Resolution process continues for Category II company under IL&FS Framework with September 2024 voting deadline

NCLAT Principal Bench permitted continuation of ongoing resolution process for Category II company under IL&FS Resolution Framework. The tribunal allowed completion of sale process for 42.25% shareholding that commenced in January 2021, with voting deadline of September 30, 2024. Lead lender was granted liberty to raise objections regarding debt extinguishment upon mere payment for partial shareholding. The tribunal clarified that resolution process must be completed irrespective of pending application, while excluding the company from certain prayers in the application.

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Issues Involved:
1. Resolution of IL&FS Engineering and Construction Company Limited (IECCL).
2. Categorization and resolution framework for IL&FS Group companies.
3. Validity and objections related to the H1 bid by Howen International Fund SPC.
4. Application of IA No.5036 of 2023 regarding 100% write down of shares for Category II Companies.
5. Objections raised by ICICI Bank and other stakeholders.

Detailed Analysis:

1. Resolution of IL&FS Engineering and Construction Company Limited (IECCL):
The resolution process for IECCL, a Category II Company under the IL&FS Group, began with an invitation for Expression of Interest (EoI) on 13.01.2021 for the sale of 42.25% of its share capital held by IL&FS and IFIN. The process included a Swiss Challenge Process, where Howen International Fund SPC emerged as the H1 bidder. The revised financial proposal by Howen International Fund SPC was placed before the Committee of Creditors (CoC) for approval, and the voting process was ongoing.

2. Categorization and Resolution Framework for IL&FS Group Companies:
The National Company Law Appellate Tribunal (NCLAT) had earlier approved a resolution framework for IL&FS and its group companies, categorizing them into Category I and Category II based on the financial bids received. Category II Companies are those where the financial bid amount offered by the bidder is less than all the liabilities of the sale company.

3. Validity and Objections Related to the H1 Bid by Howen International Fund SPC:
Howen International Fund SPC submitted a binding bid for 42.25% of IECCL's share capital, which was later revised to Rs.799.19 Crores. ICICI Bank, a lead lender, raised objections stating that the bid value was lower than the liquidation value. Despite these objections, the CoC continued to consider the revised bid, and the voting process was in progress.

4. Application of IA No.5036 of 2023 Regarding 100% Write Down of Shares for Category II Companies:
IA No.5036 of 2023 sought permission to write down 100% of the share capital of Category II Companies upon payment of the bid value. However, IL&FS filed an affidavit stating that the resolution process for IECCL, which began in 2021, should be excluded from this application as it was at an advanced stage and involved only the sale of 42.25% shares.

5. Objections Raised by ICICI Bank and Other Stakeholders:
ICICI Bank argued that the sale of 42.25% shares could not be considered a resolution of the entire debt exposure of Rs.13,053.9 Crores. They requested that IECCL be included in the scope of IA No.5036 of 2023. Other stakeholders also filed objections to the 100% write down of shares. The Tribunal acknowledged these objections and granted liberty to ICICI Bank to raise its concerns about the extinguishment of its entire debt in the ongoing resolution process.

Orders:
1. The Tribunal listed IA No.5036 of 2023 for hearing on 14.10.2024, including objections from ICICI Bank and other stakeholders.
2. It clarified that the resolution of IECCL, which commenced on 13.01.2021, should proceed irrespective of the pending IA No.5036 of 2023, and IECCL should be excluded from the prayers made in IA No.5036 of 2023.
3. ICICI Bank and its consortium were granted the liberty to press for their objections regarding the extinguishment of their entire debt for the mere payment of 42.25% shareholding of IECCL in the ongoing resolution process.
4. IA No.3587 of 2024 and IA No.6326 of 2024 were disposed of accordingly.

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