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TMI Blog2023 (4) TMI 1082X X X X Extracts X X X X X X X X Extracts X X X X ..... ukla & Mr. Vaijayant Poliwal Advocates for R - 1 . JUDGMENT [ Per. Dr. Alok Srivastava , Member ( Technical ) ] 1. Four appeals being disposed of in this common judgment, namely, CA(AT) No. 69/2021 (in short "Appeal-I"), CA(AT) No. 70/2021 (in short "Appeal-II"), CA(AT) No. 71/2021 (in short "Appeal-III") and CA(AT) No. 73/2021 (in short "Appeal-IV"), which are tagged together, which have been filed by respective Appellants under section 421 of the Companies Act, 2013 assailing the order dated 21.6.2021 (hereinafter called "Impugned Order-I") read with the order dated 27.5.2021 (hereinafter called "Impugned Order-II") passed by National Company Law Tribunal, Mumbai Bench in C.P. No. 138/MB/2020, which was filed under section 71 of the Companies Act, 2013. 2. Appeal-I is filed by Bank of Baroda (Appellant-1) the lead lender, on behalf of the ICA Lenders of Reliance Housing Finance Limited for setting aside the two Impugned Orders. 3. Appeal-II is filed by Reliance Home Finance Limited (in short 'RHFL'), who is Appellant-II, aggrieved by Impugned Order-I and praying for setting it aside. 4. Appeal-III is filed by RHFL (Appellant-II) aggrieved by Impugned Order-I and praying for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gned Order-I on the ground that the bid for resolution of the corporate debtor (RHFL) is being finalized and Impugned Order-I will cause hurdle in the finalization of the bid which would lead to the successful resolution of the corporate debtor, so that the interest of all financial creditors including debentures holders can be taken care of. In Appeal-IV the Appellant Bank of Baroda has prayed for setting aside both the Impugned Order-I and Impugned Order-II, so that the resolution of the corporate debtor can be successfully achieved in accordance with the circular dated 7.6.2019 issued by Reserve Bank of India, so that the insolvency of the corporate debtor can be successfully resolved and interest of all the financial creditors be taken care of. 8. We heard the arguments put forth by the Learned Counsels of all the respective parties in all the four appeals and perused the record of all the appeals. 9. The Learned Counsel for Bank of Baroda (lead bank on behalf of ICA Lenders) has argued that the corporate debtor (RHFL) has suffered financial losses and was unable to service the debts taken from ICA Lenders, who are mostly public sector financial institutions and major private ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s amounting to Rs.2850.79 crores, Certain other prayers made by the Debenture Trustee in the said Company Petition pertain to payment of interest in respect of various series of NCDs. 12. The Learned Counsel for Bank of Baroda has further submitted that the resolution process of RHFL resulted in receipt of four bids, which were thoroughly evaluated and voting on the bids by ICA Lenders took place between 31.5.2021 and 9.6.2021 and simultaneously to ensure a fair and equitable treatment, the ICA Lenders have been engaging with non-IAC Lenders to ensure transparency and fair and equitable treatment to non-ICA Lenders too and about 95% of all the lenders have either acceded to ICA or executed confidentiality undertaking to get the terms of bids for their consideration. He has also submitted that the Debenture Trustee has also been participating, though without prejudice, in the resolution process of RHFL, and the meetings involving discussions and evaluation of the bids with the ICA Lenders and the minutes of the lenders meeting held on 8.3.2021 and 10.3.2021 are testimony of the same. Further, RHFL has also given a letter of undertaking to cooperate in the implementation of the appr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese breaches were flagged by the Debenture Trustee in its letters dated 7.8.2019 and 27.8.2019 to RHFL, which went unresponded and the breaches to the Debenture Trustee Deed were also not rectified. 14. The Learned Counsel for Debenture Trustee has argued that upon instructions from the NCD holders, the Debenture Trustee vide letter dated 19.11.2019 declared occurrence of Event of Default under clause 7.1 of the Debenture Trustee Deed and called upon the Appellant to make payment of the principal amount and all interests payable in respect of secured NCDs aggregating to Rs.2822.12 crores. Thereafter on 3.1.2020, NCD Series 1A and NCD Series 1B became due for redemption and for NCD Series 2A, NCD Series 2B, NCD Series 3A and NCD Series 3B, the annual interest became payable and when the Debenture Trustee did not receive any response to its notice dated 4.1.2020 from RHFL, it filed Company Petition under section 71 (10) of the Companies Act, 2013 upon instructions from NCD holders for redemption of secured NCDs. He has further submitted that while the said Company Petition was pending, the ICA Lenders invited Expressions of Interest cum Submission of Resolution Plan from bidders thr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all the assets of RHFL. He has also pointed that out of total of 20,453 creditors of RHFL, 35 creditors, who control 63% of the total principal amount outstanding have already approved the Resolution Plan as ICA Lenders and under the proposed Resolution Plan, over 18880 retail debenture holders (who are represented by the Debenture Trustee) would receive 100% principal repayment as per the distribution pattern. He has thus added that actually 23 debenture holders, who are also among those represented by the Debenture Trustee, are part of the ICA Lenders, who have approved the Resolution Plan and selected the final bidder. He has contended that despite the fact the resolution process is in final stage, the NCLT vide Impugned Order did not allow the ICA Lenders led by Bank of Baroda to intervene in the Company Petition and directed for redemption of NCDs and payment of due interest. 18. The Learned Counsel for RHFL has argued that the NCLT has incorrectly exercised its jurisdiction under section 71(10) by interpreting the word 'may' as 'shall' regarding redemption of NCDs. He has further claimed that rule 73(4) of NCLT Rules provide guidance on how NCLT is to exercise its discretio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s an appropriate order within a period of sixty days from the date of receipt of application under sub-rule (1); Provided that the Tribunal shall, before making any order under this rule, give a reasonable opportunity of being heard to the company and any other person interested in the matter. (4) The Tribunal may, if it is satisfied, on the application filed under sub-rule (1). that it is necessary so to do, to safeguard the interests of the company, the debenture holders or the depositors, as the case may be, or in the public interest, direct, by order. the company to make repayment of such deposit or debenture or part thereof forthwith or within such time and subject to such conditions as may be specified in the order: Provided that while passing the order, the Tribunal shall consider the financial condition of the company, the amount or deposit or debenture or part thereof and the interest payable thereon Rule 2(18) of the NCLT Rules : "person interested" means a shareholder, creditor, employee, transferee company and other company concerned in relation to the term or context referred to in the relevant provisions of the Act or any person aggrieved by any order or ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of section 71(8) of the Companies Act, 2013 which mandates that a company shall pay interest and redeem the debentures in accordance with the terms and conditions of the debenture issue. Clause 3.1.3 of the Debenture Trust Deed provides that the contractual obligation of the Issuer Company to pay to the secured NCDs holders, the principal amount on the date of the maturity and annual interest as accrued in accordance with the financial governance and conditions. He has argued that it is, therefore, incumbent on the Issuer Company to carry out its contractual obligations and the Company Petition under section 71(10) is to that end which is summary in nature and its scope is also limited to the failure of the company to make payment of the principal amount and any interest on the debentures. The Learned Counsel for the Debenture Trustee has further contended that the proceedings under Section 71 in the Company Petition are proceedings 'in personam' and they are not proceedings 'in rem' and therefore in the proceedings which are 'in personam', there is no requirement for giving an opportunity for hearing to other parties who are not related to the Debenture Trust Deed and the issue o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso capable of being resolved by arbitration. However, if the jurisdiction of an ordinary civil court is excluded by the conferment of exclusive jurisdiction on a specified court or tribunal as a matter of public policy such a dispute would not then be capable of resolution by arbitration." 27. Further, the question of proceedings to be 'in personam' or 'in rem' is also made clear by the fact that in the Company that is facing financial stress and for which a resolution plan is under consideration, 23 debenture holders who are among those represented by the Debenture Trustee are also part of ICA Lenders, though a majority of the retail debenture holders are not signatories to the ICA. 28. Insofar as the effect of the RBI circular is concerned, it is seen that circular issued by RBI on 7.6.2019 providing directions regarding Prudential Framework for Resolution of Stressed Assets, attempts to provide a solution for financial resolution of the Company. The Learned Counsel for Appellant has stated that the debenture holders are likely to get 100% of the principal repayment, as per the distribution pattern included in the proposed resolution plan, which has already been approved by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Impugned Order of the NCLT dated 27.5.2021, we note that the NCLT has denied an opportunity to be heard to ICA Lenders on the ground that insofar as section 71(10) of the Companies Act, 2013 is concerned, they do not have a right to be heard. We are of the opinion that this is an incorrect reading of the requirement of hearing of 'person concerned' as is laid down in section 71(10) of the Companies Act, 2013 and 'any other person interested in the matter' as required in Rule 73(3) and 73(4) of the NCLT Rules, 2016. We are also of the view that in view of public interest as is stipulated in Rule 74(4) and the involvement of public money in the Company, though the public sector banks, public interest also demands that ICA Lenders be given opportunity of hearing. We are, therefore, of the view that the Impugned Order-II dated 27.5.2021 is incorrect and we consequently set it aside. 33. We note that the Impugned Order-I dated 21.6.2021 which was passed by the NCLT suffers from the infirmity that ICA Lenders were not afforded an opportunity to be heard while passing Impugned Order-I. We therefore, have no option but to set it aside too. In the result, we remand the case to the NCLT ..... X X X X Extracts X X X X X X X X Extracts X X X X
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