2021 (5) TMI 404 - HC - Insolvency and Bankruptcy

Court dismisses writ petition due to lack of contractual obligation, suggests NCLT for company revival.

The court dismissed the writ petition as there was no contractual obligation to enforce the Joint Lenders Meetings' conclusions. It emphasized the lack of ... Joint Lenders' Meeting conclusions not creating contractual obligation - Judicial review of commercial and contractual decisions involving public money - Mandamus to compel funding or implementation of a resolution plan - Maintainability of writ petitions where insolvency proceedings are pending before NCLT - Scope of interference in bank decisions relating to revival of corporate debtorJoint Lenders' Meeting conclusions not creating contractual obligation - Mandamus to compel funding or implementation of a resolution plan - The conclusions recorded in the Joint Lenders Meetings of 19th and 27th March 2020 did not crystallise into a legally enforceable agreement obliging the respondent banks to implement the proposed resolution plan or to provide funding, and the High Court will not issue a mandamus to compel banks to inject funds. - HELD THAT: - The Court held that the minutes and in-principle conclusions of the Joint Lenders Meetings were deliberative and were not taken to their logical end in the form of an agreement or contract. In the absence of a concluded agreement, no contractual obligation arose which the Court could enforce by directing the respondent banks to pump in additional money. The exercise of directing banks to implement the proposed restructuring would amount to compelling a commercial decision involving public funds; such compulsion is beyond the province of a writ court when no enforceable contractual duty exists. Consequently, the relief sought in the nature of mandamus to implement the Resolution Plan could not be granted. [Paras 18]The petition seeking a mandamus to direct implementation of the Joint Lenders' conclusions is rejected because those conclusions did not create a binding contractual obligation.Maintainability of writ petitions where insolvency proceedings are pending before NCLT - Scope of interference in bank decisions relating to revival of corporate debtor - The writ petition is not maintainable to the extent it seeks to substitute the banks' commercial judgment on revival; matters relating to revival or insolvency are to be considered by the NCLT where the banks have already initiated proceedings. - HELD THAT: - The Court noted that the respondent banks have filed a petition before the National Company Law Tribunal and that the NCLT is the appropriate forum to examine whether the corporate debtor can be revived and to refer the matter to a committee of creditors or professionals under the Insolvency and Bankruptcy Code. Given the pending adjudication before NCLT and the commercial character of the banks' decision (involving public money), the High Court declined to interfere. The Court observed that the petitioner may press its contentions before the NCLT, which is equipped to assess revival prospects and take appropriate steps under the IBC framework. [Paras 13, 18]The writ petition is not maintainable insofar as it challenges the banks' commercial decision and seeks directions substituting the NCLT's role; the petitioner may pursue remedies before the NCLT.Final Conclusion: The writ petition challenging the letter dated 04.06.2020 is dismissed: the Joint Lenders' Meeting conclusions did not become a binding contract enforceable by mandamus, and the appropriate forum for contesting revival/insolvency issues is the NCLT; no costs. Issues Involved:1. Validity of the letter dated 04.06.2020 imposing unilateral changes to the Resolution Plan.2. Whether the respondent banks should be directed to implement the Resolution Plan agreed upon in the Joint Lenders Meetings (JLMs) held on 19th/27th March 2020 and 20.04.2020.3. Maintainability of the writ petition in contractual matters.4. Whether the decision taken by the respondent banks on 04.06.2020 was arbitrary and in violation of principles of natural justice.Issue-wise Detailed Analysis:1. Validity of the letter dated 04.06.2020:The petitioner contended that the respondent banks took a U-turn from their earlier decision to revive the petitioner company, as concluded in the JLMs held on 19th and 27th March 2020, without consulting the petitioner. The petitioner argued that this action was arbitrary and violated the principles of natural justice. The court noted that the conclusions from the JLMs were not formalized into an agreement or contract, thus no binding obligation existed between the parties. Consequently, the court could not mandate the respondent banks to implement those conclusions.2. Implementation of the Resolution Plan:The petitioner sought a directive for the respondent banks to implement the Resolution Plan agreed upon in the JLMs. The court observed that the conclusions of the JLMs were merely deliberations and had not been crystallized into a formal agreement or contract. Therefore, the court held that it could not issue a mandamus to enforce the conclusions of the JLMs, as it was within the banks' discretion to decide whether to proceed with the revival plan.3. Maintainability of the writ petition:The petitioner argued that the writ petition was maintainable in cases of arbitrary actions by public authorities, citing precedents from the Supreme Court. The respondent banks contended that the matter was already pending before the National Company Law Tribunal (NCLT), which would examine the possibility of reviving the company. The court agreed with the respondents, noting that the NCLT was the appropriate forum to address the revival of the company and that the writ petition was not maintainable in this context.4. Arbitrariness and violation of natural justice:The petitioner argued that the respondents' decision to take a U-turn from the earlier conclusions was arbitrary and did not consider the national interest. The court, however, found that the respondents' decision was a commercial one made in the interest of public money. Since no formal agreement or contract was entered into based on the JLMs' conclusions, the court held that the respondents' actions were not arbitrary.Conclusion:The court dismissed the writ petition, stating that there was no contractual obligation between the petitioner and the respondents to enforce the conclusions of the JLMs. The court emphasized that it could not direct the banks to revive the petitioner company based on the JLMs' conclusions, as no formal agreement or contract existed. The court also noted that the appropriate forum for addressing the revival of the company was the NCLT. Accordingly, the writ petition was dismissed with no order as to costs. Pending miscellaneous petitions, if any, were also closed.