AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2019 (11) TMI 1688
X X X X Extracts X X X X
X X X X Extracts X X X X
....term loan and working capital facilities from time to time from a consortium of lenders including State Bank of India, State Bank of Hyderabad, State Bank of Bikaner and Jaipur, State Bank of Mysore and State Bank of Travancore ("SBI and Asso ciate Banks" in short) in two different phases to set up a 300 MW coal based power project (phase-I) and a 700 MW coal based thermal power project (phase-II) respectively, in terms of common loan agreements dated July 10, 2009 and October 1, 2010 respectively, at Thamminapatnam village near Krishnapatnam in the Nellore District of Andhra Pradesh. (b) That in the phase II Project, there was a cost over-run by the cor porate debtor and, therefore, to meet the increase in cost for phase II pro ject, the consortium of lenders sanctioned additional facilities in terms of common loan agreement dated March 20, 2015 as amended by amend ment agreement dated September 23, 2016 but not actually disbursed to the corporate debtor. (c) That the corporate debtor has availed working capital facilities (both fund based and non-fund based) in accordance with the terms of working capital consortium agreement dated September 18, 2012 and the latest working ca....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the facilities. (v) Computation of defaulted amount and date of default relation to each facility. (vi) Copies of Certificates of Registration Modification of Charge. (vii) Copies of the financial contracts. (viii) Copies of CIBIL Report and CRILC Report. (ix) Copies of entries in the bankers book in accordance with the Bankers' Books Evidence Act, 1891. (x) Revival letter dated February 16, 2018 issued by the corporate debtor addressed to the financial creditor in relation to the working capital facilities. (xi) Recall Notice bearing No. SAMB/HYD/MEL/PMR/2018/706, dated August 7, 2018 issued by the financial creditor in its capacity as lend ers' agent on behalf of the lenders to the corporate debtor. (xii) Audited balance-sheet of the corporate debtor for the financial year 2016-17. (xiii) Overdue recall notice dated December 19, 2017 bearing Ref. No. PFSBU/TEAM-07/MEL/2231 issued by the financial creditor in its capacity as lenders' agent to the corporate debtor. (xiv) Interest calculation after the account of the corporate debtor was classified as NPA. (xv) Copies of Form No. 2 of the proposed IRP along with the cer tificate accompanying Form N....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ook at sector friendly measures as the power sector should be protected since it is going through a transition phase from a low-demand-low- supply situation to a moderately high-demand situation. (x) That the instant application is filed by Mr. Attaluri Srinivas who does not hold a specific authorization to file the application which is not in line with the dictum of the hon'ble National Company Law Appellate Tri bunal laid down in Palogix Infrastructure P. Ltd. v. ICICI Bank Ltd. [2018] 1 Comp Cas-OL 140 (NCLAT) and on that ground alone the instant application is to be dismissed. (xi) That it could be seen from a bare perusal of the date of default mentioned by the financial creditor in Form No. 1 that the application is exfacie barred by limitation and the application is liable to be dismissed on the ground of limitation laws. (xii) That it is an admitted position that there does not exists any debt as on date and thus there is no question of any event of default taking place in respect of the financial creditor and the financial creditor does not have any cause of action or locus standi to institute the instant application under section 7 of the Code. (xiii) That the....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... a mala fide intention to mislead the Adjudicating Authority has suppressed the fact that the financial creditor through SBI Cap Trustee Co. Ltd., has invoked the pledge of shares and has converted their entire debt into equity by invocation of the pledge on and by subsequently transfer of shares to the demat account of SBI Cap Trustee Co. Ltd., on May 2, 2018. (xx) That with the act of invocation of the pledge and transfer of shares to the demat account of SBI Cap Trustee, the security trustee and security agent of phase-I and phase-II lenders including the financial cre ditor as well as phase-I and phase-II lenders have become 95.2 per cent. shareholders of the corporate debtor and the entire debt of the corporate debtor stood discharged by the transfer of shares in the name of SBI Cap Trustee who has now become the owner of 95.2 per cent. of shares of cor porate debtor whose enterprise value would be around INR 6,727 crores and INR 7,260 crores as valued by Deloitte Touche Tohmatsu India P. Ltd. ("Deloitte" for short) and by LSI Engineering and Consultants Ltd. ("LSI" for short) respectively. (xxi) That IPCL is now a minority shareholder of the corporate debtor, on the invoc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tisfied that a "default" has occurred and relied on the decision rendered by the hon'ble apex court in Innoventive Industries Ltd. v. ICICI Bank [2017] 205 Comp Cas 57 (SC) ; [2018] 1 SCC 407. (b) That all the issues raised by the corporate debtor in its counter affidavit have already been raised before the hon'ble High Court of Telangana by way of W. P. No. 30048 of 2018 and was considered vide its order dated January 23, 2019. Further, appeal (No. 203 of 2019) preferred over the order dated January 23, 2019 before the Division Bench of the hon'ble High Court of Telangana was dismissed vide orders dated April 17, 2019. Thus these issues have attained finality and, therefore, require no further consideration. (c) That invocation of pledge in itself does not amount to transfer of shares and discharge of debt and placed reliance on the following verdicts of : (i) the hon'ble Supreme Court in Balkrishan Gupta v. Swadeshi Polytex Ltd. [1985] 58 Comp Cas 563 (SC) ; [1985] 2 SCC 167, (ii) the hon'ble High Court of Bombay in United Breweries (Holdings) Ltd. v. State Bank of India (order dated April 2, 2013 in Notice of Motion (L) No. 718 of 2013 in Suit (L) No. 263....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lotting additional shares, REC on April 2, 2017 filed a petition under section 213 and section 221 of the Com panies Act, 2013 before the Adjudicating Authority being C. P. No. 277/ 213/HDB/2108 seeking investigation into the affairs of the corporate debtor and for cancellation of additional shares allotted by the corporate debtor. (j) That the applicant/Phase-I lenders cannot utilize the amounts available in the TRA for repaying their own overdue debt contrary to the provisions of TRA agreement dated February 23, 2016 and, therefore, the corporate debtor cannot allege that the applicant/phase-I lenders can make good their outstanding amounts from the TRA which had been created pursuant to phase-II TRA. (k) That some of the lenders for the phase-I and phase-II are over lapping but the consortium of lenders under both the phases are not the same and, therefore, applicant/phase-I lenders cannot be said to have a recourse in law to recover their dues from securities created under facility for phase-II. (l) That the present application under section 7 of the Code is filed independent of the RBI circular dated February 12, 2018 and the RBI circulars cannot be interpreted to restri....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s no default that can be said to be in existence as on date. Reliance has been placed on the order passed by the Adjudicating Authority in SREI Infrastructure Finance Ltd. v. Amrit Jal Ventures P. Ltd. in C. P. (IB) No. 21/7/HDB/2018 and on the order passed by hon'ble National Company Law Appellate Tribunal in PTC India Financial Ser vices Ltd. v. Venkateswarlu Kari [2020] 10 Comp Cas-OL 456 (NCLAT). (v) That the financial creditor in form 1 in Part V at page 25 of the application has themselves admitted that the value of the fixed assets of the corporate debtor is Rs. 5,475.01 crores which itself show that the value of the 95 per cent. shares held by the financial creditor is in excess of Rs. 5,000 crores. (vi) That the hon'ble High Court of Delhi in Tendril Financial Ser vices P. Ltd. v. Namedi Leasing and Finance Ltd. reported in MANU/ Delhi/1275/2018 as well as in SPCI Finance Ltd. v. Cedar Infonet P. Ltd. has held that under the Depository Regulation, the moment the shares are transferred to the account of the beneficiary after invocation of the pledged shares, such transfer automatically amounts to sale and the transferee in whose name the shares are transferred b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e matters was adjourned on various dates, viz., April 23, 2019, June 13, 2019, June 24, 2019, July 10, 2019 and August 8, 2019 for filing of counter and rejoinder and the matter was heard at length during the hearings held on August 27, 2019, September 9, 2019 and September 16, 2019. Further, time was enlarged for filing written submissions on September 26, 2019 and the matter was reserved for orders. 9. Heard both the sides and perused the records. 10. It is the case of the financial creditor that it has provided various working capital facilities (both fund based and non-fund based) under working capital, phase-I and phase-II facilities for which the corporate debtor was liable to repay and has defaulted in repayment of the same. The corporate debtor in its counter has stated various reasons for rejection of instant application. The main contentions raised by the corporate debtor for rejection of the instant application are as under : (i) That the person through whom the present application is filed is not duly authorized to file the present application on behalf of the financial creditor. (ii) That the present application is filed based on the RBI Circular dated February 1....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ercise was ever attempted by the financial creditors/lenders. Even if it is assumed that any such exercise was adopted by the financial creditors/lenders in consonance with the RBI circular dated February 12, 2018 then upon failure to implement a resolution plan, the financial creditors would have filed a petition for initiation of 12. CIRP on or before September 12, 2018, i. e., within 15 days from expiry of 180 days time period from the reference date, i. e., March 1, 2018. How- ever, the present petition was filed on January 23, 2019 which is much later from the cut-off date of September 12, 2018 as provided in the RBI Circular dated February 12, 2018. Thus, this Adjudicating Authority is of the view that the present petition is not filed in accordance with the RBI Circular dated February 12, 2018 and the same does not form any ground for rejection of the instant application. 13. With regard to the contention of the corporate debtor regarding invocation of pledge shares by the lenders resulting in complete discharge of the liability of the corporate debtor, the pertinent question which arise before this Adjudicating Authority is : "Whether the liability of the corporate debto....
X X X X Extracts X X X X
X X X X Extracts X X X X
....le 4(1)(e) of the Companies (Share Capital and Debenture) Rules, 2014 which states : 'No company limited by shares shall issue equity shares with dif ferential rights as to dividend, voting or otherwise, unless it complies with the following conditions, namely : (g) The company has not defaulted in payment of the dividend on preference shares or repayment of any term loan from a public financial institution or State level financial institution or scheduled bank that has become repayable or interest payable thereon or dues with respect to statutory payments relating to its employees to any authority or default in crediting the amount in Investor Education and Protection Fund to the Central Government.' 61. Mere transfer to pledged shares to first respondent would not be of any use to respondent No. 1 since its voting rights, after transfer, are diminished to 3.75 per cent. on account of issuance of additional shares with differential voting rights of 1,000 votes to one share, and it would not be in a position to control the management and affairs of the first petitioner in any way. 62. Also, IPCL, which had executed sponsor support agreement dated September 23, 2016 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....payment also ensures liquidity to facilitate loan to another in need, by circu lation of the money and cannot be permitted to be blocked by fri volous litigation by those who can afford the luxury of the same.' 67. It is pointed by learned counsel for respondents that the interim order obtained by the petitioners from this court is being used to stall proceedings initiated/proposed to be initiated in National Company Law Tribunal by the respondents-lenders causing serious prejudice to public interest. 68. It appears that the petitioner, having failed to obtain any interim order in the Commercial Court in C. O. S. No. 266 of 2017, have filed this writ petition and this conduct prima facie amounts to forum hunting by them. 69. In my considered opinion, public interest would be gravely prejudiced if respondents Nos. 1 to 14 are prevented from taking steps to recover dues of more than Rs. 2,000 crores payable by the first petitioner to them either by preventing them from transferring management to a third party pursuant to the expression of interest issued on July 28, 2018 by them or by other means available to them in law." 15. The order dated January 23, 2019 of the Single....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pon the debt or promise, and retain the goods pledged as a collateral security, or he may sell the thing pledged, on giving the pawnor reasonable notice of the sale. In the case of a pledge, however, the legal title to the goods pledged would not vest in the pawnee. The pawnor has only a special property. A pawnee has no right of foreclosure since he never had the absolute ownership at law and his equitable title cannot exceed what is specifically granted by law. In this sense a pledge differs from a mortgage. In view of the foregoing the pawnee in the instant case, i. e., the Government of Uttar Pradesh could not be treated as the holder of the shares pledged in its favour. The Cotton Mills Company continued to be the member of the Polytex Company in respect of the said shares and could exercise its rights under section 169 of the Act." (emphasis supplied) 18. While the hon'ble Supreme Court's decision came before dematerialization of shares, the hon'ble Bombay High Court dealt with the issue more recently in United Breweries (Holdings) Ltd. v. State Bank of India (Suit No. 263 of 2013) following the ratio laid down by the hon'ble Supreme Court in Balkrishan Gupta....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ledge involves the transfer of the pledged shares from the DP account of the pledgor to the DP account of the pledgee for sale in accordance with the pre scribed procedure under the relevant bye-laws of CDSL. It is true that in the case of Balkrishan Gupta v. Swadeshi Polytex Ltd. [1985] 58 Comp Cas 563 (SC) ; [1985] 2 SCC 167 the hon'ble Supreme Court has held that the shares continued to be the property of the pledgor until sale. However, in the present case, the pledgee has never claimed title to the said shares otherwise than as having a special interest therein as a pledgee. In the present case, since the invocation of the pledge and sale of the pledged securities has been carried out in accordance with the bye-laws of CDSL, without the pledgers being divested of their rights to the said shares, the action on the part of defendant No. 18 in no way violates section 176 of the Contract Act. The plaintiffs' contention that the transfer of the pledged shares to the depository account of defendant No. 18 (the security trustee) divested the pledgers of their rights to the said shares is therefore rejected." 20. The hon'ble National Company Law Appellate Tribunal in the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....clause 9.4 of the subscription agreement of 2016. The redemption of the 'NCD' and the 'CCD' are different than the conversion within the 'OCD'. What has been stated to have been redeemed is relating to 'NCD' and the 'CCD' and not the 'OCD'. On September 12, 2017 the appellant and 'MAIF-2' through their trustee issued notice under section 100(2) of the Companies Act, 2013 to holding company to hold extraordinary general meeting to convert 'CCD' as distinguished from the 'OCDs' for which Rs. 102 crores were disbursed by the 'corporate debtor'. At the instance of the hold ing company, the matter which was pending before the National Company Law Tribunal was stayed which was reason for withdrawal of the company petition. Subsequently, the petition under section 59 of the Companies Act, 2013 was filed by the appellant, which was dis missed on December 20, 2018. The aforesaid fact shows that the dispute relating to redemption of 'NCD' and 'CCD' were alleged to have been converted into equity shareholder of the 'corporate debtor' with 49 per cent. and 51 per cent. of holding company....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Rs. 102 crores so made was towards the 'OCD' and stands paid." 21. When the facts of the instant case are seen in the light of the guidance available in the aforesaid judicial pronouncements, it is clear that the question framed by us in paragraph 11 above has to be answered in the negative for the following reasons : (a) Admittedly, in the instant case the pledge has been invoked by SBI Cap Trustee, the security trustee of financial creditor as a pledgee of the pledged shares and those shares have still not been sold by the financial creditor. (b) Further, even after invocation of the pledged shares, the financial creditor/lenders have no controlling voting rights in the corporate debtor, their voting rights having been reduced by issuance of additional shares to its holding company, IPCL, with differential voting rights of 1,000 per share by the corporate debtor. In other words the terms of share pledge agreement dated September 23, 2016 have been made unenforceable by the act of corporate debtor. This is also held by the hon'ble High Court of Telangana in I. A. Nos. 1 and 2 of 2018 in W. P. No. 30048 of 2018. (c) Even if it is assumed that the share pledge agr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ave no relevance to our decision. 23. Having dealt with the contentions of the corporate debtor as above, it is necessary to see whether all the conditions for invoking the provisions of section 7 of the Code have been fulfilled by the petitioner/financial creditor. 24. In view of the factual and legal position discussed above, further, on perusal of the pleadings, it is seen from the correspondence between the corporate debtor and financial creditor as enclosed with the counter affidavit, that the corporate debtor has been making proposals for resolving the outstanding debt to the financial creditor even during the year 2018, which is clear indication of both existence of debt as well as default committed by the corporate debtor. Particular attention is drawn to the two such proposals dated May 25, 2018 and June 11, 2018 (pages 528 and 615 of counter affidavit respectively) which clearly indicates acknowledgment of debt in terms of section 18 of the Limitation Act, 1963 therefore the issue of limitation does not arise in this case. It also establishes that there exist a debt of more than Rs. 1 lakh and there is a default on the part of the corporate debtor as on the date of fili....
X X X X Extracts X X X X
X X X X Extracts X X X X
....claim in the manner as prescribed. 29. This Adjudicating Authority hereby declares the moratorium which shall have effect from the date of this order till the completion of corporate insolvency resolution process for the purposes referred to in section 14 of the I and B Code, 2016. We order to prohibit all of the following, namely : "(a) The institution of suits or continuation of pending suits or pro ceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, Tribunal, arbitration panel or other authority ; (b) Transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial inter est therein ; (c) Any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002) ; (d) The recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor." 30. However, the supply of essential goods or servic....