TaxTMI 
TaxTMI 
2020 (11) TMI 28
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.... three loan transactions: First, Term Loan Facility no. I of Rs. 52 Crores dated 22 September 2016. Second, Term Loan Facility no. II of Rs. 15 Crores dated 28 April 2017 and third Term Loan Facility no. III of Rs. 100 Crores dated 23 March 2018. The Petitioner requested IFIN to extend the benefit of the Moratorium Policy to the Petitioner in respect of term Loan no. I and II. IFIN informed the Petitioner on 23 June 2020 and 5 August 2020 that since the account in respect Loan Transaction no. III of Rs. 100 crores was classified as a Non-performing Asset by communication dated 7 May 2019, the benefit of moratorium cannot be extended. These communications are challenged in this Petition. Thus, the Loan Transaction no. III is the subject of controversy. 2. IL&FS is a development and finance company. It operated through many subsidiaries. In the year 2018, the Union of India filed a petition bearing C.P. No. 3638/2018 under section 241(2) of the Companies Act, 2013 in the National Company Law Tribunal, Mumbai, the NCLT stating that the directors were mismanaging the functioning of IL & FS group and there was a large scale fraud. The NCLT, by order dated 1 October 2018 superseded....
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....itioner IFIN on 11 February 2020 for a no objection to dispose of the properties and utilize the sale proceeds of the said towards repayment of its loan transaction Nos. I and II, IFIN granted NOC to the Petitioner on 4 June 2020. According to the Petitioner, due to COVID-19 pandemic created situation, the transaction was not completed. 6. The Petitioner by letter dated 6 June 2020 requested IFIN to grant moratorium of 6 months in payment of interest and the principal falling due between 1 March 2020 and 31 August 2020. By impugned letter dated 23 June 2020, IFIN rejected the request of the Petitioner on the ground that the Petitioner does not fall under the category of "Eligible Borrowers" as defined under IFIN COVID-19 Relief policy. It was informed that the loan transaction No.III was already declared as Non-Performing Asset. The Petitioner reiterated its request by letter dated 11 July 2020 which was rejected by IFIN by letter dated 5 August 2020. The Petitioner has approached this Court challenging the letters dated 23 June 2020 and 5 August 2020 issued by IFIN. 7. The Petitioner has sought a writ to IFIN to grant moratorium to the Petitioner regarding term loan agree....
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.... 10. Respondents, in short, contended the petitioner's claim that loan transaction No.III is wrongly classified as NPA occurred on 28 September 2018 and the petition is filed in August 2020 only when the Respondent refused to extend the benefit of the moratorium. There was large scale fraud in IL & FS group, which is being investigated, and at this stage, no finding can be given that the Petitioner was an innocent victim. There is no finding by any authority that the Petitioner was innocent. It is not believable that the Petitioner received the amount of Rs. 100 crores, executed the documents and claims to be not part of the bogus back to back transactions. In the record, the loan has been given to the Petitioner of Rs. 100 crores, and the Petitioner has not repaid the same. The Petitioner has filed an application in NCLT for the same relief, which is pending. All these submissions are without prejudice to the preliminary objection that the writ is not maintainable against Respondent Nos.1 to 3 as they cannot be considered as state instrumentalities. The Board of Directors is not appointed by this Government but by the NCLT under its power to rectify the mismanagement. 11....
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.... and (iv) on a no profit - no loss basis to WIPL On 26th March, 2018, the Petitioner Company received INR 100 Crores from IFIN and within an hour returned the entire INR 100 Crores to IL&FS (ITNL) as per IFIN's instructions. The Petitioner Company became aware of the several malpractices at IL&FS in September 2018 through reports of Serious Fraud Investigation Officer (SFIO) and the Enforcement Directorate (ED) in the pending investigation against IL&FS group. The Petitioner Company has provided complete evidence of the transaction to the SFIO and ED in the said investigation and with the emergence of critical documents and facts, it is evident that IL&FS had misrepresented to the Petitioner Company at the time of executing the Back to Back Loan Agreements and duped them into believing that it was bona fide and permissible. (emphasis supplied) Therefore the foundation of the petitioner's case that the Petitioner agreed to be a part of the back-to-back transaction placing good faith and on the assurance of senior leadership of IL&FS group that the Back-to-Back transaction was bona-fide and permissible. The Petitioner Company learned of the ....
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....he standard of proof required in the disciplinary proceeding, criminal proceedings and civil proceedings differ. Foundation required to exercise writ jurisdiction is different. The writ court is not a court of appeal. Exercise of writ jurisdiction is discretionary. The Petitioner has invoked the writ jurisdiction, and the Petitioner must satisfy the Court that its case is bonafide and acceptable. It is in the exercise of writ jurisdiction we consider the factual position. 17. The petitioner then contends that in the reply the Respondents, more particularly of Respondent no.1 dated 2 September 2020, has gone to the extent of refuting that the petitioner granted any loan to Respondent no.2 on instructions, which is contrary to the correspondence on record. It is contended that this statement amounts to perjury. The Petitioner contended that Respondent Nos.1 to 3 who are part of IL & FS group know the money is returned back and therefore demanding money from the Petitioner is unfair and is in breach of Article 14 of the Constitution of India. 18. There is no merit in this contention. The replies draw a clear distinction between the erstwhile Board of Directors separate from the ....
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....ments were mentioned in the CAM. Statement of Udayant Malhoutra, Managing Director and Promoter of Petitioner on 8 March 2019 was recorded. Statement of Subhash Chandra, the main accused, was recorded on 24 October. The Report mentions that from the working papers and emails examined by the investigation team, it is evident that the Engagement Team knew the fraudulent funding of borrowers. Most of these entities were the entities used for layering of loans to be given to ITNL and its subsidiaries/associates. This modus was adopted to avoid the RBI direction regarding lending to the group companies. Nothing turns on the statement of Subhash Chandra regarding the Petitioner's role. The SFIO report nowhere indicates that the Petitioner was not part of the deception and was not aware of the implications. Nowhere from the report, we get that SFIO has concluded the investigation regarding how third parties were involved. 21. Petitioners next contention is that the Division Bench of this Court in the case of N. Sampath Ganesh Vs. Union of India & Ors. has observed that SFIO report is the final report. The Respondent contends this report is not final and the investigation is going o....
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.... placed on record. The complaint indicates that the transaction of which the Petitioner claims to be innocent was done in a highly irregular manner. Loans were given based on Letters of Comfort and without securities. Lending was done without any due diligence, without the actual requirement of funds. Most of the intermediaries were transferring the funds in the same way. There was a fraudulent modus operendi of giving loans to defaulting borrowers. Accounts are placed on record to demonstrate how the transaction took place. The complaint clearly shows that the entire transaction, of which the Petitioner was a part, was questionable. 25. In the order dated 12 March 2020 the NCLAT has indicated the extent of the alleged fraud. The matter involved far more than merely three group companies. The fraud came to light through various reports that IL & FS had defaulted on debt obligations. The default is of almost Rs. 91000 crores. It was noted that IL & FS management was suppressing information about its financial solvency. There were various cases of commission and omissions. There was widespread mismanagement of funds not only by the management of IL & FS but throughout IL ....
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....n the Petitioner chose to be part of the transaction? Why would a commercial entity enter into a transaction of Rs. 100 crores and then suffer loss willingly? The simplistic explanation of the Petitioner is that it innocently believed the words of the leadership of the IL & FS. The Petitioner's behaviour is contrary to ordinary commercial prudence. It is not possible to believe that the Petitioner was not aware of the implications of the transactions. We find it difficult to believe that the Petitioner would be commercially so naive to simply rely on the assurance and accept the liability of Rs. 100 crores. 29. The mismanagement of IL & FS group is looked into by NCLT and NCLAT. SFIO is conducting its own investigation. The proceedings before us do not arise from the investigation carried out by SFIO nor from the orders passed by NCLAT. We do not have the inputs from the investigating agency. Based on the documents placed before us, the Petitioner wants us to uphold it's innocence. The new Board of Directors' on 28 January 2019 appointed External Auditors to examine the loan given by the superseded Board. The interim report by the Forensic Auditor on 20 February 2019 has ind....