2022 (7) TMI 314 - AT - Insolvency and Bankruptcy

Tribunal Orders Pro-Rata Debt Distribution in Escrow Accounts Under Revised Framework

Union Bank of India Versus Infrastructure Leasing & Financial Services Ltd., Haryana Mass Rapid Transport Corporation Ltd., Haryana Shehri Vikas Pradhikaran Versus Rapid Metrorail Gurgaon Limited, Rapid Metrorail Gurgaon South Limited And Canara Bank Versus Rapid Metro Rail South Limited., Union of India

The tribunal directed the distribution of the 80% debt due in Escrow Accounts in accordance with the Revised Distribution Framework, ensuring pro-rata ... Seeking adjustment of amount deposited in escrow account - recovery of dues of the RMGL, one of the subsidiary of the IL&FS - whether HSVP is obliged to deposit 80 % of debt due as determined by Comptroller and Auditor General of India which amount is to protect the interest of Lenders? - HELD THAT:- All the investigations and enforcement machinery has to follow to its logical conclusion but the deposit of only 80% debt due have been directed by the Hon’ble Supreme Court in RAPID METRORAIL GURGAON LIMITED ETC. VERSUS HARYANA MASS RAPID TRANSPORT CORPORATION LIMITED & ORS. [2021 (3) TMI 1180 - SUPREME COURT]. All issues between the parties has to be sort out by the Arbitration as noticed above both RMGL/RMGSL and HSVP/HMRTC have invoked the Arbitration clause in the Concession Agreement and has given notice to each other which proceeding may take its logical conclusion and the distribution of the 80% debt due is in terms of the Concession Agreement has to be subject to final resolution. The distribution of 80% of debt due deposited in the escrow account of RMGL and RMGSL has to be in accordance with the Direction of this Tribunal dated 12th March, 2020 in paragraph 64 to 66. 80% of debt due as determined by CAG is laying in the Escrow Account of RMGL and RMGSL. The interim distribution of the said amount is permitted on pro rata distribution as suggested by Union of India and approved by this Tribunal in UNION OF INDIA VERSUS INFRASTRUCTURE LEASING & FINANCIAL SERVICES LTD., SOMANY PROVIDENT FUND INSTITUTION & ORS. [2020 (3) TMI 1398 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI]. The Interim Distribution of the amount shall be amongst the Financial Creditors of both the Project No. 1 and 2. The Interim Distribution shall abide by the final resolution of ILFS Companies after following due procedure as prescribed in ‘Revised Distribution Framework’. Application disposed off. Issues Involved:1. Deposit and appropriation of 80% debt due in Escrow Accounts.2. Compliance with the Concession Agreement and handover of assets.3. Distribution of deposited amounts as per the Revised Distribution Framework.4. Arbitration proceedings for unresolved disputes.Issue-wise Detailed Analysis:1. Deposit and Appropriation of 80% Debt Due in Escrow Accounts:The primary issue involved the deposit of 80% of the debt due by HSVP into the Escrow Accounts of RMGL and RMGSL, as mandated by the Supreme Court's judgment dated 26th March 2021. The Union Bank of India and Canara Bank, representing the consortium lenders, sought permission to appropriate the deposited amounts towards their dues. The Supreme Court's judgment emphasized that the deposited amount is to protect the interests of the lenders and should be appropriated by them. The tribunal noted that the Supreme Court had directed that any disputes regarding the audit report should be resolved through arbitration.2. Compliance with the Concession Agreement and Handover of Assets:HSVP and HMRTC argued that RMGL and RMGSL had not complied with the terms of the Concession Agreement, particularly the handover of assets, and therefore, were not entitled to claim any amount from the deposited funds. However, the tribunal found that RMGL and RMGSL had handed over the assets and control of the metro rail projects to HMRTC and DMRC as of 22nd October 2019, as evidenced by the letters and documents submitted. The tribunal rejected the argument that RMGL and RMGSL had not complied with the Concession Agreement, noting that the Supreme Court had already addressed these issues and directed that any remaining disputes be resolved through arbitration.3. Distribution of Deposited Amounts as per the Revised Distribution Framework:The tribunal emphasized that the distribution of the 80% debt due deposited in the Escrow Accounts must be in accordance with the Revised Distribution Framework approved by the tribunal on 12th March 2020. This framework ensures that the termination amount received from HSVP is utilized to satisfy the debts of all lenders, including both secured and unsecured creditors, as well as operational creditors. The tribunal rejected the lenders' request to appropriate the entire amount solely for their dues, emphasizing the need for a pro-rata distribution among all stakeholders as per the approved framework.4. Arbitration Proceedings for Unresolved Disputes:The tribunal reiterated that any disputes regarding the audit report, the validity of termination notices, and other claims between the parties should be resolved through arbitration, as provided in the Concession Agreements. Both RMGL/RMGSL and HSVP/HMRTC had already invoked arbitration clauses and issued notices to each other, indicating that arbitration proceedings were underway. The tribunal emphasized that the interim distribution of the deposited amounts would be subject to the final resolution of these disputes through arbitration and the final resolution process of ILFS companies.Conclusion:The tribunal directed that the distribution of the 80% debt due deposited in the Escrow Accounts should be carried out in accordance with the Revised Distribution Framework approved on 12th March 2020. The distribution should be on a pro-rata basis among all financial creditors of the projects, subject to the final resolution of ILFS companies. The tribunal also mandated that financial creditors provide an undertaking to refund any excess amounts received, based on the final resolution. All unresolved disputes between RMGL/RMGSL and HSVP/HMRTC were to be addressed through arbitration proceedings.