TMI Blog2024 (1) TMI 1217X X X X Extracts X X X X X X X X Extracts X X X X ..... er in deciding the application filed under Section 7 of the code by the Respondent No. 2 or not. Existence of restructuring proposals - pre-implementation conditions as stipulated in the restructuring proposals were mandatory or not - failure in its compliance tantamounted to non-execution of the restructuring approvals automatically or not - HELD THAT:- The period from the date 25.03.2020 to 24.03.2021, is the period which is required to be excluded for the purpose of initiation of CIRP under Section 7, 9 and 10. Section 10A of the Code also clearly mandates that no application shall ever 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. On the failure of the Corporate Debtor to fulfil its obligation to the original common loan agreement and subsequently, further failure to comply with the first restructuring proposal dated 21.02.2020 and further failure to comply with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olely on the Second Restructuring Proposal submitting that the Corporate debtor was required to make payment from 31.03.2021, without contending that there was any payment obligations or default continuing from first restructuring proposal - there are no force in the pleading of the Appellant on this issue. Financial viability of the Corporate Debtor as claimed by the Appellant would have impacted the impugned order in deciding the application filed under Section 7 of the code by the Respondent No. 2 or not - HELD THAT:- It is recaptured from pleadings of the appellant that the Corporate Debtor has raised bills of Rs. 916.95 Crores from WBSEDCL and during Financial Year 2022-23, the Corporate Debtor earned EBITDA of Rs. 308 Crores and therefore, the company was solvent. During averments, the Appellant also agreed to pay outstanding amounts as per restructuring approvals around Rs. 103 Crores lying in the credit of TRA account - 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 rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 Crores. 6. The Appellant submitted that the Corporate Debtor entered into power purchase agreement on 28.12.2010, 06.04.2018 and 03.07.2020 with West Bengal State Electricity Distribution Company Ltd. (in short WBSEDCL ). 7. The Appellant brought out that on 30.06.2018, the Respondent No. 2 classified the Account of the Corporate Debtor as Non-Performing Assets ( NPA ) due to alleged default committed by the Corporate Debtor in making due payments. The Appellant stated that the Corporate Debtor conducted several meetings with Respondent No. 2 for restructuring of loans in terms of RBI circular dated 07.06.2019 and accordingly on 21.02.2020, the Respondent No. 2 issued its approval for Resolution Plan ( restructuring without change in ownership) and the repayment obligation of the Corporate Debtor was to commence from 31.12.2020 and interest was to be paid on monthly basis commencing from 30.06.2020, which falls within the period stipulated under Section 10A of the Code. 8. The Appellant assailed the conduct of the Respondent No. 2, who despite restructuring of the credit facilities, filed an application under Section 7 of the Code for alleged default in payment of Rs. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally viable since it has PPA agreement with WBSEDCL and there were continuous inflow of money which was under control of TRA. 16. The Appellant also stated that the Corporate Debtor has made a payment of Rs. 50 Crore to the Respondent No. 2 and PFC on 24.12.2021 with clear caveat written by the Corporate Debtor stating that 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 . In this context, the Appellant stated that since the payment was received and accepted by Respondent No. 2 and PFC, the restructuring agreement was automatically extended and therefore, there was no debt and default. 17. The Appellant reiterated that Respondent No. 2 has been playing hide and seek by way of accepting payments from the Corporate Debtor from time-to-time and simultaneously pursuing application under Section 7 of the Code before the Adjudicating Authority. The Appellant submitted that under such circumstances, the Corporate Debtor filed an IA (IB) no. 1020 of 2022 before the Adjudicating Authority on 13.09.2020 with request for injunction and stay in CP (IB) No. 138/2021 and to declare ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of the First Restructuring proposal. The Appellant pleaded that the Impugned Order is non- speaking and unreasoned and suffers from the vice of non-consideration of argued issues making the same unsustainable. The Appellant cited judgment rendered in the case of Gandhar Oil Refinery (India) Ltd. Vs. City Oil Pvt. Ltd., 2022 SCC OnLine NCLAT 4145] 20. The Appellant submitted that in fact there were two restructuring plans approved by the Respondent No. 2 i.e. first restructuring approval dated 21.02.2020 and second restructuring approval dated 29.09.2020. In this connection he further submitted that second restructuring approval dated 29.09.2020 specifically provided that the same was revision of first restructuring approval dated 21.02.2020 therefore the first restructuring approval dated 21.02.2020 was valid and remained in existence and the default could have been committed only on or from 31.03.2020 falling within the period specified under Section 10A of the Code. The Appellant submitted that the continued Second Restructuring approval cannot be construed to be an independent document, inasmuch as, the First Restructuring approval was never terminated and therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Code and therefore, the Company Petition was liable to be dismissed by the Adjudicating Authority. 25. It is the case of the Appellant that any adjudication as to whether or not the First Restructuring approval as continued on 29.09.2020 was given effect to and/or acted upon and/or was being performed as on the date of the Impugned Order, is completely out of jurisdiction of the Adjudicating Authority and the Adjudicating Authority should not have dealt with this aspect at all. 26. The Appellant pleaded that the crux of the dispute revolves around the issue as to whether or not the First Restructuring approval as continued on 29.09.2020 was given effect to and was being performed with additional facts of payment of Rs. 317.02 Crores made to the Respondent No. 2 and PFC during the pendency of the Company Petition establishes that the Corporate Debtor could not have been disregarded by the Adjudicating Authority to arrive at a finding that the Corporate Debtor is insolvent. 27. The Appellant emphasised that the present alleged dues under the restructuring approval according to the Respondent No. 2 should be calculated and an opportunity should be granted to the Corpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or. The Respondent No. 2 submitted that in terms of the provisions contained in the Code, the Adjudicating Authority is only required to ascertain whether there was debt and default took place in excess of Rs. 1 Crore and the application was complete and in such eventuality of meeting these conditions, the Adjudicating Authority is required to admit the application filed under Section 7 of the Code. The Respondent no. 2 cited the Judgment passed by Hon ble Supreme Court of India in case of Innoventive Industries ltd. vs. ICICI Bank [2 (2018) 1 SCC 407] where Hon ble Supreme Court held that the Adjudicating Authority mainly only has to determine debt and default. 33. The Respondent No. 2 submitted that the Lender s meeting was held on 17.02.2021 wherein it was noted that the Corporate Debtor had failed to satisfy most of the pre-implementation conditions and they were cautioned to ensure due satisfaction without further delay by 28.02.2021, failing which the Restructuring Proposal would fail. The Corporate Debtor acknowledged its failure to fulfil the pre-implementation conditions and wrote to the Respondent No. 2 seeking an extension of six months for implementation of the Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-implementation conditions for the Restructuring Proposal was approval from the West Bengal Electricity Regulatory Commission fixing the tariff charges by February 28, 2021, failing which the said Restructuring Proposal would stand rejected. The Respondent No. 2 submitted that since the Respondent failed to achieve the same, the restructuring proposal was not in existence legally. 38. The Respondent No. 2 denied that the account of the Corporate Debtor was restructured and reiterated that the Restructuring Proposal was approval subject to condition that the Corporate Debtor would comply with stipulated pre-implementation conditions, as contained in its approval letter, however since the said pre- implementation conditions were not achieved by the Corporate Debtor, the Restructuring Proposal failed and the same was duly communicated to the Corporate Debtor. The Respondent No. 2 stated that Appellant indeed requested for extension of time under the Restructuring Proposal, which was never accepted by the Respondent No. 2. 39. The Respondent No. 2 mentioned that the Appellant is attempting to mislead this Appellate Tribunal by submitting that the Respondent No. 2 and PFC accepte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... moratorium on the financial creditor to keep recovering its dues from the borrower, and the Respondent No. 2 was under no legal restriction from seeking recovery of its dues during the pendency of the Section 7 Application. 41. The Respondent No. 2 strongly objected to the averments of the Appellant that the default period was covered under Section 10 A of the Code and stated that since there was no restructuring proposal agreement validly existed due to failure on the part of the Corporate Debtor, the default date was correctly indicated in the application filed under Section 7 in part IV i.e. 30.03.2018, along with the date of 30.06.2018 when the account of the Corporate Debtor was declared as NPA. 42. The Respondent No. 2 stated that in the Impugned Order, the Adjudicating Authority assumed that the Second Restructuring Proposal had been given effect to and noting the occurrence of default to even meet the repayments under the Second Restructuring Proposal, the Adjudicating Authority has held the Appellant to be in default and the default occurred on 31.03.2021; (i.e., outside the Section 10A period) and admitted the Section 7 Application. The Respondent No 2 reiterated t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... find that following issues are pertinent to be decided in order to take a conscious decision on the appeal: (i) Whether the restructuring proposals dated 21.02.2020 and 29.09.2020, were in existence and were binding. (ii) Whether pre-implementation conditions as stipulated in the restructuring proposals were mandatory and whether failure in its compliance tantamounted to non-execution of the restructuring approvals automatically. (iii) Whether the date of default was covered under Period stipulated under Section 10A of the Code. (iv) Whether the payments of Rs. 50 Crores made by the Corporate Debtor to the financial creditors i.e., the Respondent No. 2 and PFC resulted in automatic extension of restructuring approvals. (v) Whether the financial viability of the Corporate Debtor as claimed by the Appellant would have impacted the impugned order in deciding the application filed under Section 7 of the code by the Respondent No. 2. 47. Since all above issues are inter-related, inter-connected and depends upon each other, we shall deal and decide all above issues and other issues raised in the appeal in conjoint manner in subsequent discussions. At the outset, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mentation conditions by the Corporate Debtor by 28.02.2021 which never got fructified and therefore restructuring proposals failed to take off. 50. Here we would like to refer to salient features of the original loan agreement as well as salient features of two subsequent restructuring proposals agreed by the Respondent No. 2. 51. We note that in the original sanction letter dated 22.12.2011 issued by the Respondent No. 2 the detailed terms and conditions were elaborated including (a) regarding repayment of loan, moratorium period and appropriation of receipt and mode of payment, (b) Event of default, (c) TRA, (d) pre commitment conditions which reads as under : 52. The original common loan agreement was signed on 19.06.2023 amongst the Corporate Debtor, REC, the Respondent No. 2 herein (as REC , as lenders agent , as Security agent ) and PFC as another Financial Creditor. The agreement mentioned amount of Rs. 1859 Crores as RTL facility and laid down the drawdown schedule along with procedures for requesting drawdown, Interest, Repayments, Conditions precedent for effectiveness of the agreement and pre-disbursement of the conditions. We note ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Appellant is that the first restructuring proposal dated 21.02.2020 continued to be valid since in the second restructuring proposals approval letter dated 29.02.2019, specifically referred to first restructuring proposal. It is further the argument of the Appellant that unless such letters are cancelled and recall letters are issued by the lenders, the restructuring approval letters continued to be valid and result into deemed agreements. In this connection we observe that on the failure of the Corporate Debtor to fulfil its obligation to the original common loan agreement and subsequently, further failure to comply with the first restructuring proposal dated 21.02.2020 and further failure to comply with the second restructuring approval dated 29.09.2020, the Appellant, at this stage, cannot take the plea of continuation of all agreements/proposals. Normally, when the restructuring proposal is agreed upon, the same is in supersession to the previous loan agreement/restructuring proposal. Here, it is critical to understand that pre-implementation condition are conditions precedent, which are meant to be followed and it cannot be the case of the borrower that despite his fai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It has been brought to our notice that on 11.11.2021 Lenders meeting was held pursuant to the order of the Hon ble Calcutta High Court dated 07.10.2021, wherein lenders after considering the tariff order, noted the failure of the Corporate Debtor in meeting several pre-implementation conditions of the Restructuring Proposal, and again notified the failure of the Restructuring Proposal. Thus, we find that orders of the Hon ble Calcutta High Court does not help the cause of the Appellant and therefore, has no impact on this appeal before us. 55. Now, we will deal the issue regarding default period falling within period specified under Section 10A of the Code or otherwise. At this juncture, we would like to take into account part IV of the application made by the Respondent No. 2 while filing the Section 7 application which reads as under : 56. Thus, it is evident that the Respondent No. 2 clearly indicated date of default to be 31.03.2018, which is not covered under Section 10A of the Code. Incidentally, the Respondent No. 2 also gave date of NPA of Corporate Debtor i.e., 30.06.2018, which is also out of purview of Section 10A of the Code. 57. It will also be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Code since last date covered under Section 10A was 24.03.2021. Thus, the date of default as indicated in Part IV by the Appellant is 31.03.2018 based on first default as per original common loan agreement. The Adjudicating Authority has considered 31.03.2021 as a date of default based on the second restructuring approval dated 29.09.2020. We have already noted that as per Section 10A of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 part of the Corporate Debtor in fulfilling its obligations regarding pre implementation conditions. 61. It is worth emphasising that the Restructuring proposal is always offered by the borrowers and accepted by the lenders on certain predetermined and pre-specified terms and conditions including repayment, interest, tenure, haircut, if any, etc., It cannot be the case of the Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the Appellant that the Adjudicating Authority although mentioned about the First Restructuring Approval, however, did not discuss or adjudicated on the same. We find this to be contrary. Here, we will clarify that the Adjudicating Authority has all the rights and authority to examine all such documents which has direct or indirect bearing on the application file ..... X X X X Extracts X X X X X X X X Extracts X X X X
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