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TMI Blog2024 (1) TMI 1217X X X X Extracts X X X X X X X X Extracts X X X X ..... ency & Bankruptcy Code, 2016 (in short 'Code') being aggrieved by the Impugned Order dated 02.01.2024 passed by the National Company Law Tribunal, Kolkata Bench (in short 'Adjudicating Authority') in C.P. (IB) No. 138/(KB)/ 2021 where the Adjudicating Authority has admitted application filed under Section 7 of the Code, by REC Ltd., Respondent No. 2 herein and who is the Financial Creditor of the Corporate Debtor. 2. Mr. Bhuvan Madan is the Respondent No. 1 herein is the Resolution Professional of the Corporate Debtor. 3. Heard the Counsel for the Parties and perused the records made available including the cited judgements. 4. It is the case of the Appellant that he is one of the main promoters of the Corporate Debtor holding about 74% of the issued and paid-up capital of the Corporate Debtor. 5. It has been brought out that the Corporate Debtor had taken the term loan of Rs. 1,859 Crores from the Respondent No. 2 and a common loan agreement was entered between the Corporate Debtor and Respondent No. 2 on 19.06.2013 for setting of a project to provide thermal power plant at Haldia consisting of three units of 150 MW each (total 450 MW). The Appellant further submitted that due ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Crores as part of repayment obligation, which was paid by the Corporate Debtor on 26.12.2021. 12. The Appellant submitted that date of default mentioned in Part IV of Section 7 application is 31.03.2018 and also stated is the date of classification of the account of Corporate Debtor as NPA being 31.06.2018 and even after this date the Respondent no. 2 as well as Power Finance Corporation Ltd. (in short 'PFC'), another Financial Creditor of the Corporate Debtor, restructured the credit facilities of the corporate debtor vide letter dated 29.09.2020, therefore, the date of default could not continue to be 30.06.2018. 13. It is further the case of the Appellant that Respondent No. 2 along with PFC were fully involved in the management and control of the Corporate Debtor by way of their nominee Directors appointed on the Board of Corporate Debtor. 14. The Appellant submitted that entire proceed of the sale of electricity of the Corporate Debtor was routed through a Trust and Retention Account (in short 'TRA'), which has been operational since September, 2013 under control of Respondent No. 2 and PFC and therefore, the initiation of Section 7 application by the Respondent No. 2 was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 022, the Corporate Debtor has raised the bills of Rs. 916.95 Crores upon the WBSEDCL and during the Financial Year 2021-22 the Corporate Debtor earned EBITDA of Rs. 259.94 Crores and the EBITDA of the Corporate Debtor for the FY 2022-23 was Rs. 308 Crores and therefore, the Corporate Debtor with such outstanding earnings cannot be deemed to be insolvent. 19. The Appellant submitted that the impugned order is illegal and arbitrary since the Resolution Plan (restructuring without change in ownership) has been approved by Respondent No. 2 dated 21.02.2020 and the first payment was to be made on 31.12.2020 and therefore the first default could have been committed by the Corporate Debtor only on 31.12.2020 which was within the period covered under Section 10A of the Code. The Appellant assailed the impugned order which completely ignored this vital fact and did not dealt and discussed restructuring approval dated 21.02.2020 in the impugned order and the Adjudicating Authority therefore committed fatal error. It is the case of the Appellant that an I.A. No.828 of 2023 was filed specifically contending that the default occurred on 30.06.2020 and 31.12.2020 within a Section 10A period, ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of its debts and therefore the Section 7 application should not have been admitted by the Adjudicating Authority. The Appellant stated that there has been no termination or recall of the Common Loan Agreement, the First Restructuring approval continued on 29.09.2020 and in the absence of specific termination and/or recalling of the loan, the right to demand repayment has not arisen. The Appellant pleaded that the claim arises only when the loan has been recalled and the restructuring approval have been terminated and as such the Company Petition itself was not maintainable. 23. The Appellant elaborated that between 16.12.2021 to 01.12.2023 (i.e., after the institution of the Company Petition), the Respondent No. 2 on various dates demanded payment of a sum of Rs. 198.84 Crores and received and accepted payment of Rs. 187.28 Crores and an additional sum of Rs. 129.74 Crores having been paid to PFC Ltd. The Appellant argued that payment of a sum of Rs. 317.02 Crores during the pendency of the Company Petition clearly demonstrate that the Corporate Debtor is not insolvent. 24. It is the submission of the Appellant that by demanding and receiving payments after filing of the Company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order. 31. The Respondent no. 2 submitted that he was compelled to file Section 7 application to protect his financial rights since the corporate debtor was not repaying his obligation. The Respondent no. 2 submitted that he gave all the opportunities to the Corporate Debtor and in fact approval the restructuring plan of the Corporate Debtor vide dated 21.02.2020 which could not be complied by the Corporate Debtor. The Respondent No. 2 also submitted that in order to further facilitate the corporate debtor for its revival, the second restructuring approval was given to the corporate debtor on 29.09.2020, however the corporate debtor miserably failed to meet pre implementation conditions and therefore there was no restructuring agreement in existence. The Respondent No. 2 filed the application under Section 7 of the Code for default of Rs. 2183.19 Crores and date of default was mentioned as 31.03.2018 and date of NPA was 30.06.2018, enclosing several documents including, common loan agreement dated 19.06.2013, Mortgage details, Deeds of hypothecation, pledge deed, cost overrun facility etc. 32. It is the case of the Respondent No. 2 that the Corporate Debtor never denied its liab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... available to the Corporate Debtor, therefore, the submissions of the Appellant that the account has been restructured or that the timelines were extended are false. 35. The Respondent No. 2 stated that averment of the Appellant regarding the date of default being incorrect are also false and submitted that since the Respondent No. 2 had rejected the 'Restructuring Proposal', the date 30.03.2018 was given as date of default as it was date when the Corporate Debtor defaulted and date of 30.06.2018 was indicated on the date when the account of the Corporate Debtor was declared as NPA. 36. The Respondent No. 2 also denied the averments made by the Appellant that he was part of the management of the Corporate Debtor by virtue of nominating his nominee Director on the Board of Director of the Corporate Debtor and stated that it has no relevance to his application under Section 7 of the Code. 37. The Respondent No. 2 also denied the assumptions and presumptions about the financial viability of the corporate debtor as claimed by the Appellant. The Respondent No. 2 further submitted that the repayment of the credit facilities would be dependent on the operation of the Plant and fixation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 2 stated that on issue of part payment of huge overdues, the Appellant also failed to reveal that the Respondent No. 2 repeatedly in its communications, inter alia, dated 05.01.2022 and 20.01.2022 highlighted that the default continued and there was no deemed revival of the Restructuring Proposal. 40. It is the case of the Respondent No. 2 that the Appellant is misleading this Appellate Tribunal by incorrectly stating that the Corporate Debtor is not in default as it has already paid all the amounts demanded by REC to be paid out of the TRA of the Corporate Debtor during the pendency of the Section 7 Application. It has been submitted that the Respondent No. 2 had demanded certain amounts lying in the TRA out of the revenue generated, in terms of the Trust and Retention Account Agreement dated 18.07.2013, to recover in part, a small portion of the huge overdues. Demand made for payouts out of the TRA based on the revenue available in the account of the Corporate Debtor cannot be construed to alter the repayment schedule already contractually entered into in terms of the Original Loan Agreement and the argument of the Appellant in this regard is absolutely baseless. It is the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r quarter ending on 30.06.2020 which is claimed by the Appellant to have been defaulted upon under First Restructuring Proposal), to be converted into optionally convertible debentures, thereby proving wrong the theory of the Appellant of the non-payment of interest in quarter ending 30.06.2020 being a default under First Restructuring Proposal, which has continued even in the Second Restructuring Proposal. 44. The Respondent No. 2 explained that there is no requirement under the Code to recall the entire loan facilities before initiating of the CIRP under Section 7. The Respondent No. 2 stated that non-payment of loan instalments, both principal and interest, reflect an amount of default far in excess of Rs. 1 Crore and further gave the present status of overdues as on 02.01.2024 to be Rs. 2588.23 Crores, including principal amount of Rs. 832.04 Crores, interest amount of Rs. 1754.76 Crores and accrued interest of Rs. 1.43 Crores. Thus, total outstanding amount of the Facilities as on 02.01.2024 is Rs. 3103.31 Crores. 45. Concluding his arguments, the Respondent No. 2 requested this Appellate Tribunal to dismiss the appeal with exemplary cost. Findings 46. In view of foregoing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r be filed for initiation of CIRP of a Corporate Debtor for the said default occurring during the said period. It is significant to note that the explanation provided under Section 10A of the Code stipulate that provision of Section 10A shall not apply to any default committed under the said Sections before 25.03.2020. Hence, date of default become critical. 49. We note that original common loan agreement was entered between the Corporate Debtor and Respondent no. 2 and PFC on 19.06.2013. Due to failure on part of the Corporate Debtor, first restructuring proposal was approved by lenders on 21.02.2020. We have observed from the averments of all the parties that even this first restructuring proposal could not proceed further due to non-compliance of terms and conditions by the Corporate Debtor. In order to salvage the Corporate Debtor, the lenders i.e. Respondent No. 2 and PFC approved second restructuring proposal on 29.09.2020. Although the Appellant has termed these proposals as agreements but the Respondent No. 2 has emphasised that these were only restructuring proposals which were merely sanctioned by the Respondent No. 2. We note that 2nd restructuring approval dated 29.09. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st to be paid by the Corporate Debtor and further mentioned in clause 8 that 'detailed terms and conditions w.r.t. a proposed restructuring proposal as mentioned above (considering the above-mentioned modifications/ amendments in the proposed structure and terms of restructuring proposal) placed that annexure -1shall also apply'. We also note that the Annexure-1 of 2nd Restructuring approval states first clause as 'pre-conditions to effective implementation of the Resolution Plan' and mentioned several such pre-conditions including tariff order for plant approving, creation of initial DSRA for the project and so on. We observe from the averments of the Respondent No. 2 that these vital pre-implementation conditions were not complied by the Corporate Debtor and no approval of tariff order by stipulated date was obtained by the Corporate Debtor and the Corporate Debtor further failed to create initial DSRA. 53. It goes without saying that pre-implementation conditions are akin to conditions precedent which are meant to be complied with before the agreement is fructified. The Appellant has not refuted that the Corporate Debtor could not meet such conditions precedent. The argument o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e respondent nos.3 and 4 in cancelling the restructuring offer" and that "the institution of proceedings by PFC and REC under the provisions of the Insolvency and Bankruptcy Code, 2016 before the National Company Law Tribunal cannot be faulted." The Division Bench of the Hon'ble Calcutta High Court in the appeal filed by the Corporate Debtor, being MAT No. 626 of 2021 made a limited modification to the order dated 02.07.2021 and directed the lenders to address the tariff order dated 31.05.2021 received by the Corporate Debtor along with the extent of fulfilment of pre-implementation conditions, while inter alia holding that : "The settlement of the tariff or, the Tariff Order, being a pre-condition towards the restructuring arrangement arrived at in the meeting dated 17th February, 2021, with the pronunciation of the Tariff Order by the Commission on the 31st day of May 2021, such pre-condition stood answered. It is not within the domain of R3 and R4 acting as lenders to wait any further beyond the Tariff Order pronounced by the Commission. It is evident that the restructuring exercise arrived at the said consortium meeting dated 17th February, 2021 has not worked out." It has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e above two tables it is evident that the Corporate Debtor has made a payment of 170 Crore till 22 September 2022 as against the total requirement of Rs 375.2 Crore. The important part however is that the first payment of Rs.50 Crore was made on 24" of December 2021, whereas it was supposed to be made by 31" March 2021 as per the revised sanctioned letter (supra). The default can thus be seen to have taken place on 31s March 2021 itself, which is outside the 10A period, though by a whisker..." ( Emphasis Supplied ) 58. We observe that although the Respondent No. 2 has given date of default as 31.03.2018 the date on which the Corporate Debtor failed to meet its first obligation as 'per original common loan agreement dated 19.06.2013 as amended on 30.10.2015 in part IV of the Section 7 application, but the Adjudicating Authority has treated as 31.03.2021 as date of default as per Second Restructuring Approval letter according to which, the first payment was to be made by 31.03.2021 whereas the first payment of Rs. 25 Crores was made on 21.12.2021, hence the Adjudicating Authority held that the date of default which was not covered under period stipulated under Section 10 A of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, we do not find any merit in the pleadings of the Appellant about alleged default to fall within the period specified under Section 10 A of the Code. 60. Another plea of the Appellant is that the payment made by the Corporate Debtor to the Respondent No. 2 and PFC of Rs. 50 Crores in December, 2021 should be deemed revival of restructuring approval and also that the Appellant had issued the letter dated 24.12.2021 in response to the Respondent No. 2 and PFC letter dated 16.12.2021 which explicitly mentioned 'your receipt of the payment of the said sum of Rs. 50 Crore will be deemed and constructed by us to be an acceptance by you of the proposal contained herein'. We wonder whether such type of unilateral conditions by one party can result into automatic binding force on other party and become agreement. We have noted that there has been huge outstanding dues which have been flagged by the Respondent No. 2 and PFC from time to time and the Respondent No. 2 and PFC have been issuing the demand letters to the Corporate Debtor. The money remitted in pursuant to said demand letters cannot be deemed renewal of restructuring approval, which could not survive due to failure on the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... approvals around Rs. 103 Crores lying in the credit of TRA account. In contrast, we have noted that the total outstanding dues of Respondent No. 2 and PFC as on 02.01.2024 was Rs. 3103.31 Crores. We also observe that there has been continuous and repeated failure on the part of the Corporate Debtor to meet its obligation in making payment of principals and interest as per original common loan agreement and also failure to meet obligations as per first and second revised Restructuring Approvals. In backdrop of all these information, we do not find that so-called claim made by the Appellant about viability of the Corporate Debtor has any legal or factual force to impact the outcome of Section 7 application as contained in the Impugned Order. We therefore, answer the Issue No. 5 accordingly. 66. Incidentally, we observe that the Appellant has taken the plea that the Adjudicating Authority should not have gone in the details regarding the execution part of the first restructuring approval by way of payment or default since this was out of jurisdiction of the Adjudicating Authority and should have been dealt by Civil Court. On the other hand, interestingly, we find the pleading of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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