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TMI Blog2020 (3) TMI 1398X X X X Extracts X X X X X X X X Extracts X X X X ..... surance Fund (AGIF). a Mr. Gopal Jain, Sr. Advocate with Mr. Amar Gupta, Mr. Divyam Agarwal and Ms. Pallavi Kumar, Advocates for SRS Orion Investments Ltd. Mr. Arun Kathpalia, Sr. Advocate with Sidharth Sethi and Mr. Avinash Das, Advocates for PIC India Financial Services Ltd. Mr. Ramji Srinivasan, Sr. Advocate with Mr. L. Viswanathan, Ms. Gauri Rasgotra, Mr. Abhijeet Das, Mr. Raunak Dhillon, Mr. Vikash Kumar Jha, Mr. Karan Khanna, Ms. Ishneet Kaur, Ms. Ritu Viswakarma, Advocates for IL & FS for R-1. Mr. Ramji Srinivasan, Senior Advocate with Mr. Sanjay Shorey, Director (Legal), MCA and Mr. Rakesh Tiwari for Union of India (Appellants) and R-1 in CA (AT) No. 347 of 2018. Dr. Abhishek Manu Singhavi, Sr. Advocate with Mr. Diwakar Maheshwari, Mr. Avishkar Singhavi, Ms. Aditi Bagri, Mr. A. Ramaiah and Mr. Shreyas Edupuganti, Advocates for Induslnd Bank (Respondent No. 16). Mr. Dushyant D. Sr. Advocate with Mr. Diwakar Maheshwari, Ms. Aditi Bagri, Mr. A. Ramaiah and Mr. Shreyas Edupuganti, Advocates for Bajaj Finance Ltd. (Intervenor). Mr. Sandeep Sethi, Sr. Advocate with Mr. Sanjay Kapur, Ms. Megha Karnwal and Mr. V.N.Kannan, Advocates for SBI 2 Axis Bank. Mr. Diwakar Ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Abhishek Gupta and Mr. Raushal Kumar, Advocates for NALCO Employees Provident Fund Trust and OPGC EPF Trust. Mr. Munindra Dvivedi, and Mr. Abhishek Chauhan, Advocates for NHAI. Mr. Gaurav Chaudhary and Mr. Gurpreet Mora, Advocates. Mr. Debarshi Bhuyan, Advocate for Godrej Consumer Products Ltd. Provident Fund (Intervenor). Mr. Amit Tyagi, Advocate for TLG India Pvt. Ltd., Sapient Consulting EPF Trust. Ms. Madhu Shweta and Ms. Shivangi Khanna, Advocates for NHAI. Mr. Pawan Kumar Bansal, Advocate for Applicants. Mr. Manik Dogra and Mr. Balkishan Ladhania, Advocates for Shapoorji Pallonji & Company Ltd. Group Employees PF (Intervenors). Ms. Anushree Kapadia, Advocate. Mr. Anand Sharkar Jha and Mr. Arpit Gupta, Advocates for ICICI Bank Ltd. Mr. Anand Shankar Jha and Mr. Arpit Gupta, Advocates for Mahindra and Mahindra Ltd., Mahindra and Mahindra Staff Provident Fund, Dewan Housing and Finance Limited and MCC India Employees Provident Fund Trust. Mr. Abhijeet Sinha, Ms. Arushi Mishra and Mr. Shambo Nandy, Advocates for SREI Infrastructures Finance Ltd. Ms. Aditi Sharma, Advocate for India Factoring & Finance Solution, Rashtriya Chemical andMazagon Deck. Mr. Rah ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shish Rana and Mr. Harshit Gara, Advocates for Exim. Bank. Mr. Ravi K. Chandra and Mr. Mudit Rohella, Advocates for Oriental Structural Pvt. Ltd. Mr. Raju S. Roy, Mr. Avrojyoti Chatterjee, Mr. Udyan Agarwal and Ms. Jayasree Saha, Advocates for Canara Bank and UCO Bank (Intervenor). Mr. Pulkit Deora and Mr. Utsav Vasudeva, Advocates for CEC Construction Ltd. Mr. Arjun Harkauli, Mr. Prateek Garg, Ms. Aarjoo Wahrona and Mr. Anshuman Gargesh, Advocates for C.G. Power and Industrial Ltd. (Intervenor). Mr. Karan Mehra, Ms. Simran Mehrotra and Mr. Anant Narain Mehrotra, Advocates for SAS Employees Provident Fund. Mr. Maynk Sappa and Mr. N. Saanak Iyer, Advocates for AKG Shuticrings Pvt. Ltd. JUDGMENT SUDHANSU JYOTI MUKHOPADHAYA, J. The Central Government having an opinion that affairs of 'Infrastructure Leasing and Financial Services Limited' ("IL&FS") and its Group Companies are conducted in a manner prejudicial to the public interest, it applied before the National Company Law Tribunal ("Tribunal" for short), Mumbai Bench, Mumbai for issuance of appropriate orders and directions as sought for and as the Tribunal deemed fit. 2. In the Company Petition, initially, inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hile accepted that no petition under any of the provision of the Insolvency and Bankruptcy Code, 2016 ("I&B Code" for short) can be preferred by any party for initiation of 'Corporate Insolvency Resolution Process' against 'Infrastructure Leasing and Financial Services Limited' ('IL&FS' for short) and its 348 Group Companies till the Central Government issue appropriate notification with regard to one or other making the provisions applicable to them, refused to pass the interim order in view of prayer of 'Moratorium' made by the Appellant- 'Union of India'. Otherwise the Tribunal has appreciated the difficulties which are being faced by the 'IL&FS' and its 348 Group Companies. 3. The questions arise for consideration in these appeals are: (i) Whether the Tribunal can pass appropriate order under Section 241 read with Section 242 of the Companies Act, 2013 for resolution of the problems faced by the Company in a time-bound manner for maximisation of value of assets of the Company, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders, and in case of failure of resolution pass appropriate order of liquidation; and (ii) Whether th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntures, fixed deposits, guarantees, letter of support, commitment or comfort and other financial facilities or obligations vailed by 'IL&FS' and its 348 group companies whether in respect of the principal or interest or hedge liability or any other amount contained therein. (iv) Suspension of temporarily the acceleration of any term loan, corporate loan, bridge loan, commercial paper, debentures, fixed deposits and any other financial facility by the 'IL&FS' and its 348 group companies by any party or person or Bank or Company, etc. as of the date of first default. v) Any and all banks, financial institutions from exercising the right to set off or lien against any amounts lying with any creditor against any dues whether principal or interest or otherwise against the balance lying in any bank accounts and deposits, whether current or savings or otherwise of the 'IL&FS' and its 348 group companies. The interim order will continue until further orders and not be applicable to any petition under Article 226 of the Constitution of India before any Hon'ble High Court or under any jurisdiction of the Hon'ble Supreme Court." 5. The interim order passed continued for more than one y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10 Others 1.17% TOTAL 100% In addition to the above, the total subscribed and paid up capital of the 1st Respondent, presently is Rs. 983 Crores. 8.2. Although the equity shares of the IL&FS are not listed on any stock exchange, the secured non-convertible debentures as well as the nonconvertible redeemable cumulative preference shares of the IL&FS are listed on the Bombay Stock Exchange. There are six major group companies of the 1st Respondent which contribute over 60% to the consolidated assets of the 'IL&FS Group'. A brief of the four major group companies is provided hereunder:- a) IL&FS Transportation Networks Limited (ITNL) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ignation of the Managing Director & CEO and four independent directors of IFIN on September 21, 2018. (iv) IEDCL, the IL&FS's power generation subsidiary, has defaulted on its payment obligations since August 22 2018. 8.4 Furthermore, the IL&FS has admitted that total debt across the IL&FS Group is approximately Rs. 91,000 crore as on March 31, 2018 and the IL&FS is contemplating monetizing of significant assets of the group companies for servicing the debts besides seeking further financial assistance from the institutional shareholders by way of a proposed rights issue. It is further submitted that the consolidated debt of the company increased to Rs. 91,091.3 crore in 2018 from Rs. 48,671.3 crore in 2014. Interest outgo rose to Rs. 7,922.8 crore from Rs. 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 Rs. 91,000 crore debt obligations of the IL&FS, Rs. 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 downgrade ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. The unscrupulous manner in which public money has been mismanaged and stuck in projects indicate that management of IL&FS has not only failed to manage but were involved in operation cover up till the end and wilfully created financial mess of IL&FS is astonishing. It has been admitted by the IL&FS in its company application no. 1044 of 2018 that there is severe liquidity crunch in the company with no immediate source of funding, so much so that the IL&FS is in no position to service its debt in the 'short term'. IL&FS is left with no assets to raise funds, no credibility to bank, no 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 eco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... comes to about Rs. 63,000 crores as per the balance sheet of 2017-18. If the exposure of banks to the IL&FS Group is assumed to be about Rs. 53,000 crores, then considering that the exposure of the entire banking sector to all the NBFCs is about Rs. 3.3 lakh crores, IL&FS Group is not inconsequential, but, critical to the financial stability as its share in the total exposure of the banks to the NBFC sector is about 16%. Therefore, there is a substantial public interest in ensuring financial solvency and good governance and management of this Group. The 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 Rs. 2670 core for the year 2017-18 in the consolidated balance sheet. The leverage is about 13 times as the borrowing o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uidation of assets. iv. The IL&FS Group is involved in many infrastructure projects by way of project financing and also equity and debt financing. Any impairment in its ability to finance and support the infrastructure projects would be quite damaging to the overall infrastructure sector, financial markets and the economy, considering its systemically important nature and its borrowing level of Rs. 91000 crores. The business model of IL&FS is such that the company borrows from the money market and debt market besides 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, r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "6. Taking into consideration the stand taken by the 'Union of India' as agreed by the 'IL&FS', we exclude '133 Offshore Group Entities' incorporated out of India as shown in Annexure D from the purview of our order dated 15th October, 2018. However, the resolution for those 'Offshore Group Entities' may be taken up by the Board of Directors of 'IL&FS' under the supervision of the Hon'ble Justice (Retd.) D.K. Jain. The decision as may 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g on behalf of 'IndusInd Bank' while submits that the 'IndusInd Bank' is lender of one of the "Amber Group Entities", further submits that 'IndusInd Bank' should be allowed to participate in the 'Resolution Process'. 16. Mr. Abhinav Vashisht, learned Senior Counsel appearing on behalf of the 'Senior Secured Financial Creditor' wants to raise objection with regard to the prayer made on behalf of the 'Union 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. 13. It is informed that against Rs. 91,000 crores, for about Rs. 40,000 crores resolution plans are pending consideration. Pursuant to interim order many of the Secured 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that there is a chance of settlement and if it is reached, the amount will be released. The matter will be reported by the next date. 5. In relation to remaining 10 Amber Entities, including one which we have already discussed above, the following chart flow have been shown:- 6. Learned Sr. Counsel appearing on behalf of number of lenders including 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, 'Hazar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivya Bhalla and Ms. Nimisha Jain and others. I.A. is disposed of. Post these appeal(s) for 'Orders' on 18th November, 2019 at 3.00 P.M." 17. Time to time interim orders were passed enabling the Entities to resolve to pay the dues of the Senior Secured Creditors, Financial Creditors and other Lenders. Their details are not recorded. 18. On 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 Fun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere/ modify with third party contracts under Section 241/242 of the Act: (i) The proviso to Section 242(2)(f) of the Act provides that any variation of a contract entered into with a third party can only be done with due notice and consent of the third party, in this case L&T IDF and IIDL. (ii) The safeguards provided under 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 C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffidavits), and therefore cannot be taken to be the stand of Union of India. (ii) The Union of India and IL&FS have filed an appeal against the order dated 12.10.2018 of the Hon'ble Adjudicating Tribunal. The scope of jurisdiction of the Hon'ble Appellate Tribunal is therefore narrow and restricted to such order of the 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 the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its 1st October, 2018 order appointed the New Board to manage the affairs of the ILFS Group as per the articles and memorandum of association of the respective ILFS Entities. Therefore, any decision in relation to the management of IL&FS Group, including the decision of resolving the stress in the ILFS Group should 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opinion that the affairs of the company are being run in a manner prejudicial to public interest, and the ultimate scope of the Tribunal's powers are however still defined under Section 242. Prejudice to 'public interest' is only a qualifying factor for the Central Government to file petition under Section 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lear that if any fund is generated, this Appellate Tribunal may direct ILFS and Union of India to release the amount to the aforesaid fund, even of the Red Entities. However, ILFS and Union of India have till date neither released the funds of AGIF nor provided as to when and how the funds 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the interim order derived by the parties during last one year by way of resolution of different Companies and payment of dues to Secured Creditors/ Financial Creditors and other Creditors. 35. According to State Bank of India, the present case is unique and unprecedented which 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 Rs. 520 crores in e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are required to satisfy the obligation to purchase the Tranche 4 CCDs [Clause 7.3.2.1]. 39. It was submitted that pertinently, the role of the IL&FS Group and HCPL in relation to the development of the lands in question was that of facilitator and they had no economic 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 swa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld by IL&FS, IL&FS Township & Urban Assets Ltd. and IL&FS Engineering and Construction Company Limited respectively............. * HCPL houses various land parcels/ development rights. Some of these 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellate Tribunal (1) The Tribunal and the Appellate Tribunal shall not, while disposing of any proceeding before it or, as 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ization of value of assets of such persons, to promote entrepreneurship, availability of credit and balance 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 al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay to support the development of credit markets. Since more investment can be made with funds that 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty' and 4th is also going to be a 'Green Entity' because of the interim order 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sation of entities (Category I and Category II): Based 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Funds, Provident Funds, Employee Welfare 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rating level entity, to fund inter 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 Resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng domestic entities. (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 Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lopment 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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