TMI Blog2020 (3) TMI 1398X X X X Extracts X X X X X X X X Extracts X X X X ..... en fall due. Many of them had the cash flow sufficiency to meet current operational payments. In fact, out of 13 Amber entities, four were declared Green Entities who can meet the liability of Secured Creditors and other creditors. It is only the Red Entities, which are about 55 in number, with regard to whom the resolution process is yet to be started - the matter progressed in smooth manner in view of the interim order enabling number of Companies including Green Entities to make payment through Senior Secured Creditors, Financial Creditors and other creditors and for resolution process. This in addition to the 133 Offshore Entities of IL FS Group Companies, which were kept out of the purview of the interim order. They having become competent, the interim order was vacated. There can be no deprivation of property except in accordance with law: Contractual rights of L T IDF and IIDL and the right to receive its legitimate dues thereunder constitute property protected under Article 300A of the Constitution of India. Therefore, L T IDF and IIDL cannot be deprived of their right in property i.e. the right to recover the interest and principal amounts thereunder, by modifying t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 018 and requires no modification/ recall. The matter should be taken up by the new Management/ Board of Directors, who should take into consideration the decision of the Company Law Board and the settlement reached between the parties. It will be open to the New Management / Board of Directors of IL FS and Group Companies to negotiate with SRS Orion Investments Ltd. and others (Applicants) for fresh terms of settlement, if they intend to change the shareholding of HCPL and sell it to some other person. Thereafter, the matter should be placed before the Hon ble Justice (Retd.) D.K. Jain for its approval and if approved such proposal should be placed before the NCLT for its approval. Upon receipt of such approval, only the shareholding of HCPL be transferred - If no terms of settlement is reached or decision is disapproved by Hon ble Justice D.K. Jain or the NCLT, in such a case, the NCLT will decide the claim of the Applicant SRS Orion Investments Ltd. and others. Applications, which are filed for renewal of the Fixed Deposit, are allowed. - COMPANY APPEAL (AT) NO. 346 OF 2018, INTERLOCUTORY APPLICATION NOS.3616, 3851,3860,3962,4103,4249 OF 2019, 182, 185 OF 2020, COMPANY ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppalo, Mcloyd Russel India Ltd., Max Bhupa, West Cost Paper and Hur Fund. Mr. Atul S. Mathur, Ms. Priya Singh and Mr. Umang Kataria, Advocates for BHEL PF Fund, Mother Dairy and National Dairy. Mr. Jeevan B. Panda, Ms. Shalini S. Prasad and Ms. Meher Tandon Advocates for Birla Industries and Siemens Ltd. Mr. Manish Paliwal, Mr. Vikas Kumar and Mr. ArchitKatlana, Advocates for Corporate Legal Partners. Mr. Abhirup Das Gupta and Mr. Mr. Ishaan Duggal, Advocates for Pramerica Life Insurance and TATA power Consolidated PF. Mr. Siddarth Pandey, Advocate for PFC, ELF SMF. Mr. Mahesh Agarwal, Mr. Ajitesh Soni and Mr. Divyang G.C, Advocates for 63 Moons Technologies Ltd. and SBI Insurance of GE Shipping. Mr. Vivek Malik, Mr. Vivek Sinha and Ms. Kartikiya, Advocates Ms. Varsha Banerjee and Mr. Mukund Rawat, Advocates for Panjab Bank. Mr. Pallav Mongia and Mr. Dawneesh Shaktivats, Advocates for Balco Yokogava. Mrs. Priya Puri, and Mr. Yati Sharma, Advocates for IOCL Mr. Anuj Aggarwal, Advocate for Kudremukh Iron Orn. Comp. Mr. Rahul Kripayani and Ms. Rea Bhalla, Advocates for Cow Town Infotech Services Pvt. Ltd. Mr. Partha Sarat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Superannuation Scheme. Mr. Sanjeev Singh and Ms. Sampanna Pani, Advocates for Aditya Birla Fin. Ltd. Mr. Ramesh Babu, Ms. Manisha Singh Ms. Nisha Sharma and Ms. Tanya Chowdhary, Advocates for RBI. Mr. Ajit Pudussery and Mr. Ajeet Singh Verma, Advocates for Applicant. Mr. Anil Kaushik, Mr. Abhishek Mishra and Mr. Akash Bhardwaj Advocates for the Applicant EIL. Mr. Anna Malhotra and Mr. Sansar Konar, Advocate for Bridye Roof Co. Ltd. Mr. Sanjeev Singh and Ms. Sampanna Pani Advocates for Aditya Birla Fin. Ltd. Ms. Richa Bharadwaja and Mr. Ankur S. Kulkarni, Advocates for S. Iron Steel Co. Ltd. Ms. Preranade and Mr. T. Sundar Ramanathan, Advocates for HPCL Provident Find, HPCL Employees Post Retirement Medical Benefit Fund, India Provident Fund of BPCL, BPCL Employees Post Retirement Medical Benefit Fund and L. Ltd. Staff Provident Fund. Mr. Arun Kathpalia, Sr. Advocate with Mr. Dharav Shah and Mr. Garanjivi Sharma, Advocates for HDFC MF. Mr. Dharav Shah and Mr. Chiranjivi Sharma, Advocates for D. Co. Pvt. Ltd. Mr. Rohit Gandhi, Mr. Asmer Tayyab, Mr. Dhruv Kumar Ms. Bindu Swarup amd Ms. Aparajita Swarup, Ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an application for interim relief seeking moratorium qua IL FS, which is a Group Company for such period against the following acts: - 2. The Petitioner filed this application seeking comprehensive moratorium qua R1 Company and the group Companies of R1 for three months or such other period against the following acts: (i) The institution or continuation of suits or any other proceedings by any party against R! Company and any of the group companies in any Court of Law/ Tribunal/Arbitration Panel or Arbitration Authority and (ii) Any action by any party to foreclose, recover or enforce any security interest created over the assets of R1 Company and/ or any of the group companies including any action under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002; (iii) The acceleration, premature withdrawal or other withdrawal, invocation of any term loan, corporate loan, bridge loan, commercial paper, debentures, fixed deposits, guarantees, letter of support, commitment or comfort and other financial facilities or obligations vailed by R1 Company and/ or the group companies whether in respect of the principal or interest o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2)(m) and Section 242(4) of the Companies Act, 2013 read with Rule 11 of the National Company Law Tribunal Rules, 2016, can pass appropriate interim order similar to order under Section 14 of the Insolvency and Bankruptcy Code, 2016. 4. According to Mr. Tushar Mehta, Learned Solicitor General for the Appellant- Union of India and Mr. Ramji Srinivasan, Learned Senior Counsel for the IL FS , the Tribunal has much wider power under Sections 241 and 242 of the Companies Act, 2013 than the powers vested under provisions of Insolvency and Bankruptcy Code, 2016. 5. Taking into consideration the nature of the case, we are of the view that five largest creditors should be also impleaded as party Respondents to these appeals in the representative capacity of the Creditors. Learned counsel for the Appellant(s) will make necessary correction in the cause title and other pages of the appeals in course of the day. Defects, if pointed out by office, may be removed before the next date. 6. Issue notice on Respondents, including newly impleaded Respondents by speed post. Requisite along with process fee, if not filed, be filed in course of the day. If the Appellant(s) provides the e-m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntion Applications were moved for one or the other reliefs and different interim orders were passed from time to time. 6. Taking into consideration the fact that the matter relates to more than 302 Group Companies apart from IL FS, by order dated 4th February, 2019, this Appellate Tribunal allowed the Union of India and IL FS to engage Hon ble Justice (Retd.) D.K. Jain to supervise the operation of the resolution process. We allowed the management to get clearance from Hon ble Justice (Retd.) D.K. Jain who is supervising the resolution process of different Group Companies. 7. Now, after more than one year, when a number of resolution process in respect of more than fifty Companies have already taken place, some of the Financial Creditors/ Secured Creditors who have already taken advantage of the interim order have now raised question of jurisdiction of this Appellate tribunal to pass interim order as passed on 15th October, 2018. 8. Before deciding the question whether to vacate the interim order or to continue with the same and/ or to decide the issues as raised, it is desirable to notice certain pleadings made by the Central Government in its application under Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NL) ITNL, incorporated in the year 2000, has business activities ranging from developer, sponsor, construction manager and operator of surface transportation infrastructure, taking Greenfield Projects from conceptualization through commissioning to operations and management of such projects. The company develops projects on build, operate and transfer basis and is the largest vertical of the IL FS Group, admittedly holding over 40% of the total assets of the group. ITNL operates through special purpose vehicles (SPVs) and presently has 32 such SPVs in India and overseas. b) IL FS Financial Services Limited (IFIN) The IL FS is engaged in the financial services sector through one of its material subsidiaries, IFIN, which is registered as a systematically important non-banking financial company (NBFC) with the Reserve Bank of India. IFIN admittedly contributes approx. 14.16% to the assets of the IL FS Group and has a significant asset base with involvement in asset and project finance, structured debt and asset finance, syndication and corporate project advisory business. c) IL FS Energy Development Company Limited (IEDCL) The IL FS is engaged in the power sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted debt of the company increased to ₹ 91,091.3 crore in 2018 from ₹ 48,671.3 crore in 2014. Interest outgo rose to ₹ 7,922.8 crore from ₹ 3,970.7 crore during the same period. By 2018, the company has not even been making enough profits to take care of its interest expense leading to the default. It has to be kept in mind that out of the ₹ 91,000 crore debt obligations of the IL FS, ₹ 57,000 crore has been borrowed from the Public Sector Banks. 8.5 That subsequent to spreading defaults by the IL FS Group, credit rating agencies CARE and ICRA have downgraded the credit rating of the Respondent No.1, ITNL and IFIN to default or junk grade. The said fact has also been admitted by the IL FS in its company application no. 1044 of 2018. This indicate that IL FS management was suppressing material information about its financial solvency and its ability to meet its obligation. The over exposure of loans and borrowings have been without prudent commercial practices and without any application of mind by the management of IL FS over the several years. In fact, the management of IL FS is responsible to bring it to this low due to its acts of commis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o takers to buy its promises and nothing to offer to the stakeholders in particular and public at large in general to assure its continuation. 8.9 That, last but not the least, Department of Economic Affairs which is responsible for the financial stability in economy too has raised Red Signals of the likely collapse of IL FS and has expressed its deep concern of such a collapse would have on the economy in its Confidential Note dated 30.09.2018. It has also highlighted various acts of mismanagement from economic perspective which if become reality would have cascading impact on various sectors of economy. 8.10. According to Department of Economic Affairs, the following are the repercussions the economy would face: i. Redemption pressure to continue: Now hereafter other AMCs having exposure of ₹ 2800 crores to IL FS bonds would get redemption pressure from Corporate Clients who have invested in this ₹ 16 trillion Debt MF industry. ii. Debt market sell-off expected: It s impossible for such mutual fund schemes to get the redemption amounts in a short period of time. Further, illiquid Corporate Debt Market and DHFL saga may force AMCs to sell Government Securit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e cascading impact of the default by the IL FS Group on the financial sector would be quite substantial as evidenced from a partial default of some companies and its repercussions in the financial market in the month of September, 2018. The future impact of more defaults in the Group may be catastrophic for the financial stability. In addition to above, from economic perspective, various acts of mis-governance and mis-management in IL FS and its group companies are as under: i. The IL FS Group has shown a loss of ₹ 2670 core for the year 2017-18 in the consolidated balance sheet. The leverage is about 13 times as the borrowing of about ₹ 91000 crores is on the base of equity capital and reserves of about ₹ 6950 cores. The CRAR (Capital to Risk Weighted Asset Ratio) of 15% for Systemically Important Non-Deposit Accepting NonCompany Banking Finance Company (NBFC-ND-SI) would result in a leverage ratio of about 6-7 times and the CRAR of 30% (for core Investment Company) would result in a leverage of about 3-4 times. The indebtedness of the IL FS at the end of Financial year 2017-18 is about 16468 crores and with debt market drying up for this company, it wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bank borrowing to fund its income generating activities and assets, which are medium to long-term. So, there is a clear mismatch in its assets and liabilities. It is, therefore, imperative that the risk management framework of the company is robust. That is why RBI has issued the Non-Banking Financial Companies-Corporate Governance (Reserve Bank) Directions, 2015 for NBFCs. Although the Corporate Governance Principles are not strictly applicable to Core Investment Companies, however, Systemically Important Core Investment Companies are encouraged to follow these as a prudent measure. The said Directions provide for Risk Management Committee and reporting of its, role and functions, periodicity of the meetings and compliance with coverage and review functions, etc. The Risk Management Committee of IL FS did not meet during the period 2015 to 2018 except once in July 2015. The responsibilities of the Risk Management Committee, inter-alia, include: a. Review of the adequacy of the risk management framework and operational procedures developed for new businesses and products from time to time; b. provision of guidance on. strengthening of risk management practices to respond to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be taken with regard to the Offshore Group Entities incorporated outside the territorial jurisdiction of India may be presented before the National Company Law Tribunal, Mumbai Bench, which is hearing the main petition. 7. Out of 169 Group Entities incorporated within the territorial jurisdiction of India (Domestic Group Entities) as shown in Annexure C have been marked as (a) Green Entities (b) Amber Entities (c) Red Entities . 8. The stand of the Union of India in regard of those Entities is as follows: 7. Further, as per the order dated February 4, 2019 passed by this Hon ble Tribunal in the present appeal, this Hon ble Tribunal directed the Appellant to give details of: a) Green Entities : Domestic Group Entities which can continue meet all their payment obligation (both financial and operational) as and when they become due; b) Amber Entities : Domestic Group Entities which are not able to meet all their obligations (financial and operational), but can meet only operational payment obligations and payment obligations to senior secured financial creditors; and c) Red Entities : Domestic Group Entities which cannot meet their payment obligati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nion of India and IL FS in regard to the Amber Companies . 17. Mr. Arun Kathpalia, learned Senior Counsel appearing on behalf of the Aditya Birla and Capital Funds have also raised objections with regard to the prayer as made above for the Amber Group of Entities . 18. Similar objections have been raised by many of the counsel for Financial Creditors and the Operational Creditors appearing on behalf of the Intervenor(s). 19. With regard to 38 Red Entities , prayer has been made to permit Red Group Entities to make payments necessary only to maintain and preserve the Going Concern Status . 20. Objections have been raised by learned counsel aforesaid and other counsel with regard to such prayer made by the Appellant. 21. In the circumstance, we intend to hear the matter with regard to Amber Group Entities and Red Group Entities on the next date. 22. We also intend to hear the Union of India and the Board of Management of the IL FS as to how they intend to resolve all the entities particularly Amber Group Entities and Red Group Entities . Whether they intend to constitute any Committee of Creditors , as normally done in the case of Corpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed Creditors and other creditors of Green Entities have derived benefit. The Committee of Creditors has been constituted in which the Financial Creditors, Senior Secured Creditors/ Lenders including many of the objectors/ Respondents herein are the Members and have taken part as Members of the Committee of Creditors . 14. On 8th August, 2019, this Appellate Tribunal while hearing matter relating to settlement of claim of the creditors, with regard to three Amber/ Green Entities namely (i) Moradabad Bareilly Expressway Limited; (ii) Jharkhand Road Projects Implementation Company Limited; and (iii) West Gujarat Expressway Limited, as per signed Term Sheet, the Union of India/ ILFS were asked to give notice to all the Financial Creditors and rest of the 10 Amber Entities and to take preliminary steps by taking their consent in the manner, which was followed in the cases of three Amber Entities. The Union of India/ ILFS were asked to intimate the steps to be taken with regard to 82 Red Entities before selling, transferring, encumbering, alienating, dealing with or creating any third party right, title or interest on any movable or immovable assets of any of the Red Entities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Secured Lenders have raised various objections with regard to a number of Amber Entities as detailed above. 7. With regard to one of the entity namely Jorabat Shillong Expressway Limited (JSEL), one of the Counsel for the Lender submitted that it is similarly situated like Hazaribagh Ranchi Expressway Limited (HREL). 8. Mr. Gopal Jain, Learned Sr. Counsel appearing on behalf of one of the Secured Lenders of one of the Jorabat Shillong Expressway Limited (JSEL), submits that cases of the said Amber Entities is similar to that of Hazaribagh Ranchi Expressway Limited (HREL) and, therefore, no haircut is required. 9. Mr. Arun Kathpalia, Learned Senior Counsel appearing on behalf of one of the Lender in the Hazaribagh Ranchi Expressway Limited (HREL) submits that as per the chart flow and the financial Matrix, Hazaribagh Ranchi Expressway Limited (HREL) should be declared as green entities and should not be kept in the list of Amber Entity. 10. Dr. Abhishek Manu Singhvi, Learned Sr. Counsel appearing on behalf of one of the Lenders and Mr. Avinash, Learned Sr. Counsel appearing on behalf of all the Secured Lenders submits that 10% hair cut proposed therein is arbit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20th December, 2019, for the first time the question arose as to whether the Shareholder s permission was required for resolution and distribution in terms of the Agreement. Subsequently, on behalf of Union of India, a request was made to allow the Shareholders to take amount and get their shares. A question is also raised as to whether a person who have invested the money during the constitution of the Companies, should be paid like the Lenders, Financial Creditors and others creditors out of the amount generated by way of resolution. It is at this stage, an objection has been raised not to allow the Shareholders, who have formed a Company to derive any advantage out of the resolution process and at that stage, the jurisdiction of the Tribunal has been challenged. 19. Mr. Kapil Sibal, learned Counsel appeared on behalf of L T Infra Debt Fund Limited and India Inftadebt Limited submitted as follows: - 19.1 Both L T IDF and IIDL are senior secured debenture holders of Hazaribagh Ranchi Expressway Limited, a subsidiary of IL FS Transport Networks Limited, which in turn is a subsidiary of Infrastructure Leasing Financial Services Limited. L T IDF and IIDL are intervenor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r proviso to Section 242(2)(f) of the Act cannot be made redundant by way of an order made under Section 242(2)(m) of the Act. (iii) Section 424(1) of the Act only deals with the procedure to be followed by the Hon ble Appellate Tribunal. It does not permit importing substantive provisions of the Insolvency Bankruptcy Code 2016 ( Code ) in an appeal, that too which are exfacie contrary to the express provisions of the Act. Further, the power of the Hon ble Appellate Tribunal to regulate its own procedure is subject to the provisions of the Act. Contractual rights protected by Article 300A cannot be tampered with by reliance on Section 424 of the Act. (iv) In the light of the specific requirement of consent under the proviso to Section 242(2)(f) of the Act, the Hon ble Appellate Tribunal cannot modify third party agreements under Rule 11 of the National Company Law Appellate Tribunal Rules, 2016 ( NCLAT Rules ). Equitable powers under Rule 11 of NCLAT Rules cannot empower the Hon ble Appellate Tribunal to amend and vary third party contracts which are protected by Article 300A of the Constitution of India. (v) The Union of India could have invoked Sections 230-232 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon ble Appellate Tribunal. The Hon ble Appellate Tribunal cannot pass interim orders on the purported Resolution Framework Report , as it not the court of first instance. The Resolution Framework Report ought to have been first submitted before the Hon ble Adjudicating Tribunal and not before the Hon ble Appellate tribunal. 19.9 Implication on Rule of Law and public Interest: (i) If a party is permitted to give a complete go-by to its contractual obligations in the illegal manner as sought inter alia under the Resolution Framework Report, without any authority of law, it will have adverse consequences for the rule of law in India and both foreign and domestic investors would lose faith in India as a jurisdiction. (ii) Most public private partnership (PPP) infrastructure projects are undertaken in separate special purpose companies and the lenders finance them base don the integrity of the separate legal personality of such special purpose companies. If the sanctity associated with separate legal personality is lost, it will have a debilitating effect on the infrastructure sector where banks and financial institutions provide financing on the basis of the project being un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be vested with the New Board. The Tribunals do not have the jurisdiction to pass directions interfering with the management of the New Board. 23. Further, according to the learned Senior Counsel Section 242(1) of the Companies Act, 2013 lays down that the NCLT may pass such necessary orders to bring to an end the matters complained of . This Appellate Tribunal vide 15th October, 2018 order imposed a stay inter-alia on the lenders to the ILFS Group from taking any enforcement actions against any entity of the ILFS Group after taking into consideration, a) nature of the case; b) larger public interest; c) economy of the nation; and d) interest of the IL FS Entities. Reliance has also been placed on the decision of the Bombay High Court in the matter of Bennet Coleman and Company v. Union of India and Ors. that .the only limitation that could be impliedly read on the exercise of the power would be that nexus must exist between the order that may be passed thereunder the object sought to be achieved by these sections and beyond this limitation which arises by necessary implication it is difficult to read any other . 24. Learned Senior Counsel further submitted that when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 241(2), and it does not in any manner enhance the Tribunal s power beyond those provided under Section 242. (ii) The Resolution/ Distribution Framework has been proposed in a petition filed under Section 241/242 of the Act and any reliefs prayed for therein have to be in terms of the provisions of the same. Section 242(2)(f) specifically requires the consent of the Applicant (or other contracting party) to be obtained prior to modification of any terms of its contract. Unilateral modification of terms of financing agreements is in direct contradiction to the provisions of Section 242(2)(f). (iii) It is submitted that since the Facility Agreements have not been challenged as being prejudicial to public interest or causing mismanagement/ oppressions, it is no longer possible to post facto seek modification of these agreement in the garb of public interest under Section 241(2). The terms of Section 242 must be read harmoniously and not in a manner that would make the provisions of Section 242(2)(f) redundant/ dead letter . (iv) Rule 11 of the NCLT Rules also only saves/ protects the inherent powers which are already present with the Tribunal. It cannot be said to bestow a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall be released. The affidavit filed by Union of India on 9th January, 2020 in fact simply seeks to avoid the issue of the payments to AGIF or other such funds, which is in gross violation of the above orders. It is clear that funds raised by ILFS and IFIN generally were passed to various group companies. However, when it comes to repayment, Union of India is seeking to effectively repay the debts only from the concerned entity which obtained the monies to the concerned creditors of that company. This approach is outlined by the Union of India in paragraph 25(a) to 25(c) of the affidavit filed by Union of India on 9th January, 2020, wherein cost of resolution process incurred by the group as a whole is to be recovered from the sale of the concerned entity, but the repayments to creditors is to be made only to that of the relevant Group Company . This approach cannot be accepted and cannot be stated to be fair and equitable as propounded. In any case, it is submitted that any fund which is generated by the ILFS Group or by the Red Entities should first be used to repay the monies to AGIF. The AGIF has not infused any funds into the companies which are classified as Green entiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch involves the resolution of IL FS Group involving 348 companies including off-shore entities. The Board of IL FS Group now comprises the nominees of UoI upon its petition u/s 241 242 of the Companies Act, 2013 being admitted by the NCLT Mumbai on the allegation that the affairs of the IL FS Group companies were being conducted in a manner prejudicial to public interest. It was submitted that it must be borne in mind that the resolution of IL FS Group arose as a special case since the defaults by the entities of IL FS had rattled the market and economy was at stake. Therefore, the present case must not be treated as a precedent. Furthermore, the following suggestions of the State Bank of India may not be construed as views of other Financial Creditors/ CoC. 36. Learned Counsel for SRS Orion I Investments Ltd. Ors. submitted that SRS Orion I Investments Ltd. a foreign investor invested ₹ 520 crores in each Hill County Properties Limited (HPCL) (formerly Maytas Properties Limited) an IL FS Group Company, categorized as a Red entity. The grievance has been made that IL FS proposed to disinvest its stake in HCPL in contravention of the Applicants right. It is stated th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onomic interest in the same. HCPL was to develop the lands and the proceeds from the development of land was to be appropriated, first, for payment to the Applicants in exchange of the CCDs and then the residual proceeds, if any, were to be paid to the landowners. The transaction will, thus, cause no financial loss to IL FS and /or HCPL, since it was playing the role of a facilitator as regards the ownership and control of the assets. To the contrary, it will reduce the liabilities of HCPL and /or IL FS Group. [Refer clauses 6.4.2,6.4.3,6.4.8,6.5.2.1 and 6.5.2.3]. 40 It was alleged that HCPL has failed to fulfil its obligations under the Settlement terms citing the order of this Appellate Tribunal dated October 15, 2018. Owing to the aforesaid default by HCPL and IL FS Group under Tranche 3,the Applicants have exercised Takeover Rights i.e. to take over Jeedimetla by acquiring the entire share capital of Jeedimetla by swapping the Tranche 3 CCDs such that Jeedimetla will be entirely owned and controlled by the Applicants and JMF(the other investor) (Swap). The Applicants are entitled to 86.67% shares of Jeedimetla. However, HCPL failed to transfer the said shares. Till date, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hese are provided in the Invitation for EOI. Clause 14.3- As long as any amounts are due and payable to the Investors(this includes the Applicants).IL FS Group will continue to have Majoriy Control over HCPL. Majority Control has been defined in Clause 16) as the power to exercise at least 40% of voting rights attached to voting securities, together with management control to HCPL. Clause 6.5.2.1- If the Applicants exercise their Takeover Rights,IL FS Group and HCPL will cause the entire share capital of the Jeedimetla to be swapped i.e. transferred to the Applicants (and the other investor) proportionately against the Tranche 3 CCDs held by the Applicants. Clause 7.3.2.1- In case of default in purchase of CCDs under Tranche 4, HCPL will, and IL FS will cause HCPL to, liquidate HCPL and its subsidiaries properties and assets, as are required to satisfy the Tranche 4 obligation. Therefore, according to the learned Counsel, the Expression of Interest is violative of the Settlement Terms and Consent Decree. 43. The application has been filed by the Union of India under Section 241(2), which reads as follows: - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the case may be, an appeal before it, be bound by the procedure laid down in the Code of Civil Procedure, 1908 (5 of 1908), but shall be guided by the principles of natural justice, and, subject to the other provisions of this Act [or of the Insolvency and Bankruptcy Code, 2016] and of any rules made thereunder, the Tribunal and the Appellate Tribunal shall have power to regulate their own procedure. (2) The Tribunal and the Appellate Tribunal shall have, for the purposes of discharging their functions under this Act [or under the Insolvency and Bankruptcy Code, 2016], the same powers as are vested in a civil Court under the Code of Civil Procedure, 1908 (5 of 1908) while trying a suit in respect of the following matters, namely:- (a) summoning and enforcing the attendance of any person and examining him on oath; (b) requiring the discovery and production of documents; (c) receiving evidence on affidavits; (d) subject to the provisions of sections 123 and 124 of the Indian Evidence Act, 1872 (1 of 1872), requisitioning any public record or document or a copy of such record or document from any office; (e) issuing commissions for the examination of witnesses or d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lance the interests of all the stakeholders including alteration in the priority of payment of government dues and to establish an Insolvency and Bankruptcy Fund, and matters connected therewith or incidental thereto. An effective legal framework for timely resolution of insolvency and bankruptcy would support development of credit markets and encourage entrepreneurship. It would also improve Ease of Doing Business, and facilitate more investments leading to higher economic growth and development. 3. The Code seeks to provide for designating NCLT and DRT as the Adjudicating Authorities for corporate persons and firms and individuals, respectively, for resolution of insolvency, liquidation and bankruptcy. The Code separates commercial aspects of insolvency and bankruptcy proceedings from judicial aspects. The Code also seeks to provide for establishment of the Insolvency and Bankruptcy Board of India (Board) for Regulation of insolvency professionals, insolvency professional agencies and information utilities. Till the Board is established, the Central Government shall exercise all powers of the Board or designate any financial sector regulator to exercise the powers and function ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t have come back into the economy, business then eases up, which leads, overall, to higher economic growth and development of the Indian economy. What is interesting to note is that the Preamble does not, in any manner, refer to liquidation, which is only availed of as a last resort if there is either no resolution plan or the resolution plans submitted are not up to the mark. Even in liquidation, the liquidator can sell the business of the corporate debtor as a going concern. 28. It can thus be seen that the primary focus of the legislation is to ensure revival and continuation of the corporate debtor by protecting the corporate debtor from its own management and from a corporate death by liquidation. The Code is thus a beneficial legislation which puts the corporate debtor back on its feet, not being a mere recovery legislation for creditors. The interests of the corporate debtor have, therefore, been bifurcated and separated from that of its promoters / those who are in management. Thus, the resolution process is not adversarial to the corporate debtor but, in fact, protective of its interests. The moratorium imposed by Section 14 is in the interest of the corporate debtor it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r and is now in a position to pay the dues of all the Secured Creditors, Financial Creditors and other Creditors. The other Amber Entities are also in a position to pay the Secured Creditors and other Creditors. Out of more than 55 Red Entities there are purchasers, who have given highest bid in one or the other case and in some cases transfer of asset has also taken place. 56. In India, there is no provision for group insolvency . IL FS and its Entities, being financial service providers, no application under Section 7, or 9 or 10 of the I B Code can be filed against them. Parties have to move before the Tribunal by filing petition for winding-up. 57. On the other hand, about 169 Companies, which are on the resolution process in the present case under Green Entities , Amber Entities and Red Entities , if the parties are allowed to move an application under Section 7, or 9, or 10, there will be equal number of cases, which will be filed before the Adjudicating Authority (NCLT) at different places/ State and Benches. They cannot be clubbed together in absence of any power under the Companies Act or I B Code. It will give rise to number of cases and consume much time o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ased on the H1 bid value received, a Sale Company would either be, a: (a) Category I Company i.e., where the bidder is willing to assume all liabilities of the Sale Company whether operational or financial without compromise of the debt; or (b) Category II Company i.e., where the financial bid amount offered by the applicant is less than all the liabilities of the Sale Company. (iv) Constitution of a Creditors Committee: In respect of the relevant Sale Company, Creditors Committee will be constituted (in lieu of individual creditor consents, which are to be dispensed with) in the following manner: (a) For a Category I Company, the Creditors Committee shall constitute all the financial creditors of the Respondent No.1 Group Company (including Respondent No.1 Group Companies that have provided financial debt to such Respondent No.1 Group Company) which is the selling shareholder(s) of that Sale Company; (b) For a Category II Company, the Creditors Committee shall constitute all the financial creditors of the Sale Company (including Respondent No.1 Group Companies that have provided financial debt to such Respondent No.1 Group Company). (c) Each member of each ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lfare Funds, Gratuity Funds, Superannuation Funds, Army Group Insurance Funds; (ii) It was submitted that a significant portion of the Aggregate External Fund Based Debt has been availed by members of the Respondent No. 1 Group (and particularly by 4 key HoldCos) from entities such as Pension Funds, Employees Welfare Funds, Army Group Insurance Fund), Provident Funds, Provident Funds, Gratuity Funds, Super Annuation Funds (Public Fund Creditors). These Public Fund Creditors which includes the Army Group Insurance Funds comprise of savings and Funds contributed inter alia by employees, army personnel etc. to provide for retirement benefits and related entitlements to employees of such entities, widows of army personnel etc. The amounts have been invested by the Public Fund Creditors in debt instruments issued by various Respondent No. 1 Group Entities particularly at the level of the HoldCos, which in turn have granted debt to various other entities of the Respondent No. 1 Group. Accordingly, for the Public Fund Institutions to be repaid atleast part of their dues by the HoldCos (and other such members of the Respondent No. 1 Group which have availed debt from these Public Fun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter alia cost overruns and working capital funding, which enabled the operating level entities to complete the project, thereby generating cash and resulted in creation in assets for the Respondent No. 1 Group (including those which are currently being monetised) as well as enabling the relevant operating level entity to service its secured financial debt. It is also pertinent to note that the bonds issued and loans availed by Respondent No. 1 were assigned AAA rating until almost August 2018, when the date of first default by Respondent No. 1. was August 25, 2018. Respondent No. 1, on a standalone basis, has availed of financial debt aggregating to approximately INR 18,000 crores, which was primarily borrowed by leveraging superior credit ratings. Without this funding the holding and other Respondent No. 1 Group entities the assets would not have been created at the operating level entity and accordingly no debt servicing would have happened to the operating level entity lenders as well. Accordingly, it is just and equitable that the interest of the lenders at the holding company levels are also considered in the resolution framework for the Respondent No. 1 Group; (vi) as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iii) Committee of Creditors (CoC) may be directed to be constituted for all the IL FS companies. In respect of CoC already constituted, meetings thereof be directed to be called immediately. The Resolution Consultant may be directed to immediately provide latest status of resolution in each of the accounts to the CoC along with: a. valuation reports (Fair Market Liquidation Value), b. audit reports, c. bids received from Resolution Applicants, d. analysis/ reasoned recommendations of the Resolution Consultant Where the above information is already available, the same should be directed to be provided to the CoC, on priority. In other cases, the Resolution Consultant should be directed to arrange for the same. (iv) It is submitted that a stay/ moratorium was ordered on 15.10.2018 by this Hon ble Appellate Tribunal in respect of the IL FS entities. Time and again, it has been emphasized by this Hon ble Appellate Tribunal that a long time has elapsed since the said interim order which in any event, cannot continue indefinitely. Nearly 1 year and 3 months has since elapsed and therefore, the following timelines may be considered by this Hon ble Appellate Tribunal: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Finance Corporation Limited, Central Bank of India, State Bank of India, UTI-Unit Linked Insurance Plan etc. should not be paid by following the procedure under Section 53 of the I B Code. This would be against the public interest as the money invested by purchasing shares by Life Insurance Corporation of India, IL s Employees Welfare Trust, Central Bank of India, State Bank of India are public money, who are the shareholders. 66. In this background, while we reject the objections raised by some of the Creditors, as noticed above, we accept the suggestion of pro-rata distribution as suggested by Union of India and the procedure as suggested by it for the purpose of completing resolution process. 67. So far as cut-off date is concerned, for the present 15th October, 2018 being the date of interim order, we accept the cut-off date for distribution of the asset because the said date is the date of initiation of the resolution process of the Companies. Hence, the said date should be treated as initiation of the resolution process of the IL FS and Group Companies. 68. In so far as claim of SRS Orion Investments Ltd. and others is concerned, we are of the view that the matter s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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