2019 (2) TMI 1763 - HC - Companies Law

Providing of Working Capital under Joint Lenders Restructuring Agreement (JLRA) - implementation of restructuring package - defaulted in performance of obligations under the JLRA - Issuance of appropriate writ / order / direction directing the Reserve Bank of India to ensure compliance / implementation of its Guidelines / Circulars dated 30th January 2014 26th February 2014 and 5th May 2017 vis- -vis the Joint Lenders Restructuring Agreement (JLRA) dated 27th June 2015 - whether the JLRA did provide for working capital beyond Rs. 75 Crores? HELD THAT - Had the appellant really wanted implementation and enforcement of obligations arising out of the JLRA it should have taken appropriate steps at the relevant time before having requested for implementation of the S4A Scheme or even consenting to the same. Present action in our opinion is highly belated at least as regards seeking specific performance of the JLRA. Moreover the CAP having been changed from restructuring to recovery granting the appellant s prayers would necessarily mean overlooking the appellant s own action in abandoning its efforts under the JLRA and moving on to the S4A Scheme and thereby turning the clock back on a process which under the current legal and economic scenario in the country is mandated to be extremely time bound and forward moving. Further the writ petition was filed by the appellant on 21st May 2018 much after the ICICI Bank approached the NCLT Chandigarh on 9th March 2018. So it is clear that the writ petition was filed as an afterthought only with a view to possibly interdict the proceedings already initiated by ICICI. Also it cannot be overlooked that the account maintained with the ICICI Bank was declared as NPA on 31st December 2016. The respondents 2 4 and 5 issued notices under Section 13(2) of the SARFAESI Act to the appellant Company. A recall notice was sent to the appellant to pay a sum of Rs. 1, 77, 77, 60, 053.15/- which the appellant had failed to pay. Merely because the amendments incorporated in the Banking Regulations Act 1949 empower the Central Government and the RBI to issue directions for resolution of stressed assets the same does not create any entitlement or right in the hands of the borrower who is admittedly a defaulter. Moreover proceedings having been initiated by the ICICI Bank which are in the nature of judicially monitored resolution of stressed assets nothing precludes the appellant from seeking resolution before the NCLT in those proceedings. Appeal dismissed as infructuous.

Issues Involved:
1. Non-compliance with RBI Guidelines and Circulars.
2. Obligation of Banks to provide additional working capital.
3. Validity and enforcement of the Joint Lenders Restructuring Agreement (JLRA).
4. Discretion of Banks in providing additional funding.
5. Impact of non-release of funds on the appellant's business operations.
6. Change of Corrective Action Plan (CAP) from restructuring to recovery.
7. Jurisdiction and applicability of Insolvency and Bankruptcy Code (IBC) over Banking Regulation Act, 1949.
8. Timeliness and appropriateness of the appellant's legal actions.

Detailed Analysis:

1. Non-compliance with RBI Guidelines and Circulars:
The appellant argued that the respondent banks failed to comply with RBI Guidelines and Circulars dated January 30, 2014, February 26, 2014, and May 5, 2017, which mandated the implementation of the Restructuring Package in a time-bound manner. The appellant sought directions for the enforcement of these circulars to ensure compliance with the JLRA.

2. Obligation of Banks to provide additional working capital:
The appellant contended that the banks were obligated to provide additional working capital beyond the initially sanctioned Rs. 75 Crores based on the D&B TEV Report. However, the court found that the JLRA and related documents did not obligate the banks to provide additional funding beyond Rs. 75 Crores. The court noted that any additional funding was at the sole discretion of the banks as per Clause 2.6.1 of the JLRA.

3. Validity and enforcement of the JLRA:
The appellant sought specific enforcement of the JLRA, arguing that the banks had committed to providing additional working capital. The court concluded that the JLRA did not include any commitment to provide additional working capital beyond Rs. 75 Crores. The court emphasized that the JLRA and other financing documents constituted the entire agreement between the parties, and there was no reference to additional working capital limits in subsequent years.

4. Discretion of Banks in providing additional funding:
The court highlighted that the decision to provide additional funding was at the sole discretion of the banks. The JLRA explicitly stated that additional funding would depend on various factors, including the confidence in the business and management. The banks had agreed to reassess the working capital limits but were not obligated to provide additional funding.

5. Impact of non-release of funds on the appellant's business operations:
The appellant argued that the non-release of additional working capital impeded its business operations and ability to meet projected cash flows. The court noted that while the delay in processing the appellant's request for additional funding was perhaps justified, it did not lead to the conclusion that the banks were obligated to provide additional funding. The court also mentioned that the appellant could seek funding from other sources.

6. Change of Corrective Action Plan (CAP) from restructuring to recovery:
The court acknowledged that the CAP was changed from restructuring to recovery in a JLF meeting held on February 8, 2017. The court found that the consensus among the respondent banks was to proceed with recovery, reflecting their current stance. The court emphasized that the JLRA's fundamental assumptions no longer held good, and the appellant's existing indebtedness could not be serviced by the revenue generated.

7. Jurisdiction and applicability of Insolvency and Bankruptcy Code (IBC) over Banking Regulation Act, 1949:
The appellant argued that Section 35AB of the Banking Regulation Act, 1949, should override Section 238 of the IBC. The court found this argument inconsequential, as there was no obligation on the banks to release capital over and above Rs. 75 Crores. The court noted that the appellant's account was declared as NPA, and proceedings under the IBC were judicially monitored resolutions of stressed assets.

8. Timeliness and appropriateness of the appellant's legal actions:
The court observed that the appellant's writ petition was filed after the ICICI Bank approached the NCLT, indicating that the writ petition was an afterthought to possibly interdict the proceedings. The court emphasized that the appellant should have taken appropriate steps at the relevant time before requesting the implementation of the S4A Scheme.

Conclusion:
The court dismissed the appeal, agreeing with the learned Single Judge's conclusion that the banks were not obligated to provide additional working capital beyond Rs. 75 Crores. The court also noted that the appellant's writ petition was filed belatedly and appeared to be an afterthought. The court emphasized that the appellant could seek resolution before the NCLT in the ongoing proceedings initiated by the ICICI Bank.

← Previous Next →