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2018 (11) TMI 1047 - HC - Insolvency and Bankruptcy


Issues Involved
1. Compliance with RBI Guidelines/Circulars regarding Joint Lenders Restructuring Agreement.
2. Validity of Joint Lenders Forum (JLF) proceedings.
3. Obligations of respondent banks under the Joint Lenders Restructuring Agreement (JLRA).
4. Petitioner's entitlement to additional working capital.
5. Impact of subsequent RBI Circulars on existing agreements.
6. Petitioner's default and banks' right to recovery under SARFAESI Act and IBC.

Detailed Analysis

Compliance with RBI Guidelines/Circulars regarding Joint Lenders Restructuring Agreement
The petitioner sought enforcement of RBI Circulars dated 30.01.2014, 26.02.2014, and 05.05.2017, which mandated the formation of a Joint Lenders Forum (JLF) and the adoption of a Corrective Action Plan (CAP) for restructuring loans. The court acknowledged that RBI Circulars are binding on banks, as established in Central Bank of India v. Ravindra & Ors (2002) 1 SCC 367. However, the court noted that the RBI Circular dated 12.02.2018 repealed the earlier Circulars, replacing them with a revised framework. Despite this, the court held that the revised Circular did not affect restructuring packages already reduced to binding contracts, such as the JLRA.

Validity of Joint Lenders Forum (JLF) Proceedings
The petitioner challenged the JLF proceedings, particularly the meeting on 09.02.2018, where the CAP was changed from restructuring to recovery. The court found that the JLF had initially agreed to a restructuring scheme and later considered a Scheme for Sustainable Structuring of Stressed Assets (S4A). However, the forensic audit report raised concerns about the petitioner's financial discipline, leading Axis Bank and ICICI Bank to withdraw their consent for the S4A Scheme.

Obligations of Respondent Banks under the Joint Lenders Restructuring Agreement (JLRA)
The petitioner alleged that the respondent banks failed to disburse additional working capital as required under the JLRA. The court examined the JLRA and found no express commitment from the respondent banks to provide additional funding beyond the initial ?75 crores. The JLRA's terms indicated that any additional working capital would be at the sole discretion of the respondent banks. Therefore, the court concluded that the banks were not obligated to provide further funding.

Petitioner's Entitlement to Additional Working Capital
The petitioner argued that the additional working capital was essential for meeting financial projections and that the banks' failure to disburse it led to the petitioner's inability to repay its dues. The court acknowledged that while the petitioner required additional working capital, the JLRA did not obligate the respondent banks to provide it. The court also noted that PNB had sanctioned and disbursed a portion of the additional working capital, but this was not part of the JLRA obligations.

Impact of Subsequent RBI Circulars on Existing Agreements
The court held that the RBI Circular dated 12.02.2018, which repealed earlier Circulars, did not affect existing agreements like the JLRA. The court emphasized that the revised Circular could not terminate binding contracts already in place.

Petitioner's Default and Banks' Right to Recovery under SARFAESI Act and IBC
The court found that the petitioner had defaulted on its repayment obligations, leading the respondent banks to initiate recovery proceedings under the SARFAESI Act and the Insolvency and Bankruptcy Code (IBC). The court referred to the Supreme Court's decision in Innoventive Industries Ltd. v. ICICI Bank (2018) 1 SCC 407, which established that the IBC is an exhaustive code on insolvency matters and contains a non-obstante clause overriding other laws. The court concluded that the respondent banks were entitled to seek remedies under the IBC, and the petitioner's plea to restrain these proceedings was unmerited.

Conclusion
The court dismissed the petition, holding that the respondent banks were not obligated to provide additional working capital under the JLRA and that the petitioner's defaults justified the banks' recovery actions. The court directed that the period from 22.05.2018 to the date of the order be excluded from the timelines set for proceedings under the IBC and clarified that the National Company Law Tribunal (NCLT) should consider the application independently, uninfluenced by the court's observations.

 

 

 

 

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