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TMI Blog2014 (7) TMI 1255X X X X Extracts X X X X X X X X Extracts X X X X ..... fendant No.1 and holds 35% of shareholding by way of 2,59,62,743 equity shares of Rs. 10/- in the defendant No.1 company. 3. The defendant No.3, ICICI Bank is a company incorporated under the Companies Act, 1956 and a bank company under the Banking Regulation Act, 1949 and is the pro-forma defendant. 4. The defendant No.4, 3i Infotech Trusteeship Services Limited is also a pro-forma defendant. 5. The brief facts are that the Working Capital Consortium agreement which is called EPC Consortium Agreement had 16 lender banks including the plaintiff and defendant No.1 as parties to the said agreement. Joint deed of hypothecation was also executed. Both are dated 17th March, 2011. The contribution of the plaintiff was Rs. 40 crore. The total facility sanctioned to the defendant No.1 was Rs. 2014 crore. These 16 banks have a charge over all assets of defendant No.1. 6. Apart from the said consortium as the defendant No.1 was desirous of setting up 3 (three) biogases-cum-bio mass based power co-generation plants, namely, a. The Fazilka Project, b. The Morinda Project, c. The Nakodar Project in the State of Punjab, India (hereinafter referred to as the "Said Project"), a Rupees Term Loa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inter alia, the plaintiffs prior written consent nor shall the defendant No.1 do anything qua the said assets which would prejudice the charge created in favour of Security Trustee acting for the benefit of, inter alia, the plaintiff. (Clause 14.9 of the said agreement read with Clause 17 of the Deed of Hypothecation). In terms of the said agreement and the Deed of Hypothecation, it has been stipulated that in the event of any default, the plaintiff shall be entitled to recall the said loan as funded by the plaintiff and take charge and/or possession of seize, recover, receive and remove the said assets and/or sell the said assets. (Clause 6.1(ii) of the Deed of Hypothecation). The said agreement provides that the courts and tribunals at Delhi shall have jurisdiction to try any matters arising out of or in connection therewith. (Clause 20.14 of the said agreement). 10. It is not denied by any of the parties that a new consortium dated 27th May, 2011 was entered in between the plaintiff and ICICI Bank, the defendant No.3, in which Rs. 178 crore was lent for these power projects and a first charge was created over the same (said power projects in Punjab), which are not the subject m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ital Consortium was to exclude the said assets of the project from the purview of the Working Capital Consortium Agreement and the Working Capital Deed of Hypothecation since the said assets were exclusively financed by the Term Lenders for the Project. A first charge qua the said assets was created by the defendant No.1 in favour of the Term Lenders (which includes the plaintiff). 14. An Escrow Account Agreement dated 27th May, 2011 (hereinafter referred to as the "Escrow Agreement") also executed, inter alia, by and between the defendant No.1 and the plaintiff whereby it was agreed as under: a. the defendant No1. shall deposit all the receivables, insurance proceeds, etc. to be received by the defendant No.1 company from the said project into the escrow account maintained with the plaintiff, b. the said receivables were to be deposited with the plaintiff for repayment of the monies sanctioned by the plaintiff under the said agreement together with interests, costs, charges and expenses thereto and all other costs, charges, etc, arising out of the financing documents under the said agreement, c. no person other than the plaintiff and the defendant No.3/Pro Forma defendant s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was listed before Court on 24th January, 2014. The summons/notice were issued to the defendants for 13th February, 2014. In the interim application being IA No.1438/2014 (Order 39 Rule 1 and 2) the following, inter alia, interim orders were passed. Para 5 and 6 of the said order are re- produced hereunder : "5. I am satisfied that so far as defendant No.2 is concerned, the plaintiff has been able to make out a prima facie case that the said defendant cannot create any charge, hypothecation or pledge 35 per cent shares for which he has stood guarantee for repayment of the loan advanced by the plaintiff bank. The plaintiff has got prima facie good case. Balance of convenience is in their favour and they will suffer irreparable loss in case defendant No.2 is not prevented from creating such a charge or his shares. Accordingly, defendant No.2 is restrained from creating any charge, pledge or hypothecation of his shares which is stated to be 35 per cent in the defendant No.1 company. 6. So far as other ad interim prayers of the plaintiff are concerned, the learned senior counsel, during the course of arguments, has pointed out that the CDR agreement which was to be signed by defend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order dated 20th March, 2014. The following prayer is sought in the abovementioned application : "(a) Modify/clarify order dated 20.3.2014 and necessary permission be granted to the applicant as well as all CDR/lenders be allowed to implement and act upon the CDR agreements so executed between the parties after the passing of order dated 20.03.2014 in the interest of justice." 19. The application filed by the defendant No.1 is listed before this Court for hearing when the other pending applications are also listed. Parties have made their submissions in the said application. They have also filed short written submissions. 20. It is stated in the application filed by the defendant Nos.1 and 2 that after passing of order dated 20th March, 2014, the defendant No.1 along with the other CDR lenders had executed CDR agreements including the Master Restructuring Agreement (MRA) on 27th March, 2014. As per the CDR Scheme, the defendant No.1 is required to infuse the promoter quota of contribution of Rs. 34 Crores (Approx.) within 120 days of CDR execution. Subsequent to execution of the CDR agreements, defendant No.2 the promoter (Mr. Amit Mittal) in the Minutes of CDR lenders Meeting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iling out from the present financial crisis, in the absence of any clarity by the Court in the ongoing litigation and the impasse so created by the mandate of the last order. 23. It is also stated in the application that the defendant No.1 has recently obtained a prestigious work order of worth appx. Rs. 2500 crores under the tender floated by BSNL for construction of Exclusive Optical NLD Backbone and optical Access Route for defense network all over India on back to back basis from ITI Ltd. (PSU Govt. of India organization). This project itself will be a lifeline and important and sole milestone for the revival of the defendant No.1's company. If the above B.Gs and LCs are not released in the given time frame then all chances of revival of company as well as the sensitive and work of national importance related to Ministry of Defense will suffer adversely. 24. It is argued by Mr.A.S. Chandhiok, learned Senior counsel appearing on behalf of defendants No.1 and 2 that mainly the plaintiff is relying upon an undertaking. A perusal of this undertaking as well as the averment in the plaint would show that this is the only undertaking defendant No.2 has given in favour of defenda ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in defendant No.1. It is submitted on behalf of defendant No. 1 and 2 that the said consortium agreement also takes into account the repayment of amount payable to the plaintiff under the second consortium agreement of 27th May, 2011. Therefore, an additional funding of Rs. 43 Crores is required for completion of the projects on which the plaintiff claims first charge. Any additional funding by the lenders adds value to the security available with Yes Bank Ltd. Value of security as against loan of Rs. 90 Crores is still much higher than envisaged at the time of sanction of the loan. Hence, overall there is no dilution in the security of Yes Bank. The present value of the power projects is more than Rs. 429 crore now and once they become operative or additional funding comes in, their value will definitely increase. The debt of the plaintiff is adequately secured and since the repayment of its loans are already included in the CDR, interest of the plaintiff is fully safeguarded. In its application being I.A. No. 11895/2014, the defendant No.1 has prayed for that CDR/MRA be allowed to be implemented and made operative for Defendant No. 1 as a new project has been awarded to it by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... non compliance of statutory compliance, rules and regulations. If defendant No.1 survives then everything will sail through including the interest of the plaintiff and other minor stakeholder lenders and other lenders, hence any impediment by way of judicial order or otherwise for the rehabilitation of defendant No.1 will mark the very purpose and intent for which the CDR process was undertaken by the RBI for financial sick companies. The other banks who are parties to the MRA willing to give BG/LC as per the CDR agreement are in fact feeling restrained in view of the order dated 20th March, 2014 stating that the order dated 20th March, 2014 is preventing from issuance of the same by them. Therefore, it is necessary that if the order dated 20th March, 2014 is further modified and necessary permission to all concern CDR members is granted for further act upon the CDR agreement. 28. Mr. Sandeep Sethi, learned Senior counsel appearing on behalf of the plaintiff has made various submissions. The relevant submissions are outlined as under:- (a) The conduct of the defendant No.1 is not bonafide rather it is malafide. Its main motive is to bypass the provisions of the said agreement, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... defendant No.1 was desirous of raising additional financial facilities inter alia for the said project by way of a Corporate Debt Restructuring Package (hereinafter referred to as the "CDR Package"). In this regard, several discussions took place between, inter alia the plaintiff and the defendant No.1. On one such meeting dated 20th November, 2013, it was categorically stated by the plaintiff that the term lenders may consider providing a second charge qua the said assets for such incremental funding to be provided by the CDR Lenders. However, this would be subject to, inter alia, an up front, unconditional and satisfactory no approval of the second charge holders that would be required by the Term Lenders at any point. e) He submits that the defendant No.1 simultaneously worked towards the proposed CDR Package and the plaintiff, on becoming aware of the same, made several representations to the defendant No.1 as well as the Capital Debt Restructuring Cell regarding the proposed CDR Package. f) It is submitted that the plaintiff on or about 17th December, 2013 received information that the defendant no.1 had filed for an additional charge qua the said assets of the said proj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ond charge, till date. 29. The plaintiff submits that although the defendant No.1 is required to obtain the prior written consent of the plaintiff qua fresh/further funding (including for the issuance of bank guarantee and letter's of credits from banks, as required for the BSNL project in question), it has not so far approached the plaintiff for such consent however, his client may not have any objection if further funding facility is provided under the EPC Consortium agreement dated 17th March, 2011. 30. It is strongly argued by Mr.Sethi, learned Senior counsel, that the defendant Nos.1 and 2 cannot absolved from the contractual obligations qua the plaintiff raising the issue of CDR mechanism to which the plaintiff is not a party. 31. Mr.Sethi says that there is no force in the submission of defendant No.1 that it has received a contract from BSNL in respect of which the defendant No.1 is required to submit a bank guarantee/letter of credit within 14 days from the date of the contract i.e. 14 days from 30th June, 2014. The application under reply was filed the very next day, i.e., on 1st July, 2014. It is evident that the defendant No.1 was in discussions/negotiations qua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wing decisions and guidelines dated 26th February, 2014 issued by the Reserve Bank of India. In the first decision in the case of Administrator of the Specified Undertaking of the Unit Trust of India & Anr. vs. Garware Polyester Ltd., (2005) 10 SCC 682, Mr. Chandhiok has referred para 38 which reads as under: "38. In view of the our findings aforementioned, we are of the opinion that the Appellants herein having failed to establish that they could hold the entire scheme to ransom so as to stall the proceedings as a result whereof the majority of debenture holders would be deprived, the purpose or object motivating the Appellants to advance such a huge amount to the Respondent against issue of debentures is a matter of little or of no concern to the Respondent - company or other debenture holders. A special or a new right cannot be found in favour of the Appellants in the agreement when it creates none. The scheme applies equally to all debenture holders and as such the Appellants cannot be treated as a separate class. Once the Respondent-Company prima facie showed that the scheme is fair and reasonable and also that the requisite majority of the debenture holders recorded their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tances and also in the absolute discretion of the Debenture holders, subject to the statutory guidelines as may be applicable for the purpose, revise/postpone the redemption of the debentures or any party thereof outstanding for the time being or any installment of redemption of the said debentures or any part thereof upon such terms and conditions as may be decided. If for any reason the amount of the Debentures finally subscribed for by the debenture holders is less than the amount of the debentures agreed to be subscribed the installment(s) of redemption will be reduced proportionately but will however be payable on the due date as specified. 3.9 DEBENTURE CERTIFICATE : The Company shall issue debenture certificate/s to the debenture holder/s after making necessary compliance to the provisions of section 113 (1) of the Companies Act, 1956 read with the Companies (Issues of share Certificate) Rules, 1960. 7.5 NEGATIVE COVENANTS : Unless the debenture holders/trustees shall otherwise agree, the Company shall not : a) DIVIDEND Declare and/or pay any dividend to any of its shareholders, whether equity or preference, during any financial year unless the company has pai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rights, privileges and conditions attached to the Debentures may be varied, modified or abrogated in accordance with the Articles of Association of the Company and the Act and with the consent of the holders of the debentures by a Special Resolution passed at the meeting of the Debenture holders, provided that nothing in such resolution shall be operative against the Company where such resolution modifies or varies the terms and conditions governing the Debenture if the same are not acceptable to the Company." "The Fourth Schedule Above Referred to Form of Debenture Certificate xxx xxx xxx The Fifth Schedule Above Referred to Provisions for the Meeting of the Debenture holders 22. A meeting of the Debenture holders shall, inter alia, have the following powers exercisable in the manner hereinafter specified in Clause 23 hereof : xxx xxx xxx (ii) Power to sanction any compromise or arrangement proposed to be made between the Company and the Debenture holders. (iv) Power to assent to any scheme for reconstruction or amalgamation of or by the Company whether by sale or transfer of assets under any power in the Company's Memorandum of Association or otherwise under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... avour of Security Trustee and for the benefit of term lenders creating first charge over the said assets of the said project and defendant No.1 undertook that it shall not create any further charge, lien or encumbrance affecting the said assets or any part thereof without inter alia the prior written consent which was not obtained by the defendant No.1 despite of having full knowledge of various documents executed. Even defendant No.1 also executed a joint deed of hypothecation dated 17th March, 2011 with the working capital consortium where the first charge was created later on by the defendant No.1 in subsequent independent loan agreement dated 27th May, 2011. In the present case, only two lenders are involved. The plaintiff has more stakes in the loan agreement than the defendant No.3. The condition of minimum 75% creditors by value and 60% of creditors by number does not help the case of the defendant No.1 in view of facts of the present case. The said decision does not help the case of the defendant No.1 and 2 in any manner. The similar is the position of another case referred by learned Senior counsel for defendants No.1 and 2 in the case of BPTP Ltd. vs. CPI India Ltd. and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be approved by the JLF and conveyed by the lenders to the borrower within the next 15 days for implementation. 4.3.3 For accounts with AE of Rs. 5000 million and above, the above-mentioned TEV study and restructuring package will have to be subjected to an evaluation by an Independent Evaluation Committee (IEC)3 of experts fulfilling certain eligibility conditions. The IEC will look into the viability aspects after ensuring that the terms of restructuring are fair to the lenders. The IEC will be required to give their recommendation in these cases to the JLF within a period of 30 days. Thereafter, considering the views of IEC if the JLF decides to go ahead with the restructuring, the restructuring package including all terms and conditions as mutually agreed upon between the lenders and borrower, would have to be approved by all the lenders and communicated to the borrower within next 15 days for implementation. 4.3.4 Asset Classification benefit as applicable under the extant guidelines will accrue to such restructured accounts as if they were restructured under CDR mechanism. For this purpose, the asset classification of the account as on the date of formation of JLF wil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no certificate as requested by the petitioner was provided. Therefore, the petitioner reiterated its request by another email dated 16th April, 2009 to the respondent. The respondent company addressed a letter dated 23rd April, 2009 inter alia informing that an application has been made by ICICI as the lead institution on behalf of the company to the CDR cell for a possible restructuring of company's loans and confirming that it shall revert to the petitioner with a submission of particulars with regard to the matters specified in clause 9.8 of the Trust Deed. 40. In paras 34 and 47, the arguments advanced by the parties in similar situation are discussed. The same read as under: "34) Mr.Kapadia has been supported by Mr.Swanand Ganoo who appears for the applicants/intervenors in Company Application No.37 of 2011. He submits that the President of the Wockhardt Employees Union, who has filed the affidavit in support of this application, has pointed out that the petitioner should not be allowed to disrupt the functioning of the respondent company for good reason viz., under the CDR package, CDR lenders/ banks have consented to restructure the facilities and the petitioner would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eed, the conditions, any other documents relating to the Bonds and at law." In paras 60 and 61 i.e. final conclusion of the judgment, the Court has held as under: "60) As far as the maintainability of the petition is concerned, once the objection raised in that behalf is found to be of no substance, then, the other contentions need not detain me. The petitioner cannot be forced to join the CDR scheme. The law does not postulates any such compulsion on the petitioner. Once section 433(e) and section 434(1) (a) of the Companies Act, 1956 is applicable, then, the section does not confer a right on a debtor but only gives him an opportunity to discharge the debt in one or other of the ways mentioned therein. The debtor could secure or compound for a debt only where the circumstances under which the demand is made permit such a discharge. It is not the respondent's case that CDR is a discharge. It seeks the petitioner's approval to agree to postponement of payment to a future date. However, once the petitioner does not agree to any such course in law, it cannot be said that a winding up petition should not be presented by it. There is no absolute right in a creditor and he ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en rejected by the petitioner and it proceeds to institute this petition. Once it rejects the proposal and the conduct of the petitioner in trying to protect the interest of bond holders cannot be termed as blameworthy or questionable, then, it must be held that the alternatives or options suggested to secure the debt in this case do not constitute a substantial defence. The claim is huge and the petitioner has filed the petition as a trustee. Therefore, it would not be proper to hold in this case that the power to admit this petition cannot be exercised at the instance of the petitioner. Similarly, the conduct of some of the bond holders also is no ground to refuse entertainment of the petition at the instance of petitioner." 41. The plaintiff in the present case does not want to become a party to the CDR mechanism. 42. It is not denied by defendant No.1 that the defendant No.1 prior to the CDR package in question - entered into a binding contractual relationship with the plaintiff and are governed by the terms of inter alia, the following instruments in this regard : i. Rupee Term Loan Agreement dated 27th May, 2011. ii. Deed of Hypothecation dated 27th May, 2011. iii. No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... antage of its own wrong. The CDR Lenders were aware of the breach of the contractual rights of the plaintiff before executing the MRA. The defendants and the CDR Lenders should modify the CDR Package to ensure that the contractual rights of the plaintiff are not breached and under the garb of 'further clarification', the defendant No.1 has actually sought a review of the said order passed by the Court. The defendants have all throughout maintained that they be permitted to execute the MRA in question that they shall not give effect to the MRA. Now the defendant is changing its stance and seeks giving effect to the MRA resulting in the very sanctity of the said order being defeated. 46. There is no force in the submissions of defendant No.1 that the funding is being availed under the Working Capital Facility Agreement of 2011. The bank guarantees/letters of credit may be issued pursuant to the terms of the MRA. This is the only reason why the defendant No.1 is seeking to make the MRA effective. If the bank guarantees/ letters of credit were supposed to be issued under the WCCA, then there is anyway no requirement to give effect to the MRA. 47. It cannot be disputed that Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the defendants No.1 and 2 as listed above remain protected and are not breached. 51. No doubt in the present case, the defendant No.1 has obtained a contract from BSNL. The defendant No.1 seeks the permission of this Court to give effect to the CDR package/MRA on the ground that, in view of the directions of this Court, the defendant No.1 is unable to act upon this contract with BSNL. The said BSNL contract is a stand alone contract and is in no manner connected with the said projects. Further indebtedness cannot be done without the prior consent of the plaintiff. The fresh indebtedness is an attempt to violate the contractual rights of the plaintiffs which were created by virtue of independent agreement and the following contractual rights of the plaintiff including without limitation : a. A charge that has been created in favour of the plaintiff/respondent in respect of the movable fixed assets of the said project as defined in the instant suit (hereinafter referred to as the "said assets"); b. No other/further charge to be created in respect of the said assets without the prior consent of the plaintiff/respondent (as provided in the said agreement and the said deed of hypo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is no obligation on the plaintiff to consent as well. 55. From the entire gamut of the case, this Court is of the view that the lenders having exclusive charge on a specific asset cannot be forced to share their charge on the security. The said assets are to keep outside the ambit of the proposed CDR package. The said assets of the project shall continue to be charged exclusively to the term lenders of the said project and security on the said assets of the project shall not be shared with other lenders of the defendant No.1. The defendants No.1 & 2 in the present case want to proceed with a CDR package by violating the contractual rights of the plaintiff. 56. The plaintiff in the present case admittedly sought modifications in the proposed CDR Package as the plaintiff and the defendant No.3/pro-forma defendant had extended financial assistance for purposes of funding the said project and that as a security, a first charge was created in favour of the Security Trustee exclusively for the benefit of inter alia the plaintiff and the defendant No.3/pro-forma defendant herein qua the said assets of the said project. 57. Therefore, the prayer made in the application, being I.A. No.11 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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