IN THE NATIONAL COMPANY LAW TRIBUNAL
MUMBAI BENCH
CP 3604 (IB)/MB/2018
Under Section 7 of the I&B
Code, 2016
In the matter of
Canara Bank
…Financial Creditor/ Applicant
v/s
GTL Infrastructure Limited
...Corporate Debtor
Order Dated 26.11.2019
Coram: Hon'ble Member (Judicial) Mr. M.K. Shrawat
Hon'ble Member (Technical) Mr.
Chandra Bhan Singh
For the Petitioner: Adv. Rohan Agrawal
For the Respondent: Adv. Rohan Rajyadaksh and Adv. Disha Kunder
Per: Chandra Bhan Singh,
Member (Technical)
ORDER
1.
This is an application being CP 3604/2018 filed by Canara Bank,
Financial Creditor or Applicant, under section 7 of Insolvency & Bankruptcy
Code, 2016 (I&B Code) against GTL Infrastructure Limited,
Respondent, for initiating Corporate Insolvency Resolution Process (CIRP).
2. The Financial Creditor
states that a Rupee Term Loan of ₹289
crores was granted by the Consortium Lenders to the Corporate Debtor as per the
Common Loan Agreement dated 12.07.2008, (the share of the Financial Creditor
being ₹166.50 crores). The same was restructured on
31.12.2011 as per Master Restructuring Agreement aggregating to ₹4249.17 crores (share of Financial Creditor
aggregating to ₹93.05 crores).
A Rupee Term Loan of ₹5000 crores was granted by the Consortium Lenders to
the erstwhile Chennai Network Infrastructure Limited (“CNIL”) (CNIL later on
merged with Corporate Debtor) as per Loam Agreement dated 23.03.2010, (the
share of Financial Creditor being ₹650
crores). The same was restructured on 31.12.2011 as per THE NATIONAL COMPANY LAW TRIBUNAL MUMBAI BENCH CP
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Master Restructuring Agreement aggregating to ₹5986.25 crores (share of Financial
Creditor being ₹637.68
crores).
The Financial
Creditor states that the amount in default is ₹541,49,02,890.97 /-. Apart from this
amount , it is stated that a part amount of debt values at ₹519,11,53,280/- was also converted
into equity as per the CDR and SDR Schemes.
3. Before
going further into the merits of the case it is important to note the stand
taken by the Respondent vide its application being MA No. 2308 of 2019 in this
matter that this petition needs to be rejected as per the directions of the
Hon’ble Supreme Court in Dharani Sugars and Chemicals Ltd. vs. Union of
India and Ors., Transferred Case (CIVIL) No. 66 of 2018 in Transfer Petition
(CIVIL) No. 1399 of 2018 dated 02.04.2019. The Apex Court vide its said
judgment held that all actions that are taken under the RBI circular of
12.02.2018 i.e. the Revised Framework on Stressed Asset Resolution are not est.
The relevant operative portion is reproduced below:
“…the
impugned circular will have to be declared as ultra vires as a whole, and be
declared to be of no effect in law. Consequently, all actions taken under the
said circular, including actions by which the Insolvency Code has been
triggered must fall along with the said circular. As a result, all cases in
which debtors have been proceeded against by financial creditors under Section
7 of the Insolvency Code, only because of the operation of the impugned
circular will be proceedings which, being faulted at the very inception, are
declared to be non-est.”
4. It is important to note that the Respondent was one of the
petitioners being Writ Petition (CIVIL) No. 1156 of 2018 before the Hon’ble
Supreme Court inter alia seeking to quash the RBI Circular dated 12.02.2019
that was also decided with Dharani Sugars (supra.).
5. The case of the Respondent is that it had raised various
financial facilities including rupee term loan from the Financial Creditor.
6. The
Corporate Debtor stated that it came under strain on account of extraneous and
adverse factors beyond its control. Hence, in 2010
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the Corporate Debtor was referred to the ‘Corporate Debt
Restructuring Forum’. On 29.11.2011, the Corporate Debtor’s Lender in the
meeting approved the restricting scheme and on 23.12.2011, CDR Cell of the
Petitioner issued a Letter of Approval for the same.
7. Thereafter, on 31.12.2011, the Corporate Debtor executed a
Master Restructuring Agreement with Union Bank of India being the ‘Monitoring
Institution’ in pursuance of the CDR Letter of Approval.
8. The Corporate Debtor states that on 08.06.2015, the RBI
issued a notification bearing number BP.BC.No.101/21.04.132/2014-15 dealing
with Strategic Debt Restructuring (SDR Notification), which provided that if
(a) lenders had a contractual right to convert their debt into equity shares of
the borrower; (b) such a right was exercised by the lenders such that they hold
at least 51% of the shareholding of the borrower; and (c) lenders sold such
shares to a new promoter within a period of 18 months; then the lender would be
entitled to a more beneficial provisioning in respect of the account of the
borrower for the said 8 month period i.e. “stand still period”.
9. The Corporate Debtor further states that on 20.09.2016,
the lenders invoked the SDR Notification in respect of the Applicant. On
13.04.2017, in pursuance to the decision of lenders of Corporate Debtor of
exercising the option of converting a portion of their debt into equity shares
of the Corporate Debtor to the extent of ₹1692,21,58,070/- was converted into
fully paid up equity of the Corporate Debtor.
10. Similarly as regards the erstwhile CNIL, the debt of the
lender to the extent of ₹2808,95,53,920/-
was also converted into fully paid up equity of the erstwhile CNIL. On
22.12.2017, CNIL merged into the Corporate Debtor and lenders of CNIL were
issued shares in the Corporate Debtor in lieu of their shareholding in
erstwhile CNIL.
11. In the
consortium meeting of lenders dated 30.01.2018, it was deliberated by the
lenders to consider a sale of their respective debts to an Asset Reconstruction
Company, Non Banking Financial Companies, other banks or financial
institutions. The process for sale to the ARC was carried out by Ernst &
Young in compliance with RBI guidelines on sale of stressed assets by banks
issued from time to time.
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12. On 12.02.2018, while the process for sale to an ARC
was under consideration, the issued guidelines titled “Resolution of stressed
Assets – Revised Framework” for the resolution of the stressed assets. On
29.08.2018, Edelweiss ARC addressed a letter to the Corporate Debtor informing
that 10 banks have assigned their rights, title and interest in the financial
assistance granted by them to the Corporate Debtor in favour of Edelweiss ARC
by executing Assignment Agreement dated 27.08.2018.
13. On 12.09.2018, Edelweiss ARC by its letter called upon
the Financial Creditor with other few lender banks to follow the mandate given
by RBI in its prudential Norms on Income Recognition, Asset Classification and
Provisioning to Advances dated 01.07.2015, which mandates that in case of
consortium/multiple banking arrangements, if 75% (by value) of the
banks/financial institutions decide to accept an offer for purchase of
financial assets, the remaining banks / financial institutions are obligated to
accept the offer.
14. Thereafter on 14.09.2018, relying upon the Revised
Framework Circular of RBI dated 12.02.2018, the Financial Creditor in its
capacity as a Financial Creditor of the Corporate Debtor filed this petition
u/s 7 of the I&B Code.
15. On 19.09.2018, the Corporate Debtor filed a Writ
Petition (Civil) No. 1156 of 2018 before the Hon’ble Supreme Court seeking to
quash the RBI Circular (supra).
16. On
24.11.2018, the Financial Creditor filed a Counter affidavit to the said Writ
Petition, wherein it stated in Para No. 7, that :
“7. In view
of the above facts and circumstances, the Respondent No. 7 submits that
Respondent No. 7 is acting in accordance with the steps it has initiated as per
the RBI Guidelines. The Petitioner and CNIL have left no alternative but for
the Respondent No. 7 to proceed and initiate appropriate legal proceeding and
“duly comply with” the “RBI Circulars and Directives”. Accordingly, the
Respondent No. 7 has filed the insolvency petition before NCLT Mumbai vide
Diary No. 28267/2018 dated 14.09.2018.”
17. Hence, the
Hon’ble Supreme Court in the order dated 02.04.2019 set aside the RBI
Circular dated 12.02.2019
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holding it to be non-est and all actions taken in pursuance of the said
circular also to be declared as non-est.
18. The Corporate Debtor states that the action of Financial
Creditor of filing insolvency proceedings is taken in pursuance of the RBI
Circular dated 12.02.2018, therefore, this petition ought to be dismissed as
non-est.
19. The Financial Creditor on the other hand contends that
filing of insolvency application against the Corporate Debtor was due to the
continuous defaults of Corporate Debtor in repayment and that no OTS or
negotiation was fructifying. There were various attempts to restructure the
Corporate Debtor or to bring in various OTS proposals by the Corporate Debtor,
however, there was no concrete payment plan. Hence, the lenders agreed to file
an application under section 7 of the I&B Code.
20. On going through the submissions made by both the sides
and on perusing the documents produced on record, it is important to consider
what was the basis of filing section 7 petition. If it was filed due to RBI
Circular, this Miscellaneous Application deserves to be allowed, and the main
petition is to be rejected.
21. It is noted that the Financial Creditor in para 7 of the
Counter Affidavit filed before the Hon’ble Supreme Court in WP No. 1156 of
2018, has admitted that in initiating proceedings against the Corporate Debtor
before NCLT under the I&B Code, it is “acting in accordance with” and to “
duly comply with” the “RBI Circulars and Directives”, which is the Revised
Framework Circular dated 12.02.2018.
22. The
relevant extract of RBI Circular (supra) with respect to timelines to
initiate insolvency proceedings is given below:
“D. Timelines
for Large Accounts to be Referred under IBC
8. In
respect of accounts with aggregate exposure of the lenders at ₹20 billion and above, on or after
March 1, 2018 (‘reference date’), including accounts where resolution may have
been initiated under any of the existing schemes as well as accounts classified
as restructured standard assets which are currently in respective THE NATIONAL COMPANY LAW TRIBUNAL
MUMBAI BENCH CP 3586(IB)/MB/2018
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specified periods (as per the previous guidelines), RP
shall be implemented as per the following timelines:
i. If in
default as on the reference date, then 180 days from the reference date.
ii. If in
default after the reference date, then 180 days from the date of first such
default.
9. If a RP
in respect of such large accounts is not implemented as per the timelines
specified in paragraph 8, lenders shall file insolvency application, singly or
jointly, under the Insolvency and Bankruptcy Code 2016 (IBC) within 15 days
from the expiry of the said timeline…..”
23. It is further noted that this Bench has already passed an
order in CP No. 3608 of 2018 in the matter of Bank of India v. Frost
International Ltd., order dated 14.10.2019 wherein the factors for
considering the fact, whether the IBC proceedings in a particular matter are
initiated in pursuance of RBI circular, are clearly laid down. The evidences
produced on record satisfy all the compliances to lay down that the IBC
proceedings against the Corporate Debtor were initiated pursuant to issuance of
RBI Circular.
24. After all this discussion, it is considered that this
application is an outcome of actions taken under the RBI Circular that has been
quashed by the Apex Court, also declaring the application under section 7 of
the I&B Code as non-est. Therefore, the present Miscellaneous application
deserves to be ALLOWED.
25. The Judgment of the Hon’ble Supreme Court in Dharani
Sugars (supra) has very clearly settled the position of law that all
the actions that have triggered application under I&B Code are ultra vires
and non est. In light of such clear decision by the Apex Court and keeping in
view, the evidences produced before us, we are of the view that the present
application filed by the applicant under section 7 of the I&B Code is filed
pursuant to the RBI Circular. Therefore, the present application u/s 7 of the
I&B Code deserves to be REJECTED.
26. This
petition filed under Section 7 of I&B Code, 2016, filed by Canara Bank,
against GTL Limited, for initiating corporate insolvency resolution
process is rejected.
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27. MA 2308
/2019 in CP 3604/ 2018 is hereby ALLOWED & CP 3604/ 2018 is hereby
DISMISSED. Ordered Accordingly. The Registry is at this moment directed to
immediately communicate this order to the Financial Creditor and the Corporate
Debtor.
Sd/- Sd/-
CHANDRA
BHAN SINGH M.K. SHRAWAT
Member
(Technical) Member (Judicial)
26nd November 2019
