TMI Blog2018 (1) TMI 125X X X X Extracts X X X X X X X X Extracts X X X X ..... m of expenses incurred by and the amount due under the Cash Call and JIBs as the Corporate Debtor Company has also sought indemnification of some loss occurred to it, which is a subject matter of a Competent Court of Law. Therefore, we restrain ourselves to express our view on merits of such issue involved but must feel that the present applicant deserves to be treated as a financial creditor and its claim of expense incurred by it fall within the ambit and scope of a financial debt having a commercial effect of borrowing. Hence, it is entitled to be included in COC as a financial creditor. However, the ratio of its voting share can be decided by the COC by taking into consideration the actual amount so far incurred by the GSPC on behalf of the JODPL, but excluding the interest component and other miscellaneous expenses. The COC may adopt above guidelines as suggested by us and to take appropriate decision for preparation of a resolution plan for the sake of revival of the Corporate Debtor Company, which is paramount interest and the main theme of the I & B Code. - IA NO. 6 OF 2017 In CP NO. 25/ALD/ OF 2017 - - - Dated:- 27-11-2017 - MR. HARIHAR PRAKASH CHATURVEDI, J. For T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laws of India. The applicant is a government of Gujarat undertaking and a government company within the meaning of Companies Act, 1956 and the Companies Act, 2013. The entire shareholding of the applicant is held by Government of Gujarat and state sector entities. 2. JODPL Private Limited had field the application being CP No.25/ALD/2017 under Section 10 of the Insolvency Bankruptcy Code, 2016 and the rules/regulations made thereunder the (Code) read with Rule 7 of the Insolvency Bankruptcy (Application to Adjudicating Authority) Rules, 2016 before the Hon'ble National Company Law Tribunal, Allahabad Bench for initiation of corporate insolvency resolution process for itself which was admitted by the Hon'ble Tribunal vide order dated March 17, 2017. 5. The brief background in relation to the aforesaid claim is summarized herein below: a. The applicant had entered into a Production Sharing Contract (PSC) dated February 04, 2003 with the Government of India, Jubilant Enpro Limited (JEL) and Geoglobal Resources (India) Inc. for the purpose of exploration, development and production of hydrocarbons (oil and natural gas) from KG-OSM-2001/3 Block (KG Block). It m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons. Further, the funding provided by the KG Block joint venture partners are also adequately protected by a specific provision under the JOA and the PSC. e. As per the terms of the JOA, JODPL was required to make certain payments towards costs for inter alia exploration and development of the KG Block, as per cash calls/joint interest bills (JIBs) made by the applicant. However, JODPL defaulted in making these payments. Since JODPL defaulted in paying the cash calls/JIBs, these amounts were paid by the applicant on behalf of JODPL in terms of Article 7.6.1 of the JOA. The applicant has advanced the aforementioned defaulted amounts on behalf of JODPL in respect of each of the defaulted Cash Calls. It may be noted that JODPL has not made any payments to the applicant against any of the Cash Calls/JIBs raised from July, 2013 onwards and the applicant has been since, solely contributing and funding such defaulted amounts on behalf of JODPL. The applicant has funded a total sum of ₹ 464,74,23,014. (Rupees Four Hundred Sixty Four Crores Seventy Four Lakhs Twenty Three Thousand and Fourteen only) on behalf of JODPL, pursuant to default on the part of JODPL under the JOA. The C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... JODPL vide letter dated August 22, 2014 on frivolous grounds. h. Thereafter, vide letter dated May 26, 2015, the applicant refuted all contentions of JODPL and directed JODPL to rectify its default within 15 days of the letter. However, no payment has been made by JODPL till date. Further, in the financial statements of JODPL as filed by JODPL with this Hon'ble Tribunal along with its application under Section 10 of the Code, the debts owed by JODPL to the applicant are provided for in the books of account of JODPL as current liabilities . It may be noted in this regard that such provision in books of account as current liabilities is required to be carried out only when the debt is admittedly payable by the debtor within a period of 12 months as provided for in Section 129 read with Schedule III of the Companies Act, 201. Further, even as per the audited statements of accounts in relation to the KG Block, for the year ended March 31, 2016, the dues owed by JODPL to the applicant towards Cash Calls/JIBs are shown as 'Current Liabilities'. With respect to these audited accounts, it may be noted that the same are audited by statutory auditor of the applicant as we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thousand Three Hundred and Six only). Further, in accordance with the instructions of the IRP, the applicant also submitted its proof of claims as 'operational creditor' under the Code, in the alternative. m. Since the IRP did not provide any response in relation to the claims filed by the applicant, the applicant vide emails dated April 09, 2017 again wrote to the IRP seeking response in relation to its claims and also sought copies of inter alia the application/documents filed by JODPL before the Hon'ble Tribunal. In response to the said email, the IRP vide email dated April 10, 2017 inter alia informed the applicant that the applicant does not qualify either as a financial creditor or as an operational creditor of JODPL under the Code and the applicant's claim falls within the scope of other stakeholder under Regulation 20 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016. Therefore, the applicant was not given any representation in the committee of creditors constituted for JODPL despite having duly filed its claim as a financial creditor within the stipulated time period. In response to this email of the IRP, the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bad in law. 5. The present applicant has submitted that keeping in view of the above given facts circumstances of the case, the JODPL (now Corporate Debtor Company) is required to repay the amount of Cash Call/JIBs from July, 2013 onwards which the applicant has actually incurred for and funded on behalf of the JODPL. Therefore, such payment is still due and payable under the terms of the JOA along with interest accrued therein at prescribed rate, if such payment is not made to it by the JODPL as per the terms of Joint Operation Agreement within 30 days from its due date. It is also stated as such payment has been denied, hence such amount due under the payment falls within the definition of financial debt for the purpose of Code. As the present applicant satisfy the criteria prescribed for, hence, is entitled to be treated as a financial creditor under the provision of the Code. Despite, this the IRP/RP has failed to determine the applicant's claim as a financial creditor under the Code and rejected the same on such reason that such payments for Cash Call/JIBs from July, 2013 onwards are being disputed by the JODPL. Therefore, it is not only contrary to the admitted lia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ebtor Company even in its application U/s 10 of the I B Code filed before this Tribunal has already classified the present applicant as an Operational Creditor with certain remark that the demand pertaining to Cash Call has not been raised or amount due is disputed or in some of cases the demand in respect of Cash Call were raised but the amount involved therein is disputed. Thus, as per the applicant, the Corporate Debtor Company has admittedly treated the applicant as in the category of one class of creditors/stakeholders, which is now undisputed fact. That apart the corporate applicant (now corporate debtor) in its application U/s 10 has made some averment to this effect that the present applicant is raising the demand on Cash Call (which is narrated in para 2.11 of the present application). The relevant portion of the above such para 2.11 may be reproduced herein below:- 2.11 That as the Corporate Debtor has been facing extensive monetary losses; the Corporate Debtor has been consistently drawing the attention of GSPC, which had the majority participating interest in the Contract Area. In relation to the works at the Contract Area, GSPC has made numerous cash calls upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntract Area. In view of the personal confidence and trust that the Corporate Debtor had in GSPC that it agreed to GSPC assuming a majority and controlling stake in the PI of Contract Area. 2.5 That pursuant to the execution of the PSC, a Joint Operating Agreement dated 17.08.2003 (JOA) was also executed amongst GSPC, JEL and GGR, in order to define the respective rights and obligations of the parties with the object to conduct and perform their mutual rights and obligations towards achieving the purpose of the PSC, in a manner consistent with the PSC. 2.7 Towards financing of its share of the capital expenditure for appraisal and development of the Contract Area and other related activities under the PSC and JOA, the Corporate Debtor had also approached various banks and financial lenders for obtaining financial assistance/facilities. The financial assistance/facilities amounting to INR 1340,00,00,000/- ( Financial Facilityies ) came to be ultimately disbursed pursuant to a facility agreement dated September 28, 2012, executed by and between the Corporate Debtor and various financial lenders by way of a consortium lending. The financial lenders who are parties to the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licant has stated such that there is some breach of contract alleged on the part of GSPC under the JOA and the JODPL has raised some claim for indemnification of losses caused to it by the GSPC on account of operations pertaining to KG-OSN-2001/3 Block (hereinafter KG Block). The GSPC while disputing such claim/allegation stating such the JODPL did not specify its claim to the GSPC. However, it has acknowledged its limited liability in respect of claim only for the purpose of Limitation Act, 1963. 9. Thus, it is evident although both the parties having dispute with regard to their claims yet they have admitted their liabilities for limited purpose to save limitation. Therefore, such kind of disputes required to be adjudicated by a Competent Forum of Law either for setting off the amount of compensation from the payment due under the Cash Call or the amount of the JIBs, if such losses has actually occurred to Corporate Debtor Company (JODPL) and is duly proved before a Competent Court/Forum of Law. 10. In this regard another letter dated 28th April, 2016 as issued by the GSPC goes to show such endorsement made on behalf of the JODPL in respect of account of Cash Call receivabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;s written submission, which are stated as under:- FACTS IN BRIE F A. The Parties Gujarat State Petroleum Corporation Limited ( the Applicant or GSPC ) is a Government Company where the entirely of the Share Capital is held by Government of Gujarat and entities controlled by Government of Gujarat. The Applicant is engaged in the business of Exploration and Production of oil and natural gas and trading of natural gas. As a part of Exploration and Production business, the Applicant has participating interest in 23 oil and gas Blocks out of which the Applicant is an Operator of 6 oil and gas Blocks. The applicant is also the second largest gas trading company of India. JODPL Private Limited ( the Corporate Debtor or JODPL ) was originally incorporated as Jubilant Offshore Drilling Private Limited and belongs to a privately held Jubilant Group of Companies including the Jubilant Foods Limited (owning the Dominos Pizza ). The Corporate Debtor is also engaged in the business of Exploration and Production of oil and gas and to the best of the knowledge of the Applicant, having participating interest in only 2 oil and gas Blocks and having no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hese amounts were paid by the Applicant on behalf of JODPL in terms of Article 7.6.1 of the JOA. The Applicant has advanced the aforementioned defaulted amounts on behalf of JODPL in respect of each of the defaulted Cash Calls. It may be noted that JODPL has not made any payments to the Applicant against any of Cash Calls/JIBs raised from July 2013 onwards and the Applicant has been since, solely contributing and funding such amounts on behalf of JODPL. Though the Corporate Debtor came to later on dispute the JIBs raised by the Applicant, it is submitted that in light of submission made hereinafter, such dispute is a sham dispute and in any case does not have any bearing on the classification of the Applicant as the Financial Creditor of the Corporate Debtor. It is submitted that the Corporate Debtor has been in continuous default of its payment obligations to the Applicant and the cumulative amount in default as on March 17, 2017 (being the date till which claims were invited by the IRP) amounts in INR 464.74 Crores. C. Claim filed by the Applicant: Corporate Debtor's application u/s 10 of the code came to be admitted by this Hon'ble Tribunal on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he commercial effect of borrowing made by JODPL from GSPC. The key provisions and the scheme of the commercial arrangement between the Applicant and JODPL as per the PSC and the JOA is set out below: Production Sharing Contract or PSC: A. PSC is a contract entered into by the President of India with GSPC, Jubilant Enpro Limited and Geo Global Resources (India) Inc. ( GGR ). Jubilant Enpro Limited subsequently assigned its Participating Interest to Jubilant Offshore Drilling Private Limited followed by change in name of Jubilant Offshore Drilling Private Limited to JODPL Private Limited being the Corporate Debtor herein. B. The PSC in mandated to be entered into by Article 297 of the Constitution of India read with Rule 5 of the Petroleum and Natural Gas Rules, 1995. The PSC thus entrusts the Parties with exploration and production of hydrocarbons from the block allocated to them. C. The Applicant the Corporate Debtor and GGR ( Contractors / parties ) are appointed as the Contractors under the PSC. D. The Participating Interest in KG Block held by each of the Contractors is as follows: GSPC- 80%; JODPL - 10% and GGR - 10%. E. Each of the Parties to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B. The JOA also envisages that one of the Contractors/parties will also undertake the role of the Operator under the JOA. Under Article 4.224, the applicant is designated as the Operator and as such is entitled to carry' out operations under the Contract and raise Cash Calls or Joint Interest Billing ( JIB ) towards each party's share in costs of carrying out the operations. C. Article 1.11 of the JOA defines a Cash Call to mean a requires for payment of cash made by Operator pursuant to Approved Work Program and Approved Budget. It may be noted that as per Accounting Procedure under the JOA, such request for payment can be made either as advance for activities planned during a month. While the request for advance payment is called Cash Call , the request for reimbursement at actual is called Joint Interest Billing . D. Approved Budget and Approved Work Program are defined to mean the budgets and programs approved by the Operating Committee. E. Article 2.3 stipulates that each of the parties to the JOA shall have share in all the costs, obligations and benefits in proportion to its participating interest. F. Article 3.1 specifies the Participating Interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Defaulting Party by providing that the repayment by Defaulting Parties of such default amounts shall carry interest at the rate of LIBOR plus 2%. Thus, a rate of interest which, is a commercially acceptable rate of interest, has also been provided for the moneys lent/paid on behalf of a defaulting party. This further demonstrates that the transaction had the commercial effect of a borrowing. K. In addition to the payment of interest on delayed payment of defaulted amounts by the Defaulting Parties, article 7.6.3 of the JOA also provides for protection in the form of lien over the share of revenues and participating interest of the Defaulting Party in favour of the Non-Defaulting Party that makes contributions on behalf of the Defaulting Party. Article 7.7.1 provides that in case the default by a Defaulting Party is not cured within 30 days from the date of notice of default such party's right to vote at Operating Committee meeting ceases. And in case the Default continues for more than 90 days, Article 7.7.2 provides ultimate remedy in the form of forfeiture by Non-Defaulting Party of the participating interest of Defaulting Party. It may be noted that these rights of No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... JODPL along with interest at LIBOR + 2% representing time value of money in the sense that GSPC would incur expenditure at a particular lime which would be repaid by JODPL at a later point in time. The nature of the payment made by the Applicant/GSPC on behalf of JODPL was therefore clearly a commercial borrowing which also carried a commercially acceptable rate of interest; and iv. The amounts so contributed by GSPC on behalf of JODPL create a lien and right of forfeiture over JODPL's share of revenue and participating interest which rights are meant to protect recovery of amounts incurred by GSPC on behalf of JODPL and are superior to any other encumbrance. Thus, in light of the above, it is evident that the monies paid on behalf of JODPL by CSPC were in fact in the nature of commercial borrowings by JODPL from GSPC as per the agreed terms under the JOA including the interest to the paid thereon. GSPC has funded JODPL's expenditure obligations under the PSC and the JOA which was otherwise an individual and several liability of JODPL. Such funding is no different to a loan taken from a bank by JODPL to meet its obligations under the PSC and JOA. From June 2013 onwar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their reply that their letter dated 22nd August, 2016 issued in favour of the applicant is only an acknowledgement limited for the purpose of Limitation Act, 1963. The Corporate Debtor Company equally referred a letter dated 22nd August, 2016 issued by the present applicant acknowledging the certain claims of JODPL for indemnification of losses caused to it on account of operation done in KG Block and it gave also acknowledgement for a limited purpose of limitation. 17. In addition to the above, during the course of hearing and as per direction of this Court, the RP produced before us the minutes of COC's meeting dated 25th May, 2017 and 5th June, 2017 wherein certain correspondence are annexed, those were addressed to the present RP or COC. It is pertinent to note here that in its internal letter dated 10th July, 2017 (addressed to the member of COC), the RP earlier had recognized this fact that the only assets owned by the JODPL is the participating interest of 10% in a Gas Block in the KG Basin operated by the GSPCL. Therefore, any resolution plan needs to be centred around the said assets of the company (herein the Corporate Debtor Company). Hence, the COC was required t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts main application filed under Section 10 of the I B Code before this Court itself, has treated the present applicant as an operational creditor with some reservation of disputed amount took such plea that the company is unable to pay amount of Cash Call/JIBs and on the basis of such ground, it made a prayer for initiation of Corporate Insolvency Resolution Process. Hence, we find such action on the part of COC to reject the claim of present applicant as a financial creditor is not bonafide nor inconformity with the provisions of the I B Code. 21. That apart by following decision of Hon'ble NCLAT in the matter of Nikhil Mehta Sons (supra), we are of the considered view that the nature of present transaction entered in and amount incurred by the GSPC on behalf of the Corporate Debtor Company (which is having 10% participating interest) is having a commercial effect of borrowing and falls within the ambit and scope of the financial debt as being the transaction in nature of the commercial borrowing as per Section 5(8)(f) (h) of the I B Code. The relevant provision of Section 5(8)(1) (h) are being reproduced herein below:- Section 5(8) of the Code, defines fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in their annual return, we hold that the appellants have successfully proved that they are 'financial creditor' within the meaning of Section 5(7) of the I B Code. Learned Adjudicating Authority while rightly interpreted the provisions of law to understand the meaning of expression 'financial creditor' at paragraph 12 of the impugned judgment as quoted above, but failed to appreciate the nature of transactions in the present case and wrongly came to a conclusion that it is a pure and simple agreement of sale and purchase of a piece of property and has not acquired the status of a financial debt as the transaction does not have consideration for the time value of money.' For the reasons aforesaid, we set aside the impugned judgment dated 23rd January, 2017 passed by the learned Adjudicating Authority in CP No. (ISB)-03(PB)/2017 and remit the matter to Adjudicating Authority to admit the application preferred by appellants and pass appropriate order, if the application under Section 7 of the I B Code is otherwise complete. In case it is found to be not complete, the appellants should be given seven days' time to complete the application as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w determines the issue and adjudicate the dispute. In our humble opinion the RP and COC have not been vested such jurisdiction under the Code to adjudicate a dispute/claim of an interested/affected party, while preparing for a resolution plan. Therefore, the present applicant is qualified as per the terms of PSC JOA is to be treated as a financial creditor to the extent of amount of expenditure incurred by it on behalf of the Corporate Debtor Company. 26. Since, there appear some dispute with regard to quantum of expenses incurred by and the amount due under the Cash Call and JIBs as the Corporate Debtor Company has also sought indemnification of some loss occurred to it, which is a subject matter of a Competent Court of Law. Therefore, we restrain ourselves to express our view on merits of such issue involved but must feel that the present applicant deserves to be treated as a financial creditor and its claim of expense incurred by it fall within the ambit and scope of a financial debt having a commercial effect of borrowing. Hence, it is entitled to be included in COC as a financial creditor. However, the ratio of its voting share can be decided by the COC by taking into con ..... X X X X Extracts X X X X X X X X Extracts X X X X
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