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2018 (11) TMI 1047 - HC - Insolvency and BankruptcyRestructuring - entitlement to seek remedies under the IBC - respondent banks to infuse additional working capital in terms of the JLRA - Held that - This Court is unable to accept that any directions are required to be issued to the RBI for implementing the Circulars to enforce the JLRA. The additional funding was always to be at the discretion of the respondent banks. It is also relevant to note that Article 4 of the JLRA also provides for prepayment of the facilities. The petitioner was expressly permitted to re-finance the Facilities on terms and conditions not more onerous than the terms and conditions of the Facilities being prepaid. The petitioner could also seek funding from other sources. There is no reason not to believe that the petitioner did require additional working capital for meeting the projections as set out in the D&B TEV Report. PNB had also agreed to enhance the working capital and had sanctioned a sum of ₹ 59.68 crores. It had also disbursed ₹ 30 crores. However, it is contended on behalf of PNB that the same was a separate transaction. Be that as it may, even if it is accepted that PNB had released additional working capital based on the assessment of the petitioner s requirement for such capital in terms of the projections set out in the D&B TEV Report, it is difficult to accept that the same was part of its obligations under the JLRA. Even if it is accepted (which this Court does not) that the respondent banks were obliged to provide additional working capital as claimed by the petitioner and have defaulted in their obligation, the relief as sought for by the petitioner cannot be granted. The petitioner seeks enforcement of the Circulars dated 26.02.2014 and 05.05.2017. This is in the context of the JLRA and, essentially, the petitioner seeks specific enforcement of the JLRA, which entails (i) restraining ICICI Bank from proceeding under the IBC; and (ii) direction to provide additional working capital. This Court is unable to accept that any such directions for providing additional working capital to the respondent banks can be issued by this Court or the RBI. As noticed above, in terms of the Circular dated 26.02.2014, the respondent banks were obliged to form the JLF for exploring the CAP. In the present case, even if the respondent banks are directed to once again examine an appropriate CAP, it is apparent that the result would be different. The respondent banks had already agreed to change the CAP to Recovery instead of Restructuring in a meeting held on 08.02.2017. Although, the petitioner has raised several disputes in relation to the minutes of the aforesaid meeting, it is apparent that the consensus amongst the respondent banks is to proceed with recovery. This is also reflected in their stand in these proceedings. There is much controversy with regard to the proceedings for a S4A Scheme. The petitioner claims that the respondent banks had no intention to adopt any S4A scheme and had intentionally delayed the implementation of the same. Undisputedly, the said scheme is not feasible where the revenue generated is insufficient to service the same. This is accepted by the petitioner and is evidenced from its agreement to accept the S4A Scheme (where the level of sustainable debt is not less than 50% of the total debt can be adopted). The PNBISL TEV Report suggests an S4A scheme which provides for conversion of debt into Equity and Convertible Debentures. It is material to note that the additional funding is limited only to ₹ 24 crores and it does not provide for infusion of additional working capital beyond that amount. It was also contended on behalf of the respondent banks that the petitioner had defaulted in performance of its obligations under the JLRA and, therefore, the same could not be implemented. The respondent banks claim that the petitioner had defaulted in its obligations to route all transactions through the TRA; to pay interest and repayments; and the promoters contribution upfront. All the aforesaid contentions are disputed by the petitioner. It is claimed that there was no default in interest payment in terms of the JLRA and subsequent defaults were the result of the failure of the respondent banks to release the additional working capital. In terms of sub-paragraph 7.3.1 of the JLRA, the lenders were required to inform the JLF about the event of default and the action proposed to be taken by such lenders. In terms of sub-paragraph 7.3.2, occurrence of an event of default would result in the principal and approved interests on the facilities being due and payable forthwith. Prima facie, it does not appear that any such notice of default had been issued and, therefore, the contention that the respondent banks ought not to be permitted to raise any such issue in these proceedings appears merited. This Court is not called upon to adjudicate any of the aforesaid contentions. These are plainly disputed questions of facts and it is also apposite to examine the same in these proceedings. In this view, this Court is refraining from commenting upon the same and has considered this matter on the assumption that there is no default on the part of the petitioner in complying with its obligations under the JLRA. The relief as sought for by the petitioner cannot be granted. First of all, for the reason that this Court finds it difficult to accept that the respondent banks were obliged to provide additional working capital in terms of the JLRA. The respondent banks cannot be compelled to provide additional funds, as the decision whether to do so rests exclusively with them. Secondly, it is not possible to grant specific performance of the JLRA - which, essentially, is the nature of the relief sought by the petitioner, albeit couched as seeking a direction to the RBI for implementing its circulars vis- -vis the JLRA -by directing grant of additional working capital. This is so as the fundamental parameters on which the JLRA is based has changed in view of the petitioner s debt exceeding the sustainable levels. In the present case, this Court is unable to find that there is any obligation on the part of the respondent banks to infuse additional working capital in terms of the JLRA. The respondent banks had not issued any letter sanctioning additional working capital as discussed earlier. The JLRA also does not oblige the respondent banks to disburse additional working capital. And, even if it is accepted that the respondent banks had an obligation to provide additional working capital, no such directions to provide additional funding can be granted, as there is a fundamental change in the financials of the petitioner company and the petitioner company is admittedly, not in a position to service its existing loans. The obligation of the corporate debtor was, therefore, unconditional and did not depend upon infusing of funds by the creditors into the appellant Company. Also, the argument taken for the first time before us that no debt was in fact due under the MRA as it has not fallen due (owing to the default of the secured creditor) is not something that can be countenanced at this stage of the proceedings. In this view of the matter, we are of the considered view that the Tribunal and the Appellate Tribunal were right in admitting the application filed by the financial creditor ICICI Bank Ltd. The indebtedness of the petitioner towards the respondent banks was never in dispute. Admittedly, the petitioner was obliged to repay the loan and the interest thereon. The fact that the petitioner s claim for additional assistance was denied does not absolve the petitioner from its liability to repay the amounts borrowed along with interest. If the petitioner is able to establish that there is an obligation on the part of the respondent banks to disburse additional funds and the same has been breached, the petitioner may be entitled to claim damages. However, it cannot repudiate its liability to repay its loans. The present petition is dismissed. All the pending applications are also disposed of. In view of the order passed by this Court on 22.05.2018 directing status quo to be maintained with regard to proceedings initiated before the NCLT, Chandigarh, it is directed that the period from 22.05.2018 till date be excluded from considering the time lines set for proceedings under the IBC. It is also clarified that the NCLT shall consider the application before it independently and uninfluenced by any observations or findings of this Court in the petition. Thus, all contentions of the parties are reserved and the petitioner is not precluded from raising any contention including the ones considered in this petition before the NCLT.
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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