TMI Blog2020 (10) TMI 327X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Joint Lenders Forum (JLF), only the Appellant had filed the Application under Section 7 qua the debts owed by the Respondent Company to the Appellant and not on behalf of the JLF - the pre-requisite for the invocation of the said Circular is that there should be an aggregate exposure of the lender above ₹ 2,000 Crs. and in the instant case the total outstanding claimed debt amounts to ₹ 1,007/- Crs. out of which the amount claimed by the Appellant Bank is to the tune of ₹ 2,44,85,29,569.79/- Crs;. Additionally, it is seen, that for other accounts with aggregate exposure of the lender below ₹ 2,000/- Crs. and at or above ₹ 100/- Crs., the Reserve Bank intended to announce over a two-year period, reference date for implementing the RP to ensure time-bound resolution of all such accounts in default. Further, the documentary evidence filed before us does not evidence any such announcement made with respect to the subject matter. There is force in the contention of the Learned Counsel appearing for the Appellant that the said Circular is not applicable to the instant case and as a consequence the decision of Dharani Sugars (Supra) is also not appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SOLVENCY) No. 260 of 2020 - - - Dated:- 7-9-2020 - [ Justice Jarat Kumar Jain Member ( Judicial ), [ Mr. Balvinder Singh ] Member ( Technical ) And [ Ms. Shreesha Merla ] Member ( Technical ) For the Appellant : Mr. Piyush Beriwal and Mr. Ankit Raj, Advocates For the Respondent : Ms. Anju Jain and Mr. Hitesh Sachar, Advocates JUDGMENT [ Per; Shreesha Merla, Member ( T ) ] 1. Aggrieved by the Order dated 20.12.2019, passed by the Adjudicating Authority (NCLT) Mumbai Bench-II C.P. No.434/MB/C-II/2018, Punjab National Bank, the Financial Creditor, has preferred this Appeal under Section 61 of the Insolvency and Bankruptcy Code, 2016 (IBC for Short). By the Impugned Order, the Adjudicating Authority has dismissed the Application under Section 7 preferred by the Financial Creditor on the following grounds; 10. Two contradictory arguments of the Bank cannot run side by side that on one hand the action was taken on account of default committed as identified in the impugned RBI Guidelines and now on the other hand saying that the said RBI Guidelines should not be made the basis for quashing of the proceedings because only those cases are to be covered which are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which would show that the Section 7 Application was preferred pursuant to the said RBI Circular. He submitted that the JLF has discussed the offers of the prospective investors viz. Tri Shakti Power Pvt. Ltd. and that there was concern as the High Court of Bombay expressed time bound decisions to be taken regarding the Corporate Debtor, and Hon ble High Court had given time till 06.04.2018 to seek necessary directions in the said Company Petitions and the same was deliberated in the Meeting on 13.03.2018. 4. Learned Counsel drew our attention to the Minutes of the Meeting dated 13.03.2018 and submitted that it was only taking into consideration the interest of unsecured creditors, that the Appellant proposed the filing of the Section 7 Petition under the Code. He further argued that though the Respondent never raised any plea regarding the Section 7 Application being filed pursuant to the RBI Circular, the Adjudicating Authority wrongly relied on the same. 5. Learned Counsel further contended that as per the Circular dated 12.02.2018, the timelines for large accounts to be referred under IBC was with respect to accounts with an aggregate exposure of ₹ 20/- billion on o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roposal was received by the JLF, as the last offer was received on 22.02.2018, subsequent to the RBI Circular. He further submitted that a perusal of the Circular makes it evident that it is not applicable in cases where a Restructuring Scheme has been implemented. 8. The brief point that falls for consideration is whether Section 7 Application is maintainable, whether it is pursuant to the RBI Circular dated 12.02.2018, and if the ratio of Dharani Sugars (Supra) is applicable. 9. On 07.02.2019, the Respondent Company filed WP (Civil) 169 of 2019 Mittal Corp. Ltd. V/s. Reserve Bank of India Or. and the Hon ble Apex Court on 13.02.2019 ordered the parties to maintain status quo . Thereafter, 02.04.2019 in Dharani Sugars (Supra), the Hon ble Supreme Court held that the Circular dated 12.02.2018 issued by the RBI was ultra vires to Section 35AA of the Banking Regulation Act, 1949. Subsequently the Writ Petition filed by the Respondent Company was disposed of vide Order dated 19.04.2019 with the following observations; 7.2 The National Company Law Tribunal is free to consider as to whether insolvency proceedings were initiated pursuant to the Reserve Bank of India-respond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Crores @ ROI of 14% p.a. ₹ 150 Crores @ ROI of 14% p.a. Repayment of sustainable debt in first 7 years 1.80% 1.80% 18.00% 19.00% Charge on fixed assets for priority debt of ₹ 150.00 Crores Priority charge over fixed assets Pari- passu charge over fixed assets Pari- passu charge over fixed assets Pari- passu charge over fixed assets FITL for next 2 years Conversi on of FITL into CRPS with coupon of 0.01% PA No interest on FITL and principal shall be repaid during 16-20 years. Interest on FITL shall be paid @ 8.50%. Interest on FITL shall be paid @ 8.50%. Cut off date 01.11.2 017 01.11.20 17 01.04.20 18 01.04.20 18 All other terms of original offer are proposed to remain the same. The committee also discuss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red the matter to 06.04.2018 for directions as last chance. Lenders deliberated that finalization of any resolution plan before 06.04.2018 is very difficult in the light of recent RBI guidelines dated 12.02.2018, as all the Banks are required to put in place Board approved policies for resolution under said Circular. Lenders appreciated the concern of Hon ble Court that there has to be a time bound resolution and the interest of unsecured creditors, who are petitioner before the Court, should be taken care of. In view of the same OBC proposed that filing the petition with NCLT under IBC 2016 would be the most appropriate course of action, as the same would duly take care concern of Hon ble Court. All the lenders concurred with the opinion of OBC. Thus, it was decided that OBC would file petition with NCLT at the earliest. OBC also informed that to save the time, they have already invited bids from eleven empaneled Resolution professionals (who are on panel of OBC). It was decided that Core Committee shall select IRP out of bids received. Accordingly, it was decided to hold Core Committee meeting on 14.03.2018 OBC further informed that they have selected le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tutions is likely to have on trends in the money and capital markets. Further, it is clear that the impugned Circular applies to banking and non-banking institutions alike, as banking and non-banking institutions are often in a joint lenders forum which jointly lend sums of money to debtors. Such non-banking financial institutions are, therefore, inseparable from banking institutions insofar as the application of the impugned Circular is concerned. It is very difficult to segregate the non-banking financial institutions from banks so as to make the Circular applicable to them even if it is ultra vires insofar as banks are concerned. For these reasons also, the impugned Circular will have to be declared as ultra vires as a whole, and be declared to be of no effect in law. Consequently, all actions taken under the said Circular, including actions by which the Insolvency Code has been triggered must fall along with the said Circular. As a result, all cases in which debtors have been proceeded against by financial creditors Under Section 7 of the Insolvency Code, only because of the operation of the impugned Circular will be proceedings which, being faulted at the very inception, are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iod , failing which, the lenders shall file an insolvency application, singly or jointly under the IBC within 15 days from the date of such default. Specified period means the period from the date of implementation of RP upto the date by which at least 20 per cent of the outstanding principal debt as per the RP and interest capitalization sanctioned as part of the restructuring, if any, is rapid. Provided that the specified period cannot end before one year from the commencement of the first payment of interest or principal (whichever is later) on the credit facility with longest period of moratorium under the terms of RP. 11. Any default in payment after the expiry of the specified period shall be reckoned as a fresh default for the purpose of this framework. 12. For other accounts with aggregate exposure of the lenders below ₹ 20 Billion and, at or above ₹ 1 Billion, the Reserve Bank intends to announce, over a two-year period, reference dates for implementing the RP to ensure calibrated, time-bound resolution of all such accounts in default. 13. It is, however, clarified that the said transition arrangement shall not be available for borrow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ys from the reference date or date of first default, the lenders will have to file applications as financial creditors under the Insolvency Code. It will be noticed that the sources of power for issuance of the aforesaid circular have been stated to be Section 35A of the Banking Regulation Act read with the Central Government s circular dated 05.05.2017, Sections 35AA and 35AB of the said Act, and Section 45L of the Reserve Bank of India Act, 1934 [ RBI Act ]. It may be stated here that by an order dated 11.09.2018, this Court allowed various transfer petitions and made orders in Writ Petition No. 1086 of 2018, by which it was ordered that status quo as of today shall be maintained in the meantime. As a result, insofar as the petitions and transferred cases in this Court are concerned, the circular has, in effect, been stayed on and from 11.09.2018. (Emphasis Supplied) 14. From the aforenoted, it is clear that the subject matter of the Circular was with respect to debts greater than ₹ 2,000/- Crs. and over on or after 01.03.2018, therefore, the contention of the Learned Counsel for the Respondent Company that the Minutes of the Meeting on 26.02.2018 read together wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the expiry of 18 months-time period under Strategic Debt Restructuring and Section 7 Application was filed before the lapse of the time-period of 180 days, for a default in existence much before the reference date i.e. 01.03.2018. It is an admitted fact that the Appellant filed an Application under Section 7, on 20.03.2018, much before the deadline of 180 days. 16. To reiterate, in the absence of any cogent evidence to show that the Appellant has filed the Application only pursuant to the Circular issued by Reserve Bank of India, which we hold at the outset, was not applicable to the facts of the instant case, it was not open to the Adjudicating Authority to reject the Application on this ground. The Petition under Section 7 of the I B Code is to be considered by the Adjudicating Authority on its own merits taking into consideration the records. 17. For the reasons aforesaid, we set-aside the Impugned Order dated 20th December, 2019 and remit the case to the Adjudicating Authority (National Company Law Tribunal), Mumbai Bench, with a direction to decide the Admission of the Application on merits as expeditiously as practicable. - - TaxTMI - TMITax - Insolvency & Bankru ..... X X X X Extracts X X X X X X X X Extracts X X X X
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