2018 (5) TMI 1838 - AT - Insolvency and Bankruptcy

Corporate insolvency process - Bank is not in a position to recover the amount and there is recurring loss of more than crores per day - HELD THAT - Taking into consideration the stand taken by the parties and the fact that if the Corporate Insolvency Resolution Process is allowed to continue, all the Financial Creditors as also the Operational Creditors may suffer more loss and the Appellants have made out a prima facie case, as agreed and suggested by learned Senior Counsel for the Appellants and learned Senior Counsel for the Joint Lenders Forum and the learned Senior Counsel for the Operational Creditor - Ericsson India Pvt. Ltd. , we pass the following orders - i. Until further orders, the impugned orders dated 15th May, 2018 and 18th May, 2018, passed by the Adjudicating Authority, Mumbai Bench shall remain stayed. The Resolution Professional will allow the managements of the Corporate Debtors to function. He may attend the office of the Corporate Debtors till further order is passed by this Appellate Tribunal. Thereby, the Corporate Insolvency Resolution Process initiated against the Corporate Debtors namely-- Reliance Infratel Ltd. ; Reliance Telecom Ltd. and Reliance Communications Ltd. shall remain stayed, until further orders. ii. The Financial Creditors / Joint Lenders Forum with whom the assets of the Corporate Debtors have been mortgaged as also the Corporate Debtors are given liberty to sell the assets of the Corporate Debtors and to deposit the total amount in the account of the lead Bank of Joint Lenders Forum which shall be subject to the decision of these appeals. If the appeals are rejected, in such case, the Financial Creditors / Joint Lenders Forum and other Banks with whom the amount is deposited, will have to return the total amount in the respective accounts of the Corporate Debtors . iii. The Chairman, Managing Directors, Directors and other members of the Corporate Debtors namely-- Reliance Infratel Ltd. ; Reliance Telecom Ltd. and Reliance Communications Ltd. are directed to pay a sum of ₹ 550 Crores (Rupees Five Hundred Fifty Crores Only) (jointly) in favour of Ericsson India Pvt. Ltd. within 120 days i.e. by 30th September, 2018.

Summary

Issues:
Admission of application under Section 9 of the Insolvency and Bankruptcy Code, 2016; Appointment of Insolvency Resolution Professional; Stay on impugned orders; Settlement between Appellants and Operational Creditors; Payment terms and timeline; Directions to Corporate Debtors and Financial Creditors; Filing of affidavits of undertaking; Listing of appeals for admission; Compliance and Interlocutory Applications.

Admission of Application under Section 9 of the Insolvency and Bankruptcy Code, 2016:
The appeals were filed by the Appellants-Directors and Shareholders against the orders admitting the application under Section 9 of the Insolvency and Bankruptcy Code, 2016 by the Adjudicating Authority. The orders admitted the application by the Operational Creditor, 'Ericsson India Pvt. Ltd.', leading to the appointment of an Insolvency Resolution Professional and the initiation of the Corporate Insolvency Resolution Process against the Corporate Debtors. Grounds for challenging the orders included the pendency of arbitration proceedings and the potential for settlement between the parties.

Stay on Impugned Orders and Settlement between Appellants and Operational Creditors:
The Appellants sought a stay on the impugned orders to explore settlement possibilities. The Operational Creditors, represented by Senior Counsels, agreed to settle the matter if a specific payment was made by the Appellants. Eventually, a settlement amount of ?550 Crores was proposed by the Appellants and accepted by the Operational Creditor, subject to payment within 120 days. The Appellants requested 120 days to make the payment, and the Operational Creditor agreed to receive the amount within the stipulated timeline.

Directions to Corporate Debtors and Financial Creditors:
The Tribunal considered the potential losses to Financial Creditors and Operational Creditors if the Corporate Insolvency Resolution Process continued. Consequently, it issued orders allowing the management of the Corporate Debtors to function, stayed the Corporate Insolvency Resolution Process, and directed the Corporate Debtors to pay ?550 Crores to the Operational Creditor within 120 days. Financial Creditors were given the liberty to sell the assets of the Corporate Debtors and deposit the proceeds in a specified account, subject to the appeal's outcome.

Filing of Affidavits of Undertaking and Compliance:
The Appellants and Operational Creditors were directed to file respective affidavits of undertaking within 10 days. Failure to comply with the payment terms could result in dismissal of the appeals and the completion of the Corporate Insolvency Resolution Process. The Tribunal scheduled the appeals for admission on a specified date and allowed parties to file Interlocutory Applications if the directions were not followed.

This detailed analysis covers the key issues addressed in the judgment, including the admission of the application under the Insolvency and Bankruptcy Code, the stay on impugned orders, the settlement between the parties, payment terms, directions to Corporate Debtors and Financial Creditors, filing of affidavits of undertaking, and compliance measures.