract Act, 1872 and the common law as applicable in India. After a detailed analysis of various cases on the Contract Act and those relating to security transactions, the Hon’ble Apex Court has held that there is no disharmony between the Depositories Act, 1996 (“DP Act”), SEBI (Depositories and Participants) Regulations, 1996 (“DP Regulations”), and the provisions of the Indian Contract Act, 1872 (“Contract Act”) in the context of a pledge of demat shares. The Hon’ble Apex Court clarified that the invocation of pledge of demat shares as per the DP Regulations does not amount to “actual sale”. After the invocation, the lender may, in terms of the Contract Act, may either bring a suit against the borrower for the debt and retain the pledged shares as collateral or sell the shares upon giving reasonable notice of sale. There is no discharge or satisfaction of the debt upon invocation.

Facts of the case in the captioned judgment has been found to be somewhat similar to the present case under consideration as in the judgment case also, the issue for decision was that whether the Financial Creditor after invoking the pledged shares would remain the Financial Creditor to the extent of the value of the pledged share and can enforce its right for recovery of that debt after invoking the pledged shares as it is in the present case under consideration before us.

In the PTC Judgment case, PTC India Financial Services Limited (“PIFSL”) advanced a loan of Rs.125 crores to NSL Nagapatnam Power and Infratech Limited (“NNPIL/Borrower”). In order to secure the loan, Borrower’s promoter, Mandava Holdings Private Limited (“MHPL”), pledged the 31,80,678 (i.e. 26%) shares (“Pledged Shares”) of the NSL Energy Ventures Private Limited (“NEVPL”), which was a sister company of the Borrower. The shares were in de-mat form. On 28^th December, 2017, PIFSL issued a notice under the Pledge Deed apprising MHPL on the defaults on the part of Corporate Debtor and that if the debt due was not discharged within seven days, PIFSL would exercise the rights in terms of the Pledge Deed. On 16th January 2018, as the debt remained unpaid, PIFSL wrote to the Depository Participant invoking its rights in terms of Clause 6.1 of the Pledge Deed. Acting on the request, the Depository Participant has accorded PIFSL the status of ‘beneficial owner’ of 31,80,678 pledged shares of NEVPL. On 23rd January 2018, PIFSL wrote to MHPL informing that due to continued defaults in payment on the part of the Corporate Debtor, it had exercised the right under Clause 6.1, while reserving its right to sell the shares under Clause 6.2 of the Pledge Deed read with Section 176 of the Contract Act.

Meanwhile, the National Company Law Tribunal, Hyderabad (“NCLT”) on 17.11.2017 admitted the Borrower’s application for initiation of its Corporate Insolvency Resolution Process (“CIRP”) under Section 10 of the I & B Code, 2016. The petition filed by the PFISL u/s 7 of the I & B Code on 17.01.208 was allowed by NCLT to be withdrawn with liberty to file proof of financial claim before the IRP in Form C.

On 6^th February 2018, MHPL made a claim before the Interim Resolution Professional (“IRP”) as a financial creditor of the Borrower. MHPL contended that since it no longer holds the title over the Pledged Shares, it has stepped into the shoes of PIFSL as creditor of the Borrower to the extent of the value of the Pledged Shares. Contrarily, on 10^th February 2018, PIFSL also submitted a claim before the IRP in the CIRP of the Borrower. It contended that as on date of initiation of CIRP, approx. a debt of Rs.169 crore was due to it from the Borrower. PIFSL did not account for or reduce the value of Pledged Shares in its claim of outstanding dues. The IRP rejected both the claims made by MHPL and PIFSL. IRP informed MHPL and PIFSL that their claims could not be crystallised as there was no valuation provided for the Pledged Shares at the time of transfer of Pledged Shares to PIFSL. Both MHPL and PIFSL challenged this finding before the NCLT, Hyderabad.

By a common order dated 6^th July 2018, the NCLT disposed of the applications filed by PIFSL and MHPL, accepting the MHPL’s claim by primarily relying on the Depositories Act and Regulation 58 of the 1996 Regulations. NCLT agreed with MHPL that PIFSL having exercised its right under the Pledge Deed to ‘transfer’ 31,80,678 pledged shares, MHPL’s shareholding in NEVPL got reduced by 31,80,678 shares. Therefore, MHPL is a financial creditor of the Corporate Debtor to the extent of the value of 31,80,678 shares. Further, 16th January 2018, the date on which the pledge was invoked by PIFSL, is the crucial date for determining the extent to which PIFSL and MHPL are the financial creditors of the Corporate Debtor. The IRP was directed to appoint an independent valuer to assess the fair Civil Appeal No.5443 of 2019 Page 6 of 86 market value of 31,80,678 shares of NEVPL as on 16th January 2018.

PIFSL challenged the orders before the National Company Law Appellate Tribunal, New Delhi, but the appeals were dismissed vide the impugned judgment dated 20^th June 2019. The Appellate Authority has held that PIFSL had exercised its rights under Clause 6.1 of the Pledge Deed on 16^th January 2018 and consequently, the pledged shares stood transferred in the name of PIFSL. The fact that PIFSL had not thereafter sold the shares under Clause 6.2 of the pledge deed would not matter. As PIFSL had become the 100% owner of the pledged shares, it could realize its dues in whole or part by sale and transfer of the shares according to the law. Once PIFSL has exercised right to become the owner of the shares, PIFSL cannot take advantage of Section 176 of the Contract Act to ‘reclaim’ the debt. Section 176 of the Contract Act cannot be taken into consideration by the IRP for collating the financial claim of PIFSL under Section 18 of the IBC.

Now, the decision of Hon’ble Supreme Court in the PTC Judgement is to be understood in the above background of the facts of the judgment case to ascertain whether after invoking the pledged share and becoming beneficial owner of the shares in Depositor Account, can it be said that the Financial Creditor has lost its right to recover the debt from the borrower and debt can be realised only after sale of the pledged shares after its invocation, the issue which is similar to the issue in the present case under consideration.

Before deciding this issue, the Hon’ble Supreme Court has made detailed analysis of the provisions of Section 176 and 177 of the Contract Act in the light of various earlier decisions of the Hon’ble Supreme Court and High Courts Also, provisions of the Depositories Act, 1996 read with the Regulation 58 of the Securities and Exchange Board of India (Depositories and Participants) Regulations, 1996 have been examined with their interplay with the provisions of the Contract Act and other common laws. The relevant portions of this decision in this respect are reproduced as under:-

After dealing with the relevant provisions of law, the Hon’ble Supreme Court delivered the PTC Judgment after considering the facts of the case as discussed in para 63 to 68 and examining Clauses 6.1 and 6.2 of the Pledge Deed. The relevant parts of the judgment are reproduced as under:

After studying the PTC Judgment in details as discussed above, it is clear now that the Financial Creditor even after invoking the pledged shares and registering itself as beneficial holder, will remain Financial Creditor till the shares pledged are not sold as per Section 176 of the Contract Act. Also, it is the choice of the Financial Creditor in the capacity of a pawnee either to keep the pledged shares after becoming beneficial owner as collateral till the debt is realised or sell the shares after giving notice to pawnor. So, the contention of the Corporate Debtor that the pledged shares are to be sold after being invoked and being registered in the name of the Financial Creditor as beneficial owner within a reasonable time to recover the debt and till the pledged shares are not sold, Financial Creditor cannot enforce the debt on the Corporate Debtor, has not been found correct. We have also examined the relevant Clause of the Indenture of Pledge dated 23.06.2016 in this case also, relating to “Remedies on an Event of Default” given in Clause 2.5, which is similar to clause 6.1 in the case of PTC Judgment. This clause 2.5 in the present case is reproduced as below:-

After registering the pledged shares in its name through its Security Trustee in the event of default and treating the same as collateral security against the debt, the Financial Creditor through its Security Trustee can also sell them as per clause 6.2 of the Indenture of Pledge dated 23.06.2016. This clause is reproduced as under:

In the present case also, similar to PTC Judgment, as per Clause 2.5, on receipt of the notice of the occurrence of ‘event of default’ by the pledgor/pawnor, the pledgor/pawnee through its Security Trustee has the right to have the pledged shares transferred in its name or its nominees. Under Clause 6.2, the pawnee through its Security Trustee may, without further authority and prejudice to their other rights under the law, may sell or otherwise dispose of any or all of the pledged shares in such manner and for such consideration as it in its sole discretion deems fit. Though Right to sale of shares are available in the above Clause but selling of pledged shares is not mandatory but optional at the discretion of the pawnee i.e. the Financial Creditor.

After analysis of the whole matrix of the facts and judgement in case of PTC analysed above, we find that similar to PIFSL in PTC Judgment, the Financial Creditor JCF in the present case has rightly made a claim as financial creditor of the Corporate Debtor without accounting for the value of 27,21,09,231 shares of JPL earlier held by JIL in its petition u/s 7 of I & B Code, 2016 for initiating CIRP against the Corporate Debtor, hence we are not inclined to accept the plea of the Corporate Debtor that recourse to section 7 is not permissible since Applicant has become the beneficial owner of the pledged shares and dues can be recovered by selling those pledged shares. The value of shares as provided by the Corporate Debtor to be of market value as being total realizable value of pledged shares Rs.62.88/share x 27.21 Cr shares Rs.1,710.96 Cr, has no basis and also disputed by the Financial Creditor pleading that similar to shares of NEVPL in PTC Judgment, shares of JPL are also not listed, hence its true value is correctly not ascertainable and not possible to be easily sold in the market as it will be difficult to find any genuine buyer. Therefore, the plea of the Corporate Debtor JCF cannot be allowed not to pursue the application until pledged shares are sold and accordingly, such plea of staying the proceeding is rejected.

Further, in continuation of the aforesaid plea regarding selling of pledged shares, it is also argued that proceedings under the present case should be kept in abeyance taking a plea that the SRA of JIL i.e. Suraksha Realty in its Plan in Para 23 has stated that -“Resolution Applicant is in discussion with Yes Bank to explore possibility of mutually acceptable amicable solution.” This clause is pursuant to direction in Para 141 of Kensington Judgement. Further, in Definitions clause of its Resolution Plan, Suraksha Realty Ltd. has stated that the “Approval Date” shall mean date on which the order of the Adjudicating Authority under Section 31 (1) of the Code has been passed, or the order of the National Company Law Appellate Tribunal or the Supreme Court, if an appeal is made to such tribunal or court against the order of the Adjudicating Authority, having achieved finality. Further, the Principal Bench has already approved the Resolution Plan of the Suraksh Reality vide order dated 07.03.2023. Appeals were filed against this order by (i) Yamuna Expressway Industrial Development. In the light of the Authority (still pending); (ii) Jaiprakash Associates Limited (still pending); (iii) Shri Manoj Gaur (Guarantor) (still pending) and (iv) Income Tax Department are pending in NCLAT and the Hon’ble Supreme Court. It is also important to mention here that the Hon’ble NCLAT vide order dated 24.05.2024 has accepted the plan of the Suraksha Reality in CA No.493 of 2023. Moreover, the resolution plan of Suraksha for JIL does not prevent the adjudication of the present application filed under Section 7 against the Corporate Debtor. The Corporate Debtor cannot exploit a limited right to intervention granted by this Adjudicating Authority to a third party i.e Suraksha vide order dated in I.A No.535 of 2023. This issue has already been dealt by the Hon’ble NCLAT in its order dated 13.10.2023 wherein it was held as under:-

Moreover, in order to facilitate the amicable settlement of the debt in this case, the application of Suraksha Reality Ltd. in IA No.535/2023 for being impleaded in the present Petition/Application as respondent has been allowed vide our order dated 18.04.2024 permitting it to be impleaded as Respondent/Intervener with limited right to intervene for the purpose of enabling it to work out a viable plan/ solution for resolving the debt of the Corporate Debtor i.e. JHL due towards the Financial Creditor i.e. JCF. It participated in the proceedings of the present Application from the date of passing of the order dated 18.04.2024 but no plan for resolving the debt of the Corporate Debtor could be produced by it till the completion of the proceedings in the present Application. Therefore, in the light of aforesaid position, the plea of the Corporate Debtor that present application should be kept in abeyance till the selling of pledged shares or till final adjudication on the Suraksha Reality Plan is not sustainable.

The last submission made by the Ld. Sr. Counsel representing the Corporate Debtor is that in the light of the decision of the Hon’ble Supreme Court in the case of Vidarbha Industries Power Ltd. Vs. Axis Bank Ltd. (2022) 8 SCC 352, the Hon’ble Adjudicating Authority has wide discretionary power, either to admit or reject the instant application on consideration of the whole factual matrix of the present case. It has been pleaded by the Ld. Counsel of the Corporate Debtor that there are good reasons to exercise discretion u/s 7(5)(a) and refuse admission of the application by applying the discretionary power considering the above factual matrix of the present case.

He argued that it is held by Hon’ble SC in this Judgment that the word “may” in Section 7(5) of IBC makes it clear that even if default is assumed, the Tribunal may refuse to admit the Application, if there are good reasons to do so. He pointed out that some of the good reasons mentioned in this judgment by way of illustration for exercise of discretion under section 7(5)(a) are as under:

A: Feasibility of initiating CIRP

B: Overall Financial health of the Corporate Debtor

C: Viability of the Corporate Debtor

D: Receivables which may go to meet the outstanding debts

E: Expediency

He further went on to present the details about these good reasons present in case of the present Corporate Debtor i.e. JHL as under:-

In this regard, it has been submitted by the Corporate Debtor that it is engaged in running a multi super-specialty hospital under the name “Jaypee Hospital” located at Noida. Another, 85 bedded Hospital is located at Anoopshahar (U.P.) and a 205 bedded hospital is located at Chitta (U.P.). The Hospital at Noida largely caters to the NCR region. The Hospitals at Anoopshahar and Chitta provide medical care to rural and urban population of UP which lacks standard medical facilities.

Further, it is also submitted by the Corporate Debtor that initiation of CIRP will cause attrition to doctors, paramedics and other critical staff working in the hospital. Not only this initiation of CIRP will lead to stoppage of supplies such as medical consumables, implants and other medical equipment’s which is based on ‘cash and delivery basis’ provide by the pharmaceutical companies. It will create stock of outstanding dues which will affect the operation of the hospital.

Jaypee hospital is on panel of large public sector undertakings, CGHS, ECHS and other state Government institutions wherein services are provided on credit of 90-150 days initiation of CIRP will hamper such services due to stressed working capital.

CIRP against the JHL will also affect the medical education provided by the Corporate Debtor along with clinical trials and projects which are recognized by the Department of Health and Ministry of Health Family Welfare.

Ld. Sr. Counsel representing the Corporate Debtor has argued that the Corporate Debtor is asset rich company which is evident from the audited accounts reflecting significant improvement in profitability trend of the last three years.

As per the Audited Accounts of the Corporate Debtor filed before this tribunal it can be easily stated that Net loss is showing downward trend. Cash Inflow is improving and EBITDA figures are positive and showing improvement over the years. This shows that overall operations of the Corporate Debtor are profitable.

Ld. Sr. Counsel with regard to Net Worth of the Corporate Debtor has also argued that the Present value of the Corporate Debtor is Rs.2,150.33 cr. On the other hand, principal outstanding liability of the lenders is Rs.927 Cr. The computation of Net Worth is valuation of all the assets of the Corporate Debtor also taking into account the intangible assets such as goodwill. Further the balance of the Corporate Debtor is present on historical cost basis and not on the basis of present value of the assets and liabilities.

For this purpose, the Corporate Debtor has placed reliance on J.K Industries vs UOI (2007) 13 SCC 673. The position in the said judgement has been reiterated in TEQ Green Power XIII P. Ltd. vs REMC Ltd. (2023) 239 Comp Cas 78 (Delhi). The relevant portion of the order is reproduced below:-

The argument of the Applicant in rebuttal of the aforesaid position is that net worth of the Corporate Debtor corroded and the Corporate Debtor is not a going concern. It is completely false and baseless to say that the Corporate Debtor is going concern and its financial condition is improving as no attempts have been made to pay the outstanding debts of the Financial Creditor so far, except only putting up proposals which are not being found viable.

The Corporate Debtor has further argued that terms of Escrow Agreement, retention amount is meant to for meeting loan repayment/ interest liabilities of lenders, the lenders are retaining 9% of revenue with effect from 08.08.2022 (earlier it was 5% and 7.5% during June-July 22.) since 2019-20 when the account was classified as NPA. The year wise quantum of the retention amount is given below: FY Amount retained (Rs.in Cr) 2019-20 19.97 2020-21 0.58 Covid period 2021-22 3.92 Covid Period 2022-23 22.33 2023-24 40.62 TOTAL 87.42 Therefore, the contention of the Financial Creditor that no payment is made towards interest and loan amount is completely incorrect.

Another argument raised by the Ld. Sr. Counsel is that Corporate Debtor is a viable entity. In support of this contention, it is argued that for FY 2022-23, actual revenue is Rs.356.05 Crores and actual EBITDA is Rs.55.27Crores. For FY 2023-24, actual revenue (based on provisional accounts under audit) is Rs.420.85 Crores and actual EBITDA is Rs.70.21 Crores.

Further, the Debt Service Credit Ratio for the FY 2022-23 is 1.96 and FY-2023-24 is 1.46. This ration indicates the ability of borrower to service its debts. Ratio of more than 1 indicates that it is capable to do so.

Fixed Assets Credit Ratio for the FY 2022-23 is 1.81 and FY 2023-24 is 1.77. This ratio indicates the extent to which debts are secured by fixed assets. Ratio of more than 1 indicates that debts are fully secured.

The above figures clearly reflect that the Corporate Debtor has the ability to meet its debts as well as such debts are secured by fixed assets.

It is argued by the Ld. Sr. Counsel that the consideration to be received on sale of pledged shares is expected to be:

Thus, upon sale of pledged shares not only the entire debts of all the lenders (Rs.1020 Cr as on 31.03.2024) are likely to be fully discharged but there is likely to be a huge surplus: If sold @ Rs.50.30/share Surplus will be around Rs.349 Cr If sold @ Rs.62.88/share Surplus will be around Rs.691 Cr.

Further, the Corporate Debtor has argued that out of 18 acres of land only 7.02 acres is mortgaged and rest of the land is unencumbered and surplus land therefore, as stated in the DRP, disposal of 8 acres out of above surplus land and utilize the sale proceeds of approx. Rs.150-180 Crores will reduce the principal outstanding debts. The DRP is still pending for approval by the lenders.

In compliance with the direction passed by this tribunal vide order dated 27.06.2022, the Corporate Debtor submitted Debt Restructuring Proposal to Yes Bank Ltd on 27.07.2022 wherein it was proposed that upfront payment of Rs.100 crores would be made and payment of Rs.150 crores would be made by selling surplus land and the balance debt would be paid out based on the EBITDA.

The DRP was submitted for approval of the Stakeholders in the JFL meeting held on 17.8.2022. The Corporate Debtor (CD) submitted the Draft Resolution Plan (DRP) On 07.10.2022, to the Interim Resolution Professional (IRP) of JIL for approval, as JIL held the entire share capital of the CD at that time. However, the IRP did not respond.

The DRP submitted by the Corporate Debtor is still pending before the Financial Creditor for consideration. If the DRP is approved within the RBI Guidelines then the present liquidity of the Corporate Debtor will be resolved.

Ld. Sr. Counsel further submitted that it is a well-known procedure in the IBC, 2016 that the resolution plans approved by the Committee of Creditors (CoC) during the Corporate Insolvency Resolution Process (CIRP) often require financial creditors to accept significant haircuts. Additionally, the CIRP process is lengthy, often taking years for lenders to realize their dues. However, in the Draft Resolution Plan (DRP) submitted by the Corporate Debtor (CD), no haircut is proposed. Instead, it includes a substantial upfront payment of approximately Rs.250 Crores within about 6 months. There is also reasonable assurance regarding the service of the remaining debt, with the debts being fully secured, as the Debt Service Coverage Ratio (DSCR) and Fixed Asset Coverage Ratio (FACR) are positive according to the projections submitted with the DRP in the aforesaid paragraphs.

We have considered the above arguments of Ld. Sr. Counsel of the Corporate Debtor and also carefully gone through the detailed arguments taken before us in respect of all the above good reasons.

We find that in the light of the decisions of Vidarbha Judgment, only the reason for there being any sufficient receivables to be received by the Corporate Debtor in near future needs to be considered to see whether these receivables are crystalised or not and in a case it is crystallised, how long it is going to take to be received by the Corporate Debtor and after this amount is received, whether the Corporate Debtor would be able to discharge its debts. Other reasons of feasibility, financial health, viability and expediency have not been found by us being of any relevance to have any bearing on admission of the Application for initiating CIRP against the Corporate Debtor, once the default has occurred. In this regard, the object of the IBC as evident from its Preamble is to be referred. While holding the constitutional validity of the IBC, the Hon’ble Supreme Court has analysed the Preamble of the IBC in the case of Swiss Ribbons Pvt. Ltd. vs. Union of India (Writ (Civil) No.99 of 2018) dated 25.01.2018 holding that the Code is first and foremost, a Code to reorganise an insolvency resolution of corporate debtors. Unless such reorganisation is effected in a time bound manner, the value of the assets of such persons will deplete. In this judgment, the purpose of IBC is further elaborated stating that the Code is thus a beneficial legislation which puts the corporate debtor back on its feet, not being a mere recovery legislation for creditors. The interests of the corporate debtor have, therefore, been bifurcated and separated from that of its promoters / those who are in management. The relevant part of this judgment is as under :

[ Emphasis Supplied}

In the above judgment of Swiss Ribbons, it has been further held that in IBC the Legislative policy, it is now to move away from the concept of ―inability to pay debts to ―determination of default. So, now examining the default has become necessary rather than to go in the reasons of not paying the debts and assess whether the corporate debtor has capacity, viability, feasibility or is able to attain a financial health to be able to pay its debt. Now, in IBC examining of existence of default is only required to trigger its provisions as held by the Hon’ble Supreme Court in its many decisions including Innoventive and E Krishnamurthy as we have already discussed. The relevant portion of the decision of Swiss Ribbons in this regard is reproduced as under

[ Emphasis Supplied]

Considering the above judicial pronouncements, if the Corporate Debtor feels about its viability, feasibility and financial health, it would be more beneficial for it after its resolution under IBC is done expeditiously before its assets get depleted. Therefore, we are of the opinion that its fast resolution would be in its best of interest to put it back on feet to enable it to pay its debt fast and revive its business. Therefore, we are not inclined to accept the contention of Feasibility, Viability and Financial Health being good reasons to apply our discretion for not admitting the application u/s 7(5) after we have determined that default has occurred.

As far as expediency is concerned, it is for the Financial Creditor to decide whether they want to restructure the debt with the Corporate Debtor and withdraw the application. It is important at this stage to refer to the fact that DRP was rejected by the lenders in the JLF meeting held on 17.08.2022 stating reason that inter alia taking into account the terms of the DRP and concluding that the same was neither feasible nor acceptable to be considered as a “suitable plan to extinguish its liabilities” in compliance of the order dated 27 June 2022. sale of certain land parcels which could already have been done by the Corporate Debtor to repay the lenders but has never been done in the 4.5 years since the account of the Corporate Debtor was declared as NPA. Even Suraksha Reality Ltd. was given opportunity to find amicable solution for the resolution of the debt but so far nothing concrete is reported and no application for withdrawal of present Petition/Application is made before us. Therefore, the Expediency cannot be taken as a good reason.

Now, we come to receivables. In this regard, the Corporate Debtor has taken the plea for repayment of the debt is that lenders being the beneficial owners of the shares as per Regulation 58(8) of the SEBI Regulations, now, it has become owner of the pledged shares, hence Financial Creditor can realize the debt amount by selling those shares whose market value as calculated by the Corporate Debtor is Rs.1368.66 Cr., within the reasonable period of time of one year. In this regard, reliance is placed on SEBI vs Sunil Krishna Khaitan (2022) 234 Comp. Cases 525 (SC) as stated in para 55 of this order.

It is held in the said judgement that “though, no hard and fast rules can be laid down in this regard as determination of the question will depend on the facts of each case, the nature of the statute, the rights and liabilities thereunder and other consequences, including prejudice caused and whether third party rights have been created are relevant factors.” We find that this decision will not be fully applicable in the present case considering the facts of the present case as in the present case, it is not mandatory to sell the pledged shares after invocation, though being one of two options, as per the provision of Section 176 of the Contract Act, 1872 as already held by us.

In the instant case, Financial Creditor as pawnee being the beneficial owner of the Pledged shares, it only enables the pawnee to transfer and sell the shares in accordance with the Depositories Act and 1996 Regulations. The object and purpose of the Regulations 58(8) as stated by the Hon’ble Apex Court in PTC judgement (Supra) is not to nullify the liabilities of the pawnor and the pawnee under the Contract Act. It only entails that pawnor still has the right to redeem those shares before they are sold to third party. The prevailing market conditions, financial viability of the Company, existing statute plays a major role in determining the value of the shares and actual worth of the shares.

Further, it also important to state that Corporate Debtor cannot compel or force the Financial Creditor to sell the pledged shares or to accept the DRP. Regulations 58(8) only entitles recording the name of the beneficial owner in the registry of the Depository. It does not in any manner specifies that pawnee has to sell the shares within given period of time. The right to sell the pledged shares is only for the benefit of the pawnee to realize the amount of debt which is the sole discretion of the pawnee when this right is to be exercised. Pawnor cannot blame or compel the pawnee to sell the pledged shares. Pawnor is legally bound to make repayment of outstanding liability and obtain the pawned shares released. The settlement of debt cannot be forced on the Financial Creditor. The Hon’ble Supreme Court in plethora of judgement has held that financial institutions cannot be forced by courts to accept a one-time settlement in favour of the borrowers. In the light of aforesaid analysis, invocation of pledged shares does not dissolve the liability of the Corporate Debtor towards the Financial Creditor.

We have also examined the applicability of the decision of the Hon’ble Supreme Court in the case of Vidarbha Industries Power Ltd. and further, review petition filed in this case. On the review petition in case of Vidarbha Industries Power Ltd. (Supra), the Hon’ble Supreme Court has held in order dated 22.09.2022 that it is well settled that the judgements and observations in judgments are not to be read as provisions of statute and judicial utterances and/or pronouncements are in the setting of the facts of a particular case. Therefore, after clarification by the Hon’ble Supreme Court in the review petition of its decision in the case of Vidarbha Industries Power Ltd. (Supra)., it has been made clear that the decision given by the Hon’ble Supreme Court in the case of Vidarbha Industries Power Ltd. was on the facts of that particular case and no ratio was laid down about Section 7(5) of the I & B Code, 2016 being mandatory or discretionary. Now, in another decision of the Hon’ble Supreme Court in case of M. Suresh Kumar Reddy vs. Canara Bank & ORs. Civil Appeal No.7121 of 2022 dated 11^th May, 2023 it has been held that once NCLT is satisfied that the default has occurred, there is hardly a discretion left with NCLT to refuse admission on the Application under Section 7 of I & B Code, 2016. The relevant part of this decision of the Hon’ble Supreme Court is reproduced as under:

As now, it has been clarified by the Hon’ble Supreme Court itself that the decision in the case of Vidarbha Industries Power Ltd., was in the setting of facts of that case before the Hon’ble Supreme Court and the decision of Hon’ble Supreme Court in the case of Innoventive Industries Limited v. ICICI Bank & Another 2018 (1) SCC 407 still holds good. In case of Innoventive Industries Limited, it has been clearly held by the Hon’ble Supreme Court that if there is a debt and default in repayment of debt and application filed by the Applicant/Financial Creditor is complete in all respect, the application under Section 7 of I & B Code 2016, is to be admitted. In the present case, we have clearly found that there is a debt and also there is a clear default in payment of interest which is more than the threshold limit as well as the default in payment of entire loan amount even after classification of account of the Corporate Debtor as NPA, hence there cannot be no other option but to admit the present Petition/Application u/s 7.

In view of our above findings, we are satisfied that the Applicant/Financial Creditor has proved the debt and the default, which is more than the threshold limit of one lakh at the relevant time and even more than Rs.1 crore the limit applicable at present. The application is also filed within limitation period and complete in all respect and a resolution professional is also proposed as per section 7(3)(b). Accordingly, the present application under Section 7, has been found fit to be admitted as per Section 7(5) of the I & B Code, 2016.

The Financial Creditor has filed Supplementary Affidavit wherein it has proposed the name of new IRP in Part-III of the Application, the Financial Creditor has proposed the name of Mr. Bhuvan Madan as Interim Resolution Professional. His Registration Number is IBBI/IPA-IBBI/IPA-001/IP-P01004/2017-2018/11655, R/o 204, A-103 Ashok Vihar Phase-3 (Behind Laxmi Bai College), New Delhi, 110052, Email: [email protected]. He has duly given the consent in Form No.2 dated 11.11.2019 annexed as Annexure A-2 with the Supplementary Affidavit. The Law Research Associate of this Tribunal, Ms. Ankita Sharma, has checked the credentials of Mr. Bhuvan Madan, and found that there are no disciplinary proceedings pending against the proposed Resolution Professional and also there is nothing adverse against him. Upon verification from the website of IBBI, it is found that IRP holds valid authorization till 24 December 2024. After considering these details, we appoint Mr. Bhuvan Madan having registration No.IBBI/IPA-IBBI/IPA-001/IP-P01004/2017-2018/11655, as Interim Resolution Professional (IRP).

In the given facts and circumstances of the case as per our above findings, the present application u/s 7 being complete in all respect and having established the default in payment of the Financial Debt for the default amount being above the threshold limit and an IRP also having been appointed as per above para 89, the application is admitted in terms of Section 7(5) of the I & B Code, 2016 against the Corporate Debtor i.e. Jaypee Healthcare Ltd. and accordingly, moratorium is declared in terms of Section 14 of the Code.

The IRP is directed to take steps as mandated under section 13 and 15 of the IBC for making public announcement about the commencement of CIRP against the Corporate Debtor and moratorium against it u/s 14, and also take necessary actions as per sections 17, 18, 20 and 21 of IBC, 2016.

The IRP shall after collation of all the claims received against the Corporate Debtor and the determination of the financial position of the Corporate Debtor constitute a Committee of Creditors and shall file a report certifying the constitution of the Committee to this Tribunal on or before the expiry of thirty days from the date of his appointment, and shall convene the first meeting of the Committee within seven days of filing the report of Constitution of the Committee. The Interim Resolution Professional is further directed to send regular progress reports to this Tribunal every month.

As a necessary consequence of the moratorium in terms of Section 14, the following prohibitions are imposed, which must be followed by all and sundry:

We direct the Financial Creditor to deposit a sum of Rs.2,00,000 with the Interim Resolution Professional, to meet out the expenses to perform the functions assigned to him in accordance with Regulation 6 of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Person) Regulations, 2016. The amount, however, is subject to adjustment by the Committee of Creditors as accounted for by the Interim Resolution Professional on the conclusion of CIRP.

A certified copy of the order shall be communicated to both the parties. The learned counsel for the petitioner shall deliver a certified copy of this order to the Interim Resolution Professional forthwith. The Registry is also directed to send a certified copy of this order to the Interim Resolution Professional at his e-mail address forthwith.

List the matter on 19.07.2024 for filing of the progress report/further proceeding.