Tribunal Grants NOC & Surplus Security Release; Rejects Interest Rate Relief

The Tribunal partially allowed the application, granting the request for the issuance of a No Objection Certificate (NOC) and the release of surplus security. However, the prayers for waiver and reduction of interest rates were rejected. The Administrator was directed to consider the issuance of the NOC and release of surplus security within four weeks to facilitate the smooth continuation of the Corporate Debtor's business activities. The Tribunal held that the application was maintainable under Sections 60(5) and 231 of the Insolvency and Bankruptcy Code.

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Issues Involved:

1. Issuance of No Objection Certificate (NOC) for creating temporary security.
2. Release of surplus value of security.
3. Waiver of interest from the date of loan sanction till issuance of NOC.
4. Reduction of interest rate to 11% per annum.
5. Reduction of interest rate to 12.50% per annum for loans sanctioned to Applicant No. 2.
6. Maintainability of the application under Section 60(5) of the Insolvency and Bankruptcy Code (IBC).

Detailed Analysis:

1. Issuance of No Objection Certificate (NOC) for creating temporary security:

The applicants, SGS Construction & Developers Pvt. Ltd. and SGS Infratech Ltd., sought directions for the issuance of an NOC from the Respondent Administrator of DHFL to create temporary security of 20% of the project land (approximately 10 acres) for 24 months in favor of Ghaziabad Development Authority (GDA) as per Clause 4.7 of the Pradhan Mantri Awas Yojana (PMAY) policy. The Tribunal noted that the GDA's demand for ad hoc security was a condition precedent for the release of sanctioned plans/drawings necessary for project implementation. The creation of such security would be temporary and released by GDA upon completion of the EWS houses. The Tribunal directed the Administrator to consider granting the NOC in consultation with the CoC, retaining adequate security, and releasing surplus encumbrances within four weeks.

2. Release of surplus value of security:

The applicants requested the release of surplus value of security created in favor of DHFL to raise further loans from other financial institutions for project construction under PMAY. The Tribunal acknowledged the necessity for additional loans to complete the project and directed the Administrator to consider releasing surplus security after retaining sufficient security as per norms.

3. Waiver of interest from the date of loan sanction till issuance of NOC:

The applicants sought a waiver of interest from the date of loan sanction until the issuance of the NOC. The Tribunal rejected this prayer, stating that parties under a contract are bound by the agreed terms and conditions, and the rate of interest shall flow from the Sanction Letter(s) and Loan and Security Documents. The Tribunal emphasized that the rate of interest was floating and could not remain static, and the lender is entitled to charge interest as agreed upon from the date of disbursement.

4. Reduction of interest rate to 11% per annum:

The applicants requested a reduction of the interest rate to 11% per annum as per the sanction letter dated 23.05.2018, citing the project's categorization under the PMAY infrastructure category. The Tribunal found this request legally untenable, reiterating that the contractual terms must be fulfilled, and the agreed rate of interest cannot be altered.

5. Reduction of interest rate to 12.50% per annum for loans sanctioned to Applicant No. 2:

Similarly, the request to reduce the interest rate to 12.50% per annum for loans sanctioned to Applicant No. 2 was rejected. The Tribunal maintained that the rate of interest applicable at the time of loan sanction would continue throughout the loan's currency, and any alteration would amount to rewriting contractual terms, which is not permissible under Section 60(5) of the IBC.

6. Maintainability of the application under Section 60(5) of the Insolvency and Bankruptcy Code (IBC):

The Respondent contested the maintainability of the application, arguing that the dispute did not relate to the insolvency resolution of DHFL and should be addressed in a Civil Court or other legal forum. The Tribunal, referencing the Supreme Court decision in Gujrat Urja Vikas Nigam V/s Solar Semiconductor Power Company Pvt. Ltd., held that it possessed the necessary jurisdiction under Sections 60(5) and 231 of the IBC to deal with issues intrinsically connected with the Corporate Insolvency Resolution Process (CIRP) and the continuance of the Corporate Debtor's affairs as a going concern. Thus, the application was deemed maintainable.

Conclusion:

The Tribunal partially allowed the application, granting the request for the issuance of an NOC and the release of surplus security while rejecting the prayers for waiver and reduction of interest rates. The Administrator was directed to consider the issuance of the NOC and release of surplus security within four weeks, ensuring the smooth continuation of the Corporate Debtor's business activities.

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