TaxTMI 
TaxTMI 
2022 (3) TMI 701
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....Respondent No.1- 'Yes Bank Limited' (Financial Creditor). The Appellant, Suspended Director of the Corporate Debtor- 'RKW Developers Private Limited' (Respondent No.2), aggrieved by the impugned order has come up in this Appeal. The brief facts of the case and sequence of events necessary to be noted for deciding this Appeal are: (i) 'Belief Realtors Pvt. Ltd.' (Principal Borrower) approached the 'Yes Bank Limited' (hereinafter referred to as "Bank") for disbursement of a term loan of Rs. 1,700 crores for development of a part of the property situated at Bandra (West) Mumbai. The loan to be given by the Bank was split into two tranches, 1st tranche of Rs. 750 crores to be issued to the 'Belief Realtors Pvt. Ltd.' (Principal Borrower) and the 2nd tranche of Rs. 950 crores to be issued to 'RKW Project Management Pvt. Ltd.'. (ii) By facility letter dated 28.06.2018, disbursement of 1st tranche of the loan of Rs. 750 crores to Principal Borrower by the Bank was sanctioned. The facility letter recorded the Facility Fee for the loan as Rs. 118 crores (Rs. 100 crores facility fees + Rs. 18 crores GST). The loan was secured by a registered mortgage of the development righ....
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....l Creditor to the borrower. On 30.10.2019, the Bank declared the account of the borrower as NPA. The date of default claimed on the part of the borrower was 01.08.2019. (x) On 18.11.2019, Bank issued a recall notice to the borrower and the Corporate Debtor. On 28.11.2019, a letter was addressed by Principal Borrower and the Corporate Debtor to the Bank in response to the recall notice requesting the Bank not to take any action until they respond. (xi) On 17.12.2019, a letter was sent on behalf of the Borrower to the Bank asking them to adhere to the understanding between the parties and to adjust the interest instalments against the balance facility fees due and payable to the borrower. (xii) In July, 2020, the Bank filed an Original Application before the Debt Recovery Tribunal seeking to recover the loan from the borrower as well as the Corporate Debtor. (xiii) In January, 2021, the Bank filed an Application under Section 7 of the Insolvency and Bankruptcy Code, 2016 claiming an amount of Rs. 839,59,87,999/- alongwith interest from the Corporate Debtor. The Corporate Debtor on 12.03.2021 filed an I.A No. 589 of 2021 challenging the maintainabil....
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....ade by the Corporate Debtor on 12.12.2018 for cancellation of a facility of Rs. 950 Crores. The Bank on the next day i.e. on 13.12.2018 issued a letter cancelling the facility of Rs. 950 crores. After cancellation of facility of Rs. 950 Crores, the Bank was obliged to reverse the facility fee for loan of Rs. 950 Crores for which the Bank was persuaded by the principal borrower. A letter dated 29.07.2019 was written by the principal borrower to the Bank for refund of proportionate facility fee to the extent of Rs. 55.88 crores for the second tranche of the loan which was cancelled. The Bank did not submit any reply to letter dated 29.07.2019 but Internal Credit Memorandum of the Bank dated 23.09.2019 clearly noted that there was understanding between the Bank and the borrower that facility fees of Rs. 100 Crores was agreed on the credit facility of Rs. 1700 Crores. The Internal Credit Memorandum further decided to reverse Rs. 10 crores towards the facility fee pending negotiation with the borrower. On 24.09.2019 and 25.09.2019, Rs. 10 crores was refunded towards facility fee regarding second tranche. The amount of Rs. 45.88 crores which was due to be refunded or adjusted by the Bank....
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....y the Bank that Bank has agreed for refund of proportionate facility fee. Rs. 10 Crores was decided to reverse on account of financial difficulties of the Corporate Debtor and the said amount was disbursed for payment to the contractors and other claimants. The case of the Appellant at best is, dispute regarding reversal of proportionate facility fee which need to be pursued by the Appellant before the Competent Court and the said issue could not have gone into in the proceeding of Section 7. The Bank has not committed any wrong. The Appeal filed by the Appellant lacks merit and is filed on unsubstantiated grounds. The borrower/ Corporate Debtor cannot go away from the payment obligation under the loan agreement. Interest payment was made only till June 2019 and admittedly, no payments were made by the borrower despite being contractually liable to make monthly interest payment. Borrower has defaulted since 01.08.2019. 5. When this Appeal was first heard on 26.11.2021, pointed query was made to Shri Ritin Rai, Learned Senior Counsel for the Bank regarding guidelines, office memorandums and circulars of the Bank for charging of facility fee on the borrowing. This Appellate Tribun....
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.... has been noticed above. To recapitulate, the submission is, loan of Rs. 1700 Crores was to be disbursed in two tranches, 1st tranche of Rs. 750 Crores and the 2nd tranche of Rs. 950 Crore. The facility fee charged by the Bank was Rs. 100 Crore on the entire loan of Rs. 1700 Crores. However, the facility fee of Rs. 100 Crores with GST of Rs. 18 Crores was deducted after disbursement of 1st tranche on 27.09.2018 itself. Subsequently, when 2nd tranche was cancelled on 13.12.2018 by the Bank on the request made by the Corporate Debtor, the proportionate facility fee was not reversed. The proportionate fee for Rs. 950 Crore which loan was never disbursed was Rs. 55.88 Crores. Further, as per the loan agreement, there was Moratorium of 36 months i.e. repayment of the principal amount was to restart on 26.09.2021 and only interest amount per month was to be serviced by the borrower. The Appellant's case is that the interest upto June, 2019 was paid by the Appellant and had the Bank reversed the facility fee which was taken at the disbursement of 1st tranche or had adjusted in the interest there was no default. The amount of facility fee which was to be reversed was sufficient to take car....
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....ty fee is charged on case to case basis taking into consideration the nature of borrowing and extent of borrowing. 14. When we look into the extent of facility fee i.e. Rs. 100 Crores charged on a loan of Rs. 1700 Crores, it appears to be exorbitant and unreasonable. Learned Senior Counsel for the Appellant, however, has very fairly submitted that since the Appellant has accepted the loan on the payment of facility fee of Rs. 100 Crore, they cannot raise any grievance about the extent of facility fee. 15. One of the reasons for our enquiring from the Bank regarding parameters of the facility fee was also to adjudge as to whether as per norms facility fee of Rs. 100 Crores, as charged, can be proved to be charge on Rs. 1700 Crores loan or only on the 1st tranche of Rs. 750 Crores as is the case of the Bank but no guidelines, parameters having been filed, we have to consider the question on the materials which are available on the record and were before the Adjudicating Authority. 16. Before proceeding further, we may notice the credit facility of Rs. 750 Crores was sanctioned by letter dated 28.06.2018. Facility details as contained in the letter dated 28.06.2018 are to the....
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....ity fee for the 2nd tranche was issued on 29.08.2018 to the 'RKW Project Management Pvt Ltd.'. The facility details of the 2nd tranche of Rs. 950 Crores is as follows:- "YBL/MUM/CF/FL/0384/2018-2019 August 29, 2018 RKW Project Management Pvt. Ltd. HDIL Towers, 4th Floor, Anant Kanekar Marg, Bandra East, Mumbai- 400051 Dear Sirs, Re: Credit Facilities. We (the "Lender") have pleasure in offering you RKW Project Management Pvt. Ltd. (the "Borrower") the following facilities (the "Facilities") on the terms and conditions set out below: S. No. Facility Description Interest/ Commission Security 1. Facility: Term Loan 1 (TL 1) Amount: INR 9500,000,000/- (INR Nine Thousand Five Hundred Million) Nature: Non Revolving PMC projects: SRA Residential projects to be developed under DCR 33(10) Purpose: Towards Rehab construction, relocation, property Affairs/ Liasioning Cost, approval cost and allied cost(s) including placement of refundable deposits as part of "PMC Agreement(s)" to be entered by the borrower with "PMC Counterpart(ies)" Tenor & Repayment: 84 Months Door to door tenor of 84 mo....
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....ng SRA Residential project to be developed under the provisions of DCR 33(10), situated at Village Bandra, Bandra Reclamation, Mumbai. Vide the above-referred sanction letters your bank was pleased to sanction us an aggregate credit facility of Rs. 1700 Crores i.e., Rs. 750 Crores in favour of Belief Realtors Pvt. Ltd. and Rs. 950 Crores in favour of RKW Project Management Pvt. Ltd. on the terms and conditions as set out therein including the payment of processing fees of Rs. 100 Crores applicable on the entire loan. Pursuant thereto, while your bank has disbursed the first loan amount of Rs. 750 Crores in favour of Belief Realtors Pvt. Ltd., your bank was scheduled to disburse the balance loan of Rs. 950 Crores sanctioned in favour of RKW Project Management Pvt. Ltd. in due course which sanction was subsequently withdrawn. However, your bank has collected the entire processing fee of Rs. 100 Crores applicable on the aforesaid loan amount of Rs. 1700 Crores. We therefore request you to refund us the proportionate amount of Rs. 55:89 Crores which will enable us to make the overdue interest payment to your bank. For Belief Realtors Pvt. Ltd. ....
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....sh to discontinue/ exit with the proposed EPC/PMC business and accordingly the sanction of INR 9500 MM be cancelled. Considering client request, YBL sanction of TL of INR 9500 MM was cancelled." 20. Two more sentences of the O.M which needs to be noticed are to the following effect:- "Basis above, the Company has requested for fee refund wrt sanction of INR 9500 MM which was never disbursed. We are negotiating with the Company on the same, meanwhile, we recommend refund of INR 100 MM. The refund amount will be paid to various Contractors/ Vendors/ PMC payments engaged by the group companies." 21. The O.M recommends refund of INR 10 Crores. The said O.M was implemented by the Bank immediately, on 24.09.2019 and 25.09.2019 the Bank aggregate reversed the facility fee amounting to Rs. 10 Crore. The Bank statement of the account of the principal borrower has been brought on the record from 02.07.2018 to 02.12.2019 where bank entries of 24.09.2019 and 25.09.2019 is to the following effect:- TXN DATE VALUE DATE DESCRIPTION REFERENCE DEBITS CREDITS BALANCE 24-SEP-2019 24-SEP-2015 4022123132570002- FACILITY FEES REVERSED -BANDRA (E) ....
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....was duly accepted by the Borrower while signing the loan agreement dated 27 September 2018 and other facility documents. Whereas, in the second Facility Letter dated 29 August 2018, the facility fees is mentioned as "NiL", which indicates the undisputed understanding between the parties." 24. The statement made in para 8 to the extent "it was mutually agreed between the Financial Creditor and the borrower group entities that the facility fees of approx. Rs. 100 Crores (plus approx. Rs. 18 Crores towards GST) which was applicable on both the loans, would be charged against the first facility of Rs. 750 Crores sanctioned to the Borrower" clearly indicates that facility fee of Rs. 100 Crores was chargeable on both the loan i.e. loan of Rs. 750 Crores and Rs. 950 Crores. However, the entire facility fee to be deducted from the disbursal of first loan. When Bank charges facility fee on borrowing, it cannot be accepted that on a loan of Rs. 1700 Crores facility fee shall be charged on the first tranche of Rs. 750 Crores and no facility fee was chargeable on 2nd tranche of Rs. 950 Crores. The payment of facility fee was received by the Bank on disbursement of 1st tranche which was faci....
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....wever, the loan was split into two tranches; one amounting to Rs. 750 crores in favour of the borrower and Rs. 950 crores in favour of one RKW Project Management Private Limited (RKW Project). Therefore, it was agreed that the entire facility for a loan of Rs. 1700 crores would be disbursed upfront from the loan of Rs. 750 crores granted to the borrower. 12. The Borrower was regularly paying interest and after a period of 2 months sometime in November 2018, the Corporate Debtor requested as per the understanding between the parties, RKW projects to cancel the sanctioned facility of Rs. 950 crores. It was agreed that the proportionate processing fee and GST paid thereon which had already been deducted in regard to Rs. 950 crores facility will be duly refunded/adjusted towards the dues of the borrower. The proportionate processing fee charges and GST amounts to Rs. 55.88 lakhs. However, no action was taken by the Petitioner on refund of proportionate processing fee. A partial reimbursement of processing amount aggregating to Rs. 10 crores was made on 24.09.2019. 13. The Corporate Debtor pointed out that the borrower paid interest up to June 30th, 2019 amounting to R....
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....nt." 28. The Adjudicating Authority failed to consider the submission that after given credit of Rs. 45.88 Crores, there was no default on the part of the Appellant on 01.08.2019 which is the basis of initiating proceeding under Section 7. It is now settled law that for initiating proceeding under Section 7, the Financial Creditor has to prove that default has occurred, thus, the crucial question for admitting Section 7 Application is that whether a default has been committed by the Corporate Debtor. The Adjudicating Authority has not correctly appreciated the above aspect and without returning any finding that default was committed by the Corporate Debtor on 01.08.2019 has proceeded to admit the Application. The Bank cannot be allowed to take benefit of its own wrong by withholding of an amount of Rs. 45.88 Crores which was liable to be reversed after 13th December, 2018, default is not proved on the part of the Appellant rather it was omission and commission on the part of the Bank in unfairly denying to reverse/adjust the aforesaid amount. 29. Learned Counsel for the Respondent has laid much emphasis on the fact that default has been reflected in the record of the informat....