TMI Blog2020 (12) TMI 198X X X X Extracts X X X X X X X X Extracts X X X X ..... ors, R1 determined the claim of the Applicant for ₹ 354.73 crores. Subsequently, on the intervention of the Debenture Holders, the R1/Claim Management Consultant whose functions are akin to that of a Resolution Professional, revised the claim based on Clause 2.2 of the Subordination Agreement. Clause 2.1(ii) of the Agreement clearly provides that the subordinated debt shall remain irrespective of occurrence of bankruptcy, insolvency, liquidation of the company, however, fully subordinated to the debt of the debenture holders and shall not be due and payable until all and any rights and claims of the debenture holders against the Company in respect of the debt have been irrevocably paid and discharged in full. This tripartite Subordination Agreement does not and will not be applicable to other creditors of R3. So, the logical corollary 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. R1 being a Claim Management C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 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 annexed to this application on stamp paper and notarizing the present Application. 2. The factual backdrop that led to the present Application may briefly be stated. The Union of India (UoI) filed CP No. 3638 of 2018 against Infrastructure Leasing and Financial Services Ltd (IL FS) under Sections 241 and 242 of the Companies Act, 2013 (the Act) inter alia alleging mismanagement in the Company. 3. This Tribunal by an order dated 01/10/2018 superseded the Board of Directors of IL FS and constituted a new Board with six Directors to take over the affairs of the Company. The new Board was directed to furnish a roadmap for consideration of the Tribunal. This Tribunal by an order dated 12/10/2018 in MA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 subsidiary of IL FS. R1 is the Claims Management Consultant appointed by the New Board of IL FS for the purposes of collection and verification of claims of the Creditors of IL FS group concerns including R3. R3/Hazaribagh Ranchi Expressway Limited (HREL) is the wholly owned subsidiary of the Applicant and is engaged in the construction of Hazaribagh-Ranchi section of National Highway No.33 in the State of Jharkhand on a build-operate- transfer (on annuity) basis in accordance with the terms of the Concession Agreement dated October 8, 2009 (HREL Concession Agreement) entered into between HREL and the National Highways Authority of India (NHAI). 8. In line with the Asset Level Resol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncy 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 Subordinated Debt and shall be held in trust by the Subordinated Lender for the benefit of the Debenture Holders. The Subordinated Lender shall: (a) within a period of 1(one) Business Day from the date of receipt of such Payments, inform the Debenture Holders of such receipt of Payments; and (b) within a period of 2(two) Business Days from the receipt of such Payments, transfer such Payments to a designated account of the Debenture Holders/Debenture Trustee (as intimated by the Debenture Holders/Debenture Trustee to the Subordinated Lender), who shall hold such Payments in trust for the benefit of the Debenture Holders/Debenture Trustee to be applied in accordance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers 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 immediately after the day of R3 s CoC meeting, R1 turned a complete volte face and issued an email to the Applicant stating that upon a further review of the Subordination Agreement, R1 was proceeding to reject the Applicant s claim in respect of the ITNL loans on account of Clause 2.2 of the Subordination Agreement, stating that Pursuant to the CoC meeting held yesterday for Hazaribagh Ranchi Expressway Limited, we perused the Subordination Agreement dated 10th Feb 2017 wherein para 2.2 does indicate that ITNL s claim stand extinguished in the event of default. The event of default is mentioned under Para 14 of the DTD da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ault 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 submits that Clause 2.1(ii) contemplates that the Subordinated Debt (debt owed by R3 to the Applicant) shall subsist even upon the occurrence of any Events of Default (as defined under the DTD) and that the repayment of such Subordinated Debt is only subject to certain conditions. Therefore, it is submitted that it is evident that the Subordination Agreement contemplates continuation of the Subordinated Debt even after the occurrence of certain Events of Default , as understood in the context of the DTD. Additionally, there are multiple provisions of the DTD and the Subordination Agreement which clearly contemp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crow 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 the Claims Management Consultant by effectively proceeding to adjudicate on the validity of the Applicant s Claim by considering rival submissions by other financial creditors. At the outset, it is submitted that the Debenture Holders/ Debenture Trustee had no locus to raise any issues in relation to the Applicant s Claim before the Claims Management Consultant. Further, it is submitted that the Claims Management Consultant s role under the Resolution Framework, as mentioned above, is to collect and verify claims in respect of a Sale Company as specified in the Resolution Framework. Drawing an analogy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 contended that order dated 15.10.2018, triggered the Event of default under this Clause and the same is palpably wrong since under DTD a moratorium order would constitute an Event of Default only if continued for 45 days. Therefore, it is submitted that, even assuming without accepting the contention of R1, Event of Default occurred at best only on the 45th day of Moratorium Order i.e. on 30.11.2018. 25. It is submitted that the mandate of the R1 is to invite, collect/vet and verify the claims on the basis of the documents available existing as of 15.10.2018 but R1 exceeded its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. ₹ 94,215 crores. Out of this amount, ₹ 10,173 crores was borrowed from public fund creditors such as Pension Funds, Provident Funds, Army Group Insurance Fund, amongst others and ₹ 44,075 crores was borrowed from Indian Scheduled Banks. By saying so, the Applicant submits that there is substantial public interest involved in this case and the rejection of claim in this manner will jeopardise the larger public interest. 30. It is submitted that the Hon ble Supreme Court in numerous decisions highlighted that a resolution professional does not perform an adjudicatory function in the context of claims management. The Applicant relied on the judgement o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mation. 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 New Board for claim verification of the Sale Companies. Accordingly, R1 was appointed by the IL FS Board as Resolution Consultant. R3 is one of the Sale Companies for which the Applicant (being the 100% owner) has filed a claim. The Resolution Consultant is required to collect and verify the claim, maintain an updated list of creditors, which would mean that the list of creditors would have to remain updated at all times pursuant to information received, which would assist in the distribution process for the IL FS Group entities. 34. It i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 process is not an adjudication process and R1 like the Resolution Professional has to see the documents and evidence before it to decide on the issue. To buttress the point, R1 has relied upon case of Hon ble NCLAT in Navneet Kumar Gupta vs. Bharat Heavy Electricals Ltd (CA (AT) (Ins) No.743 of 2018) decided in Feb, 2019, wherein it was held that the job of the Resolution Professional is to verify basis the evidence available. 43. It is submitted that the other affected Creditors who are the beneficiaries have not b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ordinary meaning, for the duty of the Court is not to delve deep into the intricacies of the human mind to ascertain one's undisclosed intention, but only to take the meaning of the words used by him, that is to say his expressed intentions. b. Bank of India vs. K. Mohandas Others [(2009) 5 SCC 313]- 28. The true construction of a contract must depend upon the import of the words used and not upon what the parties chose to say afterwards. Nor does subsequent conduct of the parties and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 contract should be interpreted without giving any outside aid. The clauses of the contract have to be given a literal meaning, construed strictly and interpreted in a manner that the terms are in no way varied. 52. It is submitted that Subordination Agreement does not need a considerable effort for interpretation. Clause 2.2 of the Subordination Agreement is blatant, express and there is no clause in conflict with it. Conclusion : Upon going through the pleadings and on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the default has not happened only to the debenture holders but due to the extraordinary circumstances, on the intervention of Union of India, a Resolution process has been sought for IL FS group companies and hence, we are of the view that the event of default mentioned in Clause 2.2, is not applicable in cases of insolvency/bankruptcy or liquidation proceedings as mentioned in Clause 2.1(ii) of the Subordination Agreement. G. Even in public in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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