TMI Blog2014 (7) TMI 1255X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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. Therefore, the prayer made in the application under Section 151 CPC for modification and under Order XXXIX Rule 4 CPC for vacation of ex- parte order, cannot be allowed as there is no merit in the said applications. The same are dismissed. However, it is clarified that if defendants No. 1 and 2 shall keep the said assets of the project outside the ambit of the proposed CDR package, they may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Loan agreement was executed amongst defendant No.1, the plaintiff, the defendant No.3, defendant No.4 and the persons set forth in schedule -I (as the rupee lenders) in order to fund part of the said project seeking financial assistance to the tune of approximately ₹ 178,00,00,000/-(Rupees One Hundred Seventy Eight Crores Only). The defendant No.1 was admittedly the Borrower . The defendant No.4 in its capacity was as the security trustee (hereinafter referred to as the Security Trustee ). 7. By virtue of the said agreement, it was agreed to and, inter alia, as under: (a). That the Term Lenders shall provide defendant No.1 with a rupee term loan of an amount not exceeding ₹ 178,00,00,000/- (Rupees One Hundred Seventy Eight Crores Only - hereinafter referred to as the Total Loan ) (Clause 2.1.1 of the said agreement). Out of the Total Loan, the plaintiff provided a ter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 ₹ 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 matter of charge under the EPC consortium agreement dated 17th March, 2011. Under this new consortium, ₹ 90 crores were lent by the plaintiff and ₹ 88 crores were lent by ICICI Bank. 11. The plaintiff submits that apart from the financial assistance provided by the Term Lenders, there are other banks/bodies/institutions (known as the Working Capital Consortium ) from which the defendant No.1 has also availed financial assistance/working capital facilities for the day to day operations of the defendant No.1 but not for the said project. In this regard, the defendant No.1 has executed a Working Capital Consortium Agreement dated 17th March, 2011 with the Working Capital Consortium (hereinafter referred to as the Working Capital Consortium Agreement/WCCA ). In terms of the Working Capital Consortium Agreement, it was provided that the defendant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 shall have a right to the amounts deposited in the escrow account. 15. The grievance of the plaintiff in the present case is that it has recently come to the knowledge of the plaintiff that the proposed CDR Package has been approved in the Corporate Debt Restructuring Executive Committee meeting dated 24th December, 2013 ( of the CDR member banks) with a cut-off date of 1st January, 2014. Thereafter, the defendant No.1 vide letter dated 2nd January, 2014 provided the plaintiff with a copy of the final CDR Package. The said approval CDR Package stipulates, inter alia, the restructuring of the term loans qua the said project. The CDR Package further stipulates that a second charge on the power plant assets (being part of the said assets) be created in favour of the Working Capital Consortium and a first charge on the power plant assets be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fendant 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 defendant No.1 with the other banks from whom the restructuring of the finance was being got done was to be signed originally on 25.1.2014, however, it has now been postponed to be signed on 31.1.2014. The cause of action is stated to have arisen in favour of the plaintiff way back on 23.12.2013 and thereafter voluminous correspondence between the plaintiff and the defendant have been exchanged which clearly show that the second charge has already been created by the defendant and that is why they are seeking declaration. Since the agreement for restructuring is yet to be signed by the defendant, therefore, the agreement, if not already signed shall not be signed till next date of hearing. 17. Upon service, the defendant No.1 and 2 have filed an application under Order 39 Rule 4 CPC being IA No.2867/2014 for vacation of ex-part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DR 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 ₹ 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 and Joint lenders Meeting held on 8th May, 2014 had conveyed that he is finding it extremely difficult to raise capital/loan for promoter contribution from the external sources due to court case filed by Yes Bank and further requested for granting some additional time for the same. The meeting dated 8th May, 2014 was duly attended by all concern including the plaintiff. Since CDR cell had only granted the time till 15th June, 2014 for infusing entire promoters quota hence under compelling circumstances the promoter made the arrangements by taking third party expensive loans for depositing the entire promoter quota by 14th June, 2014 in the Pre-TRA Account held with State Bank of Patiala and duly compiled with the requirement of CDR with its intention to put everything on stake for the revival of the company. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 defendant No.4 as trustee of the plaintiff and defendant No.3 wherein it is mentioned that defendant No.2 shall not dilute the percentage (35%) of its shareholding in defendant No.1 Company and his clients have made the statement before this Court that till further orders of this Court, the defendant No.2 shall not dilute the percentage (35%) of his shareholding in defendant No.1. 25. It is argued that the restructuring, viz., CDR, is not voluntary as contended by the Plaintiff. The framework and guidelines as laid down by the Reserve Bank of India are binding on the plaintiff. Defendants have placed on record the earlier guidelines dated 30th January, 2014 and the new guidelines dated 26th February, 2014 which would show that the restructuring can be done provided 75% of the banks agree and if that a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 BSNL, amounting to approx. ₹ 2500 crores for which it needs inter-alia bank guarantee and letters of credit facilities. Admittedly, the total facility which Defendant No. 1 can avail under the original EPC agreement, as stated above, is ₹ 2014 crores. Defendant No.1 has availed limits to the extent of about ₹ 1700 crore leaving a balance of over ₹ 300 crore which can be utilized by the Company from other banks if the CDR is allowed to be implemented and made operative. Further, of ₹ 1700 Crores, Yes Bank's exposure is only 5-6% while other lenders are having exposure of 94% - 95%. It is also submitted that in the EPC Consortium agreement, the plaintiff is a party and had agreed to allow the defendant to avail credit facility to the exte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, the Deed of Hypothecation and proceeding in a whimsical and unilateral fashion with no regard to the rights and interests of the plaintiff. The plaintiff has tried to resolve the issues amicably with the defendant No.1. However knowingly the plaintiff held a first charge qua the said assets the defendant No.1 has deliberately sought to file for the alleged charge qua the said assets in favour of third parties. By virtue of the said agreement read with the Deed of Hypothecation, the defendant No.1 was prohibited from creating any charge, interest, encumbrance, etc qua the said assets in favour of any other persons/entity without the prior written consent of inter alia, the plaintiff. (b) In case the second charge is created qua the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 project in favour of certain other lenders, without the prior written consent of the plaintiff, which was required to be taken in terms of the financing /security documents of the said project. The alleged charge was created by virtue of submission of Form 8 accompanied by an intimation dated 22nd November, 2012 issued by the plaintiff, which has been assumed by the defendant No.1 to be an 'NOC' of the plaintiff. However, this said intimation dated 22nd November, 2012 by the plaintiff was only in respect of the current assets of the said project and not in respect of the said assets, over which a second charge was sought to be created by the defendant No.1. This fact is clear from a perusal of the intimation of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch 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 the BSNL project much prior to the execution of the same. The defendant No.1 would have been aware of the requirements of the requisite bank guarantee/letter of credit prior in time and the defendant Nos.1 and 2 could make the arrangement privately with other financial institutions for which no one would have any objection. 32. He submits that a perusal of the documents filed by the defendant No.1 would reveal that while some CDR members have agreed to provide incremental funding to the defendant No.1 (by way of issuance of bank guarantees/letters of credit for the BSNL project), the same is subject to the CDR package and the MRA becoming effective. One of the conditions in the MRA is creation of a cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 decision in its favour, the court in absence of any unforeseen unjustness or unreasonableness therein ought not to reject the same. In order to understand the finding arrived by the Supreme Court in para 38, it is imperative to refer paras 3, 4, 26 and 37 of the said judgment which read as under: 3. On or about 19.6.1997, a Common Subscription Agreement was entered into by and between the Respondent and the debenture holders; the relevant clauses whereof are as under : 1.1. Wherever used in this Agreement, unless the context otherwise requires the following terms shall have the following meanings : a) *** *** *** b) *** *** *** c) Debenture holders means LIC, UTI, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te 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 paid to the debenture holders the installments of principal, if any interest commitment charges, costs charges and other moneys payable under this agreement upto and during that year or has made provisions satisfactory to the debenture holders for making such payment. b) CHARGES Create or permit any charges or lien on any assets of the Company except as provided in Article-IV, hereof. For the purpose of this clause, the term 'Lien' shall include mortgages, pledges, shares, privileges and priorities of any kind and the term 'assets' shall include revenues and property of any kind. c) AM ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the Act or provisions of any law. 26. This Court in this case is not called upon to interpret the nature of a document or the covenants entered into by and between the parties. The agreement specifies the rights and privileges of the parties thereto and in particular the rights and privileges of the debenture holder either collectively or individually. 37. In J.K. (Bombay) (P) Ltd. (supra), it was held : The Court could not have completed, as contended by the appellants, their rights which were still incomplete or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rking 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 Others of the Division Bench passed in FAO (OS) 507/2012 on 9th October, 2013. The facts in that case were different than in the case. 37. The other decision referred by Mr.Chandhiok in the case of Moser Bear India Ltd. vs. Citi Bank N.A.London Branch decided by the Division Bench of this Court on 20th December, 2012 has no application in the facts of the present case as in that case the respondent was admittedly an unsecured creditor, however, in the present case, the position is just opposite. 38. With ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 will be taken into account. 4.3.5 The above-mentioned time limits are maximum permitted time periods and the JLF should try to arrive at a restructuring package as soon as possible in cases of simple restructuring. 4.3.6 Restructuring cases will be taken up by the JLF only in respect of assets reported as Standard, SMA or Sub-Standard by one or more lenders of the JLF. While generally no account classified as doubtful should be considered by the JLF for restructuring, in case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th 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 be recognised as a secured creditor viz- a-viz the respondent and the company would start repaying the amount due from July 15, 2010. He submits that the livelihood of the workers depends upon the company. The company has a large networth, net sales of the company have grown up considerably. The company is a viable entity and is facing temporary financial crunch due to adverse market conditions. If petition is admitted, there is likelihood that the workers may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 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 cannot insist on a winding up order being passed but the court cannot refuse to entertain a petition merely because CDR scheme for settlement of its debts is proposed by the Company. A scheme is proposed and the creditors will have to wait for settlement of their dues, by itself, cannot be a ground to refuse the admission of winding up petition. Something more will have to be set out and proved in that behalf. In this case, there may be part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rustee. 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. Non disposal undertaking dated 27th May, 2011. iv. Escrow Account Agreement dated 27th May, 2011. 43. By virtue of the said documents, the plaintiff has the following contractual rights:- a) a charge that has been created in favour of the plaintiff in respect of the movable fixed assets of the said Project (hereinafter called the Said Assets ). No other/further charge to be created in respect of the said assets without t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efendants 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 Corporate Debt Restructuring (which is what the defendants have proposed by virtue of the MRA) is a voluntary mechanism as per the CDR guidelines. Being a voluntary mechanism, no lender can be forced to approve the same. By resorting to such conduct, the defendants are in fact resorting to oppression of minorities by alleging 'interests of majorities', which the defendants cannot be permitted to do. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tract 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 hypothecation); c. The defendant No.2 shall not dispose off, including by way of a pledge, his shareholding in the defendant No.1 company without the prior consent of the plaintiff/respondent; d. All the receivables from the said projects to be deposited into an escrow account opened with and maintained by the plaintiff/respondent/defendant No.3 (as provided in the escrow agreement); e. The defend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m 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.11895/2014 under Section 151 CPC for modification and I.A. No.2867/2014 under Order XXXIX Rule 4 CPC for vacation of ex- parte order, cannot be allowed as there is no merit in the said applications. The same are dismissed. however, it is clarified that if defendants No. 1 and 2 shall keep the said assets of the project outside the ambit of the proposed CDR package, they may continue with t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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