TaxTMI 
TaxTMI 
2018 (1) TMI 125
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....been included as member in the Committee of Creditors (COC) of JODPL (Jubilant Off Drill Pvt. Ltd.) being a Financial Creditor. Therefore, such action of the RP now is impugned through the present application. 2. Therefore, the present applicant has sought for a direction from this Court as being Adjudicating Authority to be issued to the IRP (now RP) to treat the applicant as a Financial Creditor of the JODPL and to include it as a member of COC of the Corporate Debtor Company. It is also contended that in case the applicant is not allowed, then it would have to suffer a grave and irreparable loss and injury. It is also submitted that the balance of convenience is also in its favour, hence, its present application deserves to be allowed. 3. The present applicant has sought for such relief as slated at page No. 27 of the present application for the sake of convenience, which are being reproduced herein below:- "Pending hearing and disposal of this application, adjourn all other proceedings in the present matter pending before this Hon'ble Tribunal, including but not limited to the replacement of the resolution professional pursuant to the resolution passed by the....
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.... applicant, the operator for the purpose of carrying out petroleum operations in relation to the KG Block, holds 80% of PI in relation to the KG Block and JODPL holds 10% of the PI in relation to the KG Block as a non-operating party. c. A Joint Operating Agreement dated August 07, 2003 (JOA) was executed among the applicant, JEL and Geoglobal Resources (India) Inc., setting out the rights and obligations of the parties in relation to the KG Block. It may be noted that a deed of assignment and assumption dated January 04, 2005 was executed whereby JEL's rights and obligations under the PSC and JOA were assigned to JODPL. d. As per the terms of the PSC and the JOA, all the costs and expenses for carrying out petroleum operations in relation to the KG Block are required to be borne by the parties thereto, including JODPL, in the proportion to their respective PI. Article 7.6.1 of the JOA provides that if any party to the JOA fails to pay its share of costs/cash calls on the due date, then the non-defaulting parties to the JOA are required to contribute the amounts defaulted by such defaulting party. Further, a defaulting party under the JOA can remedy the defaul....
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....: "Nothing contained in this Article 28, shall prevent a party comprising the Contractor from mortgaging, pledging, charging or otherwise encumbering at its own risk and cost all or any party of its Participating Interest for the purposes of security related to finance to the extent required for performing its obligations under the Contract; provided that: .................................... the encumbrance shall be expressly subordinated to the rights of the other Parties under the Contract. The obligations occurring from the said encumbrance shall be the sole responsibility of the original Party and shall in no manner compromise the rights of the other Parties to the Contract. " JOA ARTICLE 13.7: "Nothing contained in this Article 13, shall prevent a Party from mortgaging, pledging, charging or otherwise encumbering all or part of its interest in the Contract Area and in an under this Agreement for the purposes of security related to raising of finance so as to meet its obligations under this Agreement: provided that: .............................. such Party shall ensure that the any such mortgage, pledge, charge or....
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.... under the JOA and any party who is in default of such fundamental obligation has expressly waived any set-off or claim that it may have against the non-defaulting party. Further, the defaulting party has also expressly agreed in terms of Article 7.8 that in the event of its default, the amount and nature of remedies available to non-defaulting parties under Article 7 of the JOA are just, proper and appropriate. j. It is also important to note that vide letter dated August 22, 2016, JODPL has itself acknowledged its liability towards the applicant under the term of the JOA for the purposes of the Limitation Act, 1963. k. Thereafter, as mentioned above, JODPL filed the application, as corporate debtor for initiation of corporate insolvency resolution process under Section 10 of the Code as the corporate applicant, which has been admitted by the Hon'ble Tribunal vide order dated March 17, 2017. Pursuant to the admission, and in terms of the Code, a public announcement was made for collection of claims of creditors of JODPL by the IRP. Consequently, a committee of creditors has also been constituted by the IRP for JODPL. l. Further, in the meeting held w....
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.... 2017, the applicant again sought copies of the documents specified therein. After several requests and incessant follow up on the part of the applicant, the IRP provided the applicant with the copy of inter alia the list of claims maintained by him in relation to JODPL, vide his email dated April 30, 2017. p. A perusal of the list of claims maintained by the IRP shows that the claims of applicant (submitted vide email dated March 31. 2017) have not been included by the IRP in the list of claims and in fact, the amount of applicant's admitted claims have been shows as 'not applicable' by the IRP, on the basis that these amounts have been disputed by JODPL. 6. With respect to the debt owed by JODPL to the applicant, it may be noted that the amount of Cash Calls/JIBs, from July, 2013 onwards, have been funded by the applicant on behalf of JODPL, which JODPL is required to repay to the applicant in accordance with the provisions of the JOA along with interest at prescribed rate if such repayment is not made by JODPL within 30 days from the due date of repayment under the JOA. It is accordingly, submitted that the amounts owed to the applicant are 'fin....
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.... & (h) read with section 3(6) of the I & B Code read with other relevant provision of the Regulation. It is further alleged that the applicant earlier made its claim to the IRP of the Corporate Debtor Company, but the same was wrongly rejected. The RP although constituted a COC for JODPL but without including the present applicant. Therefore, the present applicant has not only been denied with its legal claim but has also been deprived of to represent the COC as a Financial Creditor in the decision making process for a resolution plan for JODPL, which is not justified. Hence, the abovementioned prayer and relief is being sought for. In support of application and prayer the applicant has submitted an affidavit of its Manager (Secretarial and Legal) annexing therewith necessary documents of Production Sharing Contract (PSC) which were entered among the parties. A copy of the default notices issued time to time from 13th August, 2014 onwards to the present Corporate Debtor Company. The applicant further enclosed a copy of a communication dated 22nd August, 2016 as received from the Corporate Debtor Company (i.e. JODPL) informing such that it has acknowledged its liability towards the ....
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....SPC on behalf of the JODPL. Further, as per the provision of Section, the amount already incurred/contributed by GSPC on behalf of the JODPL are repayable by it along with interest at LIBOR plus 2% representing time value of money. Therefore, the nature of debt owed by JODPL to GSPC is a financial debt, thereby resulting the GSPC as a financial creditor of the JODPL. 7. For the sake of convenience, the relevant portion of paras 2 of the main application i.e. paras 2.1 to 2.5, 2.7, 2.9 & 2.13, may be reproduced which reads as under: "2. A brief overview of the circumstances which have led to the filing of the present application by the Corporate Debtor is provided herein below for the purpose of assisting this Hon'ble Tribunal: 2.1 The Government of India, Gujarat State Petroleum Corporation Limited, Jubilant Enpro Limited and Geoglobal Resources (India) Inc. (GGR) entered into the Production Sharing Contract (PSC) on 04.02.2003 with respect to contract area identified as Block-KG-OSN-2001/3 to explore and produce petroleum and related products from the Contract Area (Project). 2.2 JEL acquired a participating interest of 10% (PI) in the Contract Ar....
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....ful completion of the works in the Contract Area. 2.13 The time and cost overruns in the execution of petroleum operations pertaining to the Contract Area severely strained the financial resources of the Corporate Debtor. Consequently, the Corporate Debtor was unable to service the debts raised by its from the Lenders from January, 2016 onwards. Due to the aforesaid reasons the Lenders started declaring the Corporate Debtor as a non-performing asset account (NPA) on various dates. The Corporate Debtor's account was declared an NPA by the State Bank of India on 31.03.2016, by Punjab National Bank on 31.03.2016, by Export and Import Bank of India on 28.04.2016, by the Corporation Bank on 31.05.2016, by the Bank of India on 30.06.2016 and by the Allahabad Bank on September, 2016. Notices of recall/demand have been received by the Corporate Debtor from State Bank of India, Export and Import Bank of India and the Punjab National Bank respectively. It is stated that presently INR 1,332.5 Crores of the principal borrowing remains outstanding towards the Lenders." 8. That apart a perusal of the exchange of correspondence between the corporate applicant (JODPL) and the prese....
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....stantiate the claim of GSPC. 11. The applicant further contended that the alleged dispute of respondent JODPL by raising question on the validity of the Cash Call is Sham in nature and irrelevant in facts there exist no dispute. Moreover, till date of filing present application there is no formal dispute is filed or any adjudicating proceeding for resolution of dispute is pending before Competent Court of Law. 12. Notwithstanding the above, as per the applicant the pendency or existence of a dispute is no bar for initiating a proceeding U/s 7 or 10 of the I & B Code, nor it can be relevant for the present application. It is relevant only in respect of proceedings filed under Section 9 of the I & B Code. Therefore, respondent's such contention that the applicant claim is being disputed does not come to aid to it for seeking discharge from its contractual obligation and financial liability nor such entitles to the RP and COC to reject the applicant's claim nor such dispute can have bearing on classification of the present applicant as a financial creditor under the Code. Therefore, such dispute is Sham in nature and is liable to be rejected with heavy cost. Thus, on the....
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....f the Section 10 Application. B. Default of Corporate Debtor to the Applicant: The Applicant and the Corporate Debtor are co-venturers in KG-OSN-2001/3 Block ("KG Block") which is an offshore oil and gas exploration block located off the east coast of India. The relationship between the Parties is governed by the Production Sharing Contract with respect to KGI Block dated February 4, 2003 ("the PSC") and Joint Operating Agreement with respect to KG Block dated August 7, 2003 ("the JOA"). The Applicant is also the Operators of the KG Block and is responsible for carrying out the operations pertaining to exploration, development and production from KG Block. As per the terms of the PSC and the JOA, all the costs and expenses for carrying out petroleum operations in relation to the KG Block are required to be borne by the parties thereto, including JODPL, in the proportion to their respective Participating Interest ("PI"). Article 7.6.1 of the JOA provides that if any party to the JOA fails to pay its share of costs/cash calls on the due date, then the non-defaulted on behalf of such defaulting party. The defaulting party under the JOA can remedy the default....
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....n from the IRP till April 9, 2017 regarding the claim of GSPC as Financial Creditor, GSPC addressed another reminder email to the IRP stressing that the nature of debt owed by JODPL to GSPC is a financial debt and therefore GSPC is entitled to receive notice of a meeting of Committee of Creditors including voting rights at such meeting. In response to the aforesaid reminder of GSPC's email, the IRP vide his email dated April 10, 2017, opined that GSPC is neither Financial Creditor nor an Operational Creditor. The IRP stated that GSPC fell into (albeit an imaginary) category of "other stakeholder". The aforesaid opinion of the IRP was in stark contradiction to his own advice to GSPC in meeting held on March 27, 2017 where GSPC was advised to file claim as an Operational Creditor. GSPC completely refuted the aforesaid stand of the IRP vide its email dated April 10, 2017 and sought a meeting in this regard with the IRP. It may be noted that GSPC was in fact invited at all the meetings of the Committee of Creditors commencing from April 11, 2017 till May 9, 2017. Since the discussion with the IRP did not materialize and IRP did not include GSPC as a Finan....
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....y encumbrance over a party's PI can be created in favour of its lenders only to the extent that the finance availed by creating such security is utilized for the purpose of discharging that party's payment obligations under the PSC. Any security created over any party's PI with respect to monies borrowed for any other purpose would be void under Article 28.8 of the PSC. H. Article 28.8(ii) of the PSC also stipulated that any encumbrance created in favour of lenders would be subordinate to the rights of the other parties to the Contract. In effect to the said article provides that in case any party makes any contributions on behalf of the other party, the rights of such party shall be superior to the rights of lender of the party on whose behalf such contribution was made. 14. Thus, under the scheme of the PSC, carrying out of the petroleum operations in the Block is of paramount importance. While the PSC requires each of the parties to contribute to the costs of carrying out petroleum operations in the proportion of participating interest, it is also envisaged that in case any of the parties fail to honour such contribution, other parties must ensure continu....
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....ed Budget in respect of which each of the parties is obligated to contribute in accordance with the Cash Call or JIB raised by the Operator. H. Article 5.6 provides for the manner in which the decision of the Operating Committee shall be taken. It provides that any proposal approved by a majority vote of 70% Participating Interest shall be deemed to have been approved by the Operating Committee and that proposals approved by such majority shall be final and binding on all the Parties. The aforesaid majority principle is a conscious commercial agreement reached way back in 2003 amongst the Applicant, the Corporate Debtor and GGR and is as such an unassailable decision making process under the JOA. Any Work Programs and Budgets approved by such majority would constitute Approved Work Program and Approved Budget in respect of which each of the parties is obligated to contribute in accordance with the Cash Call or JIB raised by the Operator. I. Article 7.1 requires that all the expenditures incurred by the Operator (GSPC in this case) in carrying out the operations under the JOA shall be borne by all the parties in proportion to their participating interest. There is ....
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....sed by GSPC from time to time which individual obligation of JODPL has been discharged by GSPC on behalf of and on account of JODPL giving rise to debt owed by JODPL to GSPC. 15. From the aforesaid analysis of the provisions of PSC and JOA following picture emerges as far as the nature of transaction is concerned: 1. The fundamental principle under the PSC and the JOA is that all parties are to contribute their share of cost and expenses pertaining to Petroleum Operations in the KG Block. While these costs are incurred by the Operator (in this case GSPC), all parties are required to bear all such costs in proportion to their respective PI. 2. The provisions of the PSC mandate and make it an obligation of the Contractors to ensure continuance of Petroleum Operations. In order to ensure this the PSC requires that in the event a Contractor fails to discharge its payment obligation, the other Contractors should make payments on behalf of such Contractor. The non-paying Contractor (in this case JODPL) is then required to repay such payments made on its behalf to the other Contractor(s). Further, the interest of the Contractor making good such default shall have supe....
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....rom GSPC. 16. Despite the above stated contention of the applicant, the Respondent-Corporate Debtor Company (through the RP) has refuted the same in its reply by taking such plea that the GSPC does not qualify to be a Financial Creditor of the Respondent-Corporate Debtor Company (JODPL) as per the definition of the I & B Code, because (as per it) a financial debt means, which is disbursed against the consideration for the time value of money, which is not the case of applicant here. In support of its contention, the RP has placed reliance on a decision of Hon'ble Principal Bench, New Delhi in the matter of Nikhil Mehta & Sons v. AMR Infrastructure Ltd. However, such decision stands set aside by the Hon'ble NCLAT. That apart the Respondents-Corporate Debtor has impliedly admitted the terms of the agreement entered between the applicant and the Corporate Debtor Company under the PSC and JOA and participating interest to the extent of 10% in respect of Oil Block known as KG-OSN-2001/3 Block had disputed the Cash Call. The Respondent-Corporate Debtor Company further reiterated its stand contending such all costs and expenses which were incurred by the operator (GSPC) on beha....
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....of the JODPL in the KG Basin Block and if it so, as being a theme and planning of the Resolution Plan, then, why GSPC and/or ONGC being public sector company cannot be invited to participate in such meeting of COC to ascertain the asset of the corporate debtor company and to discuss about the taking over its participating interest and to materialize the resolution plan for the revival of the Company. 18. It is strange to note that, while the claim of the present applicant as a financial debts and financial creditor is not accepted by the RP but on the other hand, a member of the Suspended Management of JODPL is very well participating in such meetings and has been allowed to raise issue for the consideration of the COC, which is evident from minutes of the 7th COC dated 5th June, 2017. Such issues relate to cash call of JODPL as raised by one Sh. Nikhil Pandey and were taken into consideration and discussed by the COC as an agenda in its meeting held on 27th April, 2017. This vindicate such fact that RP himself has pointed out and sent a letter before the COC proposing such that protection of 10% participating interest of JODPL in KG Block is the only assets of value available i....
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....r any other instrument issued by a bank or financial institution.- 22. Further, the judgment of Hon'ble NCLAT in the matter of Nikhil Mehta & Sons (supra) as having binding effect on us. Hence, the relevant portions thereof are being reproduced herein below:- The agreement shows that the respondent agreed to complete the construction of shopping mall on or before December 2009, in all respects and was required to complete and handover the shop in the shopping mall before the said date. It is not the case of the respondent that the construction was stopped or delayed on account factors beyond the control of the respondent, as stipulated in the later part of the Memorandum of Understanding. It was agreed upon by the respondent that since the appellants have paid most of the amount the respondent was ready to pay "monthly committed returns" to the appellants. However, as the appellants were not required the monthly return till December 2008 i.e. for 9 months so the respondent-corporate debtor undertook to make a consolidated payment of Rs. 99,600 less TDS. For every calendar month the Corporate Debtor was liable to pay committee return w.e.f January 2009 till the date ....
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.... pleased quote an English decision in the matter of Seaford Court Estates Ltd. v. Asher [1949] 2 All E.R. 155 (CA) wherein the learned Judge laid down such proposition stated hereunder: "A Judge should ask himself the question how, if the makers of the Act had themselves come across this ruck in the texture of it, they would have straightened it out? He must then do so as they would have done. A Judge must not alter the material of which the Act is woven, but he can and should iron out the creases. " 24. The counsel for both the parties through their written submission placed reliance on some other decisions and judicial precedents in support of their respective contention, which are as follows:- "Authorized Officer, Indian Overseas Bank v. Ashok Saw Mill in Civil Appeal No. 4429 of 2009 arising out of SLP (C) No. 27399 of 2008 and Civil Appeal No.4433 of 2009 arising out of SLP (C) No. 3020 of 2009. (Union of India versus Raman Iron Foundry and Union of India v. Air Foam Industries Pvt. Ltd. in Civil Appeal Nos. 1224, 1225 and 1330 of 1973." Which were carefully read and considered by us but in our humble view the proposition laid down therein may not be re....