TaxTMI 
TaxTMI 
TaxTMI 
2024 (11) TMI 1515
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....B) 111/7/NCLT/AHM/2018 with Inv. P. 53 of 2018, Inv. P 54 of 2018 and IA 60 of 2020 passed by the Adjudicating Authority, NCLT, Indore Bench, at Ahmedabad (together referred to as "Impugned Judgment"), whereby two judges of the Adjudicating Authority have admitted the petition filed under Section 7 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as "Code") against Respondent No. 1, 2. The Appellant is Promoter of the Respondent No. 1 i.e., Shree Maheshwar Hydel Power Corporation Ltd. ('SMHPCL') who is the Corporate Debtor and being represented through its IRP, is the Respondent No. 1 herein. The Power Finance Corporation Ltd. ('PFC') is the Respondent No. 2, who is the Financial Creditor of the Respondent No. 1. 3. Heard the Counsel for the Parties and perused the records made available including the cited judgements. Submissions of the Appellant 4. It is the case of the Appellant that he is the Promoter of Respondent No. 1 holding 29,17,20,330 shares of face value of Rs. 10/- each which constituted 58.43% of the total paid up capital of the Respondent No. 1. The Appellant gave the background of the Promoters, the Appellant, the Respondent No. 1 and its gen....
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....Crores) to enable the Respondent No. 1 to raise the public bonds Optionally Fully Convertible Debentures (OFCD). The Lenders were requested to provide the balance funds required to complete the project and in this background, the Respondent No. 2, as lead lender along with other lenders came forward to finance Respondent No. 1. 10. The Appellant assailed the conduct of the Respondent No. 2 who tried to fish in the troubled water and took advantage of precarious financial condition of the project by putting unnecessary pre-condition for further funding for the project forcing the Appellant and the Respondent No. 1 to arbitrary terms and conditions which required changes in Article of Association ('AoA') to make it subordinate to dictum of the lenders especially the Respondent No. 2. 11. The Appellant cited few such pre conditions which included condition like consultation with the Respondent No. 2 as condition precedent in appointment of the Chairman, the Managing Director and the Director Finance ('DF') of Respondent No. 1 and further stipulated that Lender's Nominee Directors will be involved in the management of the Respondent No. 1. Similarly, the Lender's Auditors would also ....
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....the way forward to complete the project, comprising of representatives of GoMP, Ministry of Power ('MoP'), Government of India ('GoI') Promoters, Respondent No. 2 and Lenders and the committee gave its Report on 02.05.2015 giving three scenarios of further course of action. "(I) By 02.08.2015 the existing promoter will arrange Rs. 600 crores as well as debt of Rs. 1100 Crores at concessional rates to achieve the stipulated electricity tariff of Rs. 5.32. II. NHPC/NHDC will take over the company and Respondent No. 2 will be amenable to infusing equity or additional debt as well as lowering interest rate for existing debt with support from lenders so that the tariff is at Rs. 5.32 per unit. III. Cancellation of PPA- M.P. Power Management Company limited cancels the existing Power Purchase Agreement." 16. The Appellant submitted that the Scenario-I could not be achieved due to non co-operation of the Respondent No. 2 and subsequently, the Respondent No. 2 unilaterally declared Option I as "failed" to pursue its own interpretation of Option 2 by forcibly taking 51% of the shares of Respondent No. 1 in tandem with other Lenders. The Appellant emphasized that as per HLC, the equit....
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....e RoC Gwalior on 21.10.2017, delivered the report under Section 206 of the Companies Act, 2013 whereby it was held that the lenders were responsible for violation of provisions of Companies Act, 2013 and were responsible for unsatisfactory state of affairs of Respondent No. 1, since, the management control of the Respondent No. 1 was taken over by the Lenders especially the Respondent No. 2 w.e.f. 25.11.2005. The Appellant criticized the Respondent No. 2, who after getting such adverse remarks from RoC, filed a frivolous application under Section 241 & 242 of the Companies Act, 2013 against the Promoters which has been rejected at various legal fora including by the Hon'ble Supreme Court of India. The Appellant stated that the Tribunal gave its order on 15.06.2017 in Company Petition No. 175/ 241-242/ NCLT/ AHM/ 2017; this Appellate Tribunal gave its order in Company Appeal (AT) No. 237 of 2017 on 12.03.2018 and the Hon'ble Supreme Court of India passed the judgment on 18.05.2018 in Civil Appeal No. 5028 of 2018, holding the Respondent No. 2 as responsible for making mess of the Respondent No. 1. The Appellant stated that the funds movement from TRA account was completely regulated....
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....roject. The Appellant stated that the Promoter vide Letters dated 03.08.2018 and 19.10.2018 issued to Respondent No. 2, presented a concrete offer of funding from Cantor Fitzgerald Europe on 16.10.2018 and one of pre-conditions for such investment was that "All litigation to be put on hold" which was not agreed by the Respondent No. 2. The Appellant submitted that vide e-mail dated 05.11.2018, the Promoter/Appellant also submitted a draft MoU to Respondent No. 2, however, Respondent No. 2 re-drafted the terms and conditions of the MoU only in July 2019. 25. It is the case of the Appellant that despite no debt being due from the Respondent No. 1, in the interest of the Project, the MoU was executed between Respondent No. 2, the Respondent No. 1 and the Promoters (Appellant) on 22.07.2019. The Appellant emphasized that the term of the MoU was to subsist till 12 months and only by this time if the MoU was not implemented, only then MoU could have been terminated and the period between 22.07.2019 till 22.07.2020 was to be treated as a calm period to ensure that viability of the Project can be assessed, AoA can be amended, the BoD is reconstituted, ownership is reverted to the Promoter....
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.....2020. 29. The Appellant submitted that Section 7 application of the Respondent No. 2 was listed before the Hon'ble Bench comprising of Dr. Deepti Mukesh and Virendra Kumar Gupta wherein after hearing parties, orders were reserved. On 08.10.2021, the Bench pronounced a split verdict since they could not arrive at a consensus. Thereafter, for the purpose of reference under Section 419(5) of Companies Act, 2013 draft issues were framed by the Judicial member. 30. The Appellant stated that issues framed for reference by the Judicial Member and technical member were thereafter assigned to Special Benches of NCLT, Kolkata comprising of a single judicial member by the President, NCLT, New Delhi vide order dated 21.02.2022. however, the same could not be drafted and pronounced as the said Special member demitted office. The matter was thereafter referred to the Special Bench comprising of J. Rohit Kapoor, Member (judicial) who heard the referred matter on 26.07.2022, 28.07.2022, 29.07.2022 and thereafter, reserved the order on 01.08.2022 and the impugned order was pronounced on 27.09.2022, admitting the Insolvency Petition filed by Respondent No. 2 and rejecting the Intervention Applica....
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....ial debt" and consequently no default has arisen on account of Respondent No. 1, since, the Respondent No. 2 himself is responsible for mess of the Respondent No. 1 and for non-payment of interest amounts under the Additional Loan Agreement which was not disbursed by Respondent No. 2 and therefore, there is no default by the Respondent No. 1 of any debt due and payable. The Appellant submitted that there is no mention regarding date of occurrence of default despite the clear instructions for providing these details as per the Form 1 and date of default has not been mentioned in the Loan Recall Notice either. 35. The Appellant emphasized that an act of engineering by the Respondent No. 2 a purported default by not disbursing the interest component sanctioned by way of the Notice of Drawal, clearly tantamount to malafide initiation of the CIRP in violation of Section 65 of the Code. 36. The Appellant submitted that various loan agreements have been entered into by Respondent No. 2 while in complete control of the Respondent No. 1. This Appellate Tribunal held that the Subordinate term loan agreement dated 29.09.2006 had been executed by Respondent No. 2 in violation to Proviso of S....
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....KMPs appointed by Respondent No. 2 as the Lead lender and approved by the Board which was completely under the control of Respondent No. 2 and other Lenders since 2005. Therefore, any such alleged acknowledgement in any Balance Sheet BoD minutes cannot be relied upon. The Appellant reiterated that initiation of CIRP is for ulterior purposes and Section 65 of the Code is applicable as CIRP is with malicious intent for any purpose other than for resolution of the Corporate Debtor. 40. Concluding his remarks, the Appellant strongly urged this Appellate tribunal to dismiss the Impugned Order to protect the Respondent No. 1 (Corporate Debtor) and the Promoters of the Respondent No. 1. Submissions of Respondent No. 2 41. Per contra, the Respondent No. 2 denied all the averments made by the Appellant treating these as misleading and malicious. 42. The Respondent No. 2 gave his version of series of events since 1995 to present day and tried to present a complete picture to demonstrate complete failure of the Appellant as Promoter, again and again, in all respect. The Respondent No. 2 submitted that the Appellant failed to meet obligations of original loan account, Service Level Agreeme....
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....m Appellant and the Respondent No. 1, the loan accounts of the Respondent No. 1 were classified as Non-Performing Assets ('NPA') on 31.03.2012. 46. The Respondent No. 2 submitted that there are several acknowledgments of debt and default on part of the Respondent No. 1 for instance while the HLC was preparing its report, on 17.11.2014, Debt was acknowledged in the Annual Report/Balance Sheet of the Corporate Debtor for the FY 2013-14 and the said balance sheet was signed by Sh. Mukul Kasliwal (Promoter) as one of Directors of the Respondent No. 1. The Respondent No. 1 again acknowledged its liability/debt in the meeting of the BoD of the Respondent No. 1 held on 29.09.2015, which was attended by the Promoter Sh. Mukul Kasliwal. 47. The Respondent No. 2 gave the background and the events compelling lenders and the Respondent No. 2 to acquire equity due to operation of law subsequent to invocation of pledged shares and partial conversion of debt into shares. The Respondent No. 2 submitted that on 22.03.2016, in an attempt to implement Scenario-II, a review meeting was held at MoP to discuss the issues relating to revival of the project and inter-alia, discussed issue regard....
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.... the Companies Act, 2013 bearing CP. No. 15/1241- 242/NCLT/AHM of 2017 before the NCLT seeking appropriate reliefs inter-alia, for handing over of records of the Respondent No. 1 from the erstwhile management, removal of 'Management Disputed' status of the Corporate Debtor by the RoC. 50. The Respondent No. 2 denied allegation of the Appellant that additional loan agreement was forced upon them and pointed out that the aforesaid Additional Loan Agreement was supported by the Promoter Sh. Mukul Kasliwal in the board meeting dated 02.03.2017, as recorded in the minutes of meeting that "Shri Mukul Kasliwal specifically requested the Board to record that, the sanctioning of additional loan to complete the project is a welcome step apart from all the issues and concerns going on between the Lenders and Promoters and Lenders will receive support from the promoters as well in view to complete the project." The Respondent No. 2 emphasized that the Appellant is estopped from questioning the said Loan Agreement & any argument to the contrary is hit by doctrine of approbate and reprobate. 51. The Respondent No. 2 also stated that Schedule II of the Additional Loan Agreement acknowle....
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....rores and further submitted that any allegations of default having been 'created' or engineered' is incorrect and baseless as the Respondent No. 1 received the debt and defaulted in payment of interest on the amounts already disbursed. 54. The Respondent No. 2 submitted that the Respondent No. 1 could not comply with the terms, conditions and covenants of the Additional Loan Agreement, based on which Respondent No. 2 had sanctioned the Additional Debt, inter alia, including conditions provided under Article 2.3 (a) read with Article IV of the Additional Loan Agreement, occurrence of events adversely impacting the ownership of Government companies/ lenders (including Respondent No. 2) etc., provided under Article 4.1 (ii) (a) and accordingly Respondent No. 2 could not have, and did not disburse any further money out of the Additional Facility to the Corporate Debtor. The Respondent No. 2 stated that the additional loan was sanctioned as part of the revival measures in accordance to the recommendation of HLC constituted by on the premise that Government Companies/ Lenders shall hold majority equity in the project. 55. The Respondent No. 2 stated that the first interest ....
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.... 15.06.2017 and while dismissing the Appeal, inter alia, directed that the Government of GoMP and GoI, need to urgently consider the way forward in public interest to get the Project completed. The Respondent No. 2 submitted that this Appellate Tribunal in the Order dated 12.03.2018 further held that the Promoter/ Appellant had a responsibility and a duty to manage the Respondent No. 1 as per the Companies Act in which they have failed. The Respondent No. 2 empathetically submitted that this Appellate Tribunal held categorically that "the Promoter do not appear to be enthusiastic to get status quo ante restored in the Articles not inspire confidence that if we strike down these amendments made on 25.11.2005 (and subsequently) they can take charge and complete the project which attracts public interest. Promoters have not brought to our attention that at any time they opposed, or stood up to the gradual takeover." 60. The Respondent No. 2 clarified that in the judgement dated 12.03.2018, this Appellate Tribunal held that primarily compliances w.r.t. the provisions of the Companies Act, 2013 for conferring right to convert debt into equity, the compliance of the Rules framed thereun....
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....Facility as well as its terms and conditions shall be subject to Government Companies/Lenders holding majority equity in the Project and based on which Respondent No. 2 had sanctioned the Additional Loan, could not be complied with, on account of the Orders dated 15.06.2017 and 12.03.2018 passed by the NCLT and by this Appellate Tribunal. Accordingly, in view of the terms of sanction as aforesaid, Respondent No. 2 could not have disbursed any further amount under the Additional Loan Agreement to the Respondent No. 1. 63. The Respondent No. 2 emphasized that the Additional Loan Agreement was executed much prior to this Appellate Tribunal's Order dated 12.03.2018, and prior to NCLT Order's dated 15.06.2017 in the proceeding arising from the Petition under Section 241-242 of the Companies Act, 2013. The Respondent No. 2 stated that since, the acquisition of shareholding of Respondent No. 1 by the Lenders had been declared invalid vide the said Orders, therefore, further disbursal of Rs 10 crore towards interest under the Loan Agreement (which was due on 15.07.2017) could not be made, as the aforesaid condition precedent of Govt. Companies/ Lenders holding majority equity in the CD fo....
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....d by the Sh. M.L. Gupta the MD appointed by the Appellant. Further, conversion of debt into equity done by PFC, was also reversed & accepted by the Board of the Respondent No. 1. 67. The Respondent No. 2 submitted that the MoU stipulated that the Appellant shall bring in an upfront amount of Rs. 10 crore within three weeks from appointment of CMD of this choice i.e. by 27.08.2019 (the appointment having been made on 06.08.2019) and this was first and foremost obligation of the Appellant, independent of any other action by any of the parties. The Respondent No. 2 stated that admittedly, only Rs. 1 Crore, that too in tranches, was brought by the Appellant and the balance amount of Rs. 9 Crore was never brought, thus the first default under the MoU was committed by the Appellant on 27.08.2019 itself. The Respondent No. 2 stated that Clause 11 of the MoU records that "While submitting the Settlement Plan, the Settlement Plan would make provision with respect to the various Loans as are mentioned in the Loan Recall notice dated 17.01.2018 and Schedule B................" thus, the MoU clearly stipulated repayment of loan granted under the Additional Loan Agreement dated 27.04.2017 as we....
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....l and the Member Judicial of the NCLT, which is evident from the Orders dated 08.10.2021 passed by the said two Members and the questions framed for reference to the Third Member. Whilst the Judicial Member has held that the Section 7 Petition is not barred by limitation, the Technical Member has not given any finding on limitation and no question has been framed by either of the Members on limitation, therefore, the issue of limitation attained finality on 08.10.2021 and thus, the present Appeal insofar as it challenges the said Order on limitation is itself barred by limitation. The Respondent No. 2 has taken this specific objection in the Reply to Appeal, to which there is no rebuttal/rejoinder. The Respondent No. 2 stated that without prejudice to the Application under Section 7 is not barred by limitation, as the disbursement of debt of Rs. 384.59 crore under the Additional Loan Agreement dated 27.04.2017 took place in the year 2017 and the Application u/s Section 7 was filed on 16.02.2018 and the disbursement has been admitted by the Respondent No. 1 in its Reply filed through Appellant. The Respondent No. 2 also submitted that w.r.t. the debt and default under the previous l....
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....get status quo ante restored in the Articles not inspire confidence that if we strike down these amendments made on 25.11.2005 (and subsequently) they can take charge and complete the project which attracts public interest.............." and further, in Para 51 of the Order dated 12.03.2018, this Appellate Tribunal has observed that "The Project has been delayed endlessly." The Respondent No. 2 submitted that in terms of the aforesaid Order of this Appellate Tribunal, the Secretary (Power), GoI on 24.03.2018 convened a meeting, which was attended by Promoters, GoMP, PFC & other Lenders and recorded in the said meeting that all concerned including Promoters favored resolution of Corporate Debtor under Code. 76. The Respondent No. 2 stated that at five places acknowledgment of debt has been made by the Respondent no. 1 i.e., on 17.11.2014 - Balance Sheet of the Respondent No. 1 for Financial Year 2013-14, 29.09.2015- Minutes of meeting of Board of Directors of Respondent No. 1, 02.03.2017- Minutes of meeting of Board of Directors of Respondent No. 1, 27.04.2017- Additional Loan Agreement- Schedule II and 28.08.2017- Balance Sheet of the Respondent No. 1 for Financial Year 2016-17 7....
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....oU was entered into pursuant to this Appellate Tribunal Order and the recommendation of STF, however, as the MoU was not implemented by the Promoter himself, Respondent No. 2 had no option but to take recourse to the Section 7 Petition and thus, the contention of the Appellant that Section 7 Petition was not to be pursued in light of the MoU, are meaningless in as much as the terms of the MoU were not even implemented by the Appellant. 81. Concluding his pleadings, the Respondent No. 2 requested to dismiss the appeal with exemplary cost. Our Analysis 82. Since, the case has chequered history, it will be important for us to note down the basic facts of the case before going into the merit of the pleadings by the Appellants and the Respondents. History of the Project and Case 83. The history of the project and case has been captured from the pleadings and submissions made by the parties before us and are summarized as under :- 84. In 1993, Government of Madhya Pradesh ('GoMP') entrusted the construction and implementation of 400 MW hydroelectric power project ('Project') at Mandaleshwar, Madhya Pradesh ('Project') to the Appellant on 'Build Own Operate and Maint....
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....gly, AoA of the Respondent No. 1 was amended. 89. The Respondent No. 1 requested the Lenders to disburse more money to complete the Project and Lenders agreed to convert defaulted portion of interest in their respective accounts into Zero Coupon Bonds ('ZCB') redeemable over a period of 20 years after a moratorium of 1 (one) year from the commercial operation date ('COD') of the Project. 90. We also note that on 16.09.2005, an Amendatory and Restated Agreement (A&RA) was signed amongst the GoMP, MPSEB, the Respondent No. 2, the Respondent No. 1 and Appellant and as per Clause 3.3 of the A&RA, it was the responsibility of the Promoter to achieve financial closure within 180 days of the signing of the A&RA i.e. by 15.03.2006 and the COD was as defined in the PPA or 4 years from the effective of GoMP's Counter Guarantee for the optionally fully convertible debentures. 91. We understand that in September, 2005 Ministry of Power ('MoP') constituted a task force to revive project. During review meeting held on 24.10.2005 by the Secretary (Power), GoI, it was noted that the restructuring was based on the starting point of the Promoter bringing in Rs 310 Crores as Project eq....
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....greement (MRLA) on 22.06.2010. 95. We note that since inception of project during 1993 to 2010, the lenders distributed Rs. 1817 Crores, whereas Promoters could infuse only Rs. 497 Crores out of requirement on their part of Rs. 749 Crores. It is also a fact that project was stalled between 2010-2016 and loan accounts of Respondent No. 1 were declared NPA on 31.03.2012. 96. We observe that since the project was not moving forward, a High Level Committee (HLC) headed by Additional Chief Secretary (Finance), GoMP, was constituted to suggest the way forward for the Project which included Respondent No. 1, Appellant, Respondent No. 2, other lenders and promoters and the HLC's report dated 02.05.2015 was submitted giving three likely Scenarios to complete project. At this stage, it is important to understand these three scenarios which reads as under :- (A) Scenario-I: "Implementation by the present promoter - 90 days' time allowed till 02.08.2015. Existing promoter will have to arrange additional equity of Rs. 600 Crore as well as debt of Rs. 1100 Crore at concessional rates to achieve the MPPMCL stipulated tariff of Rs. 5.32 per unit shall be applicable." (B) Scenario-II: "Go....
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....rinciple agreed to increase the Project cost from Rs. 2760 Crores to Rs. 8121 Cores and requirement of additional debt of Rs. 3022 Crores ('Additional Debt") for the Project. Subsequently, at the request of the Respondent No. 1, an Additional Loan Agreement dated 27.04.2017 was executed between Respondent No. 2 and the Respondent No. 1 for an additional term loan of Rs. 600 Crores and the Respondent No. 2 disbursed Rs. 384.59 Crores. The said Additional Loan Agreement was entered into by Respondent No. 2 in the capacity of Lender's Agent, Security Agent and Lender and the terms and conditions including security creation, for this additional loan was approved in the extra ordinary general meeting('EGM') of the Respondent No. 1 held on 31.07.2017. 100. We note one contentious issue w.r.t. interest amount of Rs. 10 Crores due to be payable by the Respondent No. 2 and not paid, whereas remaining amount was disbursed by Lenders to the Respondent No. 1. 101. We note that NCLT vide order dated 15.06.2017 held that invocation of pledged share and conversion of debt into equity was not in accordance the procedures prescribed under the law. The same was confirmed by this Appellate ....
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....n of the Respondent No. 2 filed on 16.02.2018. On 11.04.2019, the Respondent No. 1 through MD filed an affidavit before NCLT that resolution need to be found of Respondent No. 1. 106. During the pendency of Section 7 application before NCLT, GoMP formed a Task Force, which decided on 25.05.2019 that Promoter and Lenders should try to find a way forward and accordingly an MoU was signed amongst Lenders, Respondent No. 1 and Appellant on 22.07.2019 to explore a settlement plan by the Appellant for OTS. Accordingly, Respondent No. 2 returned equity shares due to invocation of pledged shares and partial conversion of debt into equity bank to the Appellant pursuant to NCLT/this Appellate Tribunal/ Hon'ble Supreme Court of India judgment that these acts of Respondent No. 2 were not in accordance with procedures prescribed under the law. 107. We note that the management of Respondent No. 1 was taken over by the Appellant and Mr. ML Gupta as nominee of the Appellant was appointed CMD on 06.08.2019, thereafter, the Respondent No. 2 and Lenders quit management of Respondent No. 1. This MoU stipulated that the Appellant would bring in an upfront amount of Rs. 10 Crores within three weeks of....
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....s was supported by the Promoters i.e., Mukul Kasliwal as recorded in BoD minutes dated 02.03.2017, where it was recorded the following. "Shri Mukul Kasliwal specifically requested the Board to record that, the sanctioning of additional loan to complete the project is a welcome step apart from all the issues and concerns going on between the Lenders and Promoters and Lenders will receive support from the promoters as well in view to complete the project." (Emphasis Supplied) 113. We also note that Schedule II of SLA dated 27.04.2017, the existing debts of Rs. 1750.93 Crores were acknowledged. Further as per Article 2.3 and Article 4.1 (ii) (a) of SLA provides :- "Article 2.3 "The Drawdown under this Agreement shall be subject to the satisfaction of each condition precedent set forth in Article IV hereof. Further, the obligation of the Additional Lender to make disbursement under this Agreement shall be subject to the Borrower performing its obligation and undertakings under this Agreement and the Borrower's compliance with the disbursement procedure stipulated hereunder, including, the submissions by the Borrower of all necessary information, documents, etc. to the satisfact....
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....018 recalling the loan is bad in law. (III) Whether, present application filed under Section 7 of IBC, 2016 is an instance of fraud/malicious initiation of insolvency proceedings U/s 65 of the Code? (IV) If point No. III above is affirmative then whether the application U/s 7 of the IB Code ought to be rejected on that ground?" (Emphasis Supplied) 117. From above issues framed by Judicial Member and Technical Member, the common threads of issues pertains to validity of Recall Notice dated 17.01.2018; whether Section 7 application of Respondent No. 2 is malicious and fabricated insolvency petition or otherwise, locus of the Appellant and finally whether Section 7 ought to be rejected or otherwise. 118. Following issues emerges in the present appeal :- (i) Whether there was a debt and default which entitled the Respondent No. 2 to initiate Section 7 application under the Code and whether such debt and default was within the period of limitation. (ii) (a) Whether, the Lenders especially the Respondent No. 2 who was the Financial Creditor and also allegedly in control of the Respondent No. 1 since, 2005 to 2018, could have initiated present Section 7 application or should ha....
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....and funds, the financial closure could not be achieved and as a result of which the project did not see any progress up to October, 2005. * Subsequently, after intervention of GoMP and GoI and other stakeholders, the Respondent No. 2 revalidated the loan on 02.03.2005 for OFCDs which was sanctioned somewhere in March, 2001. * We have already noted earlier the facts regarding amendatory and restated agreement dated 16.09.2005 and common loan agreement amongst the lender on 29.09.2006. * We have also recorded that at the request of the Respondent No. 1, the Lenders also agreed to convert defaulted portion of interest in their respective accounts into ZCB which was redeemable period 20 years after mandatory moratorium of one year by the Master Restructuring and Loan Agreement was executed on 22.06.2010. * It is a significant to note that subsequent to meeting held by Secretary, Ministry of Power, Government of India on 24.10.2005, it was decided that the Promoters will bring in project equity and to achieve financial closure, Respondent No. 1 at the request of Respondent No. 2 had sanctioned Rs. 375 Crores in the nature of subordinate loan for which the subordinate loan agreem....
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....o financial debt due and payable under such illegal loan agreements and therefore there is no question of any default by the Respondent No. 1. * The Appellants another argument is that, since the Respondent No. 2 was wearing the hats of both as Financial Creditor as well as allegedly in the management of the Respondent No. 1, there could not be any valid loan agreement between the Respondent No. 1 & Respondent No. 2. * Further, we have noted the contention of the Appellant that the Respondent No. 2 kept on entering into further loan agreements only to utilize such proceeds for service of interest due on loan for previous loans and not for the project. * Finally, the Appellant argues that the earlier loan agreements are completely barred by the limitation since the Lenders declared Respondent No. 1 as NPA on 31.03.2012 qua these loans. * We have perused Section 7 application filed by the Respondent No. 2 before the Adjudicating Authority (NCLT Ahmedabad) bearing CP (IB) 111/2018 on 16.02.2018 along with various annexures forming Part IV of the Section 7 application. We note that the total amount claimed to be defaulted has been stipulated as Rs. 2789.42 Crores including outs....
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....s of Crores of loans to the Respondent No. 1, why would they hesitate to give additional loan of mere Rs. 10 Crores but for any legal hurdle as brought out before us w.r.t., judicial orders whereby the Lenders ceased to be shareholder and therefore, the conditions precedent of Scenario II of HLC could not have been met and consequently the Lenders were not obliged to release any more funds to the Respondent No. 1 including Rs. 10 Crores interest to Respondent No. 1. We do not find any merit in the arguments of the Appellant on this ground. * We have taken note that the judicial fora declared the conversions of pledged shares into equity, as well as partial conversion of debts into technically not valid due to non following the legal procedure laid down in the Companies Act, 2013. We do not find that any legal fora treated the money disbursed or Loan Agreement by Lenders and the Respondent No. 2 as sham or fabricated as loans which were due and payable and for which default were committed by the Respondent No. 1. * We note that the project was conceived way back in the year 1993 and various facilities were granted since 1997 onward by the Respondent No. 2. The Respondent No. 1 c....
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.... the date of such recall notice knowing fully well that the corporate debtor was not in a position to do so and such position of the corporate debtor was substantially attributable to the conduct of the applicant-financial creditor itself. This factual position speaks for itself. Further, in our view, a situation of default has been created with the malicious intent to file application under Section 7 of IBC, 2016 so that the petition filed by the M/s. Entegra Ltd., being intervener under Section 241-242 of the Companies Act, 2013 can be brought the under moratorium. 25. .....in our opinion, are more than sufficient to hold that application filed under Section 7 is an instance of abuse of process of law. Thus, we are not dealing with their other contentions for the sake of brevity, although, in our opinion, such pleas lend further credence to their claims made in this regard. We may further add that if we dive deep into the sea of controversies only more and more skeletons would came out and which may create further issues for lenders." 29..... In the present case, it further pains us that applicant- financial creditor as is one of the prominent central public sector undert....
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.... as contained in his order dated 08.10.2021. * We find that all the parameters of Section 7 application has been met and correctly pointed out in the Impugned Order by both the Judicial Members of Ahmedabad and Kolkata in their judicial orders. * We also further record that the case is squarely covered under the various judgments of Hon'ble Supreme Court of India including Innoventive Industries Ltd. v. ICICI Bank and Anr, (2018) 1 SCC 407], ES Krishnamurthy v. M/s Bharath Hi Tech Builders [(2022) 3 SCC 161] and Vistra ITCL (India) Limited & Ors. Vs. Dinkar Venkatasubramanian and Anr. [(2023) 7 SCC 324], in addition to catena of judgments of the Hon'ble Supreme Court of India and this Appellate Tribunal. * We note that there was no dispute on aspect of limitation between the Member (Technical) and Member (Judicial) of NCLT Ahmedabad Bench as seen from order dated 18.10.2021 passed by both the Members through their different judgements and we also find that no question was framed on this account by any of the Members. * However, we find that the Member (Judicial), Ahmedabad Bench has held that Section 7 application is not barred by limitation after recording its detailed rea....
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....s within the stipulated time period. * It is the case of the Appellant that this happened due to external factors which were not under the control of the Promoters or the Respondent No. 1 like Narmada Bachao Andolan and other legal issues. Be that as it may, we have noted that the project cost which was 1565 Crores became Rs. 1818 Crores in 1998 and further increased to Rs. 8121 Crores in 2016-17. The present day cost of project, if at all still viable, has not been quantified by anyone and may be very steep at this stage. * We observed from pleadings of both the parties that the project came to grinding halt between the period 2001-2005 and only after the government interventions, the Lenders and other stakeholders were persuaded to infuse additional money into the project and in this background the Respondent No. 2 revalidated his financial support of Rs. 325 Crores and DPG for OFCDs and sanction letter was issued on 02.03.2005 by the Respondent No. 2 to Respondent No. 1. It is necessary to understand that in this background, it was stipulated that the Respondent No. 2 in consultation with other Lenders would be involved in process of appointment of Chairman, MD, Director Fin....
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....ated 15.03.2016. * However, the financial closure could not take place due to non infusion of equity by the Promoters and therefore the Respondent No. 2 had to sanction additional loan of Rs. 375 Crores and additional loan agreement was signed on 29.09.2006 along with common loan agreement between other lenders for Rs. 834 Crores. * We note that as per terms of Subordinate Loan Agreement ('SLA'), it was right of Respondent No. 2 to convert a part or full loan into equity shares of the Corporate Debtor. At this stage, we would like to note that it was right and not obligation on the part of the Respondent No. 2 to do so and that too it could have been done in part or full. * We observe that in terms of common loan agreement amongst the Lenders, the Deed of pledge was also executed (pledge deed) on 30.11.2006 in favour of the Respondent No. 2 acting as security agent, further addendum was done thereto in the year 2010-11, whereby the Promoter's Rs. 29,17,20,330/- fully paid up shares were pledged for the benefit of lenders including Respondent No. 2 with the secondary charge in favour of the GoMP. * We take note that the events of lack of financial closure due to non infusion....
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....ondent No. 1. We further note that the MD, DF of the Respondent No. 1 were approved by the following due process, with the consent of the Lenders, and again on this aspect, we do not find any merit in the allegation of the Appellant. * At this stage, it would be important to understand the impact of invocation of pledged shares by which the Lender became the shareholders w.r.t. their rights in filing Section 7 application. * We find that there is a direct judgment of this Appellate Tribunal which support, prima-facie, the case of the Appellant i.e., case of PTC India Financial Services Ltd. vs. Mr. Venkateswarlu Kari & Anr. passed in Company Appeal (AT) (Ins.) No. 450 of 2018. The relevant paras of this judgment are read as under :- "2. The question arises for consideration is whether the Appellant can be held to be a 'Financial Creditor', who claimed to be a 'Financial Creditor' for accepting its claim. 3. The case of the Appellant is as follows. The 'Bridge Loan Agreement' was reached on 10th March, 2014 between 'NSL Nagapatnam Power and Infratech Limited' (Corporate Debtor) and the Appellant - 'PTC India Financial Services Limited' pursuant to which a sum of Rs. 125 Cr....
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....t in the matter of India Power Corporate Ltd. Vs. Meenakshi Energy Ltd. & Anr., passed in Company Appeal (AT) (Ins.) No. 1220 of 2019 vide order dated 10.09.2020. The relevant paras of this judgment read as under :- "2.1 Brief facts of the case is that Meenakshi Energy Ltd. Respondent No. 1 (referred as Corporate Debtor) had availed term loan and working Capital facilities from time to time from a consortium of lenders including State Bank of India, State Bank of Hyderabad, State Bank of Bikaner and Jaipur, State Bank of Mysore and State Bank of Travancore (SBI and the Associate Banks) Respondent No. 2 (referred as Financial Creditor) in two different phases to set up a 300 MW coal based power project (phase I) and 700 MW coal based thermal power project (phase II) respectively, in terms of Common Loan Agreement dated 10.07.2009 and 01.10.2010 respectively, at Thamminapatnam village, Nellore District (Andhra Pradesh). 2.4. The Corporate Debtor is unable to pay its debts. Therefore, Financial Creditor filed an Application under Section 7 of I&B Code, for initiating CIRP. The Application was filed by the SBI on behalf of the SBI and the Associate Banks as the Associate Banks have....
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....gment in PFS the entire debt of the Financial Creditor stood discharged 8. It is also submitted on behalf of the Appellants that after invocation of pledge and transfer of shares. The Financial Creditor in collusion and connivance with all the erstwhile lenders have been siphoning of the funds from the Corporate Debtor. Therefore, the Appellant (IPCL) had filed an Application under Section 241 & 242 of the Companies Act, against the Financial Creditor. However, Learned Adjudicating Authority has erroneously admitted the Application under Section 7 of I&B Code. Hence, the order deserves to be set aside. 9. On the other hand, Learned Counsel for the Financial Creditor (Respondent No. 2) submitted that the Appellants have wrongly contended that the invocation of pledge amounted to transfer of shares or discharge of debt. The Pawnee's rights are governed by the Section 176 of Indian Contract Act, 1872, when Pawnor makes default the Pawnee does not have a right to appropriate and transfer ownership to itself of the pledged goods. The Pawnee's remedies are limited to sue for debt and retain the pledged goods or sell the pledged goods on giving the Pawnor reasonable notice of the sale....
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....on'ble High Court of Delhi in the case of Tendril Financial Services Pvt. Ltd. (Supra) in this Judgment it is held that as per the Regulation 58 of Security Exchange Board of India (Depositors and Participants) Regulations, 1996, the moment the shares are transferred to the Demat Account of the beneficiary after invocation of pledge shares, such transfer amounts to sale and transferee became the beneficial owner of the shares. 19. Learned Counsel for the Respondent No. 2 (Financial Creditor) submits that Regulation 58(8) of the Debentures Regulations is subject to the terms of Share Pledge Agreement and the pledge is governed by the Indian Contract Act. 20 In the present case the whole controversy arises when SBI CAP Trustee Company Ltd. issued a notice of invocation of pledge shares dated 20.12.2017. (Annexure 8 Page 240 of Reply of Respondent No. 2 (Financial Creditor)). In such a situation we are considering the effect of invocation of pledge shares. 26. In the light of the Judgement of Hon'ble High Court of Delhi in Tendril Financial Services Pvt. Ltd. (Supra). We are convinced with the arguments of Learned Counsel for the Appellants that the moment the shares transferred....
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....ial owner of the shares and it losses the status of Financial Creditor. 31. With the aforesaid, we hold that the Financial Creditor has not filed the Application under Section 7 of I&B Code, in pursuant to the RBI Circular dated 12.02.2018 and even after invocation of the pledged shares by SBI CAP Trustee Company Ltd., the financial Creditor can maintain the Application. Learned Adjudicating Authority has rightly admitted the Application under Section 7 of I&B Code. It is undisputed fact that the Corporate Debtor has committed default in repayment of debt and the amount of debt is more than 1 Lakh. Thus, we found no ground to interfere in these Appeals. Thus, the Appeals are hereby dismissed. No order as to costs. (Emphasis Supplied) * We note that the present appeal before us is squarely covered in the judgment of this Appellate Tribunal in the case of India Power (Supra) and the same has not been challenged before the Hon'ble Supreme Court of India, thus attained finality. We are duty bound to follow the same. * We note that in the case of India Power (Supra), this Appellate Tribunal has categorically held that the Lenders (like Respondent No. 2 herein) have independent ....
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....ed 17.01.2018 was not valid as Respondent No. 2 was in management control of the Respondent No. 1. * We would like to take into all relevant para of Member (Technical) judgement which reads as under :- "22. ... Now, coming to the validity of recall notice dated 17.01.2018 given by the lender when they were in the management and control of the Corporate Debtor. It is noted that Rs. 600 crores additional loan was sanctioned in April, 2017. However, only Rs. 384 crores were disbursed till 05.01.2018 and no further amount is disbursed thereafter.... 23. Another important aspect which, at the very outset, may make the notice of recall dated 17.01.2018 premature as far as it concerns to the repayment of existing debts including the additional loan amount disbursed under loan agreement dated 27.04.2017. As per Clause 5.1.1.(B)(a) r.w. Schedule- V, Schedule- X-A, Schedule-X-B (refer pages 709, 710, 741 and 750 of Volume-III of application), the repayment starts from 15.07.2020 and 15.01.2020. Further, there is reschedulement of all existing outstanding debts of the applicant-financial creditor in addition to fresh loans given in 2017. ... Hence, on date of issue of recall notice, s....
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.... 2018 the Corporate Debtor was merely asked to file a better affidavit by the Adjudicating Authority and in compliance of the said direction, the 2nd affidavit was filed on 11th of April, 2019 on behalf of the Corporate Debtor, extract of contents has been reproduced above. 78. Besides the clear admission by Corporate Debtor of its debt and dues and also its inability to repay, as referred in preceding paragraphs/ record and documents furnished before this AA: a. Plea raised by Financial Creditor vis-a-vis Additional loan agreement dated 27.04.2017 that; i. In order to meet the immediate fund requirements as part of revival measure of the Project, the Financial Creditor in principle agreed to the increase in the Project cost from Rs. 2760,00,00,000/- to Rs. 8121,00,00,000/- and requirement of additional debt of Rs. 3022,00,00,000/- ('Additional Debt") for the Project. Subsequently, at the request of the Corporate Debtor, a Loan Agreement dated 27.04.2017 was executed between the Financial Creditor and the Corporate Debtor ('Additional Loan Agreement') for an additional term loan of Rs. 600 crores in order to meet the immediate fund requirements as a part of revival measure of....
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....number (II), the Financial Creditor was well within its right to issue a recall notice dated 17.01.2018 demanding the Corporate Debtor to make payment of the total outstanding amount of Rs. 2139.20 crores including outstanding interest amounts payable as on 16.01.2018 within 15 (fifteen) days of the receipt of the said notice. (Emphasis Supplied) * From above, it is seen that the Member (Technical) of Ahmedabad Bench has basically tried to analyse overall eco-system of the case and recorded in his rational requiring of another chance was to be given to the Respondent No. 1 and also holding that the Respondent No. 2 was in control and management of the Respondent No. 1 and as such Recall Notice was malicious and fabricated with only intent to take Respondent No. 1 into insolvency. * The Member (Technical) has not analysed as how recall notice dated 17.08.2018 was bad in law and how it was in violation of the Code or the Regulations. On the other hand the Member (Judicial) of Kolkata vide the Impugned Order dated 27.09.2022 has analysed in details the various aspects of debt and default and has also gone into the various replies and affidavits filed by the Respondent No. 1, vari....
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....pite partial disbursement of Rs. 381.59 Crores, the Respondent No. 1 could not comply with mandatory conditions precedent and failed to make quarterly interest on additional loan from time to time being on 15.07.2017, failed further to pay despite demand letter dated 06.07.2017, 01.10.2017, 05.01.2018 which has resulted in default in payment of interest and additional facility as an event of default under Clause 17.1 (b) of additional loan agreement and further defaulted under Clause 7.1 (c) by no repaying the credit facilities granted under financing agreement. After summarising the events, the Respondent No. 2 called upon Respondent No. 1 to make payment of total outstanding of Rs. 2139.20 Crores within 15 days of receipt of recall notice dated 17.01.2018 and on failure of which the Respondent No. 2 would take necessary legal recourse. * We do not find anything illegal or contrary to the law in issuing such recall notice which is issued of details including of failures on the part of Respondent No. 1 and contained details required proof of debt and default along with various acknowledgements by the Promoters and the Respondent No. 1. * Thus, we hold that the Recall Notice dat....