TaxTMI 
TaxTMI 
2023 (9) TMI 191
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....hty Kaul, Mr. Harish Nadda, Mr. Kumar Shashank, Mr. Virat K. Anand, Mr. Shashank Shekhar Shukla, Mr. Abhishek Sharma, Advocates for SRA. JUDGMENT ASHOK BHUSHAN , J : 1. These two Appeals have been filed against the same Order dated 07th March, 2023 passed by National Company Law Tribunal, New Delhi, Principal Bench, New Delhi (hereinafter referred to as "The Adjudicating Authority") disposing of I.A. No. 2593/PB/2021 filed by the Interim Resolution Professional (IRP in short) and dismissing I.A. No. 631/PB/2022 as having become infructuous. 2. By the Impugned Order dated 07th March, 2023, the Adjudicating Authority issued direction for appropriation of amount of Rs. 750 Crores as per the Judgment of the Hon'ble Supreme Court dated 24th March, 2021 in the matter of "Jaypee Kensington Boulevard Apartments Welfare Association & Ors. Versus NBCC (India) Ltd. & Ors." Civil Appeal No. 3395/2020 (hereinafter referred to as "Jaypee Kensington"). 3. Company Appeal (AT) Ins. No. 302 of 2023 has been filed by the Jaiprakash Associates Limited (hereinafter referred to as "JAL") being aggrieved by the directions given by the Adjudicating Authority in Paragraph 109-111 of the Impu....
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....nd JAL and JIL is entitled to receive this amount from INR 750 Crores. d) Pass any other appropriate orders as may be deems fit and just." 5. We may first notice certain background facts before we enter into the rival submissions raised by Learned Counsel for the parties which are as under:- i. The 'Corporate Insolvency Resolution Process' commenced (CIRP in short) against the JIL, the Corporate Debtor by Order dated 09th August, 2017 on an Application under Section 7 of Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as "IBC") filed by the IDBI Bank Limited. IRP issued public announcement on 10th August, 2017 in pursuance of which JAL filed its claim in Form-B as Operational Creditor for a claim amount of Rs. 261.73 Crores including its Pre-CIRP dues before the IRP. 6. We also need to notice few facts and events before initiation of CIRP which are as follows:- i. On 28th February, 2006, bids were called by the Government of Uttar Pradesh for development of Taj Expressway Project which, inter alia, included construction of 6 Lane, 160 KMs Long Super Expressway connecting NOIDA and Agra. JAL was declared as the highest bidder. On 05th A....
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.... continue to remain invested and shall abide by such directions as may be issued by NCLT." iii. On an avoidance application filed by the Interim Resolution Professional in the Insolvency Process of JIL, Orders were passed by the Adjudicating Authority and the Appellate Authority which matter came to be transferred to Hon'ble Supreme Court by way of Civil Appeal No. 8512-27 of 2019 decided on 26th February, 2020 reported as (2020) 8 SCC 401, "Anuj Jain, IRP for JIL Vs. Axis Bank Limited and Ors." Hon'ble Supreme Court in the said Judgment has noticed that JAL entered into Promoter Support Agreement to the Lenders of JIL and has further extended Bank Guarantee of Rs. 212 Crores to meet the DSRA Obligations of the JIL. iv. In the Insolvency Resolution Process of the JIL, a Resolution Plan submitted by the NBCC (I) Limited was approved by the Adjudicating Authority dated 03.03.2020. Against the Order passed by the Adjudicating Authority, appeals were filed before the Appellate Tribunal, several Appeals were filed in the Supreme Court as well as Transfer Application, matters pending before the Appellate Tribunal pertaining challenge to the Order dated 03.03.2020 was tr....
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....l report before 15th August, 2021 and the Adjudicating Authority was directed to decide objection within two weeks. viii. GT filed its final report dated 13th August, 2021. The Adjudicating Authority provided the copy of final GT's report to JIL and JAL with liberty to file their respective objections. Various affidavits and additional affidavits were filed by the parties JAL and IRP of JIL before the Adjudicating Authority in support of their respective objections to the GT's report. The Adjudicating authority heard the parties and by impugned order dated 07th March, 2023 determined the issue regarding appropriation of Rs. 750 Crores between JAL and JIL. GT reported that an amount of Rs. 536.49 Crores is undisputed amount which is receivable by JIL/Home-buyers of JIL from the JAL. The Adjudicating Authority noted the issue in paragraph 13 of the Order which is to the following effect: "13. Thus, the issues, which emerge from the GT report and post-joint meeting of the parties held on 24.12.2021 for adjudication before this Adjudicating Authority are the following; Issues emerging from GT Report a) Whether in view of the provision of IBC 2016, ca....
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....the position emerges as follows: Sl. No. Amount Receivable by JIL/Home Buyers of JIL Amount (Rs. In Crore) (A) Amount Receivable by JIL 1. Undisputed amount through the GT Report 536.49 2. Mutually resolved by the Parties in terms of the direction of this Tribunal. 6.13 (B) Amount Receivable by Home Buyers of JIL 3. The disputed amount of Rs. 106.90 Crore on account of IFMD adjudicated vide this order in favor of Homebuyers of JIL (which shall be kept in the escrow account for maintenance till it is transferred to the RWA of Home Buyers of JIL) 106.90 Total 649.52 111. We have noted above that the Hon'ble Supreme Court has specifically directed that only the remainder of Rs. 750 Crores (i.e., after excluding the amount receivable by JIL/Homebuyers of JIL) along with the proportionate amount of interest (on the remainder) shall be returned to JAL. Accordingly, we direct the Registrar NCLT through Registry of NCLT, Allahabad that out of the total amount of Rs. 750 Crores and accrued interest thereon, an amount of Rs. 649.52 Crores along with proportionate interest shall be paid ....
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....90.1 as only relevant direction whereas the said order was passed by the Hon'ble Supreme Court only for extension of time. The said Order cannot be treated as modifying the original judgment. The contention advanced by the JIL that the reconciliation was only for deducting the amount found receivable by JIL/Home-Buyers of JIL is not in accordance with the directions issued by the Hon'ble Supreme Court in "Jaypee Kensington". Hon'ble Supreme Court clearly directed in paragraph 190.2 that the liability discharged by the JAL must be set off for the advance made by the JIL to JAL. Although all issues were noticed in paragraph 13 and findings were returned in favor of JAL in paragraph 40, 60, 62 and 77 but those findings were not given effect to in the operating paragraph 109 to 111. The Operative Judgment of the Adjudicating Authority is not clearly in accord with the findings which were returned in favor of JAL. 9. Mr. Krishnan Venugopal however in his submission has not questioned the amount of Rs. 106.90 Crores which was on account of Interest Free Maintenance Deposit which was directed to be paid by the Adjudicating Authority towards IFMD. Shri K. Venugopal submits that the IBC ....
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.... to be retained by JAL must be deducted from the undisputed amount of Rs.536.49 Crores found payable to JIL and its homebuyers, the total amount that becomes payable to JIL is only Rs.265.21 Crores. Mr. K. Venugopal submits that JAL is entitled to be refunded Rs.377.89 Crores plus entire interest. 11. Mr. Sumant Batra appearing for Implementation and Monitoring Committee refuting the submissions of Mr. K Venugopal contended that order of the Hon'ble Supreme Court in "Jaypee Kensington" clearly contemplated computation of the amount which was payable to JIL/Home Buyers of JIL which was to be deducted from amount of Rs. 750 Crores. The findings of the Adjudicating Authority in Paragraph 109-111 of the Impugned Order are in accordance with the direction of the Hon'ble Supreme Court in "Jaypee Kensington" Case. The Order for reconciliation of accounts between JAL and JIL was passed by the Hon'ble Supreme Court only for crystalizing the amount payable by JAL to JIL. Hon'ble Supreme Court has not directed any amount be paid by JIL to JAL following the reconciliation as debt, if any, owed by JIL to JAL can only be paid as part of the outcome of JIL's CIRP proceedings. JAL has submitted....
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....ve been taken to consideration in reconciliation. All dues of JAL which are dues prior to Insolvency Commencement Date are operational debt which can be claimed only in the CIRP. JAL cannot be allowed to be paid Pre-CIRP Dues by jumping the queue/Waterfall Mechanism under Section 53. JAL cannot be allowed to provide a priority in payment over financial creditors of JIL. An amount of Rs. 49.63 Crores pertaining to RA Bills for construction, Rs. 2.33 Crores pertaining to Facility Management and Rs. 1.19 Crores pertaining to hospitality services or Pre-CIRP dues of JAL which amounts are claimed by JAL as Operational Debt in Form B dated 24th August, 2017 and 24th August, 2018. The claim of JAL was not admitted by the IRP of JIL which was never challenged by filing appropriate application, the Adjudicating Authority erred in entertaining the Pre-CIRP dues of JAL in reconciliation exercise. Hon'ble Supreme Court in "Jaypee Kensington" has also held that in paragraph 191.1 that process of reconciliation is not to determine the claims of Operational Creditor or Financial Creditor. The submission of the Appellant that order passed by the Hon'ble Supreme Court in "Jaypee Kensington" was pas....
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.... instance, amounts relating to Facility Management Bills and Hospitality Management, etc. Further no Pre-CIRP dues can be reopened in the reconciliation process. Hon'ble Supreme Court in "Jaypee Kensington" was well aware of the provisions of Section 14 of the Code and the intent of the Order of the Hon'ble Supreme Court was to shield the corporate debtor i.e. JIL from any claim by any creditor during the CIRP. Rs. 750 Crores can be assets of JAL but JAL is trying to bypass Section 14 and 53, waterfall mechanism to recover Pre-CIRP dues from JIL's entitlement. Claim of Rs. 212 Crores is a Pre-CIRP Claim and has to be dealt with in accordance with the provisions of the IBC. JAL has already filed a claim in Form B dated 24th August, 2017 which includes Rs. 212 Crores. JAL admittedly is operational creditor for recovery of its dues from JIL, other CIRP Process has to be utilized. Accepting Pre-CIRP claim of Operational Creditor will be preferential in nature and shall be against the observation of the Hon'ble Supreme Court in the Judgment of "Chitra Sharma" and "Jaypee Kensington". Shri Sen further submits that JIL is entitled for the amount of Rs. 70.89 Crores which the Adjudicating ....
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....? (iv). Whether the Facility Management Bills raised by JAL on JIL of Rs.2.33 Crores ought to have been deducted from the amount to be paid to JIL? (v). Whether amount of Rs.1.19 Crores towards providing Hospitality Services ought to have been deducted from the amount payable to JIL? (vi). Whether the Adjudicating Authority on account of mutually settled amount totaling to Rs.12.26 Crores ought not to have added amount of Rs.6.13 Crores in the amount receivable by JIL? (vii). Whether direction of the Adjudicating Authority in paragraph 111 directing for payment to JIL/Home-Buyers of JIL of Rs.649.52 Crores with proportionate interest is unsustainable? (viii). Whether JIL is entitled for amount of Rs.70.89 Crores towards Land Swap Deal and the Adjudicating Authority has wrongly rejected the said claim? (ix). The Relief, if any, to which the Appellants in C.A.(AT) Ins. No. 302 of 2023 and C.A.(AT) Ins. No. 507 of 2023 may be entitled? POINT NO. (i) 18. We need to look into Judgment of Hon'ble Supreme Court dated 24th March, 2021 in "Jaypee Kensington" to find out true import of directions of the Hon'ble Supreme Court. As not....
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....t/maintenance of other land parcels located at Noida, Jaganpur, Mirzapur, Tappal & Agra. Pursuant thereto, at the request of JAL, JIL has advanced to JAL a sum aggregating to Rs. 716 Crores (as on 31.03.2018) which was recoverable from JAL's RA Bill as also when construction work was carried out. 27. The said sum was accordingly been recovered from JAL's RA Bill since August 2017 leaving an outstanding of Rs.274 Crores as on 31.12.2019. This has further reduced to a sum aggregate of Rs.195 Crores as on 31.03.2020 (as per the audited accounts), and is likely to be reduced by approx. Rs.165 Crores within a period of 12 months as per the work plan drawn by the RBSA (Advisors to the CIRP) [@Pg.143 of JAL's Additional Affidavit]. 28. Therefore, JAL is conscious of the fact that liability towards JIL now stands to Rs.195 Crores (as on 31.03.2020 and is reducing per the construction work). Since JAL is not in a position to make this payment independently unless the Rs.750 Crores is refunded back to it, hence, in all fairness and bonafide, JAL offers that this admitted and undisputed liability towards JIL can be discharged by appropriating the said liability from the Rs.7....
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.... consequence of the findings in the preceding paragraphs would have been of direct refund of this money to JAL but the present matter carries with it several entangled features relating to the amount otherwise payable by JAL to JIL; and these features cannot be ignored altogether." 21. In paragraph 189.2, Hon'ble Supreme Court accepting the alternative submissions of JAL as also by the resolution applicant, observed that after reconciliation, the payable amount be made over to JIL before refunding the remainder to JAL. Paragraph 189.2 is as follows: "189.2. Having comprehensively taken note of the complex and interwoven features, even while we are not inclined to countenance the other claims against JAL in these proceedings, so far as the admitted amount towards construction advance is concerned, in our view, the process had been a continuing one and admittedly an amount of INR 195 crores was due to JIL as on 31.03.2020. In the given circumstances, it would serve the interests of all stakeholders, if the proposition for reconciliation of accounts, as stated in the alternative submissions by JAL as also by the resolution applicant, be partly accepted and after reconcilia....
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.... of the parties was not contemplated by the Order of the Hon'ble Supreme Court. In paragraph 191.1, Supreme Court further held "This Process is otherwise not of determination of the claims of individual stakeholders, be it Operational Creditors or Financial Creditors". Thus claims of individual stakeholders was not required to be determined under the orders of the Hon'ble Supreme Court. 26. Hon'ble Supreme Court was well aware that Corporate Insolvency Resolution Process of JIL is underway in which Resolution Plan was approved which was under challenge. Any claim of JAL against the JIL which was in the nature of Operational Debt could have been claimed only in the Insolvency Resolution Process and Hon'ble Supreme Court never contemplated determination of any claim of the JAL against the JIL in pursuance of the above direction. 27. Mr. K. Venugopal, Learned Sr. Counsel for the Appellant submitted that the Adjudicating Authority failed to construe the true meaning of 'Reconciliation'. Learned Counsel for the Appellant has relied on definition of 'Reconciliation' as per Black's Law Dictionary, Sixth Edition: "Reconciliation. The renewal of amicable relations between two....
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....he judgment of Jaypee Kensington which captures the extent and ambit of directions of the Hon'ble Supreme Court. After deliberating on the issue under the heading 'J' under Point N, summation of findings; final order and conclusion was recorded in Para 216 of the judgment. Para 216 (J) (ii) is to the following effect: "(ii) The question as to whether any amount is receivable by JIL and/or its homebuyers from JAL, against advance towards construction and with reference to the admitted liability to the tune of INR 195 crores as on 31.03.2020, shall be determined by NCLT after reconciliation of accounts in terms of the directions contained in paragraphs 189 to 191.1 of this judgment. The amount, if found receivable by JIL, be made over to JIL and the remaining amount together with accrued interest be refunded to JAL in an appropriate account. It is made clear that the present matter being related to CIRP of JIL, no other orders are passed in relation to the amount that would be refunded to JAL because treatment of the said amount in the asset pool of JAL shall remain subject to such orders as may be passed by the competent authority dealing with the affairs of JAL." 30. Fr....
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.... Point No. (i): Ambit and scope of reconciliation of account between JAL and JIL was concerning the amounts advanced to JAL by JIL towards construction contracts and extent of liabilities discharged by JAL towards above. The reconciliation was not to find out what amount was payable to JAL by JIL. POINT NO. (ii) 32. JAL has in the Appeal has claimed adjustment of Rs.212 Crores related to Bank Guarantees issued by JAL in favour of lenders of JIL which was invoked by the lenders. The Adjudicating Authority in the impugned order has framed issue no. (b) under Para 13 i.e. "Whether JAL is entitled to a claim arising out of the Bank Guarantees amounting to Rs.212 Crore issued on behalf of JIL and subsequently, invoked by lenders of JIL.". The Adjudicating Authority from Para 42 to Para 60 has examined the said issue and returned a finding that JAL is entitled to retain Rs.212 Crores out of Rs.750 Crores, which findings are questioned by learned counsel appearing for the JIL. It is to be noted that even after the above finding in favour of the JAL in the ultimate order passed by the Adjudicating Authority in Para 109 to Para 111, the said amount was not retained in favour of JAL....
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....d eighty two only) (REFER ANNEXURE B) Notes: 1. THE ABOVE CLAIM AMOUNT INCLUDES AMOUNT OF BANK GUARANTEES GIVEN BY THE COMPANY (JAL) AS A PROMOTOR OF JAYPEE INFRATECH LIMITED (JIL), AGGREGATING TO Rs. 212 CRORES WHICH WERE INVOKED BY THE BENEFICIARIES ON 03.10.2016, 05.10.2016 AND 06.10.2016. THE SAID AMOUNT WAS TO BE TREATED AS PROMOTOR'S CONTRIUTION UNDER THE INDICATIVE RESTRUCTURING SCHEME OF JIL, WHICH WAS UNDER CONSIDERATION BY THE LENDERS OF JIL, WHICH IDBI AS LEAD BANK. SINCE THE SCHEME IS NOT YET APPROVED, THE SAID AMOUNT IS RECOVERABLE BY JAL. 2. THE ABOVE AMOUNT OF CLAIMS DOES NOT INCLUDE AMOUNT OF INTEREST THEREON. 34. The above claim filed by JAL in Form B clearly included he Bank Guarantee aggregating to Rs.212 crores which was invoked by the beneficiaries in the year 2016. It is also relevant to notice that the Hon'ble Supreme Court in "Anuj Jain, Interim Resolution Professional for Jaypee Infratech Ltd. vs. Axis Bank Ltd. & Ors., (2020) 8 SCC 401", considered challenge to the order of the Adjudicating Authority deciding preferential applications filed by the IRP. In Para 25.3.2, it was noticed that, the Bank Guarantees of Rs.212 Crore was execut....
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....t of amount of Rs.212 crores has to be as per the IBC proceeding. We, thus, are of the view that the finding of the Adjudicating Authority that JAL is entitled to retain amount of Rs.212 crores out of Rs.750 crores is unsustainable. The amount of Rs.212 crores which is related to the invocation of Bank Guarantees cannot be subject matter of reconciliation process. It is relevant to notice that the Grant Thornton in its opinion has opined: "However, the Adjudicating Authority may provide direction to release the amount in line with the provisions of the IBC Code and/or relevant statutes." 37. Grant Thornton, the Auditor appointed by the Adjudicating Authority also did not recommend adjustment of Rs.212 crores in reconciliation process. Thus, the amount of Rs.212 crores could not have been made part of the reconciliation process and has nothing to do with amount of Rs.750 crores nor the said amount can be deducted from the amount payable to JIL as determined by the Adjudicating Authority. Point No. (ii) is answered accordingly in following manner: Point No. (ii): The claim of Rs.212 crores relating to Bank Guarantees issued by JAL invoked by the lenders of JIL need not....
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....unt payable to JIL. POINT NO. (vi) 40. With regard to amount of Rs.12.26 crores which stood mutually settled between the parties after receipt of the Report of Grant Thornton and has been noticed by the Adjudicating Authority in its order, the submission of learned counsel for the Appellant is that when the mutual settlement was that both JAL and JIL shall be 50-50%, the Adjudicating Authority ought not to have added the amount of Rs.6.13 crores in the amount payable to JIL. A meeting dated 24.12.2021 was held between the parties with regard to settlement of aforesaid dues of Rs.12.26 crores. The Adjudicating Authority in Para 12 has noticed as follows: "12. From the perusal of the aforesaid minutes, it is observed that the dispute with regard to the Transactions relating to "RA Bills for Construction of Rs. 10.97 Crore & Rs. 1.14 Crore" and "Facility Management Bills raised by JAL on JIL of Rs. 0.15 Crore" have been mutually resolved to be shared in the equal ratio between the parties. The minutes of the meeting dated 24.12.2021 is taken on record. The said issues are resolved as per the agreement above and, Ordered accordingly." 41. The amount was mutually resol....
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....rned counsel for the Appellant has further submitted that the amount which was given by JIL as mobilization advance to JAL of Rs.450 crores specifically stipulated interest free to enable JAL to undertake construction on behalf of JIL. Further, Interest Free Maintenance Deposit (IFMD) amounting to Rs.380.60 Crores advanced to JAL by JIL, by its very nature was interest free. On Interest Free Maintenance Deposit amounting to Rs.106.90 crores received from customers neither there was any direction to pay interest nor payment of interest to the Interest Free Maintenance Deposit can be contemplated. Interest Free Maintenance Deposit collected from the customers does not carry interest. 45. It is not the case of the JIL that mobilization advance was given by JIL to JAL which carried any interest nor it is submission of JIL that Interest Free Maintenance Deposit carries interest. When the amount which was receivable by JIL as found by Adjudicating Authority did not carry any interest, direction by the Adjudicating Authority to pay said amount alongwith proportionate interest was uncalled for. We, thus, are of the view that direction issued by the Adjudicating Authority in Para 111 for....
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.... Receivable'. 101. Hence, it cannot be said beyond doubt that the said amount is arising out of 'Construction. We find no error committed by GT by treating JIL's claim of Rs. 70.89 Crores outside the realm of the reconciliation process and therefore, JIL cannot recover this amount from JAL under the current reconciliation process. The issue of Land Swap Deal is decided accordingly." 48. The amount of Rs.70.89 crore claimed by JIL to be payable from JAL was out of sub-lease deeds executed by JIL, JAL and ICICI Bank for consideration of Rs.643.50 crores to repay the liability of JAL for the financial facility extended by ICICI Bank. JIL by executing 11 sub-lease deeds transferred 84.5 acres of land to ICICI Bank. The Adjudicating Authority in the impugned order has noticed the contents of sub-leases and in Paras 94 and 95 made following observations: "94. From the above, it is observed that the Sub-Lease Deeds dated 27.04.2016 nowhere specify that the term arrangement/agreement is used in the context of construction. Therefore, we are unable to accept this plea that the liability of JAL with respect to construction was required to be adjusted. Hence, ....