TaxTMI 
TaxTMI 
2025 (6) TMI 28
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....er admitting Section 7 Application and appointing Resolution Professional ("RP") has come up in this Appeal. 2. Brief facts of the case necessary to be noticed for deciding the Appeal are: (i) Jaypee Cement Corporation Ltd. (hereinafter referred to as the "JCCL") is a wholly owned subsidiary of Jaiprakash Associates Ltd. ("JAL"). The JCCL availed various credit facilities from the SBI between 2012-15. (ii) Under the Reserve Bank of India ("RBI" Circular a Joint Lenders Forum ("JLF") comprising of all the Banks was constituted with a view to overcome the liquidity crunch of JAL and finalize Corrective Action Plan. Both JAL and JCCL defaulted in payment of loans and Lenders including SBI declared JAL and JCCL as NPA with effect form 08.03.2016. A Composite Scheme of Debt Realignment Plan for debt of JAL and JCCL was proposed. As a part of composite restructuring, the loans of JAL and JCCL were proposed to be divided into three buckets, in following manner: "15. That a scheme of Debt Realignment Plan (hereinafter referred to as "DRP") for the combined debt of JAL and the Corporate Debtor was proposed and approved on 05.10.2016 which was divided into three different buckets : ....
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....as proposed to be transferred to a separate Real Estate SPV against OCDs for 20 years @ 9.50% p.a. simple interest redeemable from 16th years onward backed by land of 1039 acres (already mortgaged to lenders) of the company having value of Rs. 14,156.00 Crs. (SBI's Share: Rs. 6,209 Crs.) through Scheme of Arrangement. The Scheme contemplates hiving off the remaining debt along with certain identified land parcels having equivalent value to a 100% SPV of JAL, namely Jaypee Infrastructure Development Limited." (iii) The loan exposure of JAL and JCCL was to be reduced, as the cash flows of JAL and JCCl would not have otherwise supported any restructuring. Same was proposed to be done by carving out Bucket 1, wherein certain plants/ assets of JAL and JCCL were to be sold to UTCL (Ultra Tech Cement Limited). The remaining portion of debt of JAL and JCCL was to be further divided into two Buckets, i.e. sustainable debt carved as Bucket 2A and unsustainable debt carved as 2B. The sustainable debt Bucket 2A was to be kept in JAL while unsustainable debt was to be transferred to a newly formed SPV Bucket 2B. (iv) A Master Implementation Agreement dated 31.03.2016 was executed by U....
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....d that JCCL has defaulted on 03.03.2016. (xiii) SBI filed a Section 7 Application being CP (IB) No.26/ALD/ 2023 against JCCL seeking to initiate Corporate Insolvency Resolution Process ("CIRP") for default of debt that was prior to failed restructuring of debt of JCCL and JAL. In Part-IV of Section 7 Application, the SBI claimed total debt due and payable as Rs.363,77,98,167/- as on 15.02.2023. The date of default as per NESL certificate was mentioned as 03.03.2016. In Section 7 Application, notices were issued to the CD - JCCL, who filed its reply. (xiv) By order dated 03.06.2024, the Application filed by ICICI Bank against JAL was admitted and CIRP commenced against JAL. On 03.06.2024, the NCLT passed an order in CP (CAA) No.19/ALD/2018 and dismissed scheme of arrangement. Suspended Director of JAL also preferred an Appeal, challenging the judgment dated 03.06.2024 passed in scheme of arrangement. (xv) The NCLT vide judgment dated 22.07.2024 admitted CP(IB) No.26/ALD/2023 filed by the SBI, directing for initiation of CIRP against JCCL. The Adjudicating Authority noted that MRA (31.10.2017) has not been given effect to. (xvi) This Tribunal vide its judgment dated 06.12.202....
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....nterim order/ hearing the Appeal. The Hon'ble Supreme Court also vide its order passed on 21.04.2025 in Civil Appeal No.5332 of 2025 directed to take up the Appeal/ Application for modification and decide either of them on expeditious basis positively within a period of two weeks. The Appeal was heard and the hearing completed within the time allowed by the Hon'ble Supreme Court on 16.05.2025. 5. We have heard Shri Abhijeet Sinha, learned Senior Counsel appearing for the Appellant and Shri Ankur Mittal, learned Senior Counsel appearing for the SBI. 6. Shri Abhijeet Sinha, learned Senior Counsel appearing for the Appellant challenging the impugned order submits that Section 7 Application was filed by the SBI based on an alleged default dated 03.03.2016 (date of NPA) is misconceived, since the default stood waived under the restructuring framework as the Comprehensive Reorganization and Restructuring Plan was approved and subsequently ratified by the JLF. Thereafter, a Master Restructuring Agreement was executed on 31.10.2017, which categorically mentions waiver of earlier debt of JAL and JCCL. It is submitted that SBI also issued a Sanction Letter dated 20.06.2017 to JAL as borrow....
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....mentation. The petition under Section 7 was barred by the principles of estoppel and waiver. It is submitted that acknowledgment of letters referred by SBI cannot serve as a valid basis for establishing any liability against the JCCL. Non-transfer of debt from JCCL to JAL in the Lenders' Book, is not determinative. Failure of overall restructuring does not constitute default by JCCL after novation. JCCL obligation was the divestment of Balaji Cement Plan, which has been fully performed and the SBI has received its consideration with respect to Bucket 1. The judgment of this Tribunal in Company Appeal (AT) (Ins.) Nos.1158-1162 of 2024 dated 06.12.2024 is clearly distinguishable on facts and has no application in respect of JCCL. It is submitted that in Section 7 Application filed by ICICI Bank, different facilities were under challenge. The entire basis of the judgment was on default by JAL and not by JCCL. The JAL and JCCL are distinct legal entities, hence, initiation of CIRP against JAL has no effect on initiation of CIRP against JCCL. 7. Shri Ankur Mittal, learned Counsel appearing for the SBI refuting the submissions of learned Counsel for the Appellant submits that there is n....
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....n arbitration. The debt in Bucket 2A, which is sustainable debt, the JAL having gone into insolvency on 03.06.2024, prior to admission of Section 7 Application against JCCL, the entire substratum of the composite deal was lost and the scheme has fallen to the ground. JAL having been held to be in default in the debt covered in the three Buckets, JCCL default of discharge of its debts as was undertaken by JAL is fully established. In NESL record as authenticated on 03.01.2022, it is clearly recorded that the JCCL has defaulted with effect from 03.03.2016, i.e. prior to restructuring. Section 7 Application filed against JCCL in 2023 notices the date of default as 03.03.2016, due to failure of restructuring, which was noticed in Part IV of the Application. There is admitted failure to resolve the debt under Bucket 2A, due to breach of MRA. It is submitted that there were repeated acknowledgements by JAL and JCCL of their liabilities, which is reflected in several letters like letter of acknowledgment dated 27.05.2020, 21.06.2021 and 30.05.2022. The acknowledgement letters were issued both by JAL and JCCL. Security under MRA was not created and could not have been created, in view of t....
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....esaid MRA. The relevant part of clause 5.8 of the aforesaid MRA pertaining to creation of security interest is worth reproducing hereunder :- 5.8. Security (a) The Borrower certifies that all Security Documents when executed delivered and registered (where necessary or desirable) and when appropriate forms are filed as required under Applicable Law, shall create the Security expressed to be created thereby over the Charged Assets. (b) No Security Interest exists or has been promised to be created upon any of the Charged Assets in favour of any Person other than as permitted by the Lenders prior to the execution of this Facility Agreement. (c) The Borrower shall make out a good and marketable title to its properties to be secured in favour of the Secured Parties to the satisfaction of Secured Parties and. comply with all such formalities as may be necessary or required for the said 79. The factum of the security interest having not been created is clearly visible from the meeting of JLF held on 15.10.2018, wherein in its para no.19, it has been observed that the creation of security was not fully implemented, and therefor creation of the security in terms of MRA was put on....
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....king remedies in case of an event of default would also not arise. For the sake of reiteration, we need to emphasize that creation of the security interest was a sine qua non for the purpose of commencement of the MRA itself. The effect that the said MRA dated 31.10.2017 in so far as the Applicant/ Financial Creditor is concerned could not commence, would also be evident from the fact that another amended Restructuring Plan was sought to be brought in the year 2023, and it would be evident from the fact that another restructuring proposal was brought through letter dated 23.05.2023. The bringing into the said restructuring proposal was necessitated only in view of the fact that the earlier MRA dated 31.10.2017 could never see the light of the day in so far as the Applicant/ Financial Creditor is concerned. It also needs to be noted that even this restructuring proposal of 2023 also could not materialize and could never take off." 11. The submission of the learned Counsel for the Appellant that under MRA, the JAL undertaken to discharge the liabilities of JCCL, hence, the JCCL debt stood transferred to JAL and on failure of JAL to implement MRA, the CIRP against JAL has already c....
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.... Restructuring was a mechanism to discharge the entire dent of JAL and JCCL. Admittedly, restructuring has failed and neither the debt of JAL, nor the debt of JCCL have been discharged. Initiation of CIRP proceedings against JAL cannot be a ground to contend that no proceedings can be initiated against JCCL. JCCL has also given its securities for obtaining the various facilities from the SBI between 2012 to 2015. The Financial Creditor can always invoke the securities given by JCCL to realise the debt. The Financial Creditor has never shown the debt of JCCL to be transferred to the JAL in its Financial Statements and the fact that JAL and JCCL in their Financial Statements have treated the debt to be discharged, is not binding on the Financial Creditors. 12. Learned Counsel for the Appellant has made submissions relying on the novation of the earlier contract between JCL and the Lenders. Section 62 of the Indian Contract Act, 1872 provides as follows: "62. Effect of novation, rescission, and alteration of contract.- If the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the original contract, need not be performed. Illustrations (a....
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....h I have referred to earlier it is amply clear that the first instalment was paid by the opposite party in time and the liquidation of the agreed amount was also made within the terms of the MOU. So far as the bank guarantee is concerned, it is nobody's case that such guarantee has actually been invoked and as such the opposite party is under no obligation to pay the said sum to the Bank. The only question which remains in dispute is the calculation of interest, rather the date and time from which such interest is to be calculated. That MOU does not mention the time from which such interest is to be calculated and as such in my opinion since a new contract was invoked by way of talk between the parties on 18-5-1994 the claim of interest cannot go earlier to the said period because the Bank actually waived its original claim of a much more higher sum by agreeing to remain contented with Rs 33.14 lakhs as suit amount. As such, the subsequent contention of the Bank as conveyed by letter dated 12-6-1995 enhancing the suit amount as Rs 47.22 lakhs cannot stand. It further appears that in spite of the fact that the opposite party actually obeyed the terms of MOU in toto, the Bank did....
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....he MOU had been complied with and acted upon by the parties. Apart from what has been said, subsequent to the MOU there was also a lot of correspondence between the parties by exchanging letters giving offers and counter- offers, as would be revealed in the letters dated 16-6-1994, 23-12- 1994, 12-6-1995, 15-6-1995 and 19-6-1995. All these correspondences would go to show that the parties failed to arrive at a consensus even on what were the terms of the MOU. Thus, it is clear that there was no concluded contract nor was there any novation." 15. Ultimately, the Hon'ble Supreme Court held in paragraph 9 that non-compliance with the terms and conditions of the MoU by the respondents and a party in breach can hardly seek to enforce contract. The argument regarding novation of the contract was rejected. Paragraph 9 of the judgment is as follows: "9. Mr Ranjit Kumar, learned Senior Advocate contended that in view of the MOU signed by the parties the original contract stood substituted by the MOU and it is a fit case where Section 62 of the Indian Contract Act can be invoked. We have already said that there was no concluded settlement or novation. Even otherwise, there has been non-c....