2020 (11) TMI 28 - HC - Companies Law

Court denies writ petition challenging NPA classification, upholds denial of moratorium benefits under COVID-19 Relief Policy.

The court rejected the writ petition, finding that the Petitioner did not demonstrate bona fides and that the classification of Loan Transaction No. III ... Extension of benefit of moratorium - Repayment of Term Loan - HELD THAT:- The Petitioner has filed an interim intervention application before NCLAT. The Petitioner sought a declaration that the Petitioner does not owe the ₹ 100 crores as claimed by the Respondent to them. The prayers are to modify the order of embargo, to refrain IFIN from taking any steps regarding Loan Agreement No.III, discharge the Petitioner from loan agreement No.III. In this application, the Petitioner has narrated the history, and the same assertion is made that the Petitioner placed full trust and confidence in the senior management of IL & FS. It is asserted that the facility sanctioned in favour of the Petitioner by IFIN was at the request of IFIN, and it was availed for a private loan to ITNL. Several parties are appearing before NCLAT and NCLT. Application filed by other entities for lifting the grant of the moratorium was rejected by the NCLAT by detailed order on 12 March 2020. Petitioner's application is still pending in NCLAT, and it is not rejected. If it is rejected, the Petitioner can challenge the rejection. The petitioner contends that the writ petition be entertained and merely because there is a fraud by IF& LS group the Court should not proceed on the basis that the Petitioner is guilty. It is contended that there is nothing against the Petitioner as on date and the assertion of the Petitioner that the Petitioner was innocent third party needs to be accepted and direction to grant moratorium should be given - Though the Petitioner has urged that the Petitioner is not seeking clean chit from the Court, indirectly, the Petitioner is doing the same. The mismanagement of IL & FS group is looked into by NCLT and NCLAT. SFIO is conducting its own investigation. The proceedings before us do not arise from the investigation carried out by SFIO nor from the orders passed by NCLAT. We do not have the inputs from the investigating agency. Based on the documents placed before us, the Petitioner wants us to uphold it’s innocence. The new Board of Directors’ on 28 January 2019 appointed External Auditors to examine the loan given by the superseded Board. The interim report by the Forensic Auditor on 20 February 2019 has indicated that loans of approximately ₹ 2270 Crores were routed to the group companies with third parties like the Petitioner. A prerogative writ is not granted as a matter of course. The Writ Court intervenes where justice, equity, and good conscience require its intervention. Considering the totality of the circumstances, the simplistic foundation of the Petitioner's case cannot be accepted - Petition dismissed. Issues Involved:1. Classification of Loan Transaction No. III as a Non-Performing Asset (NPA).2. Denial of Moratorium Benefits under IFIN COVID-19 Relief Policy.3. Alleged Mismanagement and Fraud within IL & FS Group.4. Maintainability of the Writ Petition.Detailed Analysis:1. Classification of Loan Transaction No. III as a Non-Performing Asset (NPA):The Petitioner, a private limited company, contested the classification of Loan Transaction No. III (Rs. 100 Crores) as an NPA by IFIN. The Petitioner argued that this loan was a back-to-back transaction between IL & FS and its subsidiaries, and the Petitioner was merely an innocent intermediary. The Petitioner claimed that the loan was wrongfully classified as NPA due to the default of Respondent No. 2 and sought to challenge the communication dated 7 May 2019, which declared the account as NPA.The court, however, found that the Petitioner received Rs. 100 Crores from IFIN and transferred the same amount to ITNL as per IFIN's instructions. The Petitioner’s contention that it was unaware of the fraudulent nature of the transaction was not accepted. The court noted that the Petitioner could not provide a satisfactory explanation for the delay in challenging the NPA classification and found substance in the Respondent's contention of delay and latches by the Petitioner.2. Denial of Moratorium Benefits under IFIN COVID-19 Relief Policy:The Petitioner sought the benefit of the moratorium for Loan Transactions No. I and II under the IFIN COVID-19 Relief Policy. IFIN rejected this request on the grounds that the Petitioner’s account for Loan Transaction No. III was already classified as NPA before 1 March 2020, making the Petitioner ineligible for the moratorium.The court upheld IFIN's decision, noting that the moratorium policy explicitly excluded accounts classified as NPA before the specified date. The Petitioner’s argument that the classification of Loan Transaction No. III as NPA was arbitrary and unreasonable was not accepted by the court.3. Alleged Mismanagement and Fraud within IL & FS Group:The court examined the broader context of alleged mismanagement and fraud within the IL & FS group, as highlighted by various investigations, including those by the Serious Fraud Investigation Office (SFIO) and the Enforcement Directorate (ED). The court noted that the SFIO report indicated that IFIN deceptively lent loans to external parties, including the Petitioner, which were then transferred to IL & FS group companies to circumvent RBI directives.The court found that the Petitioner’s involvement in the back-to-back transaction was part of a larger fraudulent scheme orchestrated by the IL & FS group. The Petitioner’s claim of innocence was not supported by the evidence, and the court refused to accept the Petitioner’s version of events.4. Maintainability of the Writ Petition:The Respondents raised a preliminary objection regarding the maintainability of the writ petition, arguing that Respondent Nos. 1 to 3 could not be considered state instrumentalities and that the Board of Directors was appointed by the NCLT, not the government.The court decided to consider the merits of the case first and kept the argument of maintainability open to be urged in other cases. Ultimately, the court found that the Petitioner failed to establish a bona fide case and refused to exercise its equity jurisdiction.Conclusion:The court rejected the writ petition, finding that the Petitioner did not demonstrate bona fides and that the classification of Loan Transaction No. III as NPA was justified. The court also upheld IFIN's decision to deny the moratorium benefits based on the Petitioner’s ineligibility under the COVID-19 Relief Policy. The broader context of fraud and mismanagement within the IL & FS group further undermined the Petitioner’s claims of innocence. The issue of maintainability was left open for future consideration.