TaxTMI 
TaxTMI 
2019 (11) TMI 1213
X X X X Extracts X X X X
X X X X Extracts X X X X
....nsolvency Resolution Proceedings (CIRP) against the Corporate Debtor. 2. The averments of the petition filed by the Petitioner/Financial Creditor in brief are: (i) Pursuant to sanction letters dated 26.06.2007, 06.10.2009, 09.06.2010, 09.08.2011, 26.09.2012 and 20.09.2013 and agreements of loan for overall limit dated 11.08.2007 and 02.06.2008 read with supplementary agreement dated 08.10.2009, agreement of loan for overall limit dated and working capital consortium agreement dated 08.06.2013, the financial creditor had inter alia granted certain fund based and non-fund based facilities to the corporate debtor. (ii) In lieu of such fund based and non-fund based facilities certain securities have been held by way of mortgage, hypothecation, personal guarantees and pledges of shares. According to the estimate of the financial creditor aforesaid securities are amounting to Rs. A copy of valuation report supporting the above estimate is placed at Exhibit- 9. (iii) Such initial facilities have been restructured vide agreement dated 22.12.2014, which are known as CDR facilities. The CDR facilities and the priority loans availed from other lender were further restructured vide ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cution of projects on account of delays in land acquisition, obtaining regulatory and other clearances, etc. Consequently, the corporate debtor was not able to convert orders executed into cash due to a large portion of executed orders being in the form of receivables primarily due to pending approvals for cost revisions and claims for time overruns and other related issues resulting in adverse effect on the corporate debtor's operations. Further, higher fixed costs and other overheads compared to the lower turnover resulted in operational losses for the corporate debtor. Consequent on such operational losses incurred by the corporate debtor has been referred to the Corporate Debt Restructuring Cell (CDR Cell) and the CDR Empowered Group approved a restructuring package. The lenders have implemented the CDR package for the credit facilities availed by the corporate debtor in December 2014 and the financial creditor continued as the leader of the consortium. (ii) It is further submitted by the corporate debtor that even after implementation of CDR package the difficulties faced by the corporate debtor continued for the reasons enumerated in the counter. The corporate debtor, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nk dues. However, the agreed arrangement too could not fructify due to non-issuance of Advance Bank Guarantees by the lenders resulting in non-release of mobilisation advance in respect of new projects to the extent of Rs. 142.00 crores. (viii) It is submitted by the corporate debtor that in order to protect the projects the corporate debtor has envisaged certain moves and the lenders have agreed to and implemented holding on operations from August 31, 2018 with a cut back of 10% against receipts vide decision taken at the consortium meeting dated 28.08.2018. Further, the lenders agreed to implement holding on operations without any cut back from the receipts vide decision taken at the consortium meeting dated 11.10.2018. It is submitted by the corporate debtor that the financial creditor has unilaterally started deducting a cutback of 25% on projects with < 50% completion and 10% on projects with > 50% completion. The corporate debtor represented to the consortium to roll back the high cut back which was heightening risks to the projects and pleaded for release of 100% of receipts to the projects. Subsequently, the consortium in its meeting dated 26.11.2018 decided not to hold ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mited deserves no indulgence from this Hon'ble Tribunal since it is merely aimed at delaying proceedings in the present matter. It is submitted that the Hon'ble Supreme Court in the matter of DHARANI SUGARS AND CHEMCIALS LIMITED vs. UNION OF INDIA AND OTHERS (supra) wherein the impugned RBI Circular is declared ultra vires section 35AA of the Banking Regulation Act, 1949 and has held as under: "For these reasons also, the impugned circular will have to be declared as ultra vires as a whole and be declared to be of no effect in law. Consequently, all actions taken under the said circular, including actions by which Insolvency Code has been triggered must fall along with the said circular. As a result, atl cases in which debtors have been proceeded against by financial creditors under section 7 of the Insolvency Code, only because of the operation Of the impugned circular will be proceedings which, being faulted at the very inception, are declared to be non-est. " It is thus, clear that if the proceedings before the Adjudicating Authority are initiated only because of the operation of the impugned circular, such proceedings cannot be proceeded with. It is contended by t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hallenge but only because of such provision at this stage, it cannot be said that RBI has no authority to advise SBI to initiate insolvency proceedings, for the simple reason that irrespective of such advice or direction, SBI can on its own initiate such proceedings and in that case, the issue regarding genuineness of such proceedings is to be decided only by the adjudicating authority and not by the Writ Court. " (Emphasis supplied) (vi) The petitioner/ financial creditor has also relied on order dated 24.09.2018 of the Hon'ble Allahabad High Court in the case of JAIPRAKASH ASSOCIATES LIMITED vs. RESERVE BANK OF INDIA AND OTHERS, in writ C. No.31329 of 2018, wherein it is held that, "Even assuming for a minute for the sake of argument alone that the aforesaid direction of the RBI is bad in law, we do not find that ICICI Bank independent of the said direction precluded from initiating Corporate Insolvency Resolution Process against the petitioner who happens to be a corporate debtor under the IBC. Section (7) of the IBC permits a financial creditor to file application for initiating Corporate Insolvency Resolution Process against the corporate debtor when a 'defaul....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rporate debtor. This is an application filed under section 7 of Insolvency and Bankruptcy Code, 2016 to initiate CIRP against corporate debtor on the ground that the corporate debtor committed default in payment of debt. The case of the financial creditor is stated as above. The corporate debtor filed detailed counter mainly contending that it had faced so many problems in the course of its business and as a result it could not service the debt and finally the corporate debtor contended that the proceedings under section 7 of Insolvency and Bankruptcy Code, 2016, be deemed to be non-est in view of the decision of the Hon'ble Apex Court in DHARANI SUGARS AND CHEMCIALS LIMITED vs. UNION OF INDIA AND OTHERS (supra). The contention of the corporate debtor that the financial creditor being a Member of the consortium of lenders, initiated proceedings in pursuance of the Circular of the Reserve Bank of India dated 12.02.2018, which was held to be ultra vires section 35AA of the Banking and Regulation Act, 1949 and the proceedings held as non est and the application deserves to be rejected. 6. Learned counsel for the financial creditor filed written submissions. Learned counsel relie....
X X X X Extracts X X X X
X X X X Extracts X X X X
....red to be of no effect in law. Consequently, all actions taken under the said circular, including actions by which the Insolvency Code has been triggered must fall along with the said circular. As a result, all cases in which debtors have been proceeded against by financial creditors under section 7 of the Insolvency Code, only because of the operation of the impugned circular will be proceedings which, being faulted at the very inception, are declared to be non-est. " (para 72) (emphasis supplied) 10. Counsel contended that if proceedings are initiated against the corporate debtor solely because of operation of the RBI Circular, then such proceedings cannot be proceeded with. The contcntion of the learned counsel that the financial creditor filed the present petition in exercise of its right under section 7 of the Code and not in pursuance of the RBI Circular only. The contention of the learned counsel is that if proceedings are initiated against the corporate debtor only in pursuance of the RBI circular then such proceedings are held to be non-est. 11. Thus, the counsel contended that the financial creditor has specifically stated in the rejoinder dated 1().07.2019 that the p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ruptcy Code, 2016 are initiated against the corporate debtor only in pursuance of the RBI circular dated 12.02.2018. 13. We have seen the Minutes of the consortium of Banks meetings held on 27.07.2018, 28.08.2018, 11.10.2018, 26.11.2018 and 30.11.2018. There is no reference to the RBI Circular in the Minutes of the Consortium meetings held prior to 26.11.2018. However, the Minutes of the Consortium meeting held on 26.11.2018 and 30.11.2018 refer to the Circular of RBI dated 12.02.2018. The extracts from Minutes of the meeting dated 26.11.2018 are as under: "(iv) Filing application in NCLT: Yes Bank and SCB put forward that the default date for consortium is 01.06.2018 and application is to be filed in NCLT. SBI AGM SH Prakash Reddy, said that the process of filing is initiated and application will be filed by 11.12.2018 (within grace period). Kotak, ICICI and IDBI expressed doubt that whether the filing in NCLT be reconsidered, as the company's outstandings is tess than 2000 crs in case LC outstandings are taken. SBI AGM said that as per RBI guidelines, calculation for the purpose of exposure will be based on WC limits in force and Term Loan outstandings as on referral ....