TaxTMI 
TaxTMI 
2017 (8) TMI 298
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....oration incorporated in England by a Royal Charter, 1853 with its Registered Office in London, England. SCB is a leading International Banking Group and has been carrying on operations in India for over 150 years. 3. SBI was constituted under the Statutory Enactment of the State Bank of India Act, 1955. SBI with the sanction of the Central Government and Reserve Bank of India has acquired by way of amalgamation the business including the assets and liabilities of all of its associate Banks which are State Bank of Bikaner and Jaipur, State Bank of Hyderabad, State Bank of Mysore, State Bank of Patiala, State Bank of Travancore with effect from 1st April, 2017. The Corporate Centre of SBI is in Mumbai. 4. ESSAR is an Unlisted Public Company incorporated on 1st June, 1976 under the Companies Act, 1956 with its Registered Office at Essar House, Surat. The Objects for which ESSAR was constituted as set out in its Memorandum of Association, inter alia, include to carry on business of constructional engineers, mechanical engineers, Iron Founders, Public Works and general Contractors, Constructors, Builders, dealers in bridges Steel Frames, Buildings, steel, iron, structures of all k....
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....se 23.1 of the Facility Agreement has occurred and is continuing. ESOL's default in repayment under the Facility Agreement started in January 2015. On 15th September, 2015, SCB also issued notice to ESOL marking copies to ESSAR. On 7.12.2015, SCB served a notice of demand on ESOL stating the amounts due. On 7.12.2015 SCB also issued a demand notice to ESSAR. ESSAR failed to respond or to pay under the demand notice. SCB on 18.4.2016 issued a notice under Section 434 (1)(a) of the Companies Act, 1956. ESSAR neglected to pay the amount within 21 days of the statutory notice. As on 22nd June, 2017, the following were the outstanding amounts; (a) US $ 413,000,000 towards principal amount of the loan; (b) US $ 30,160,545.83 towards accrued interest of the loan; and (c) US $ 95,187,481.61 towards all other outstanding amounts due and payable under the Facility Agreement. SCB stated that ESSAR has no bona fide, valid or legal defence in respect of the amounts payable to the SCB. SCB also issued further notice on 17th November, 2015 stating that ESSAR is implementing a scheme between it and its Secured Creditors without prior approval of SCB. Thereafter, o....
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....mount]. 10. SBI filed details of case of disbursements and revival letters upto 7th July, 2016. SBI also filed financial debt documents, records and evidence of default in accordance with Banker's Books Evidence Act, 1891. SBI also filed Certificates of Registration of charges SBI also filed copies of Common Loan Agreement, SBLC Facility Agreement, Guarantee Facility Agreement, Working Capital Facility Agreement, Amended and Restated Working Capital Facility Agreement etc. SBI also filed Minutes of Meeting of JLF whereby SBI was authorised by other Banks of JLF to file CIR Application. SBI also proposed the name of Interim Insolvency Resolution Professional and filed his Written Communication. 11. The case of ESSAR, as can be seen from the objections in both the Applications, is as follows; 11.1 ESSAR stated that it is not a wilful defaulter. ESSAR stated that there is no diversion of funds, fraud or malfeasance. According to the ESSAR, ESSAR has set up several plants across the Country for the purpose of providing customized steel products to the consumers by investing Rs. 50,000 Crores. All the manufacturing facilities of ESSAR are world class facilities capable of m....
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....et other than Government allocation was available at a very high price making it commercially unviable for ESSAR or any gas based Steel unit. The anti-social elements damaged the Kirandul-Vizag Slurry Pipeline which was used for transporting iron ore fines in slurry form to the Pellet Plant in a cost effective and environmentally friendly manner. Therefore, it was not operational between March 2010 to December 2010 and May 2012 to January 2014. The Pipeline has been repaired and has been in operation from January 2014. Due to that also ESSAR has incurred losses. 11.3 Further, according to the ESSAR, entire steel sector in India was undergoing major crisis in the year 2014 and 2015 which was primarily due to the dumping of steel by various countries such as China, Japan, Republic of Korea and Russia amongst others. The Government of India took various measures through various Ministries to support the Indian Steel Industry. ESSAR gave the chronological sequence of various initiatives taken by the Government in Annexure-R/11. 11.4 Further, it is the case of the ESSAR that the operations of the ESSAR are very complex involving large number of stakeholders including suppliers, cr....
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....t amounts due to SCB and SBI are 'financial debts'. ESSAR did not even dispute the debt due to SCB and SBI. It is the case of ESSAR that it has submitted proposals for restructuring of its debts to the Lenders for approval and Lenders held several meetings with ESSAR from time to time and suggested certain modifications to the said proposals. After several meetings and exchange of communications, ESSAR in the month of January 2017 finally submitted to the Lenders the boundary conditions that were acceptable to it for their approval. Lenders informed ESSAR that 3>ield applicable for buy-back of shares by the promoters should be increased from 14% as proposed by ESSAR to 18%. Finally ESSAR agreed to pay the yield at 16%. During such period Sections 35AA and 35 AB were inserted in the Banking Regulation Act, 1949 by an Ordinance issued by the Central Government. RBI vide its powers under Section 35AA issued directions to the SBI to initiate Corporate Insolvency Resolution Process. 14. The first and foremost objection raised by the ESSAR is that the Application filed by SBI is not signed by a competent person. On this aspect, learned Senior Counsel appearing for ESSAR referr....
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....State Bank of India General Regulations, 1955 and Gazette Notifications, held that Manager of the Bank could be duly authorised to sign and verify the pleadings and also would be entitled to institute suits for and on behalf of the State Bank of India. In the case on hand, the officers who have signed in the Applications are above IV Grade. Therefore, the objection raised by the learned Senior Counsel for ESSAR regarding the competency of the person who signed the Application is not a valid objection. In view of the above discussion, Mr. Kshitij Mohan, Deputy General Manager is having valid authority to sign the Application and is competent to file the Application for and on behalf of SBI. 16. The contention raised by the learned Senior Counsel for the SCB is, that the word "may" used in Section 7 (5)(a) of the Code shall be read as "shall" but not as "may" in the context of initiation of Corporate Insolvency Resolution Process, Adjudicating Authority having satisfied about the other requirements. In support of his contention, he relied upon the following decisions; 1. Bachahan Devi And Another v. Nagar Nigam, Gorakhpur And Another, reported in (2008) 12 Supreme Court C....
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....s of the case, the provisions of the applicable laws and the object of the Insolvency and Bankruptcy Code. This Adjudicating Authority shall look into the aspect of the occurrence of default, and, while doing so, shall take into consideration various factual and legal pleas raised by both parties in order to record its satisfaction. Therefore, the argument of the learned Senior Counsel for the SCB, that the word "may" in Section 5(a) shall be read as "shall" and therefore it is mandatory on the part of the Adjudicating Authority to admit all the Insolvency Resolution Applications filed by the Financial Creditors, if they are complete, do not merit acceptance. 19. Learned Senior Counsel appearing for the ESSAR, depending upon certain observations made by the Honourable High of Gujarat in Special Civil Application No. 12434 of 2017, contended that the Adjudicating Authority shall take into consideration the Debt Reconstruction Scheme and the complex situation that arises in case of admission of this Application and whether Interim Resolution Professional (IRP) can manage the affairs of the Company or not. 20. On the other hand, learned Senior Counsel appearing for the SCB and S....
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....ng reasonable opportunity to the company, which is requested to be taken into insolvency by any such person. Therefore, the adjudicating authority being NCLT herein, which is constituted in place of the Company Court, needs to decide on its own based upon factual details that whether the insolvency petition is required to be entertained as such or not." "(3) For the purpose, adjudicating authority, certainly requires to extend hearing and reasonable opportunity to the company to explain that why such an application should not be entertained. In other words, filing of an application may not result into mechanical admission of application as seen and posed by RBIin impugned press release. It would be a decision based on judicial discretion by the adjudicating authority to deal with such application in accordance with law and based upon facts, evidence andcircumstance placed before it. To that extent, prayers 7(b) and (c) cannot be granted." The Hon'ble High Court of Gujarat, while dealing with the submissions of the ESSAR, in Para No. 39.12) at Page 77 observed as follows; "(12) However, before concluding the petition, one has to deal with the submissio....
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....nce of default from the records of Information Utility or on the basis of other evidence furnished by the financial creditor under sub-section (3). Under Section 5 of Section 7, the 'adjudicating authority' is required to satisfy- (a) Whether a default has occurred; (b) Whether an application is complete; and (c) Whether any disciplinary proceeding is against the proposed Insolvency Resolution Professional. 83. Once it is satisfied it is required to admit the case but in case the application is incomplete application, the financial creditor is to be granted seven days' time to complete the application. However, in a case where there is no default or defects cannot be rectified, or the record enclosed is misleading, the application has to be rejected. 84. Beyond the aforesaid practice, the 'adjudicating authority' is not required to look into any other factor, including the question whether permission or consent has been obtained from one or other authority, including the JLF. Therefore, the contention of the petition that the Respondent has not obtained permission or consent of JLF to the present proceeding which will....
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....But, the fact remains that except showing a little progress in the last financial year, there appears to be no scope for the ESSAR to repay its debts till 25 years or in a span of 25 years. Therefore, the Debt Restructuring Process, which is going on for the last two years, may not be a factor not to enter into Insolvency Resolution Process. It is pertinent to mention here, that even in the Corporate Insolvency Resolution Plan, Debt Restructuring Plan can be taken into consideration by the Committee of Creditors as one of the Resolution Plans, if submitted by any of the Resolution Applicants. Therefore, commencement of Insolvency Resolution Process cannot be construed as putting an end to the Debt Restructuring Process which has been commenced. The apprehension of ESSAR, that, to again start Debt Restructuring Process would consume lot of time, appears to be not acceptable for the reason that Insolvency Resolution Plan is a time bound programme. There is no scope for the stakeholders to prolong the process without taking a decision and without finalising the Resolution Plan. Therefore, on the ground that when a Debt Restructuring Process is going on there is no need to commence the....
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....e considered view that the Applications filed by the SCB and SBI are complete, there is occurrence of default in respect of financial debts, and there are no disciplinary proceedings pending against the Insolvency Resolution Professionals proposed by both the Applicants, i.e., SCB and SBI. Hence, this Adjudicating Authority is hereby admitting both the Applications filed by SCB and SBI. 26. In case of admission of an Application under Section 7 of the Code, the Corporate Insolvency Resolution Process commences. Section 13 of the code says that after the admission of the Application under Section 7, the Authority shall declare moratorium, cause public announcement of initiation of Corporate Insolvency Resolution Process, and call for submission of claims under Section 15 of the Code, and appoint Interim Resolution Professional in the manner laid down in Section 16. The learned Senior Counsel appearing for ESSAR vehemently contended that there is no need to appoint Interim Resolution Professional on the same day on which date admission order is passed and it can be passed within 14 days of the admission of the Applications. In this context, learned Senior Counsel appearing for ESS....
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....inst the admission order, and if the appointment of Interim Resolution Professional is deferred, then the interest of the Company would not be jeopardised. I am unable to agree with the contention of the learned Senior Counsel for the Interim Resolution Professional for the reason that no two stages or no two separate hearings are contemplated under the Code, namely, the first stage is admission and the second stage is appointment of Interim Resolution Professional. The object of the Code is to complete the entire process in a time bound programme. When such is the object of the Code, without any compelling circumstances, there is no need to defer the appointment of Interim Resolution Professional only to give an opportunity to the Corporate Debtor to agitate the decision of this Adjudicating Authority twice in two Appeals. The Corporate Debtor is entitled to prefer an Appeal against the order of admission and also against the appointment of Interim Resolution Professional. If both the orders, namely admission order and the order appointing Interim Resolution Professional are made separate, then the Corporate Debtor will file two Appeals at two stages and thereby gain more time, wh....
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.... No. 39 of 2017 is earlier in point of time than the Application of SBI. 29. Learned Senior Counsel appearing for SCB also contended that the criteria of value of the Creditors is not the guideline for appointing the Interim Resolution Professional. He contended that even if one Creditor recommends the name of Interim Resolution Professional, he shall be appointed irrespective of the fact that other Creditors together recommended another name of Interim Resolution Professional. 30. On the other hand, learned Senior Counsel appearing for SBI contended that before recommending the name of Interim Resolution Professional, SBI has undertaken lot of exercise in the Joint Lenders Forum Committee Meeting held on 22.6.2017. The JLF called for quotations from the Resolution Professionals including their experience. The JLF also considered the presentations given by the Insolvency Resolution Professionals. The JLF, after considering the profiles of various Interim Resolution Professionals, proposed the name of Shri Satish Kumar Gupta. He further contended that the value of debt of the JLF is far more than the value of the debt of SCB and therefore it is appropriate to appoint the Inter....
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.... held to be valid by the Hon'ble High Court of Gujarat in Special Civil Application No. 12434 of 2017 filed by ESSAR against RBI, SBI, SCB); (ii) The Application filed by SBI is signed by duly Authorised Person and he is entitled to file the Application; (iii) The Corporate Debtor committed default in payment of financial debt to Financial Creditors SCB and SBI; (iv) The Applications filed by SCB and SBI are complete in all aspects; (v) No disciplinary proceedings are pending against IRPs proposed by SCB AND SBI; (vi) The factual details, such as the Debt Resolution Process with JLF, the complex activities of Corporate Debtor, and consequences of appointment of Insolvency Resolution Professional, do not come in the way of commencement of Corporate Insolvency Resolution Process, more so, Corporate Insolvency Resolution Process is in the interest of Corporate Debtor and all its stakeholders; (vii) The Interim Resolution Professional, proposed by SBI, which is authorised by JLF, is the most suitable person to act as "Interim Resolution Professional"; (viii) SCB, SBI and other Creditors are entitled to file claims befor....