2024 (12) TMI 614 - AT - IBC

NCLAT upholds order directing lenders to implement Resolution Plan by releasing Non-Fund Based facilities

NCLAT Principal Bench dismissed appeals challenging Adjudicating Authority's order directing lenders to implement Resolution Plan by releasing Non-Fund ... Implementation of the Resolution Plan - release of Non-Fund Based (NFB) facilities - appellant contends that the order passed by the Adjudicating Authority is contrary to the Resolution Plan - one of contention between the parties is that although Resolution Plan contain issuance of NFB facilities after considering the projects where the agreement contains a clause which provide due consideration of the borrower and project by lenders - HELD THAT:- Present is a case where except Bank of Baroda, no other lender has issued any bank guarantee or letter of credit. Present is not a case that the company has defaulted in any of the bank guarantee or letter of credit issued by the bank. At very threshold, the lenders are not operationalising the clauses of the Resolution Plan which provided roll-over of the NBF facilities. It is also not the case of the lenders that the project for which bank guarantee or letter of credit has been asked for are not viable project nor there being any consideration and rejection of issuance of bank guarantee on the basis of evaluation of any project. Reference made to judgment of this Tribunal in STATE BANK OF INDIA VERSUS MBL INFRASTRUCTURES LIMITED, ANJANEE KUMAR LAKHOTIA [2023 (5) TMI 1082 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHI] which also arose out of the direction issued by the Adjudicating Authority for implementation of the Resolution Plan. This Tribunal in the above judgment has observed that when the Resolution Plan has been approved, it is obligatory on all stakeholders to act in manner so as to implement the Resolution Plan. The argument that on account of extension of three years and nine months in the implementation of the plan, the plan is no more viable and cannot be accepted was raised and rejected. Present is a case where Resolution Plan has already been approved by the CoC where decision was consciously taken to roll-over NFB facilities by the existing lenders. It is also not the case that the borrower has defaulted in any of the bank guarantees or letter of credit so as to give any apprehension in the mind of the lenders that borrower will not be able to honour the service the NFB facilities. Direction issued by the Adjudicating Authority is only to the effect that the lenders shall examine the project for which bank guarantees have been asked for and the Respondent shall have right to constantly monitor the business performance of the company and shall be competent to raise flag at appropriate time in case of deviation and take corrective action at that time and company shall furnish information/ documents required by the lenders for review of financial performance of the company after its first release. The company being EPC contractor has to carry out and to work the contract to earn revenue, without the company carrying any contract it cannot generate revenue. Stopping the company to not able to work any contract due to non-release of bank guarantee is akin to stopping the company from carrying out normal function which shall lead non-compliance of the repayment obligation of the company which can never be object of approval of the Resolution Plan. Counsel for the Respondent has also relied on Joint Lenders’ Meeting held on 26.09.2024 i.e. after passing of the order passed by the Adjudicating Authority where IDBI Bank has also flagged the issue the non-release of NFB limits may jeopardise the operations of the company which will impact the repayment of NCDs to assenting Financial Creditors. The issue that non-release of NFB limits has also been flagged before the joint lenders meeting and the lenders have to think twice before not acting as per the approved Resolution Plan. Counsel for the Appellant has relied on the judgment of the Hon’ble Supreme Court in VENKATARAMAN KRISHNAMURTHY AND ANOTHER VERSUS LODHA CROWN BUILDMART PVT. LTD. [2024 (2) TMI 1154 - SUPREME COURT] to support his submission that the court cannot rewrite or create a new contract between the parties and has to simply apply the terms and conditions of the agreement as agreed between the parties under the contract. The NFB Agreement entered between the parties was entered to give effect to the approved Resolution Plan between the parties and the NFB Agreement has to be read in a harmonious manner to give effect to the purpose and intent of the clauses of the approved Resolution Plan. NFB Agreement clearly stipulated “Recital D of the NFB Agreement: The execution of this Agreement and other financial documents by the borrower has been authorised to give effect to the terms of the approved Resolution Plan. Thus, clauses of the NFB Agreement have to be read in a manner to give effect to the Resolution Plan and not to make any clause of the Resolution Plan otiose and unworkable. There are no merit in these Appeals - Appeals are dismissed. Issues Involved:1. Implementation of the Resolution Plan and release of Non-Fund Based (NFB) facilities.2. Jurisdiction of the Adjudicating Authority in altering commercial terms.3. Compliance with applicable laws and regulations for issuance of NFB facilities.4. Evaluation of the company's viability and financial condition before releasing NFB facilities.Issue-wise Detailed Analysis:1. Implementation of the Resolution Plan and Release of NFB Facilities:The Appeals challenge the Adjudicating Authority's order directing lenders to release NFB limits as per the approved Resolution Plan. The Resolution Plan, approved by the Committee of Creditors (CoC) and the Adjudicating Authority, required the roll-over of bank guarantees and letters of credit to support the company's operations. The Tribunal noted that the Plan's implementation was delayed due to factors beyond the control of the Successful Resolution Applicant (SRA), and the lenders were obliged to release NFB facilities as contemplated in the Plan. The Tribunal emphasized that the lenders should monitor the company's performance and take corrective actions if necessary, but the initial release of NFB limits should not be unreasonably withheld.2. Jurisdiction of the Adjudicating Authority in Altering Commercial Terms:The Appellants argued that the Adjudicating Authority exceeded its jurisdiction by directing the release of NFB limits, effectively altering the commercial terms agreed upon in the Resolution Plan and NFB Agreement. The Tribunal rejected this argument, stating that the direction to release NFB limits was consistent with the Plan's terms and necessary for its implementation. The Tribunal held that the Adjudicating Authority did not renegotiate or rewrite the commercial terms but ensured compliance with the approved Resolution Plan.3. Compliance with Applicable Laws and Regulations for Issuance of NFB Facilities:The Appellants contended that the release of NFB facilities should comply with applicable laws and regulations, including RBI guidelines. They argued that the Adjudicating Authority's order overlooked these requirements. However, the Tribunal noted that the Resolution Plan had been approved with knowledge of existing regulations, and the lenders' obligations were subject to project appraisal rather than a re-evaluation of the borrower's viability. The Tribunal found no inconsistency between the Resolution Plan and applicable laws, asserting that the Plan's approval implied compliance with regulatory standards.4. Evaluation of the Company's Viability and Financial Condition:The Appellants sought to evaluate the company's viability before releasing NFB facilities, citing delays in Plan implementation and potential financial risks. The Tribunal dismissed this concern, emphasizing that the CoC had already assessed the company's feasibility and viability during the Plan's approval process. The Tribunal highlighted that the company's ability to generate revenue and fulfill its repayment obligations depended on the timely release of NFB facilities, which were integral to its operations as an EPC contractor. The Tribunal concluded that further evaluation of the company's viability was unwarranted and would hinder the Plan's implementation.In conclusion, the Tribunal upheld the Adjudicating Authority's order, finding no merit in the Appeals. The Tribunal emphasized the importance of adhering to the approved Resolution Plan and facilitating the company's operational needs to ensure successful resolution and compliance with repayment obligations. The Appeals were dismissed, affirming the direction to release NFB limits while protecting the interests of all parties involved.