TaxTMI 
TaxTMI 
2023 (1) TMI 811
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....or) for initiation of Corporate Insolvency Resolution Process against the Respondent- 'Visa Infrastructure Ltd' (hereinafter referred to as 'Corporate Debtor') alleging that Corporate Debtor has failed to repay the Principal Amount alongwith the interest to the Financial Creditor, default being alleged to the tune of Rs.726,69, 23,749.79/- as Principal Amount with interest calculated upto 13th December, 2017 thereby aggregating the debt in default to Rs. 982,82,01,341.70/-, was rejected by the Adjudicating Authority on the ground that the Corporate Debtor discharged the obligation as per the terms of the guarantee and therefore there was no debt due from the Corporate Debtor. 2. The facts giving rise to this Appeal are as follows: i) The Appellant i.e. State Bank of India (Financial Creditor) is a Public Limited Banking Company incorporated under the State Bank of India Act, 1955 having its Corporate Office at madame Cama Road, Nirman Point, Mumbai 400021 and one of its branch named as Stressed Assets Management Branch amongst other places at Nagaland House, 8th Floor, 11 and 13, Shakespeare Sarani, Kolkata-700071. ii) The case is that the Respondent Company (C....
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....r Company of the Borrower Company. The Respondent Company passed a Board Resolution dated 29th September, 2012 (Annexure-A/3 Colly at page 101 to 107 of the Appeal) thereby agreeing to execute a corporate guarantee in favour of the lenders and also create negative lien on the Respondent's property situated at "Visa House" Kolkata, 700027 to secure the restructured debts. In pursuance to the Board Resolution dated 29th September, 2012 the Respondent Company has executed Deed of Corporate Guarantee dated 19th December, 2012 in favour of the lenders. As per the said guarantee executed by the Respondent Company, the guarantee shall be a continuing guarantee and shall remain in full force till the Borrower Company repays the full restructuring facilities together with all interests/liquidated damages/commitments, cost, charges and all other monies. In terms of the Deed of the Guarantee, the Respondent Company further agreed that the liability of the Respondent Company under the said guarantee shall not be affected by any change in the constitution of the Borrower Company by merger/demerger/reverse merger or amalgamation of the Borrower Company with any other company / corporati....
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....pany / corporation or concern. It was further agreed by the said guarantee that the liability of the guarantor is to the tune of Rs. 3403.31 Crores plus interest. vii) As per the CDR Approval dated 31.12.2014, the Borrower Company's steel business has to be transferred to a separate company i.e. Visa Special Steel Limited ("VSSL") through a scheme of arrangement as per the respective business activities. Thereafter, one of the subsidiaries of the Borrower Company i.e. Visa Bao Limited which is a JV Company, was to be merged with VSL. The Promotors of the Borrower Company has, as per the CDR Package of 2012, infused Rs. 325 Crores in the form of equity as well as slump sale. The following are the objectives behind the approval of the CDR EG to the Borrower Company: a. The Merger of VISA Bao Limited group's JV Company (65% equity participation by VSL and 35% equity participation by Bao Steel Limited, China) with VISA Steel Limited under Section 391-394 of the Companies Act, 1956. b. Post Merger- transfer of existing loans of VISA Bao Limited to VISA Steel Limited post acquisition of VBL and continuation of the same by the existing lenders of VBL at the same....
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....L the Respondent Company issued a Letter dated 25.10.2017 to the Appellant that the liability under the Guarantee Agreement has been discharged by stating that upon the merger of assets and liability of VBL with the Borrower Company's assets an amount of above Rs. 575 Crores was infused as per the fair value of the assets of the merging Company VBL in terms of the Assets Valuation Report prepared by LSI Financial Services Pvt. Ltd. The contention of the Respondent Company was that the Guarantee Agreement dated 19.12.2012 has been discharged as the additional equity of Rs. 125 Crores was brought by merger in the form of assets valuation. ix) The Appellant replied by way of Letter dated 30.11.2017 by denying that the merger does not observe any additional infusion and refused to accept the contention of the Respondent Company that the guarantee has been discharged in view of the merger of VBL with VSL. Thus, the Appellant- Financial Creditor had also initiated petition under Section 7 of the IBC against the Borrower Company (VSL) being C.P. (IB) No. 24/KB/2018 before the NCLT, Kolkata. However, the said petition is in pendency for admission, as against the filing of the Peti....
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....was heard on several dates, lastly on 07.11.2022 after hearing both the parties, judgment was reserved. Submissions on behalf of the Appellant 4. The Ld. Sr. Counsel for the Appellant during the course of argument and in his memo of Appeal along with written submissions/additional written submissions submitted that the Appellant has filed the present Appeal as there is a default committed by the Respondent (in the capacity of a Corporate Guarantor) with respect to the credit facilities provided to Visa Steel Ltd. (Borrower w.r.t. to the Appellant). The one of the conditions of the Corporate Guarantee as accepted in the CDR package dated 27.09.2012, was "Corporate Guarantee of Visa infrastructure Ltd. with negative lien on "Visa House" situated at Alipore, Koklata to be provided till the company brings in additional equity of Rs. 125.00 crore over and above Rs. 325.00 crore as considered in our proposal". The same has been reiterated in the Deeds of Guarantee dated 19.12.2012 and 28.03.2015 and in the Common Loan Agreement dated 28.03.2015. The Respondent contended that the CDR Approval, in Promoters contribution, the terms used in 'additional equity funds' and in the same App....
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....ing in additional funds of 125 Crores to meet the shortage of cash flow, to service debts and therefore, there is debt due from the Corporate Debtor (guarantor being-VISA Infrastructure Ltd.) and there is a default. The ingredients of Section 7 of the IBC are satisfied as held in the matter of "Innoventive Industries" by the Hon'ble Supreme Court. As per the scheme of Amalgamation of Visa Bao Ltd. with Visa Steel Ltd. as approved by the NCLT, Kolkata it is clearly mentioned that "All loan raised and used and all liabilities and obligations incurred by Transferor Company after the Appointed Date and prior to the Effective Date, shall be subject to the terms of the Scheme, be deemed to have been raised, used or incurred for or on behalf of the Transferee Company and to the extent they are outstanding on the Effective Date, shall also without any further act or deed be and stand transferred to and be deemed to be transferred to Transferee Company and shall become the debts, liabilities, duties and obligations of Transferee Company which shall meet discharge and satisfy the same". 7. It is further submitted that the valuation method which was used by the Chartered Accountant Sh. Raj....
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.... order of 'Moratorium' will not be applicable for filing application for triggering 'Corporate Insolvency Resolution Process' under Sections 7 or 9 or 10 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as "I&B Code") against the 'Guarantor' or the 'Personal Guarantor' under Section 60(2)." 3. The case of the Appellant - 'ICICI Bank Ltd.' being covered by the decision of this Appellate Tribunal as referred to above, we hold that the order of Moratorium will be applicable to the proceedings against the 'Corporate Debtor' and the 'Guarantor', if pending before any court. However, such order of Moratorium will not be applicable for triggering 'Corporate Insolvency Resolution Process' under Section 7 or 9 of the Insolvency and Bankruptcy Code, 2016 against the 'Guarantor' or the 'Personal Guarantor'." Further, the Appellant relied on judgment in the case of "Ferro Alloys Corporation Ltd. & Ors. Vs. Rural Electrification Corporation Ltd. & Ors., (2019) II BC 1", wherein this Appellate Tribunal held as under: "39. In view of the aforesaid decision of the Hon'ble Supreme Court, we hold that it is not necessary to initiate 'Corporate Insolvency Reso....
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.... and set at rest what the Committee thought was an overbroad interpretation of Section 14. That such clarificatory amendment is retrospective in nature." 9. The Ld. Sr. Counsel for the Appellant further submitted that based on above submissions, this Bench may agree with the view of Hon'ble Mr. Balvinder Singh, the then Member (Technical) in the order dated 25.09.2019 where following has been held: "23. Having considered the submissions and perusing the record and impugned order, I have come to the conclusion that there is debt and default and the Corporate Debtor has not discharged the obligation as per the terms of the Guarantee and, therefore, there is debt due as claimed by the Financial Creditor from the Corporate Debtor. The appellant has succeeded in proving the existence of a default in terms of the guarantee agreements. The NCLT has committed error in rejecting the application filed under Section 7 of I&B Code by the appellant. 24. In view of the aforegoing observations and discussions the following order is passed:- a) The appeal filed by the appellant deserves to be allowed. It is accordingly allowed. b) No order as to costs." Su....
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....ad to be by way of cash infusion alone. v. Even if it be accepted that additional equity of Rs. 125 crores could only be fulfilled by inviting Strategic Investor pursuant to a merger/demerger, in the instant case Bao Steel (China's largest Government Owned Steel & Stainless Steel manufacture) comes in as a Strategic Investor in VISA Steel consequent to the merger, with proper valuation which valuation when undertaken post-merger on fair value basis shows in excess of Rs. 125 crores infusion in equity of Visa Steel (The Principal Debtor). 11. It is further submitted that the scope of Section 7 of the IBC is very limited and the only consideration that is required to be seen is whether there has been any default. In the instant case there is no debt. The corporate debtor is also entitled to urge that a default has been occurred and also that the debt is not due in law and in fact. A "debt" is not due if it is not payable in law or in fact. Reliance has been placed in "Innoventive Industries Limited V. ICICI Bank, AIR 2017 SC 4048 at paragraph 30. There was no liability or obligation as the Guarantee stood discharged prior to 13the December, 2017 when the Demand Notice was....
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.... on J.K. (Bombay) Private Ltd. v. New Kaiser-I-Hind Spinning and Weaving Co. Ltd. & Ors. Reported in AIR 1970 SC 1041 paragraph 28. These decisions recognize that a Scheme has statutory force and binds all creditors including the Appellant and as such not only in law but in fact there can be no liability to pay. Further, the Appellant has also informed that the merger of Visa Bao would result in discharge of the obligation of bringing in additional equity of Rs. 125 crores by letter dated 18 April 2017 which is referred in the letter of 8th December 2017 (Annexure- A/12 at page 2247 to 2248 of the Appeal). Even if there was debt payable by the Respondent, the CIRP Process having been admitted against Visa International Ltd. for the same debt another Corporate Guarantor cannot be proceeded with in this regard reliance has been placed on the Judgment of this Appellate Tribunal in the case of Dr. Vishnu Kumar Agarwal Vs. Piramal Enterprises Ltd., Company Appeals No. 346 and 347 of 2018 at paragraphs 15, 16, 21, 25, 29 to 36 and also the Order of NCLT, Kolkata Bench in the case of State Bank of India Vs. Visa International Ltd., CP(IB) 759/KB/2017 dated 7th August, 2019. 13. It is f....
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....ly. It would be of great relevance to refer to the Scheme of Amalgamation sanctioned by the Tribunal vide its Order dated 12th October 2017 which is reproduced as under: "The business value of Visa Bao Limited as included in the books of account of the Transferee Company shall be treated as infusion by way of additional equity by reason of the merger in terms of the restructuring package of the merger in terms of the restructuring package approved by the CDR EG vide letter dated 27th September, 2012." ix. There is no escape from the conclusion that the merger will have the effect of fulfilling the obligation of additional equity of Rs. 125 crores. It is well settled that an approved scheme of amalgamation/merger has the statutory force and is binding on all stakeholders including the creditors, with the order of Tribunal sanctioning such scheme operating as a judgment in rem. x. There being no debt payable in law or in fact, the question of default does not at all arise. The conclusions drawn by the Adjudicating Authority leading to rejection of the Application under Section 7 of the IBC cannot be termed erroneous. xi. We find no sufficient reaso....
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....bringing Rs. 125 crores as per CDR. This mechanism has not been envisaged in any of the options listed above in the guarantee/undertaking. It seems to be an attempt to creatively show through book entry that the obligation under the CDR has been met without following it in letter and spirit. Therefore, the Corporate Debtor has not met its obligation. vii. There is debt and default and the Corporate Debtor has not discharged the obligation as per the terms of the Guarantee and, therefore, there is debt due as claimed by the Financial Creditor from the Corporate Debtor. The Appellant has succeeded in proving the existence of a default in terms of the guarantee agreements. The NCLT has committed error in rejecting the application filed under Section 7 of I&B Code by the Appellant. The Appeal filed by the Appellant deserves to be allowed. 15. It is further submitted that the findings of Hon'ble Mr. Balvinder Singh, Member (Technical) in the order dated 25.09.2019 are incorrect, inconsistent and not supported by record, for reason as follows: i. Notwithstanding the finding that, infusion of equity can be taken by both the routes, either by bringing in cash or by bri....
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....equity could be infused by cash or by way of demerger as already noted above. vi. This finding is completely erroneous as once it is accepted that Rs. 125 crores could be brought in by way of equity, the law recognizes "Capital Reserves" as indicated in form of Balance Sheet in Schedule-III, Part-I to the Companies Act, 2013, as part of "Equity and Liabilities" under the sub-heading "Reserves and Surplus" as a part of "Shareholders' Funds". Under the general instruction for reparation of Balance Sheet (Instruction VI) a company has to disclose in the notes of accounts "Reserves and Surplus" which could include Capital Reserve. Such Capital Reserve post-merger increased by Rs. 460 crores and therefore, the condition of additional equity of Rs. 125 crores have been fulfilled. The net valuation of assets of Visa Bao Limited (prior to the demerger) to ascertain share swap ration is of no consequence in this regard. Moreover, the amalgamation has been accounted in accordance with the Scheme where assets and liabilities of Visa Bao Limited have been recorded at their fair value as noted in Note No. 48 to accounts in the Balance Sheet (at page 217 of Convenience Compilation).....
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....fficient restructuring of its corporate debt materializing in a CDR Package in terms of letter of approval dated 27th September, 2012 is not in controversy. It is also not disputed that as one of the conditions of the CDR Package the Promoter of VSL contributed Rs.325 Crores as its contribution besides being required to bring in additional equity of Rs.125 Crores. Board Resolution of the VSL following the debt restructuring and execution of various instruments referred to hereinabove as a sequel to the approved CDR Package too is not questioned. It is also not in controversy that VSL furnished Corporate Guarantee of the Respondent Company, which is also stated to be a Promoter of VSL. It further appears that in terms of Board Resolution dated 29th September, 2012, Respondent Company executed a Corporate Guarantee in favour of lenders and also created a negative lien on its property - 'Visa House' situated at Alipor Road, Kolkata to secure the restructured debts. Deed of Guarantee came to be executed on 19th December, 2012 which, in unambiguous and unequivocal terms, guaranteed repayment of the full restructuring facilities together with interest and costs etc. The Respondent Compan....
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....ckage as approved by the Empowered Group, in clause (viii), provides that the Promoters will infuse additional equity funds of Rs.325 Crore under the debt restructuring package. It further provides that such infusion of equity may be brought in the form of unsecured loan/ preference shares or by issuing fresh shares or by merging/ demerging some business divisions into separate companies/SPVs thorough scheme/slump sale and inviting strategic investor [page 10 & 11 of the Convenience Compilation (hereinafter referred to as CC)]. It further provides that the Corporate Guarantee of the Respondent with negative lien on Visa House shall be provided as security till the Company brings in additional equity of Rs. 125 Crore over and above Rs. 325 Crore. (page 12 & 13 of CC). It is manifestly clear that the provision does not talk of infusion of 'additional equity funds' but only 'additional equity'. It is also amply clear that the additional equity of Rs. 125 Crores does not restrict the infusion of equity to the manner indicated in clause (viii) after merger and demerger. In so far as Letter of Undertaking qua Restructuring Package is concerned, same having been executed by the Promoter a....
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....hat the 'Deed of Guarantee' in question has to be interpreted independently and that the expression 'additional equity' not having been defined under the 'Deed of Guarantee' has to be understood in the context of the legislative intent manifested in Schedule III of the Companies Act, 2013 where, in the balance sheet format under the heading 'Equity and Liabilities', shareholders funds include share capital, reserves and surplus and moneys received against share warrants. Reserves and surplus includes capital reserves. With reference to pages 50 to 52 of the reply affidavit, the Respondent has been able to demonstrate that post-merger the capital reserves have increased by Rs. 460 Crores, thereby satisfying the condition of infusion of additional equity of Rs. 125 Crores. Learned counsel for Respondent referred to the reply dated 30th November, 2017 emanating from the Appellant in response to the letter of Respondent dated 24th November, 2017 (page 215 of CC) which admits infusion of additional equity and consequent accounting entry reflected in the balance sheet though raising grievance that such infusion had to be by way of Cash only. It would be of great relevance to refer to the....