TMI Blog2017 (8) TMI 298X X X X Extracts X X X X X X X X Extracts X X X X ..... admitted both the Applications. - Interim Insolvency Resolution Professional appointed to commence Corporate Insolvency Resolution Process in respect of ESSAR. Order of moratorium shall be in force from the date of order till the completion of Corporate Insolvency Resolution Process subject to the Proviso under sub-section (4) of Section 14. - C.P. (IB) NO. 40/7/NCLT/AHM. OF 2017 - - - Dated:- 2-8-2017 - MR. BIKKI RAVEENDRA BABU, J. For The Applicant : Kamal Trivedi, Ravi Kadam and Anshin Desai, learned Senior Counsel, Rasesh Sanjanwala, Senior Advocate, Sandeep Singh, Siddharth Joshi, Vinay Bairagra, Ameya Gokhle, Nirag Pathak, Umang Singh, Ms. Girshma Ahuja, Shalin Jani and Sapan Gupta, Advs. For The Respondent : Saurabh Sopankar, Senior Counsel, Mihir Thahore, Senior Advocate, Keyur Gandhi, Raheel Patel and Nisarg Desai COMMON ORDER 1. Standard Chartered Bank (SCB) and State Bank of India (SBI) initiated Corporate Insolvency Resolution Process under Section 7 of Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as IBC } read with Rule 4 and 9(1) of Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 (for brevity s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the years 2014-15 and 2015-16. On 7.12.2015, SCB issued notice demanding immediate payment of amounts due under the Facility Agreement. SCB also issued a statutory notice of demand under Section 434(l)(a) of the 1956 Companies Act to ESSAR on 18th April, 2016 once again demanding the immediate repayment of the entire amount outstanding under the Facility Agreement. ESSAR has been unable to service its overall debt aggregating to an amount of approximately ₹ 450,000,000,000. As per Clause 17.1 of the Facility Agreement, ESSAR agreed to act as a guarantor in relation to the loan and other amounts due and payable under the Facility Agreement and, inter alia, irrevocably and unconditionally agreed that ESSAR undertakes with each Secured Party that whenever another Obligor or a Security Provider does not pay any amount when due under or in connection with any Secured Document, that Guarantor shall immediately on demand pay that amount as if it was the principal obligor. ESSAR also waives any right to proceed against or enforce any other rights as per Clause 17.5 of Facility Agreement. 7. According to SCB, ESOL failed to pay the amounts specified in Clauses 6.1, 8.2., 8.3., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rticipating in the JLF. SCB stated that ESSAR failed to respondent to the demands of the SCB and therefore it initiated Corporate Insolvency Resolution Process in respect of ESSAR in the public interest and for the benefit of all the creditors of ESSAR. 8. SCB filed true copy of Facility Agreement dated 3rd January, 2014; true copy of Amendment Letter dated 2nd February 2014 amending Facility Agreement dated 3rd January, 2014; true copy of Statement of Accounts; true copy of Annual Report of ESSAR for the years 2014-15 and 2015-16, and copies of notices. SCB also proposed the name of Interim Insolvency Resolution Professional and filed his Written Communication. 9. It is the case of SBI that the total debt of ₹ 14860,82,00,000, granted to the ESSAR by SBI is as follows; (a) Term Loan - ₹ 4000,00,00,000 (b) Term Loan (5/25) * - ₹ 2195,00,00,000 (c) Corporate Loan 1 - ₹ 2585,00,00,000 (d) Corporate Loan 2 - ₹ 1516,00,00,000 (e) EPBG Facility - USD 237.05 Million (Rs. 1528,97,00,000). (f) Working Capital Facility ₹ 4738,00,00,000 (g) Derivative Facility- Rs. ₹ 331,60,00,000. [* Term Loan under 5/25 scheme is ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng production volumes at its natural gas based facilities at Hazira, Gujarat for the period between financial years 1990-2000 to 2010-2011. ESSAR recorded Profit After Tax in 16 years except for the period of 4 years, i.e., from Financial Years 1998-1999 to 2001-2002 and Financial Year 2010-2011 where the Company had incurred losses on account of external factors. ESSAR set up its Gas Based Plant on the basis of assurances of Gas supply given by the Government of India. Due to non-supply of natural gas, ESSAR had fatal and severe consequences on its operations. In March, 2011, Government of India arbitrarily and suddenly without notice categorized the steel sector from priority sector to non-core sector and issued directions to the contractors of KG-D6 Field to cut off the supply of natural gas on a disproportionate basis in case of shortage of supply of gas from the Field. Due to that the operations of ESSAR have been gravely affected. ESSAR in between 2011 and 2016, incurred a loss of approximately ₹ 26,000 Crores on account of arbitrary decision of the Government of India. During the years 2011-2012 to 2015-2016, the Natural Gas available in the open market other than Gove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ESSAR, promoters, lenders, employees, creditors, suppliers, customers have invested time, efforts and resources to revive the Company and implement a satisfactory Debt Resolution Plan and if at this stage the Insolvency Resolution Plan is invoked it would adversely affect the interest of the Company and all its stakeholders. It is further stated that in view of Section 13 and 16 of the IBC, the appointment of IRP shall be made only after the admission of the petition within 14 days. Further, it is stated by ESSAR that there are 4500 people working in the Company and all would be affected in case of commencement of Insolvency Resolution Process. It is also stated that National Company Law Tribunal has got discretion not to admit the petition in view of language used in Section 7. 12. For initiation of Corporate Insolvency Resolution Process against a Corporate Debtor under Section 7 of the IBC, it is essential that a default must occur in respect of financial debt owed to Applicant/Financial Creditor. 13. Here, SCB and SBI are the Applicants. There is no dispute about the fact that SCB and SBI are Financial Creditors. There is no dispute about the fact that amounts due to S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otification in the Gazette of India are severally empowered for and on behalf of SBI to sign all documents, instruments, accounts, receipts, letters and advices connected with the current or authorised business of the State Bank. Regulation 77 of the said Regulations says, that Plaints, written statements, petitions and applications may be signed and verified on behalf of the SBI by the Chairman or by any officer or employee empowered by or under the Regulation 76. Along with the Application the Applicant filed a Gazette Notification dated 2nd May, 1987 wherein it is stated that all the officers in the Grades of SMGS-IV and above are empowered to sign all documents pursuant to Regulation 76.1 of State Bank of India General Regulations. On this aspect, learned Senior Counsel appearing for SBI cited the following decisions; 1. State Bank of India v. Earnest traders Exporters, Importers Commission Agents, reported in 1997(41) DRJ. 2. State Bank of India v. Kashmir Art Printing Press, Sirsa and Others, reported in 1981 SCC OnLine P H 37. In the above said two decisions, the Hon'ble High Courts, after considering Regulations 76 and 77 of the State Bank of India Genera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to the words may and shall used by the Legislature, the intent of the particular enactment and the attendant circumstances must be taken into consideration. The Ronnie High Court of Gujarat, vide Judgment in the matter of Essar Steel India Limited and Another vs. Reserve Bank of India and Others, in Special Civil Application No. 12434 of 2017, held that admission of an Insolvency Application filed by Financial Creditor is not a routine order and the Adjudicating Authority shall apply its mind to all the factual details and then pass an order. This Adjudicating Authority is of the view that the order of admission of an Application for initiation of Corporate Insolvency Resolution Process is a judicial order which should be according to the provisions of the Code, principles of natural justice, and taking the consequences of the order into consideration. Therefore, there this Adjudicating Authority shall exercise its discretion in either admitting or rejecting the Insolvency Resolution Applications. It is needless to say that discretionary power has to be exercised in a judicious manner taking into consideration all the facts and circumstances of the case, the provisions of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esolution Process shall commence. 21. Following are the observations made by the Hon'ble High Court in Special Civil Application No. 12434 of 2017. In Para 27, it is observed; 27. ....The emphasis on opinion or necessity can be looked into by NCLT because discussion on factual merits would otherwise prejudice the either side and, therefore, I have avoided to discuss the factual details to ascertain that whether there was actual necessity to initiate proceedings under the Code or not.... In Para No. 35, the Hon'ble High Court has observed; 35. .......The adjudicating authority i.e., NCLT is not bound to admit the petition as a matter of rule but it has to be decided in accordance with law for which generally reasonable opportunity needs to be extended to all concerned. The Hon'ble High Court has further observed in Para No.39.2) and 3) as under; (2) It is undisputed fact that filing of such application itself cannot be questioned or that action cannot be quashed, but it goes without saying that such filing would not amount to admitting or allowing the petition for insolvency without offering reasonable opportunity to the company, which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctive argument, in my humble opinion, at this stage, in a petition under Article 226 of the Constitution of India, I do not wish to explore all such issues and to determine anything precisely because, ultimately, all such issues would be raised before NCLT, which has to ascertain that whether there is reason to admit the insolvency resolution process immediately or not. 21.1 The HonTale High Court, at the end of Para 39.12, observed as follows; ....... However, at the cost of repetition, it is made clear that factual details and on-going process of restructuring plan and other details would be taken care of by NCLT before taking any decision on merits. 22. The following are the findings of the Hon'ble National Company Law Appellate Tribunal, in Company Appeal (AT) (Insolvency) No. 1 2 of 2017 (supra); 82. As discussed in the previous paragraphs, for initiation of corporate resolution process by financial creditor under sub section (4) of Section 7 of the Code, 2016, the 'adjudicating authority' on receipt of application under sub-section (2) is required to ascertain existence of default from the records of Information Utility or on the basis of o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Authority need not consider the Master Restructuring Agreement dated 8th September, 2014. 24. However, the Hon'ble High Court of Gujarat in Special Civil Application No. 12434 of 2017 observed that this Adjudicating Authority shall take into the fact situation including the process of Debt Restructuring Plan. Therefore, I proceed to consider whether Debt Restructuring Process or Debt Restructuring Plan is going to absolve the ESSAR, Corporate Debtor from the Insolvency Resolution Process. From the material placed on record, it is in the year 2014 that Debt Reconstructing Process commenced. For one reason or the other, the Debt Reconstructing Process has not been finalised till today or till the date of filing of the Applications. It is not a case where ESSAR owed monies to Lenders in the previous year. The Lenders are there from the beginning of the ESSAR Company. As contended by the learned Senior Counsel for ESSAR there are several reasons that prevented the ESSAR from discharging the debts. No doubt, there are no allegations of siphoning of funds, diversion of funds or fraud. But, the fact remains that except showing a little progress in the last financial year, there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stry, and ultimately the economy of India. In chalking out such Resolution Plan, mainly the Lenders, must sacrifice to a great extent which makes the Company to revive. If a Resolution Plan is chalked out with such objectives in mind, the Resolution Plan will certainly help the Company and it would come out of the present situation. Therefore, as opined by the Hon'ble High Court of Gujarat, taking all the material facts, and the Debt Restructuring Plan, and the objects of the IB Code, into consideration this Adjudicating Authority is of the view that it is only the Resolution Plan that would make the ESSAR Company survive which course would safeguard the interest of all the stakeholders of the Company. Therefore, there is no need for an apprehension that Resolution Plan is going to be detrimental to the interest of the Company. The finding of this Authority, after taking into all factual aspects, the complex activities of ESSAR, the ongoing Debt Restructuring Process, is that both Applications merit admission. 25. In view of the above discussion, this Adjudicating Authority is of the considered view that the Applications filed by the SCB and SBI are complete, there is occurr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mission order. In an application filed under Section 9, in case if the Operational Creditor did not give the name of the IRP, then the Adjudicating Authority, availing the 14 days' time provided under Section 16(1), can appoint the Interim Resolution Professional within 14 days from the date of admission order. Suppose in a given case there is some omission in the Written Communication or there is some difficulty in the appointment of the recommended IRP, in such cases the Adjudicating Authority may appoint IRP even in an application under Section 7 not on the date of order of admission, but on a subsequent date, but before 14 days from the date of admission. Therefore, there must be facts and circumstances that warrant the Adjudicating Authority to defer the appointment of IRP in an application filed under Section 7 of the Code. In the case on hand, no such circumstance exists which warrant deferring the appointment of Interim Resolution Professional to some other date but not on the date of admission order. Learned Counsel appearing for ESSAR contended that ESSAR can go in appeal against the admission order, and if the appointment of Interim Resolution Professional is deferre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recorded by the Joint Lenders Forum dated 22nd June, 2017 whereby the SBI was authorised by other Banks of JLF to initiate Corporate Insolvency Resolution Process. 27.1 In the said Minutes, the Joint Lenders Forum decided to recommend the name of one Shri Satish Kumar Gupta supported by A M as Interim Resolution Professional in the Application. 28. SCB also proposed the name of Shri Dinkar Venkatasubramanian as Interim Resolution Professional. It is contended by the learned Senior Counsel appearing for the SCB that it is the SCB that initiated the proceedings even before the SBI filed the Application. Learned Senior Counsel appearing for SCB also referred to the definition of 'initiation date' in Section 5(11) of the Code. As per Section 5(11) of the Code, initiation date means the date on which the Financial Creditor, Corporate Applicant or the Operational Creditor, as the case may be, makes the application to the Adjudicating Authority for initiating Corporate Insolvency Resolution Process. No doubt, among the two Applications, the Application filed by SCB, i.e. CP (IB) No. 39 of 2017 is earlier in point of time than the Application of SBI. 29. Learned Senior ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The material placed on record by SBI in the form of Minutes of the Meeting dated 22.6.2017 clearly indicate that a lot of exercise has been undertaken by the SBI before recommending the name of Mr. Satish Kumar Gupta. Further, the Joint Lenders Forum authorised the SBI to initiate the Insolvency Resolution Process. The debts due to JLF is more in value than the debt due to SCB. Therefore, this Adjudicating Authority, taking those aspects into consideration, is of the considered view that it is just to appoint Mr. Satish Kumar Gupta Address Flat no. 17012, Building no. 17, Kohinoor City, Phase 2, off LBS road, Mumbai- 400070, Maharashtra, India, Email Address: satishgl96@yahoo.co.in. as Interim Insolvency Resolution Professional , to commence Corporate Insolvency Resolution Process in respect of ESSAR. 33. From the discussion in the foregoing paragraphs, the following are the findings of this Adjudicating Authority; (i) SBI, as a 'Financial Creditor', is entitled to invoke Section 7 of the Code irrespective of direction given by RBI (the direction given by RBI to SBI is held to be valid by the Hon'ble High Court of Gujarat in Special Civil Application No. 12434 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... following as laid down in Section 14 of the Code; (a) the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority; (b) transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein; (c) any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002); (d) the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor. (i) The moratorium order in respect of (a), (b), (c) and (d) above shall not apply to the transactions notified by the Central Government. (ii) However, the order of moratorium shall not apply in respect of supply of essential goods or services to Corporate Debtor. (iii) The applicant SBI shall also make public announcement about initia ..... X X X X Extracts X X X X X X X X Extracts X X X X
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