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TMI Blog2020 (12) TMI 198X X X X Extracts X X X X X X X X Extracts X X X X ..... adjudication of ITNL Claim of INR 354.73 crores (approximately) in respect of Hazaribagh Ranchi Expressway Limited by the R1 vide their email dated 06.11.2019 (wrongly mentioned as 06.11.2017, actual date is 06.11.2019), their letter dated 21.01.2020 and their letter dated 19.03.2020; b. Direct R1 to reinstate and admit the claim relating to the loan granted by IL&FS Transport Networks Ltd, aggregating to the sum of INR 354.73 crores (approx.) in the list of creditors and/or list claims of Hazaribagh Ranchi Expressway Limited. c. Pending hearing and final disposal of the present Application, stay the operation, effect and implementation of the email dated 06.11.2019, their letter dated 21.01.2020 and their letter dated 19.03.2020. d. Pending hearing and final disposal of the present Application, restrain R1 from in any manner communicating the rejection and/or adjudication of the claim relating to the loan granted by IL&FS Transportation Networks Limited, aggregating to the sum of INR 354.73 crores (approx.) pursuant to the R1's email dated 06.11.2019, their letter dated 21.01.2020 and their letter dated 19.03.2020; e. exempt the Applicant from affixing the affidavit annexe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts board may be allowed to proceed with the matter. 6. The Hon'ble NCLAT by an order dated 04/02/2019 permitted the UoI and IL & FS to engage Hon'ble Justice Mr. D. K. Jain (Retd.) to supervise the operation of the Resolution Process. Basing on the recommendations of Hon'ble Justice Jain, the resolution was then to be placed before the NCLT (this Tribunal) for approval. The approval by this Tribunal would formalize and finalize the resolution of the individual or collective group entities. By their order dated 12/03/2020 the Hon'ble Appellate Tribunal accepted 15/10/2018 as the cut-off date for distribution of assets and termed it as the date of initiation of Resolution Process of the IL & FS and its group companies. The Hon'ble Appellate Tribunal further directed that the Union of India, the Board of Directors of IL & FS and the 'Committee of Creditors' already constituted or which may be constituted to conclude resolution of all the entities preferably within 90 days. The developments thereof were to be brought to the notice of Hon'ble Appellate Tribunal every month. That is how the resolution of IL & FS and its group entities came to be worked out. 7. The Applicant is a subsid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2017 was entered between R3 and IDBI Trusteeship Services Ltd (Debenture Trustee). Further, a Tripartite Subordination Agreement of the even date was executed by the "original subordinated lender" (Applicant), R3 and the Debenture Trustee. The parties are more often relying on certain clauses of the Subordination Agreement and they are extracted below: Clause. 2.1 "Each party hereby irrevocably undertakes, agrees and acknowledges that until the Final Redemption Date: (i) the Subordinated Debt shall not be due and payable until after the Final Redemption Date. (ii) the Subordinated Debt is, and shall remain at all times, whether a bankruptcy, insolvency or liquidation of the Company has occurred, or otherwise, fully subordinated to the Debt and shall not be due and payable until all and any rights and claims which the Debenture Holders may now or hereafter have against the company in respect of the Debt have been is irrevocably paid and discharged in full and the Final Redemption Date has occurred. (iii) any amounts received by the Subordinated Lender towards the Subordinate Debt("Payments"), shall be deemed not to be received towards a payment in respect of the Subordina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edemption Date; (ix) the Company will not enter into any agreement or arrangement with any Subordinated lender with regard to the Subordinated Debt or any part thereof, which is in contravention of the terms of this Agreement, without the prior written consent of the Debenture Holders/Debenture Trustee; and (x) No waiver, consent, instruction, authorisation or approval under or any amendment, modification or supplement to the terms and conditions of the Subordinated facilities, which is in contravention of the terms of this Agreement, shall be valid, unless given, made or approved with the prior written consent of the Denture Holders Debenture Trustee; and (xi) any action taken by the Company or any Subordinated Lender that is not in accordance with the provisions of this Clause 2.1 shall be, to such extent, null and void ab initio." Clause 2.2 "Upon the occurrence of an Event of Default, the monies outstanding under the Subordinated Debt, shall cease to be outstanding automatically without any further action and the Subordinated Lender shall have no claims whatsoever subsisting against the Company." 12. It is submitted that surprisingly on 06.11.2019, i.e. one day immed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ancial debt granted by the Applicant to R3); (ii) provide for timing of the payment in the manner and subject to the conditions provided therein; (iii) contemplate the situations in which the Applicant may or may not 'demand payment' from R3 in respect of Applicant's Loans; and (iv) do not extinguish the financial debt availed by R3 from the Applicant upon the occurrence of an Event of Default or for that matter, any other event (except upon repayment). 15. In relation to the Subordination Agreement, it is submitted that the terms 'bankruptcy', 'insolvency' and 'liquidation' of R3, are instances of 'Event of Default' under the DTD. Further, the language of Clause 2.1 (ii) of the Subordination Agreement states that, "2.1 (ii) the Subordinated Debt is, and shall remain at all times, whether a bankruptcy, insolvency or liquidation of the Company has occurred, or otherwise, fully subordinated to the Debt and shall not be due and payable until all and any rights and claims of the Debenture Holders may now or hereafter have against the Company in respect of the Debt have been irrevocably paid and discharged in full and the Final Redemption Date has occurred." 16. The Applicant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he DTD, as more particularly set out in Clause 14.29 of the DTD. It is pertinent to note that the provisions of the Escrow Agreement (which are in pari materia with the provisions of the R3's Concession Agreement) have an overriding effect over the provisions of debenture documents in case of any conflict/inconsistency between provisions of the Escrow Agreement and the provisions of the other debenture documents including the DTD. Hence in view of this the applicant contends that: (i) even after termination of the R3's Concession Agreement (which constitutes an Event of Default under the DTD), the R3's Escrow Agreement contemplates payment of Subordinated Debt from the amounts lying in the escrow account; (ii) The Debenture Trustee has expressly agreed, in the R3's Escrow Agreement, R3's Supplementary Escrow Agreement and the DTD that (a) the terms of the R3's Escrow Agreement prevail over the terms of R3's Supplementary Escrow Agreement; and (b) the terms of R3's Concession Agreement have an overriding effect and amongst the provisions of any financing agreement (which under the DTD also includes the Subordination Agreement). 19. It is submitted that R1 exceeded its role as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... May 18, 2017 and a Supplementary Escrow Agreement dated May 18, 2017. Clause 4.2 of the Escrow Agreement inter alia specifically provides for repayment of "Subordinated Debt" even upon termination of the R3's Concession Agreement which is, amongst others, an 'event of default' under the DTD. 23. It is further submitted that issues relating to the determination of claims by the Resolution Consultant are mentioned in Clause 11.4 at Pg. 52 (Vol-I) of the Application. It is submitted that the financial debt extended to the extent of Rs. 354.73 crores by the Applicant is reflecting in R3's Balance sheets. 24. The Applicant submits that the 'Events of Default' are set out in Clause 14 of the DTD. Clause 14.8 of the DTD provides that if the Government of India or any other relevant Government Authority declares a general moratorium or standstill in respect of the payment or repayment of any Financial Indebtedness owed by the Company and such declaration is not withdrawn within 45 days of its declaration, it will be construed as 'Event of default'. As per Clause 14.8 of DTD, an 'Event of default' occurs if a moratorium order has been passed and has not been withdrawn for 45 days. R1 con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.1 will prevail over Clause 2.2 of the Subordination Agreement. 27. It is submitted that Section 28 of Indian Contract Act, 1872 provides that any agreement or part thereof which either: a) restricts a party from enforcing his rights under or in respect of the contract by the usual proceedings; or b) extinguishes the rights of any party or discharges any party from any liability, under or in respect of any contract on the expiry of a period so as to restrict any party from enforcing his rights, is void to that extent. 28. It is further submitted that, in the case on hand, Clause 2.2 of the Subordination Agreement, which contemplates the extinguishment of the Applicant's loan on an 'Event of Default' is clearly contrary to Section 28 of the Indian Contract Act and the said clause is void. 29. It is further submitted that in the larger public interest also the action of R1 has to be set aside. The Applicant has borrowed money externally and given loan to its other group entities. The aggregate external fund based debt burden of the IL & FS group as on 08.10.2018 was approx. Rs. 94,215 crores. Out of this amount, Rs. 10,173 crores was borrowed from public fund creditors such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... val submissions from the Debenture holders, reconsidered the Subordination Agreement and while accepting the debenture holder's contentions, rejected the Applicant's claim by considering the rival contentions and interpreted the documents. All the actions of R1 are against the mandate to merely vet and verify the claims on the basis of the documents available and entered into the realm of adjudication by rejecting the claim. It is true that Regulation 14(2) of the CIRP Regulation permit the revision of the claim on the basis of additional documents/information. In the present case, the Subordination Agreement was available with R1 from the time of submission of the claim itself. Since R1 had no legal authority and jurisdiction to adjudicate upon a claim, the action of R1 in rejecting the claim is liable to be set aside and the applicant's claim has to be reinstated. Hence this Application. Reply of Respondent No. 1 33. It is submitted that the appointment and role of Claims Management Consultant is set out in clause 11.2 of the Third Progress Report dated 17.12.2018 submitted by R2 to the Hon'ble NCLAT, wherein it is provided that a Resolution Consultant would be appointed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has occurred. The main issue revolves around clause 2.2 of the Subordination Agreement. 38. R1 submits that based on the said clause, the default having occurred, there is no debt remained outstanding as due to the Applicant. Hence the claim was rejected. 39. It is submitted that in terms of Regulation 14 of the CIRP Regulations, R1 has the right to revise the claim and upon revision the entire claim has been rejected. Thus R1 as the Claims Management Consultant done its duty properly. 40. It is submitted that the process of verification includes review of all documents provided, checking on specific issues with the entity, checking with other contracting parties and seeking clarification from the claimant. Post conduct of the above process, R1 admits amounts as a best estimate based on the information and documents available. 41. It is submitted that R1 is well within its powers and responsibility provided under the Resolution Framework to form a view over a claim on a best estimate basis of the documents/information available with R1. Further, R1 also has the right to revise such amounts on further vetting and verification. 42. It is further submitted that verification proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... default and also considering the fact that NCLAT by order dated 15.10.2018 declared moratorium, it is submitted that Event of Default has been admitted and acquiesced. 48. It is submitted, clause 14.2 (b) of DTD, provides for a cure period of 45 days, only for those events which are curable. Certainly, the Moratorium Order was not something that was curable. Therefore, the claim that there is no 'Event of Default' as on cut-off date is incorrect and cannot be accepted. 49. It is submitted that Clause 14 of DTD deals with an 'Event of Default' and Events of Default include non-payment of the debt on due date, insolvency proceedings, failure to make payment and a final judgement from a competent court except those appealable orders, declaration of a general moratorium by any government authority, etc. 50. The Counsel for R1 relied on the following judgements to submit on the laid down principles of interpretation: a. Kamla Devi vs. Seth Takhatmal & Anr. (MANU/SC/0016/1963)-wherein it is stated that "When a court is asked to interpret a document, it looks at its language. If the language is clear and unambiguous and applies accurately to existing facts, it shall accept the ordina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "16. A party cannot claim anything more than what is covered by the terms of contract, for the reason that contract is a transaction between the two parties and has been entered into with open eyes and understanding the nature of contract. Thus, contract being a creature of an agreement between two or more parties, has to be interpreted giving literal meanings unless, there is some ambiguity therein. The contract is to be interpreted giving the actual meaning to the words contained in the contract and it is not permissible for the court to make a new contract, however is reasonable, if the parties have not made it themselves. It is to be interpreted in such a way that its terms may not be varied. The contract has to be interpreted without giving any outside aid. The terms of the contract have to be construed strictly without altering the nature of the contract, as it may affect the interest of either of the parties adversely. (Vide: United India Insurance Co. Ltd. v. Harchand Rai Chandan Lal, AIR 2004 SC 4794; Polymat India P. Ltd. & Anr. v. National Insurance Co. Ltd. & Ors., AIR 2005 SC 286)." 51. It is submitted that Subordination Agreement should be read as a whole and a cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orollary of the subordination agreement is that till the debenture holders are satisfied in full, the Applicant will not get anything from R3. This contract when interpreted gives the abovesaid meaning. The debt of the Applicant only become subordinated to the debt of the Debenture Holders as far as R3 is concerned. D. R1 being a Claim Management Consultant who is playing the role of Resolution Professional, after the determination of claim, should not have ventured into the business of interpreting the Subordination Agreement on the intervention of the debenture holders. This means that R1 has taken the role of the Adjudicator which is diagonally opposite to the dictum of the Hon'ble Supreme Court in the case of Swiss Ribbons and Essar Steel India Limited (supra). E. Since this Asset Resolution process of IL & FS companies is almost treated as per IBC proceedings, we feel that R1 has exceeded its jurisdiction and in exercise of wrong jurisdiction reversed the earlier decision of admitting the claim. F. The event of default as referred in Clause 2.2 of the Subordination Agreement is limited only to the default relating to the debenture holders in the normal circumstance. Here th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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