TaxTMI 
TaxTMI 
2014 (7) TMI 1255
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....nt No.2, Mr.Amit Mittal, is a promoter of defendant No.1 and holds 35% of shareholding by way of 2,59,62,743 equity shares of Rs. 10/- in the defendant No.1 company. 3. The defendant No.3, ICICI Bank is a company incorporated under the Companies Act, 1956 and a bank company under the Banking Regulation Act, 1949 and is the pro-forma defendant. 4. The defendant No.4, 3i Infotech Trusteeship Services Limited is also a pro-forma defendant. 5. The brief facts are that the Working Capital Consortium agreement which is called EPC Consortium Agreement had 16 lender banks including the plaintiff and defendant No.1 as parties to the said agreement. Joint deed of hypothecation was also executed. Both are dated 17th March, 2011. The contribution of the plaintiff was Rs. 40 crore. The total facility sanctioned to the defendant No.1 was Rs. 2014 crore. These 16 banks have a charge over all assets of defendant No.1. 6. Apart from the said consortium as the defendant No.1 was desirous of setting up 3 (three) biogases-cum-bio mass based power co-generation plants, namely, a. The Fazilka Project, b. The Morinda Project, c. The Nakodar Project in the State of Punjab, India (hereinafter r....
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....er charge, lien or encumbrance affecting the said assets or any part thereof without, inter alia, the plaintiffs prior written consent nor shall the defendant No.1 do anything qua the said assets which would prejudice the charge created in favour of Security Trustee acting for the benefit of, inter alia, the plaintiff. (Clause 14.9 of the said agreement read with Clause 17 of the Deed of Hypothecation). In terms of the said agreement and the Deed of Hypothecation, it has been stipulated that in the event of any default, the plaintiff shall be entitled to recall the said loan as funded by the plaintiff and take charge and/or possession of seize, recover, receive and remove the said assets and/or sell the said assets. (Clause 6.1(ii) of the Deed of Hypothecation). The said agreement provides that the courts and tribunals at Delhi shall have jurisdiction to try any matters arising out of or in connection therewith. (Clause 20.14 of the said agreement). 10. It is not denied by any of the parties that a new consortium dated 27th May, 2011 was entered in between the plaintiff and ICICI Bank, the defendant No.3, in which Rs. 178 crore was lent for these power projects and a first charg....
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....s alleged by the plaintiff that the intention of the defendant No.1 as well as the Working Capital Consortium was to exclude the said assets of the project from the purview of the Working Capital Consortium Agreement and the Working Capital Deed of Hypothecation since the said assets were exclusively financed by the Term Lenders for the Project. A first charge qua the said assets was created by the defendant No.1 in favour of the Term Lenders (which includes the plaintiff). 14. An Escrow Account Agreement dated 27th May, 2011 (hereinafter referred to as the "Escrow Agreement") also executed, inter alia, by and between the defendant No.1 and the plaintiff whereby it was agreed as under: a. the defendant No1. shall deposit all the receivables, insurance proceeds, etc. to be received by the defendant No.1 company from the said project into the escrow account maintained with the plaintiff, b. the said receivables were to be deposited with the plaintiff for repayment of the monies sanctioned by the plaintiff under the said agreement together with interests, costs, charges and expenses thereto and all other costs, charges, etc, arising out of the financing documents ....
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.... such situation as observed by the plaintiff, the present suit has been filed. 16. The suit as well as interim application was listed before Court on 24th January, 2014. The summons/notice were issued to the defendants for 13th February, 2014. In the interim application being IA No.1438/2014 (Order 39 Rule 1 and 2) the following, inter alia, interim orders were passed. Para 5 and 6 of the said order are re- produced hereunder : "5. I am satisfied that so far as defendant No.2 is concerned, the plaintiff has been able to make out a prima facie case that the said defendant cannot create any charge, hypothecation or pledge 35 per cent shares for which he has stood guarantee for repayment of the loan advanced by the plaintiff bank. The plaintiff has got prima facie good case. Balance of convenience is in their favour and they will suffer irreparable loss in case defendant No.2 is not prevented from creating such a charge or his shares. Accordingly, defendant No.2 is restrained from creating any charge, pledge or hypothecation of his shares which is stated to be 35 per cent in the defendant No.1 company. 6. So far as other ad interim prayers of the plaintiff are con....
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....g capital consortium. In the meanwhile, the defendant No.1 filed the application, being I.A. No.11895/2014, on 2nd July, 2014 for modification of order dated 20th March, 2014. The following prayer is sought in the abovementioned application : "(a) Modify/clarify order dated 20.3.2014 and necessary permission be granted to the applicant as well as all CDR/lenders be allowed to implement and act upon the CDR agreements so executed between the parties after the passing of order dated 20.03.2014 in the interest of justice." 19. The application filed by the defendant No.1 is listed before this Court for hearing when the other pending applications are also listed. Parties have made their submissions in the said application. They have also filed short written submissions. 20. It is stated in the application filed by the defendant Nos.1 and 2 that after passing of order dated 20th March, 2014, the defendant No.1 along with the other CDR lenders had executed CDR agreements including the Master Restructuring Agreement (MRA) on 27th March, 2014. As per the CDR Scheme, the defendant No.1 is required to infuse the promoter quota of contribution of Rs. 34 Crores (Approx.) within 1....
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....other formalities as per the terms of the above agreements for successful implementation of the CDR scheme and to provide necessary succor to the company for bailing out from the present financial crisis, in the absence of any clarity by the Court in the ongoing litigation and the impasse so created by the mandate of the last order. 23. It is also stated in the application that the defendant No.1 has recently obtained a prestigious work order of worth appx. Rs. 2500 crores under the tender floated by BSNL for construction of Exclusive Optical NLD Backbone and optical Access Route for defense network all over India on back to back basis from ITI Ltd. (PSU Govt. of India organization). This project itself will be a lifeline and important and sole milestone for the revival of the defendant No.1's company. If the above B.Gs and LCs are not released in the given time frame then all chances of revival of company as well as the sensitive and work of national importance related to Ministry of Defense will suffer adversely. 24. It is argued by Mr.A.S. Chandhiok, learned Senior counsel appearing on behalf of defendants No.1 and 2 that mainly the plaintiff is relying upon an underta....
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....nged. The first charge on the power projects assets at Fazilka, Morinda and Nakodar in Punjab is not being violated nor is defendant No.2 diluting its percentage of shareholding in defendant No.1. It is submitted on behalf of defendant No. 1 and 2 that the said consortium agreement also takes into account the repayment of amount payable to the plaintiff under the second consortium agreement of 27th May, 2011. Therefore, an additional funding of Rs. 43 Crores is required for completion of the projects on which the plaintiff claims first charge. Any additional funding by the lenders adds value to the security available with Yes Bank Ltd. Value of security as against loan of Rs. 90 Crores is still much higher than envisaged at the time of sanction of the loan. Hence, overall there is no dilution in the security of Yes Bank. The present value of the power projects is more than Rs. 429 crore now and once they become operative or additional funding comes in, their value will definitely increase. The debt of the plaintiff is adequately secured and since the repayment of its loans are already included in the CDR, interest of the plaintiff is fully safeguarded. In its application bein....
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....e payment is not released immediately, in that event the defendant No.1 and the employees will suffer irreparable loss and injury and moreover, defendant No.1 will also become liable for non compliance of statutory compliance, rules and regulations. If defendant No.1 survives then everything will sail through including the interest of the plaintiff and other minor stakeholder lenders and other lenders, hence any impediment by way of judicial order or otherwise for the rehabilitation of defendant No.1 will mark the very purpose and intent for which the CDR process was undertaken by the RBI for financial sick companies. The other banks who are parties to the MRA willing to give BG/LC as per the CDR agreement are in fact feeling restrained in view of the order dated 20th March, 2014 stating that the order dated 20th March, 2014 is preventing from issuance of the same by them. Therefore, it is necessary that if the order dated 20th March, 2014 is further modified and necessary permission to all concern CDR members is granted for further act upon the CDR agreement. 28. Mr. Sandeep Sethi, learned Senior counsel appearing on behalf of the plaintiff has made various submissions. The rel....
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....tor Agreement (DCA) and Inter- Creditor Agreement (ICA) signed between the contracting parties. The plaintiff is not a member to the CDR mechanism and has not acceded to any of the requests of the defendant No.1. The defendant No.1 was desirous of raising additional financial facilities inter alia for the said project by way of a Corporate Debt Restructuring Package (hereinafter referred to as the "CDR Package"). In this regard, several discussions took place between, inter alia the plaintiff and the defendant No.1. On one such meeting dated 20th November, 2013, it was categorically stated by the plaintiff that the term lenders may consider providing a second charge qua the said assets for such incremental funding to be provided by the CDR Lenders. However, this would be subject to, inter alia, an up front, unconditional and satisfactory no approval of the second charge holders that would be required by the Term Lenders at any point. e) He submits that the defendant No.1 simultaneously worked towards the proposed CDR Package and the plaintiff, on becoming aware of the same, made several representations to the defendant No.1 as well as the Capital Debt Restructurin....
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....ncluding the plaintiff herein) with the said NOC from the proposed second charge holders prior to creation of such second charge. The said NOC was never provided to the plaintiff. As such, there has been no consent by the plaintiff qua any proposed second charge, till date. 29. The plaintiff submits that although the defendant No.1 is required to obtain the prior written consent of the plaintiff qua fresh/further funding (including for the issuance of bank guarantee and letter's of credits from banks, as required for the BSNL project in question), it has not so far approached the plaintiff for such consent however, his client may not have any objection if further funding facility is provided under the EPC Consortium agreement dated 17th March, 2011. 30. It is strongly argued by Mr.Sethi, learned Senior counsel, that the defendant Nos.1 and 2 cannot absolved from the contractual obligations qua the plaintiff raising the issue of CDR mechanism to which the plaintiff is not a party. 31. Mr.Sethi says that there is no force in the submission of defendant No.1 that it has received a contract from BSNL in respect of which the defendant No.1 is required to submit a bank guara....
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.... rights of the plaintiff. Let me deal with the legal submissions of the parties before deciding the matter on merit. 34. Mr. A.S. Chandhiok, learned Senior counsel, appearing on behalf of the defendants No.1 and 2 during the course of hearing referred the following decisions and guidelines dated 26th February, 2014 issued by the Reserve Bank of India. In the first decision in the case of Administrator of the Specified Undertaking of the Unit Trust of India & Anr. vs. Garware Polyester Ltd., (2005) 10 SCC 682, Mr. Chandhiok has referred para 38 which reads as under: "38. In view of the our findings aforementioned, we are of the opinion that the Appellants herein having failed to establish that they could hold the entire scheme to ransom so as to stall the proceedings as a result whereof the majority of debenture holders would be deprived, the purpose or object motivating the Appellants to advance such a huge amount to the Respondent against issue of debentures is a matter of little or of no concern to the Respondent - company or other debenture holders. A special or a new right cannot be found in favour of the Appellants in the agreement when it creates none. The sche....
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....unicated by the Debenture holder(s). 3.7 REPAYMENT : The Company agrees and undertakes to redeem the debentures to all the debenture holders in three equal yearly installments from the end of 4th year from the date of allotment and ending in the 6th year from allotment. The debenture holders may at the request of the company in suitable circumstances and also in the absolute discretion of the Debenture holders, subject to the statutory guidelines as may be applicable for the purpose, revise/postpone the redemption of the debentures or any party thereof outstanding for the time being or any installment of redemption of the said debentures or any part thereof upon such terms and conditions as may be decided. If for any reason the amount of the Debentures finally subscribed for by the debenture holders is less than the amount of the debentures agreed to be subscribed the installment(s) of redemption will be reduced proportionately but will however be payable on the due date as specified. 3.9 DEBENTURE CERTIFICATE : The Company shall issue debenture certificate/s to the debenture holder/s after making necessary compliance to the pro....
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....Debenture holders convened in accordance with the provisions set out in Fifth Schedule hereunder written, the Trustees shall give effect to the same by executing necessary Deed(s) supplemental to these presents." xxx xxx xxx "The Third Schedule above referred to Financial Covenants and Conditions 1. DEBENTURES TO RANK PARI PASSU The debentures shall rank pari passu inter se without any preference or priority of one over the other or others of them. 10. VARIATION OF DEBENTURE HOLDERS' RIGHTS The rights, privileges and conditions attached to the Debentures may be varied, modified or abrogated in accordance with the Articles of Association of the Company and the Act and with the consent of the holders of the debentures by a Special Resolution passed at the meeting of the Debenture holders, provided that nothing in such resolution shall be operative against the Company where such resolution modifies or varies the terms and conditions governing the Debenture if the same are not acceptable to the Company." "The Fourth Schedule Above Referred to Form of Debenture Certificate xxx xxx xxx The Fifth....
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....all debenture-holders. Under these circumstances in para 38, it has been rightly opined that the party i.e. appellants in that case could hold the entire scheme to ransom so as to stall the proceedings as a result whereof the majority of the debenture-holders would be deprived. 36. But the facts in the present case are totally different as in an independent Rupees loan agreement dated 27th May, 2011, the plaintiff provided a term loan of Rs. 90,00,00,000/- (Rupees Ninety Crores only) to the defendant. The other lender was defendant No.3. The defendant No.1 has executed various documents including a deed of hypothecation in favour of Security Trustee and for the benefit of term lenders creating first charge over the said assets of the said project and defendant No.1 undertook that it shall not create any further charge, lien or encumbrance affecting the said assets or any part thereof without inter alia the prior written consent which was not obtained by the defendant No.1 despite of having full knowledge of various documents executed. Even defendant No.1 also executed a joint deed of hypothecation dated 17th March, 2011 with the working capital consortium where the first char....
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....same is an independent of the CRD mechanism. There are reversed guidelines on Corporate Debt Restructuring (CDR) Mechanism which are referred by the plaintiff. Para 4.3 of the same reads as under : "4.3 Restructuring by JLF 4.3.1 If the JLF decides to restructure an account independent of the CDR mechanism, the JLF should carry out the detailed Techno-Economic Viability (TEV) study, and if found viable, finalise the restructuring package within 30 days from the date of signing off the final CAP as mentioned in paragraph 3.3 above. 4.3.2 For accounts with AE of less than Rs. 5000 million, the above-mentioned restructuring package should be approved by the JLF and conveyed by the lenders to the borrower within the next 15 days for implementation. 4.3.3 For accounts with AE of Rs. 5000 million and above, the above-mentioned TEV study and restructuring package will have to be subjected to an evaluation by an Independent Evaluation Committee (IEC)3 of experts fulfilling certain eligibility conditions. The IEC will look into the viability aspects after ensuring that the terms of restructuring are fair to the lenders. The IEC will be required to give th....
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....n 'Review of Prudential Guidelines on Restructuring of Advances by Banks and Financial Institutions') and adopt the same with suitable adjustments taking into account the fact that different sectors of the economy have different performance indicators." 39. In the case of BNY Corporate Trustee Services Ltd. vs. Wockhardt Limited; which is referred by Mr.Sethi, learned Senior counsel passed in Company Petition No.971/2009 the same aspect as involved in the present case has been discussed in detail. In that case also the petitioner company inter alia stated that it is seeking help in financial restructuring of debts and interests from various lenders in India through CDR mechanism. However, no certificate as requested by the petitioner was provided. Therefore, the petitioner reiterated its request by another email dated 16th April, 2009 to the respondent. The respondent company addressed a letter dated 23rd April, 2009 inter alia informing that an application has been made by ICICI as the lead institution on behalf of the company to the CDR cell for a possible restructuring of company's loans and confirming that it shall revert to the petitioner with a submission of....
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....ce with our powers set out in clause 9.3 and 9.4 of the Trust Deed, we hereby urgently request you in your capacity as Issuer of the Bonds to produce a certificate of compliance and no event of default or potential event of default within five calendar days hereof. "Note that the certificate should make reference to the Trust Deed and the notes and should be issued in compliance with the terms of the Trust Deed." "Please provide the said certificate as a matter of urgency and in any event, no later than 5 pm (London time) on 11th May 2009." "Should you have any queries, please contact Zaira Jehangir on +44 207 964 4981." "The Trustee hereby reserves all of its rights and the rights of the Bondholders under the Trust Deed, the conditions, any other documents relating to the Bonds and at law." In paras 60 and 61 i.e. final conclusion of the judgment, the Court has held as under: "60) As far as the maintainability of the petition is concerned, once the objection raised in that behalf is found to be of no substance, then, the other contentions need not detain me. The petitioner cannot be forced to join the CDR scheme. The law does not pos....
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.... 61) The other objection raised to the maintainability of the petition is that some of the creditors have found the scheme feasible and have pumped in funds. This is also cannot be a ground not to admit the petition because there is no dispute about the liability, there is no denial thereof and there is nothing which would indicate that the respondent has a bonafide defence. The only defence seriously pursued is on the maintainability of this petition. That defence has no substance. There is no denial of the liability or any dispute raised in that behalf. In fact, the liability to pay the amount is admitted throughout. The company calls upon the petitioner to enter into a package or scheme of compromise allegedly to secure the debt. That package or scheme (CDR) has been rejected by the petitioner and it proceeds to institute this petition. Once it rejects the proposal and the conduct of the petitioner in trying to protect the interest of bond holders cannot be termed as blameworthy or questionable, then, it must be held that the alternatives or options suggested to secure the debt in this case do not constitute a substantial defence. The claim is huge and the petitioner has filed ....
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....fendant No.1 (including the receivables from the said project) into a common TRA (Trust Retention Account). Third condition is the creation of a pledge by the defendant No.2 of the shares held by him in defendant No.1. Each of these conditions is in direct violation of the contractual rights of the plaintiff/respondent. The plaintiff does not have any intent in opposing the CDR Package so long as its contractual rights are not breached. 45. The entire case of the plaintiff is to protect its contractual rights vis-a-vis the CDR Package has all throughout been in the knowledge of the defendant No.1 and the CDR Lenders. Despite the benefit of such knowledge, the defendant No.1 and the CDR Lenders agreed to the CDR Package in its present form, which breaches the contractual rights of the plaintiff. The defendant No.1 cannot now take advantage of its own wrong. The CDR Lenders were aware of the breach of the contractual rights of the plaintiff before executing the MRA. The defendants and the CDR Lenders should modify the CDR Package to ensure that the contractual rights of the plaintiff are not breached and under the garb of 'further clarification', the defendant No.1 has act....
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....e instant factual scenario since the MRA is already executed under the CDR mechanism. The JLF Guidelines cannot be applied retrospectively to this CDR mechanism. 49. In the present case, the plaintiff does not have any intent in opposing the CDR package so long as its contractual rights as mentioned in the suit and hereinabove are not breached. The plaintiff merely seeks the protection of its contractual rights which have arisen by virtue of various agreements executed between the parties for the said project. The plaintiff has no intention to stall the CDR package. The plaintiff maintained its objection to the violation of its contractual rights. 50. Mr.Sethi has rightly argued that plaintiff does not oppose the CDR package as long as its own contractual rights which are governed by the various contracts executed between the plaintiff and the defendants No.1 and 2 as listed above remain protected and are not breached. 51. No doubt in the present case, the defendant No.1 has obtained a contract from BSNL. The defendant No.1 seeks the permission of this Court to give effect to the CDR package/MRA on the ground that, in view of the directions of this Court, the defendant No.....
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....f is one of the parties. But in the present case, it is submitted that the defendant No.1 is making a false impression that the defendant No.1 is bona fide in its approach and that the CDR package in question is in view of the larger interests of the defendant No.1 company. 54. It is totally immaterial if defendant No.3 is taking a different stand which is just opposite to the stand of plaintiff. It is rightly argued by Mr.Sethi and it appears to the Court that the defendant No.3 (ICICI Bank) has given consent to the CDR Package because they are a part of the CDR Mechanism in question and as the defendant No.3 has a higher exposure in the working capital facility as opposed to the term loan facility. Therefore, the defendant No.3 has joined the CDR scheme even if ICICI Bank has consented and other banks who are not a party to the Rupees Term Loan agreement dated 17th May, 2011, there is no obligation on the plaintiff to consent as well. 55. From the entire gamut of the case, this Court is of the view that the lenders having exclusive charge on a specific asset cannot be forced to share their charge on the security. The said assets are to keep outside the ambit of the proposed....