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TMI Blog2018 (1) TMI 125X X X X Extracts X X X X X X X X Extracts X X X X ..... ee of Creditors (COC) of JODPL (Jubilant Off Drill Pvt. Ltd.) being a Financial Creditor. Therefore, such action of the RP now is impugned through the present application. 2. Therefore, the present applicant has sought for a direction from this Court as being Adjudicating Authority to be issued to the IRP (now RP) to treat the applicant as a Financial Creditor of the JODPL and to include it as a member of COC of the Corporate Debtor Company. It is also contended that in case the applicant is not allowed, then it would have to suffer a grave and irreparable loss and injury. It is also submitted that the balance of convenience is also in its favour, hence, its present application deserves to be allowed. 3. The present applicant has sought for such relief as slated at page No. 27 of the present application for the sake of convenience, which are being reproduced herein below:- "Pending hearing and disposal of this application, adjourn all other proceedings in the present matter pending before this Hon'ble Tribunal, including but not limited to the replacement of the resolution professional pursuant to the resolution passed by the committee of creditors; The IRP should be dire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to the KG Block, holds 80% of PI in relation to the KG Block and JODPL holds 10% of the PI in relation to the KG Block as a non-operating party. c. A Joint Operating Agreement dated August 07, 2003 (JOA) was executed among the applicant, JEL and Geoglobal Resources (India) Inc., setting out the rights and obligations of the parties in relation to the KG Block. It may be noted that a deed of assignment and assumption dated January 04, 2005 was executed whereby JEL's rights and obligations under the PSC and JOA were assigned to JODPL. d. As per the terms of the PSC and the JOA, all the costs and expenses for carrying out petroleum operations in relation to the KG Block are required to be borne by the parties thereto, including JODPL, in the proportion to their respective PI. Article 7.6.1 of the JOA provides that if any party to the JOA fails to pay its share of costs/cash calls on the due date, then the non-defaulting parties to the JOA are required to contribute the amounts defaulted by such defaulting party. Further, a defaulting party under the JOA can remedy the default on its part by making payment of the defaulted amounts to the non-defaulting parties alongwith inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ging or otherwise encumbering at its own risk and cost all or any party of its Participating Interest for the purposes of security related to finance to the extent required for performing its obligations under the Contract; provided that: .................................... the encumbrance shall be expressly subordinated to the rights of the other Parties under the Contract. The obligations occurring from the said encumbrance shall be the sole responsibility of the original Party and shall in no manner compromise the rights of the other Parties to the Contract. " JOA ARTICLE 13.7: "Nothing contained in this Article 13, shall prevent a Party from mortgaging, pledging, charging or otherwise encumbering all or part of its interest in the Contract Area and in an under this Agreement for the purposes of security related to raising of finance so as to meet its obligations under this Agreement: provided that: .............................. such Party shall ensure that the any such mortgage, pledge, charge or encumbrance shall be expressed to be without prejudice and subject to the provisions of this Agreement; any encumbrance sought to be created shall be expressly subordi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty has also expressly agreed in terms of Article 7.8 that in the event of its default, the amount and nature of remedies available to non-defaulting parties under Article 7 of the JOA are just, proper and appropriate. j. It is also important to note that vide letter dated August 22, 2016, JODPL has itself acknowledged its liability towards the applicant under the term of the JOA for the purposes of the Limitation Act, 1963. k. Thereafter, as mentioned above, JODPL filed the application, as corporate debtor for initiation of corporate insolvency resolution process under Section 10 of the Code as the corporate applicant, which has been admitted by the Hon'ble Tribunal vide order dated March 17, 2017. Pursuant to the admission, and in terms of the Code, a public announcement was made for collection of claims of creditors of JODPL by the IRP. Consequently, a committee of creditors has also been constituted by the IRP for JODPL. l. Further, in the meeting held with the IRP in New Delhi on March 27, 2017, the applicant was advised by the IRP to file the applicant's claim as an 'operational creditor' under the Code. Thereafter, vide an email dated March 31, 2017 whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by him in relation to JODPL, vide his email dated April 30, 2017. p. A perusal of the list of claims maintained by the IRP shows that the claims of applicant (submitted vide email dated March 31. 2017) have not been included by the IRP in the list of claims and in fact, the amount of applicant's admitted claims have been shows as 'not applicable' by the IRP, on the basis that these amounts have been disputed by JODPL. 6. With respect to the debt owed by JODPL to the applicant, it may be noted that the amount of Cash Calls/JIBs, from July, 2013 onwards, have been funded by the applicant on behalf of JODPL, which JODPL is required to repay to the applicant in accordance with the provisions of the JOA along with interest at prescribed rate if such repayment is not made by JODPL within 30 days from the due date of repayment under the JOA. It is accordingly, submitted that the amounts owed to the applicant are 'financial debt' for the purpose of the Code and applicant satisfies the criteria prescribed to qualify as a 'financial creditor' under the provisions of the Code. Further, it is submitted that the failure on the part of the IRP to determine the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ough constituted a COC for JODPL but without including the present applicant. Therefore, the present applicant has not only been denied with its legal claim but has also been deprived of to represent the COC as a Financial Creditor in the decision making process for a resolution plan for JODPL, which is not justified. Hence, the abovementioned prayer and relief is being sought for. In support of application and prayer the applicant has submitted an affidavit of its Manager (Secretarial and Legal) annexing therewith necessary documents of Production Sharing Contract (PSC) which were entered among the parties. A copy of the default notices issued time to time from 13th August, 2014 onwards to the present Corporate Debtor Company. The applicant further enclosed a copy of a communication dated 22nd August, 2016 as received from the Corporate Debtor Company (i.e. JODPL) informing such that it has acknowledged its liability towards the JIBs amount under the JOA for KG Block but only for a purpose of limitation and subject to certain dispute raised by the Corporate Debtor Company in respect of amount claimed under JIB. As per the annexure, such letter till May and June, 2016 a sum of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by JODPL to GSPC is a financial debt, thereby resulting the GSPC as a financial creditor of the JODPL. 7. For the sake of convenience, the relevant portion of paras 2 of the main application i.e. paras 2.1 to 2.5, 2.7, 2.9 & 2.13, may be reproduced which reads as under: "2. A brief overview of the circumstances which have led to the filing of the present application by the Corporate Debtor is provided herein below for the purpose of assisting this Hon'ble Tribunal: 2.1 The Government of India, Gujarat State Petroleum Corporation Limited, Jubilant Enpro Limited and Geoglobal Resources (India) Inc. (GGR) entered into the Production Sharing Contract (PSC) on 04.02.2003 with respect to contract area identified as Block-KG-OSN-2001/3 to explore and produce petroleum and related products from the Contract Area (Project). 2.2 JEL acquired a participating interest of 10% (PI) in the Contract Area under the PSC 80% of the PI in the Contract Area was acquired by GSPC and the remaining 10% of the PI was acquired by GGR. 2.3 The PSC recognizes GSPC as the Operator who was responsible for carrying out petroleum operations for and on behalf of itself and all other parties i.e. the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom January, 2016 onwards. Due to the aforesaid reasons the Lenders started declaring the Corporate Debtor as a non-performing asset account (NPA) on various dates. The Corporate Debtor's account was declared an NPA by the State Bank of India on 31.03.2016, by Punjab National Bank on 31.03.2016, by Export and Import Bank of India on 28.04.2016, by the Corporation Bank on 31.05.2016, by the Bank of India on 30.06.2016 and by the Allahabad Bank on September, 2016. Notices of recall/demand have been received by the Corporate Debtor from State Bank of India, Export and Import Bank of India and the Punjab National Bank respectively. It is stated that presently INR 1,332.5 Crores of the principal borrowing remains outstanding towards the Lenders." 8. That apart a perusal of the exchange of correspondence between the corporate applicant (JODPL) and the present applicant GSPC goes to show that both parties have admitted in principal, their respective claim made against each other by acknowledging their liabilities and due payments for a purpose of Limitation Act, 1963. The Corporate Debtor Company in its letter dated 22nd August, 2016 has stated such that it acknowledges the liability ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eeding for resolution of dispute is pending before Competent Court of Law. 12. Notwithstanding the above, as per the applicant the pendency or existence of a dispute is no bar for initiating a proceeding U/s 7 or 10 of the I & B Code, nor it can be relevant for the present application. It is relevant only in respect of proceedings filed under Section 9 of the I & B Code. Therefore, respondent's such contention that the applicant claim is being disputed does not come to aid to it for seeking discharge from its contractual obligation and financial liability nor such entitles to the RP and COC to reject the applicant's claim nor such dispute can have bearing on classification of the present applicant as a financial creditor under the Code. Therefore, such dispute is Sham in nature and is liable to be rejected with heavy cost. Thus, on the basis of the amount incurred by the GSPC on behalf of the JODPL under the provision of PSC and JOA such may be treated as a financial debt under Section 5(8)(f)(h) because such amount of expense is having commercial effect of borrowing. Therefore, the status and category of the present applicant U/s 5(7) shall fall within the purview of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bruary 4, 2003 ("the PSC") and Joint Operating Agreement with respect to KG Block dated August 7, 2003 ("the JOA"). The Applicant is also the Operators of the KG Block and is responsible for carrying out the operations pertaining to exploration, development and production from KG Block. As per the terms of the PSC and the JOA, all the costs and expenses for carrying out petroleum operations in relation to the KG Block are required to be borne by the parties thereto, including JODPL, in the proportion to their respective Participating Interest ("PI"). Article 7.6.1 of the JOA provides that if any party to the JOA fails to pay its share of costs/cash calls on the due date, then the non-defaulted on behalf of such defaulting party. The defaulting party under the JOA can remedy the default on its part by making payment of the defaulted amounts to the non-defaulting parties along with interest which is calculated at LIBOR rate plus 2% (on specified days) payable from the due date for the entire period during which the default continues as per article 7.6.2 of the JOA. As per the terms of JOA, JODPL was required to make certain payments towards costs for inter alia exploration and de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... GSPC is neither Financial Creditor nor an Operational Creditor. The IRP stated that GSPC fell into (albeit an imaginary) category of "other stakeholder". The aforesaid opinion of the IRP was in stark contradiction to his own advice to GSPC in meeting held on March 27, 2017 where GSPC was advised to file claim as an Operational Creditor. GSPC completely refuted the aforesaid stand of the IRP vide its email dated April 10, 2017 and sought a meeting in this regard with the IRP. It may be noted that GSPC was in fact invited at all the meetings of the Committee of Creditors commencing from April 11, 2017 till May 9, 2017. Since the discussion with the IRP did not materialize and IRP did not include GSPC as a Financial Creditor of the Corporate Debtor, GSPC filed the present application seeking classification of GSPC as a Financial Creditor of JODPL. THE NATURE OF TRANSACTION The Applicant submits that the amounts paid by the Applicant on behalf of JODPL are a Financial Debt as defend under the Code and consequentially the Applicant is a Financial Creditor as per the Code. The nature of the transaction by which such moneys have been lent by the Applicant to JODPL is therefore si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Contract. In effect to the said article provides that in case any party makes any contributions on behalf of the other party, the rights of such party shall be superior to the rights of lender of the party on whose behalf such contribution was made. 14. Thus, under the scheme of the PSC, carrying out of the petroleum operations in the Block is of paramount importance. While the PSC requires each of the parties to contribute to the costs of carrying out petroleum operations in the proportion of participating interest, it is also envisaged that in case any of the parties fail to honour such contribution, other parties must ensure continuity of petroleum operations and contribute the share of any defaulting party also. Albeit, the PSC also protects such party who make a contribution on behalf of a defaulting party in the sense that such party's rights of recovery' are superior to any encumbrance created with respect to defaulting party's participating interest. Joint Operations Agreement or JOA: A. The JOA is a contract defining relationship inter-se the parties who are the "Contractors" under the PSC. The JOA is a contract defining the rights and obligations of the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, the Corporate Debtor and GGR and is as such an unassailable decision making process under the JOA. Any Work Programs and Budgets approved by such majority would constitute Approved Work Program and Approved Budget in respect of which each of the parties is obligated to contribute in accordance with the Cash Call or JIB raised by the Operator. I. Article 7.1 requires that all the expenditures incurred by the Operator (GSPC in this case) in carrying out the operations under the JOA shall be borne by all the parties in proportion to their participating interest. There is a positive obligation on each of the parties to contribute to and/or reimburse the Operator. J. Article 7.8.2 provides that it is a fundamental principle of the JOA that each party pays its Participating Interest Share of all amounts due under the JOA as and when required. Article 7.6 provides for a situation where any of the parties fails to pay its share of costs and expenses. In such a scenario, Article 7.6.1(d) provides that all the Non-Defaulting Parties shall contribute additionally towards the share of costs and expenses of the Defaulting Party also. Further, in Article 7.6.2, the JOA also protects the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctive PI. 2. The provisions of the PSC mandate and make it an obligation of the Contractors to ensure continuance of Petroleum Operations. In order to ensure this the PSC requires that in the event a Contractor fails to discharge its payment obligation, the other Contractors should make payments on behalf of such Contractor. The non-paying Contractor (in this case JODPL) is then required to repay such payments made on its behalf to the other Contractor(s). Further, the interest of the Contractor making good such default shall have superiority over any other encumbrance of the non-paying Contractor. 3. Under the JOA, the rights and liabilities of Contractors are several and not joint and several. It is a fundamental principal of the JOA that each Contractor bears its share of costs. 4. The JOA further elaboratively provides the following: i. The JIBs raised by GSPC in its capacity as the Operator were to be paid by all Contractors including JODPL within 30 days from the date of the JIB; ii. In case JODPL defaulted in making such payment, the other Contractors (which in this case was GSPC) was required to make payment for such expenses on behalf of JODPL; iii. Such expens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble NCLAT. That apart the Respondents-Corporate Debtor has impliedly admitted the terms of the agreement entered between the applicant and the Corporate Debtor Company under the PSC and JOA and participating interest to the extent of 10% in respect of Oil Block known as KG-OSN-2001/3 Block had disputed the Cash Call. The Respondent-Corporate Debtor Company further reiterated its stand contending such all costs and expenses which were incurred by the operator (GSPC) on behalf of the parties as per the Joint Operation Agreement till May, 2013 have been paid which approximately amount to INR. 1420 Crores. However, thereafter some dispute arises among the parties on the validity of Cash Call from June, 2013 afterword for making payment to the present applicant which were refused by the respondent by giving such reason for some extraordinary and unprecedented cost and time overruns in the operations, hence, such are disputed. It is also contended that the demand as raised under such Cash Call is a demand for reimbursement of the contribution made by a non-defaulting party. Hence, it does not necessarily fall in a transaction in terms of a debt where a sum is advanced against the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the COC, which is evident from minutes of the 7th COC dated 5th June, 2017. Such issues relate to cash call of JODPL as raised by one Sh. Nikhil Pandey and were taken into consideration and discussed by the COC as an agenda in its meeting held on 27th April, 2017. This vindicate such fact that RP himself has pointed out and sent a letter before the COC proposing such that protection of 10% participating interest of JODPL in KG Block is the only assets of value available in JODPL and it was a felt need of the COC to protect such interest from any risk of fore feature pending resolution in the CIRP. It is a matter of record in such meeting(s) of the COC a representative from GSPC as well as a member of the suspended management of JODPL (Mr. Nikhil Pandey) has been allowed to participate. 19. Thus, it is evident that, GSPC is already participating in such meetings of the COC. Hence, this Court requires only to determine/decide its status as of a financial creditor or otherwise. 20. It is evident that COC and HP have agreed to the suggestion as given by Mr. Nikhil Pandey in respect of the claim of the applicant and treated it as disputed claim and not being financial debt. Howev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... since the appellants have paid most of the amount the respondent was ready to pay "monthly committed returns" to the appellants. However, as the appellants were not required the monthly return till December 2008 i.e. for 9 months so the respondent-corporate debtor undertook to make a consolidated payment of Rs. 99,600 less TDS. For every calendar month the Corporate Debtor was liable to pay committee return w.e.f January 2009 till the date of handing over the possession to the appellants. Therefore, it is clear that the amount disbursed by the appellants was "against the consideration of the time value of the money" and "the Respondent-Corporate Debtor raised the amount by way of sale - purchase agreement, having a commercial effect of borrowing. "This is also clear from annual returns filed by Respondent and not disputed by the Respondent-Corporate Debtor in their annual returns, wherein the amount so raised/borrowed has been shown as 'commitment charges' under the head "Financial cost". The financial cost includes "interest of loans" and other charges. Therefore, the 'commitment charge', which include interest on loan, shown against the head "Financial cost" havi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Civil Appeal No. 4429 of 2009 arising out of SLP (C) No. 27399 of 2008 and Civil Appeal No.4433 of 2009 arising out of SLP (C) No. 3020 of 2009. (Union of India versus Raman Iron Foundry and Union of India v. Air Foam Industries Pvt. Ltd. in Civil Appeal Nos. 1224, 1225 and 1330 of 1973." Which were carefully read and considered by us but in our humble view the proposition laid down therein may not be relevant to or have direct bearing on peculiar facts & circumstances of the present case under the provisions of the I & B Code, 2016. 25. Thus, by following the abovestated proposition as laid down by the Hon'ble Supreme Court and also following the decision of Hon'ble NCLAT in Nikhil Mehta & Son's case (supra), we are of the considered view, that the present transaction which relate to a Cash Call fall within the definition of commercial effect of borrowing. Further, by raising dispute with respect to quantum of amount due under such transaction or omission to perform the terms of the contract or such allegation to exceed beyond the terms of the contract does not necessarily absolved the corporate debtor from its liability arisen under such contract, until a Compete ..... 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