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2023 (11) TMI 906 - AT - Insolvency and BankruptcyCalculation of interest on revocation of settlement - whether the rate of interest applicable for determining the claim of the ARCIL in CIRP proceeding is 22% or the rate of interest has to be 14.85%? - HELD THAT - The application filed by the ARCIL for amending the rate of interest as 22% from 14.85% was rejected by the DRT which order was also affirmed by the DRAT. Writ Petition was filed by ARCIL against the order passed by the DRAT and DRT rejecting the Amendment Application. In the said Writ Petition, the High Court expressed its opinion that Amendment Application which was filed by the ARCIL for 22% interest was based on the Sanction Letter dated 28.02.2011. The High Court observed that when the Sanction Letter was itself revoked on 17.06.2013, there is no question of enforcement of rate of interest of 22% by carrying out amendment in the Original Application. The said observation made by the High Court fully support the submission raised by counsel for the Appellant - the fact cannot be lost sight that the Hon ble Supreme Court by order dated 03.01.2019 while dismissing the SLP, clarified that the Tribunal shall, if it considers appropriate having regard to the circumstances of the case, decide on the appropriate rate of interest after hearing both sides. Thus, the determination of rate of interest was left open to the Tribunal after hearing both the sides. The reason for the Adjudicating Authority for taking the decision for rate of interest as 22% essentially rest on the letter of the Corporate Debtor dated 10.02.2011, Sanction Letter dated 28.02.2011 and Modification Agreement dated 29.09.2011 as well as the Revocation Letter dated 17.06.2013. We now again revert to the aforesaid letters to find out the true import of the decision of the Adjudicating Authority. There is no dispute that the Corporate Debtor himself submitted the letter dated 10.02.2011 offering to pay 22% interest from 01.07.2010 - Settlement Agreement has also noticed due amounts payable to respective lenders as on 30.06.2010. What is the consequence of Revocation Letter dated 17.06.2013 on the rate of interest of 22% is the question which has arisen for consideration. Emphasis has been laid by learned counsel for the Respondent is that what was revoked by the letter dated 17.06.2013 was only Sanction Letter dated 28.02.2011 and Modification Agreement dated 29.09.2011 was not revoked. When the Sanction Letter dated 28.02.2011 which for the first time provided for rate of interest of 22% p.a. with compounding at monthly rest from 01.07.2010 itself was revoked, it is difficult to see now Modification Agreement dated 29.09.2011 shall be operative. Modification Agreement dated 29.09.2011 is nothing but modification agreement in continuation of the Sanction Letter dated 28.02.2011 and when the original sanction letter itself was revoked, modification of agreement cannot survive. There is no final determination of the rate of interest and the observations made by the Hon ble High Court were on the basis of Revocation Letter dated 17.06.2013. The Financial Creditor has sanctioned the settlement of dues on fulfilment of terms as condition precedent as contained in letter dated 28.02.2011 that Rs.10 Crore was to be made upfront payment and rest of the amount was to be paid till 31.09.2011 - Modification Agreement itself has referred to Sanction Letter dated 28.02.2011, where terms and conditions which also have been reiterated in the Modification Agreement were noted. The Adjudicating Authority has not correctly appreciated the consequence of the Revocation Letter dated 17.06.2013. By Revocation Letter dated 17.06.2013, the Settlement Agreement dated 28.02.2011 which provided for 22% rate of interest from 01.07.2010 came to an end. The Financial Creditor on the one hand revokes the Settlement Agreement and on the other hand wants to enforce 22% rate of interest which was agreed by Sanction Letter dated 28.02.2011 - thus, 22% rate of interest cannot be charged by the Financial Creditor and the determination of rate of interest by the Adjudicating Authority by the impugned order dated 21.07.2023 is erroneous and unsustainable. In the facts of the present case, the Resolution Professional may re-verify the claim of the ARCIL as per the rate of interest of 14.85% within two weeks and submit it before the CoC as well as to the Successful Resolution Applicant who shall prepare an Addendum to be placed before the CoC within a period of two weeks thereafter. The Resolution Professional should compute the claim of the ARCIL on the basis of rate of interest as indicated above. The Addendum after approval, if any, be placed before the Adjudicating Authority to be considered along with the application for approval of the Resolution Plan - The Resolution Professional as well as CoC to complete the process, within a period of 60 days from today. Extension in CIRP process is granted for further 60 days from today to complete the process. Appeal allowed.
Issues Involved:
1. Determination of the applicable rate of interest for the Corporate Debtor. 2. Compliance with procedural requirements by the Resolution Professional (RP). 3. Validity of actions taken by the Committee of Creditors (CoC) and the RP. 4. Contempt proceedings for alleged willful disobedience of tribunal orders. Summary: 1. Determination of the Applicable Rate of Interest: The core issue was whether the applicable rate of interest for the Corporate Debtor should be 22% or 14.85%. The Adjudicating Authority determined the rate of interest as 22% per annum based on the Settlement Agreement dated 28.02.2011 and the Modification Agreement dated 29.09.2011. However, the Appellate Tribunal found that the Sanction Letter dated 28.02.2011, which provided for 22% interest, was revoked by ARCIL on 17.06.2013. Consequently, the Modification Agreement, which was based on the Sanction Letter, could not survive independently. The Tribunal concluded that the Financial Creditor could not charge 22% interest and determined the correct rate of interest to be 14.85%. 2. Compliance with Procedural Requirements by the RP: The Resolution Professional was criticized for not pressing the application for the determination of the rate of interest, which led to the approval of claims at an inflated rate of 22%. The Tribunal highlighted that the RP should have ensured the correct determination of the rate of interest before proceeding with the Corporate Insolvency Resolution Process (CIRP). 3. Validity of Actions Taken by the CoC and the RP: The Tribunal noted that the CoC proceeded to approve the Resolution Plan without the determination of the correct rate of interest, which was essential for the accurate calculation of claims. The Tribunal directed the RP to re-verify the claim of ARCIL based on the rate of interest of 14.85% and prepare an addendum to the Resolution Plan to be placed before the CoC. 4. Contempt Proceedings for Alleged Willful Disobedience: The Appellant filed a Contempt Case alleging willful disobedience of the Tribunal's order dated 02.02.2023, which directed the Adjudicating Authority to determine the rate of interest before approving any Resolution Plan. The Tribunal, however, closed the Contempt Case in light of its decision on the main appeal, which addressed the issues raised. Conclusion: The Tribunal allowed the appeal, set aside the order dated 21.07.2023 of the Adjudicating Authority, and directed the RP to re-verify ARCIL's claim at the correct rate of interest of 14.85%. The Tribunal also provided a timeline for completing the necessary processes and extended the CIRP process by 60 days.
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