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2022 (11) TMI 756 - AT - Insolvency and BankruptcyMaintainability of application - initiation of CIRP - Financial creditors - locus standi of IDBI Bank for filing application under section 7 of IBC - IDBI Bank alone could have filed the petition for the insolvency resolution or not - non-disbursement by Standard Chartered Bank of the additional amount after restructuring of debt - material change in the restructuring package and consequently the guarantee stands discharged or not? Whether Respondent IDBI Bank can independently declare an event of default and whether it is entitled to file application under section 7 against the corporate debtor after the event of default has occurred? - HELD THAT - On looking at the Security Trustee Agreement, wherein the Lead Bank Bank of Baroda representing the consortium of banks has entered an agreement with Doshion and the Security Trustee IL FS Trust Company. This Security Trustee Agreement was executed on 26.11.2013 after the consortium banks had decided to provide loans to the borrower Doshion. In the Definition and Interpretation section of the Security Trustee Agreement, an Event of Default has been stated as having the meaning ascribed to in the financing documents - The action of declaring an Event of Default is also an action wherein this procedure was to be followed. Thus, it is clear that the Event of Default cannot be declared by an individual bank under the individual financing documents of the participating banks in the Bank of Baroda consortium and recourse must be taken to the Security Trustee Agreement and the Inter-se Agreement. Clause 7.2 of the Inter-se Agreement sets out a clear procedure by which an Event of Default can be declared by any an individual lender belonging to the Bank of Baroda consortium and this procedure is quite akin to the procedure set out in clause (4) of the Security Trustee Agreement regarding declaration of an Event of Default . Action taken by IDBI Bank regarding declaration of Event of Default and thereafter recall of the loan - HELD THAT - Prior to the issue of this letter to FIPL, a letter dated 20.9.2016 was sent by IDBI Bank to the borrower Doshion (attached at pp.95-113 of the reply filed by the IDBI Bank) stating that since an Event of Default had taken place since the borrower Doshion has failed to service the principal and interest amount payable to IDBI Bank on the due dates, the original loan including restructured loan were being recalled - The recall notice to Doshion and thereafter, a letter to FIPL dated 4.11.2016 were sent by IDBI Bank without any reference or intimation to the Lead Bank i.e. Bank of Baroda or the Security Trustee. The Event of Default declared by the Respondent IDBI Bank has not been declared in accordance with the Inter-se Agreement entered into between participating banks of the Bank of Baroda consortium and the Security Trustee Agreement, and therefore cannot be called a valid Event of Default . Thus, the Respondent IDBI Bank was not entitled to act independently in declaring an Event of Default in respect of its individual loan and recalling the loan advanced by it to the borrower Doshion and seeking repayment of the said loan from the guarantor FIPL - the locus standi of the Respondent IDBI Bank in taking unilateral action for declaring an Event of Default in the repayment of the loan advanced by it is not established as the IDBI Bank being a participating bank of the Bank of Baroda consortium was bound to act under the clauses/provisions of the Inter-se Agreement and the Security Trustee Agreement. In view of the stipulations and provisions in the Inter-se Agreement of which the Respondent IDBI Bank was a signing party, and the provisions of the Security Trustee Agreement entered into between the Bank of Baroda (as a Lead Bank of the consortium) and the guarantor FIPL and IL FS Trustee Company Limited, the IDBI Bank could not have acted unilaterally in either declaring an Event of Default regarding repayment its loan facilities granted to the borrower Doshion and later seeking repayment of the loan from the guarantor Fivebro International Private Limited. - the Adjudicating Authority has committed gross error in not examining the provisions in the Inter-se Agreement, Security Trustee Agreement and the Deed of Guarantee, by which the four participating banks of the Bank of Baroda consortium have bound themselves while considering their effect in the adjudication of the section 7 application filed against the guarantor FIPL and thereafter admitting it. The corporate debtor Fivebro International Private Limited is freed from the rigours of CIRP and moratorium and other related provisions of IBC - Application disposed off.
Issues Involved:
1. Locus standi of IDBI Bank for filing application under section 7 of IBC. 2. Whether non-disbursement by Standard Chartered Bank of the additional amount after restructuring of debt has materially changed the restructuring package and consequently the guarantee stands discharged. Detailed Analysis: Issue 1: Locus Standi of IDBI Bank for Filing Application Under Section 7 of IBC The primary issue revolves around whether IDBI Bank had the authority to independently declare an 'Event of Default' and file an application under section 7 of the Insolvency and Bankruptcy Code (IBC) against the corporate debtor, Fivebro International Private Limited (FIPL). The relevant agreements for this issue are the Inter-se Agreement, Deed of Guarantee, and Security Trustee Agreement. The Security Trustee Agreement, executed on 26.11.2013, stipulates that any lender proposing to take action regarding an 'Event of Default' must intimate the Security Trustee, who then informs other lenders. This procedure ensures coordinated action among the consortium members. Clause 7.1(b) of the Inter-se Agreement also mandates consultation with other lenders before declaring an 'Event of Default.' IDBI Bank sent a recall notice to Doshion on 20.9.2016 and a demand letter to FIPL on 4.11.2016 without informing the Lead Bank (Bank of Baroda) or the Security Trustee. This unilateral action by IDBI Bank contravenes the stipulated procedures in both the Inter-se Agreement and the Security Trustee Agreement. The Adjudicating Authority erred by relying on clause 7.5 of the Inter-se Agreement, which allows individual action on matters not expressly stated in the agreement. However, clauses 7.1 and 7.2 clearly cover the declaration of an 'Event of Default,' requiring coordinated action. The Tribunal concluded that IDBI Bank's declaration of 'Event of Default' was invalid as it did not follow the required procedures, thereby lacking the locus standi to file the section 7 application independently. Issue 2: Non-Disbursement by Standard Chartered Bank and Its Impact on the Guarantee The second issue concerns whether the non-disbursement of additional loan amounts by Standard Chartered Bank after the restructuring materially altered the restructuring package, thereby discharging the guarantee. The Appellant argued that the restructuring package did not materialize due to Standard Chartered Bank's failure to disburse its share, thus invalidating the default claim. The Deed of Guarantee, executed on 27.6.2014, guaranteed the repayment of loans up to Rs. 408.64 crores. The Appellant contended that the guarantee was conditional upon the full disbursement of the restructured loan amount. The Tribunal noted that the argument concerning the applicability of sections 129 and 133 of the Indian Contract Act, which deal with the discharge of surety, was not directly relevant to the adjudication of the section 7 application. The Tribunal also referenced the judgment in the matter of IDBI Bank vs. Manoj Gaur, which held that lenders must act collectively under a Security Trustee Agreement. The Tribunal found that the restructuring package's failure did not discharge the guarantee as per the terms of the Deed of Guarantee. However, the Tribunal did not delve deeply into this issue, focusing instead on the procedural lapses by IDBI Bank. Conclusion: The Tribunal concluded that IDBI Bank acted unilaterally in declaring an 'Event of Default' and filing the section 7 application, violating the Inter-se Agreement and Security Trustee Agreement. Consequently, the Impugned Order admitting the application was set aside, and the corporate debtor FIPL was freed from the Corporate Insolvency Resolution Process (CIRP) and related provisions of IBC.
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