TaxTMI 
TaxTMI 
2025 (1) TMI 685
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....CIRP") against the two Corporate Debtors, running two Hotels - (i) JW Marriott (five- star Hotel) situated at Bengaluru; (ii) Crown Plaza Hotel, situated at Pune. 2. Company Appeal (AT) (Ins.) No. 165 of 2024 has been filed by Suspended Director of the Corporate Debtor - GSTAAD Hotels Pvt. Ltd.; and Company Appeal (AT) (Ins.) No. 212 of 2024 has been filed by Shareholder and Suspended Director of the Corporate Debtor - Neo Capricorn Plaza Pvt. Ltd., a subsidiary of M/s GSTAAD Hotels Pvt. Ltd. Lenders of both the Corporate Debtors being common and lending commenced by a common Loan Agreement dated 26.12.2017 and both the Appeal(s) involving common issues of facts and law, have been heard together and are being decided by this common judgment 3. Brief facts of the case giving rise to these Appeal(s) are: Company Appeal (AT) (Ins.) No.165 of 2024 (i) Piramal Capital Housing Finance Ltd. ("Piramal") entered into a Loan Agreement dated 26.12.2017 with Corporate Debtor ("CD") - M/s GSTAAD Hotels Pvt. Ltd. ("GSTAAD Hotels") and Neo Capricorn Plaza Pvt. Ltd. ("Neo Capricorn"), agreeing to extend Term Loan Facility of Rs. 600 crores, wherein GSTAAD was granted loan of Rs. ....
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.... also claimed in the Writ Petition. (viii) The CD - GSTAAD Hotels asked for statement of account to close the loan account and repay the balance amount. The Lenders continued to receive sums as per Cash Management Agreement. (ix) Reply to Section 7 Application was filed by the CD. The Adjudicating Authority vide order dated 09.01.2024 admitted Section 7 Application. Company Appeal (AT) (Ins.) No.212 of 2024 (i) On 26.12.2017, Corporate Debtor - Neo Capricorn Plaza Pvt. Ltd. along with GSTAAD Hotels entered into a Loan Agreement for a loan of Rs. 600 crores, out of which Corporate Debtor - Neo Capricorn was to be given loan of Rs. 100 crores loan. On 26.12.2017, a Security Trustee Agreement was entered into between the Lender - Piramal, the Corporate Debtor and M/s. IDBI Trusteeship Services Ltd. (ii) On 29.12.2020, the Lender entered into a Loan Agreement with the Corporate Debtor - Neo Capricorn Plaza Pvt. Ltd. for a sum of Rs. 19.5 crores under the ECLGS Scheme. (iii) On 04.03.2021, IDBI Trusteeship Ltd. issued a notice of default, calling on GSTAAD Hotels and the CD - Neo Capricorn to repay Rs. 13 crores to the Lender. On 26.05.2021, the ID....
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.... being run as a profitable Company, which can be envisaged from earnings before interest, taxes, depreciation and amortization (EBIDTA) in the year 2022- 23, which was Rs. 81.26 crores. The learned Counsel for the Appellant referring to the details of revenue earned by the Hotel, in Company Appeal (AT) (Ins.) Nos.165 and 212 of 2024, referred to in paragraphs 7.5 and 7.6 submits that subsequent to Covid-19, the Hotel has substantial earnings and has been making substantial payments to the Lenders. The learned Counsel for the Appellant referring to Cash Management Agreement ("CMA") submits that as per the CMA 34% of daily gross revenue from the revenue account was to be transferred in the retention account, which Agreement provided reconciliation of accounts on monthly basis, whereby, only the amounts equivalent to the Corporate Debtor's profit share from the Hotel were to be utilized by the Lender to service its loan and in event an amount in excess of the Corporate Debtor's profit entitlement from a particular month, the Lender was obliged to transfer back the excess amount to the Expense Account within 10 days. In paragraph 7.10, the details of amount repaid to the Lenders from 2....
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....hority has returned a finding of default only with regard to ECLGS-1 and on the date of default on 15.11.2022, only amount of Rs. 52 lakhs was due in ECLGS- 1. There was no default of threshold amount, to enable the Adjudicating Authority to admit Section 7 Application. 7. It is submitted that Adjudicating Authority in paragraph-11 has held that the Applicant (Financial Creditor) has denied the existence of CMA and no CMA having been filed, the CMA is not proved, which finding is erroneous. The CMA was entered between Lenders and GSTAAD Hotels, which was given effect to by maintaining Expense Account and Retention Account and the amount being regularly transferred from retention amount by the Lenders for returning any finding of default on the loan account, the accounts maintained under the CMA were required to be looked into by the Adjudicating Authority. The observation of the Adjudicating Authority in paragraph 8 of the impugned order that existence of loan amount and Corporate Debtors' default on such loan amount, is undisputed fact, is without any basis. The Corporate Debtors never admitted any default. The Appellant has brought on record Report of the Statement of Accounts....
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.... cannot be accepted. Section 7 Application filed against GSTAAD Hotels and Neo Capricorn is based on default, which was committed by CDs on 15.11.2022, whereas earlier Section 7 Application was filed by IDBI Trusteeship Ltd. on default, which was committed in April and May 2021. It is submitted that principle of res-judicata or issue of estoppel has no applicability in Section 7 Application filed by Omkara. 10. With regard to ECLGS-1 and ECLGS-2, it is submitted that as per sanctions on 30.12.2020 and 11.03.2022, the Corporate Debtors were liable to make payment towards interest. The Corporate Debtors having committed default in repayment of the interest and principal as per ECLGS-1, as per repayment schedule, the default was committed by the Corporate Debtors. With regard to ECLGS-1, Corporate Debtor was to make a monthly principal repayment of Rs. 2,04,16,667/- from 15.12.2021 till 15.11.2025. The monthly interest rate of 13% was to be paid under ECLGS-2 from April 2022 to April 2028. Default was committed by the Corporate Debtor with regard to ECLGS-1 and ECLGS-2 leading the Financial Creditor to issue a legal notice dated 15.02.2023, calling upon the Corporate Debtors to pay....
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....d for a mechanism to appropriate a percentage of the revenue towards servicing of the debt. As per Clause 18.39 of the Loan Agreement, the Corporate Debtor had agreed and undertook that in the event the funds lying in the Retention Account are not sufficient for repaying the loan or any part thereof, the Corporate Debtor shall ensure that the loan and every part thereof is repaid through such other funds as may be necessary for this purpose and acceptable to Lenders. Hence, when 34% of the collections fell short of repayment of facility, it fell upon the Corporate Debtor to make good the "default". The finding of the NCLT that there is debt and default is based on materials on record. There being default of more than Rs. 1 crore, no exception can be taken to the admission of CIRP Against the Corporate Debtor. There existed the clear debt and default under the terms of Loan Agreement under ECLGS-1 and ECLGS-2. Both the Appeal(s) filed by the Appellant deserve to be dismissed. 13. We have considered the submission of learned Counsel for the parties and have perused the record. 14. From the submissions of learned Counsel for the parties and the materials placed on record, follow....
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....ghtly rejected the submission of Corporate Debtor on ground of end use Certificate issued by Corporate Debtor. (9) Whether Corporate Debtor has committed default towards ECLGS-1 sanctioned on 30.12.2020 as per date of default 15.11.2022? (10) Whether the Financial Creditors have been able to prove default under the Loan Agreement dated 26.12.2017 and the ECLGS-II sanctioned on 21.03.2022? (11) To what relief, if any, the Appellant(s) are entitled in these Appeal(s)? Question No.(1) 15. The Assignment dated 27.12.2022 made by the Lenders in favour of Omkara was challenged by GSTAAD before the High Court of Karnataka at Bengaluru in Writ Petition No.6037 of 2023. The High Court vide its judgment and order dated 28.02.2024 has dismissed the Writ Petition. Copy of which order has been brought on record by the Appellant in its rejoinder affidavit. The challenge before the High Court of Karnataka of the Assignment by the Appellant was basically on the ground that accounts of CD having not been declared as NPA or SMA, the Lenders could not have assigned the debt in favour of Omkara. Violation of Circulars issued by Reserve Bank of India was relied before t....
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....anker's prerogative. The coordinate Bench has held as follows: "E. AS TO EMERGENCY CREDIT LOAN GUARANTEE SCHEME AND BANKER'S PREROGATIVE: (i) The ECLG scheme promulgated by the Central Government which the petitioner's counsel heavily banked upon in support of his case, at its guideline 18 (xiv) imposes an obligation on the lender bank to secure its interest by taking all reasonable measures. The same reads: "The payment of guarantee claim by the Trustee Company to the lending institution does not in any way take away the responsibility of the lending institution to recover the entire outstanding amount of the credit from the borrower. The lending institution shall exercise all the necessary precautions and maintain its recourse to the borrower for entire amount of credit facility owed by it and initiate all necessary actions for recovery of the outstanding amount, including such action as may be advised by the Trustee Company." When the lender Banks in given facts & circumstances of the case take a decision as dictated by the prudence, for abruptly recalling the credit facilities, it is not for the courts to sit in appeal over their wisd....
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....urt having not been accepted, questioning the assignment dated 27.12.2022, we are of the view that no fault can be found in the assignment at this stage. We, thus, proceed to examine the contention of the parties accepting the assignment dated 27.12.2022 in favour of the Financial Creditor. Question No.(2) 17. The submission which has been pressed by the Appellant is that on account of withdrawal of earlier Section 7 Application filed by IDBI Trusteeship Ltd. on 13.12.2022 and 22.12.2022, present Application is barred by principles of res-judicata. The earlier Section 7 Applications being CP(IB)No.1292 of 2021 and CP(IB) No.1287 of 2021 were filed by IDBI Trusteeship Ltd. on behalf of the Lenders alleging default on 15.04.2021 and 15.05.2021. The default in the aforesaid proceedings was default of Loan Agreement dated 27.12.2017. Section 7 Application, which has given rise to present Appeal has been filed alleging default of ECLGS-1 and ECLGS-2. In the earlier Section 7 Application initiated by IDBI Trusteeship Ltd., the ECLGS Facilities were not subject of consideration, nor the Applications were founded on any default under ECLGS Facility. Hence, we are of the view that the....
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....tel business was great sufferer due to onslaught of Covid-19. Both Union of India and Reserve Bank of India has taken measures to extend financial support by means of ECLGS Scheme, which Scheme was floated for giving financial support to the Corporate Debtors to come out from the adverse effect of Covid-19. In the Company Appeal (AT) (Ins.) No.165 of 2024, the Appellant has pleaded about the current financial status of JW Marriott Hotel as well as Crown Plaza Hotel. In paragraph 7.12 of the Appeal, payments made by Borrower to the Lenders from April 2017 to 11.01.2024 has been tabulated. GSTAAD has made payment of Rs. 418.06 crores during this period and Neo Capricorn has made payment of Rs. 78.92 crores. Paragraph 7.12 of the Appeal is as follows: "7.12 The Borrowers have repaid sums to the Lenders in the following manner: GSTAAD HOTELS PRIVATE LTD. Sl. No. Financial Year Amount in INR (Crores) 1. April 2017- March 2018 10.28 2. April 2018- March 2019 54.33 3. April 2019- March 2020 60.27 4. April 2020- March 2021 55.73 5. April 2021- March 2022 78.34 6. April 2022 - March 2023 96.19 7. April 20....
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.... and Crown Plaza Hotel, which are run by the Corporate Debtors were profitable Companies, earning substantial profits. Question Nos.(4) & (5) 24. The Appellant has placed reliance on Cash Management Agreement entered between the parties on 17.01.2018 in pursuance of the Loan Agreement dated 26.12.2017. The Appellants' case before the Adjudicating Authority as well as before this Tribunal is that as per the CMA dated 17.01.2018, the daily gross revenue was to be transferred from designated Revenue Account to Expense Account, 66% for Borrower for operating capital needs of the Hotel and 34% was to be transferred to designated account titled as Retention Account, on a daily basis, which would be used by the Lender towards servicing of loan financed to the Corporate Debtors. The relevant pleadings regarding CMA have been referred to in paragraph 7.10 of the Appeal. Paragraph 7.10 of the Appeal is as follows: "7.10 The Trustee on behalf of the Lender would transfer from the Revenue Account as per the CMA as follows-- 7.10.1. 66% of the daily gross revenue from the Revenue Account to a designated account bearing number 002284000002912 at YES Bank and 5750000043987....
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....t or document, accordingly this argument also does not have a force." 26. The CMA was contemplated in the Loan Agreement dated 26.12.2017. The CMA was defined in the Loan Agreement dated 26.12.2017 in the First Schedule of the Loan Agreement, dealing with definition and interpretation, the CMA has been defined as follows: "Cash Management Agreements" shall mean the agreement executed on or about the date hereof between GHPL, Marriott Hotels India Private Limited (as the operator), Global Hospitality Licensing S.A R.L. (as GHL), Renaissance. Services B.V. (as RSBV), Marriott International Licensing Company B.V. (as Marriott) and the Lender (as Financier) which sets out the cash management arrangement between the parties thereto in relation to the JW Marriott Hotel together with the non-disturbance agreement executed between the parties thereto." 27. The CMA was entered between the parties and the amounts were regularly transferred into Retention Account, which Retention Account was operated by the IDBI Trusteeship Ltd. on behalf of the Lenders. Denial of Omkara before the Adjudicating Authority was wholly incorrect and against the record. The CMA was a mechanism for r....
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....he existence of CMA has rejected the submission of the Appellant. The observation of the Adjudicating Authority that CD could not prove existence of CMA by any correspondence between the parties is also without any basis. The CMA was duly contemplated into a Loan Agreement and was actually executed between the parties. 29. The GSTAAD Hotels filed reply in CP(IB)No.291/MB/2023. In the reply filed by the CD, CMA was both pleaded as well as brought on record. It is useful to notice the pleadings in reply. In paragraph 9 of the reply, CMA dated 17.01.2018 was specifically pleaded. Paragraphs 9 and 10 of the reply are as follows: "9. That the Respondent, PCHFL and the Hotel Operator had a Cash Management Agreement dated 17.01.2018 ("CMA") whereby the entire gross revenue collections of the Hotel were to be deposited by the Hotel Operator into a designated bank account on a daily basis, which was titled and styled as the Revenue Account. Thereafter, PCHFL would transfer: (a) 66% of the doily gross revenue from the Revenue Account to another designated account titled as Expense Account also on a daily basis, which would be utilized by the Hotel Operator for working/op....
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....H are as follows: "1. CASH MANAGEMENT ARRANGEMENT A. The Parties agree that the operating profit which (after deduction of the amounts payable to Marriott Companies under the Marriott Agreements) would otherwise be distributed to Owner (as set out in the interim accounting referred to in section 5.02 of the Operating Agreement) ("Owner Profit") will be deposited in the Retention Account (as defined below) for Financier to repay the loan under the Facility Agreement B. To implement to arrangement In Section LA above, the parties agree that, notwithstanding section 9.03 of the Operating Agreement, until there is a Cash Management Default, the Hotel's Gross Revenues in relation to each Accounting Period shall be deposited and utilized in the following manner: (i) Operator will deposit all Hotel's Gross Revenues (Including tax or similar charges collected by the Hotel from patrons or guests, "Taxes") on a daily basis into an account established by Owner with Financier as revenue account (ii) On a daily basis, through an automatic transfer via standing instruction: (a) Financier will transfer 66% of the Gross Revenues (includ....
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....siness Days after Operator's provision of the interim accounting to Owner and Financier; F. Owner will ensure Financier to comply with the terms of Section I of this Agreement. Any breach by Owner or Financier of Section J of this Agreement that Owner or Financier fails to rectify within 10 days after receiving a written notice from Operator requesting for rectification will constitute a "Cash Management Default". G. This Agreement does not relieve Owner's obligation to advance additional funds required to maintain Wo1*king Capital and Inventories at levels determined by Operator to be necessary to satisfy the needs of the Hotel as Its operation may from time to time require pursuant to section 7.01 of the Operating Agreement. Ow net' wit\ provide such funds to the Expense Account upon Operator's request. H. The current split of 66% /34% ratio to allocate Hotel Gross Revenue into the Expense Account and Retention Account on a daily basis pursuant to Section 1.A(ii) is determined: (i) On the basis that the amount of Taxes collected by the Hotel will on average constitute approximately 23.5% of the Gross Revenue collected by the Hotel. ....
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....of existence of Cash Management Agreement, the submission of the Appellant on the basis of Cash Management Agreement, cannot be accepted. Ans. to Question No.(5): The Adjudicating Authority was obliged to consider the amounts transferred to Lenders under the Cash Management Agreement towards servicing of debt for returning the finding of default by the Corporate Debtor Question No.(6) 35. Learned Counsel for the Appellant has made emphasis on Debt Service Reserve Amount ("DSRA"), which was contemplated in the Loan Agreement dated 26.12.2017. It is contended that Lenders were obliged to maintain a DSRA as per Loan Agreement and which DSRA was to be utilized for payment of principal and interest and any shortfall in the DRSA was to be replenished by CD. The copy of the Loan Agreement has been brought on record by the Appellant as part of Annexure-2. Clause 9 of the Agreement dated 26.12.2017, dealt with 'Debt Service Reserve Amount'. Clause 9 of the Agreement is as follows: "9. DEBT SERVICE RESERVE AMOUNT 9.1 The Borrowers agree that the Lender shall reserve the Minimum DSRA Balance as an undisbursed amount under the Loan, which shall be a reserve ("DSRA....
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....mission of the Appellant as noted above is that amount of Rs. 8 crores was undisbursed and was kept as reserved amount, which was to be utilized for shortfall in any repayment of interest/ principal. We are of the view that said aspect of the matter was also needs to be looked into by the Adjudicating Authority before returning any finding of default. 38. The provision of DSRA is clearly reflected from the Loan Agreement dated 26.12.2017 itself. Further, the Loan Agreement itself provides that there will be DSRA of Rs. 8 crores for CD - GSTAAD Hotel Pvt. Ltd. and Rs. 2 crores for Neo Capricorn Plaza Pvt. Ltd. We may refer to 11th Schedule of the Agreement dated 26.12.2017, which contains purpose for the loan. The 11th Schedule, Clauses 1 and 2 of the Agreement are as follows: "ELEVENTH SCHEDULE (PURPOSE) 1. The GHPL Loan shall be utilized for the following purpose: (i) Up to Rs. 365,00,00,000 (Rupees Three Hundred and Sixty Five Crores) for the repayment of GHPL Existing Dues; (ii) Upto Rs. 77,00,00,000 (Rupees Seventy Seven Crores) towards top up against receivables of the JW Marriott Hotel; and (iii) The balance....
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....ault has actually taken place". When the Corporate Debtor has submitted before the Adjudicating Authority that no default has actually taken place, the observation of the Adjudicating Authority that it is undisputed that there are defaults in payment thereof, cannot be sustained. In the Appeal, the Appellant has made various submissions challenging the finding of default and it is submitted by the Appellant that no default was committed by the Appellant towards Loan Agreement and ECLGS-1 and ECLGS-2. 43. We, thus, answer Question No.(7) in following manner: The observation of Adjudicating Authority in paragraph 8, "that it is undisputed fact that the Loan amount exists and there are defaults in payment thereof" are unsustainable. The Corporate Debtor had disputed the default before the Adjudicating Authority itself. Thus, it cannot be accepted that default by the CD is undisputed fact. Question No.(8) 44. The submission which has been pressed by learned Counsel for the Appellant before this Tribunal is that under ECLGS-1, amount of Rs. 98 crores was sanctioned and under ECLGS-2, amount of Rs. 65 crores was sanctioned, totaling to Rs. 163 crores. The Appellant's su....
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.... 47. Clause 2.2 of the Agreement provides "Purpose" for which ECLGS Facility was extended. Clause 2.2 is as follows: "2. Purpose The Loan shall be utilized only for the purpose set out in Eleventh Schedule and for no other purpose. It is agreed between the parties that the Lender will be entitled to, from time to time, stipulate any additional terms, conditions or end-use/ purpose compliances. The Lender will also have a right to require the Borrower and the Obligors to comply with such conditions precedent and conditions subsequent in addition to the conditions stipulated in the Third Schedule and Fourth-Schedule hereunder." 48. Schedule 11 of the Agreement dated 30.12.2020 provides as follows: "ELEVENTH SCHEDULE (PURPOSE) The GHPL Loan shall be utilized for working capital requirements of the Project." 49. Thus, the amount, which was given under ECLGS Facility was towards the working capital. The Appellant has pleaded that the said amount was utilized by the Lender for meeting their loan. When the Financial Creditor is alleging default of ECLGS-1 and ECLGS-2, the above submission made by the Appellant becomes necessary to be cons....
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....ne year and interest amount was to be paid from the date it became due. The pleadings in Section 7 Application was that CD defaulted in ECLGS Facility in November 15, 2022. In Section 7 Application, the Financial Creditor has brought on record the Statement of Account from 20.12.2022 to 27.02.2023 pertaining to ECLGS Facility of Rs. 98 crores. From the Statement of Account, which is filed, it is clear that the interest was due on 05.10.2022 and repayment of principal was due on 05.10.2022 have also been captured, including the repayment. The above Statement of Accounts reflects default as on 15.11.2022. The learned Counsel appearing for the Appellant refuting the allegation of default submits that there was more than one reason to not accept the submission of the Financial Creditor regarding default under ECLGS-1. In the reply, which was filed before the Adjudicating Authority, the CD has categorically pleaded in paragraph 17(vii) that after pandemic situation became better, the CD has made the payment and excess payment was made as compared to the share of profit. It was pleaded that Piramal was obliged to refund the excess back to the Expense Account and hence, there was multiple....
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....mitted, indicate that there was due towards ECLGS upto November 15, 2022. However, the Report submits that the said amount could be set off against the excess payment made in Facility-1 and 2 and further there was un-utilized DSRA as on November 15, 2022 of Rs. 3 Crores. It is useful to extract paragraph 5 of the Report, which states following: "5. Analysis of Statement of loan Accounts prepared by Piramal: The following table represents the interest and principal repaid during the loan tenure upto November 15, 2022. The table has been drawn summarizing the amounts reflected in the Piramal statement and based on the interest charged by Piramal. (Amounts Rs. ___ in Crores) Transaction Particulars Loan Accounts Grand Start Date Facility-1 and Facility-2 RCF - 50 Crores* ECLGS Total Disbursements Loan Disbursed 540.00 49.55 182.50 772.05 Transfers - - - - Moratorium Interest (Refer Note-1) 27.48 2.76 - 30.24 DSRA Disbursed (Refer Note-2) 7.00 - - - Amount Lent 574.48 52.31 182.50 802.29 Repaid Amount Repaid 309.12 26.06 43.72 378.89 ....
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....matter, including excess payment under Facility-1 and Facility-2 and unused DSRA and only after considering all relevant facts, findings regarding default of ECLGS could have been given. The findings of the Adjudicating Authority with regard to default under ECLGS-1 has been returned in paragraph-16 of the order. Except the observation "Nonetheless the default in relation to the outstanding loan and ECLGS-I is clearly established", neither there is any reason given, nor there is consideration of any material facts on the record for coming to the said finding. The finding returned by the Adjudicating Authority regarding default, thus is without considering of the materials on the record and are unsustainable. We have already held that DSRA was also required to be looked into, which has not even adverted to by the Adjudicating Authority. We, thus, are of the view that the Adjudicating Authority is required to consider the default of ECLGS and loan account, afresh, after considering the relevant materials on record, including the observations as made in this order. Question No.10 55. Section 7 Application, which was filed by the Financial Creditors for initiating CIRP against th....
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.... 58. When we look into the findings, which has been returned by the Adjudicating Authority in paragraph 16 of the impugned order, where the Adjudicating Authority has held that the default in relation to the outstanding loan and ECLGS-1 is clearly established. Paragraph 16 of the order is as follows: "16. As regards default in repayment of ECLGS-2 is concerned we find that the repayment was to begin from 05.04.2024, however the interest was payable monthly after the first disbursement. Nonetheless the default in relation to the outstanding loan and ECLGS-1 is clearly established. Accordingly we do not find any merit in the contention that this application cannot be maintained as principal repayment under ECLGS-2 has not fallen due as yet." 59. The finding in paragraph 16, is thus, default regarding Loan under ECLGS-1 is clearly established. During submissions, learned Counsel for the Respondent has pressed on the default with regard to ECLGS-1 and ECLGS-2. We have already held that default under the Loan Agreement dated 26.12.2017 could not have been pronounced without considering the CMA and amounts transferred by the Lenders to the Retention Account. The Adjudicati....