2021 (7) TMI 552 - Tri - Insolvency and Bankruptcy

Maintainability of application - issue connected with CIRP relating to continuance of the affair of the Corporate Debtor - Seeking directions for issuance of a No Objection Certificate (NOC) in favour of Applicant No. 1 for the purpose of creating temporary security of 20% of the value of project land in favour of Ghaziabad Development Authority (GDA) in terms of Clause 4.7 of Pradhan Mantri Awas Yojana (PMAY) policy - seeking to release surplus value of security those were created by the applicant in favour of the DHFL so that the applicant can raise further loans from other Banks/Financial Institutions for construction in the project land - seeking waiver as well as reduction of rate of interest. Maintainability of application - issue connected with CIRP relating to continuance of the affair of the Corporate Debtor - HELD THAT - By reading the provisions of Section 60(5) and 231 of IBC it is opined that this Adjudicating Authority possess with necessary jurisdiction under the above sections and in the light of Hon'ble Supreme Court decision in the matter of Gujrat Urja Vikas Nigam case 2017 (10) TMI 1533 - SUPREME COURT to deal with the issue intrinsically connected with CIRP and which relates to continuance of the affair of the Corporate Debtor as going concern - the present application is maintainable before this Adjudicating Authority. Merits of the case - HELD THAT - It is now a well settled legal position, under the IBC that the business of a Corporate Debtor undergoing CIRP must be ensured to run smoothly and as good as a going concern. The initiation of CIRP does not prevent/or prohibit the business activity of the Corporate Debtor but it is the duty of the Administrator and of the CoC to ensure that the Corporate Debtor should run all its business activities as a going concern. That apart as per settled Constitutional Law of the Land and declared by the Hon'ble Supreme Court that even in Administrative /Executive nature of proceedings it is incumbent upon the Government bodies/organization which are treated as instrumentality of state (Article 13 of the Constitution of India) to follow and adopt reasonable, just and fair procedure for making administrative decision and to maintain the transparency in their findings. As per record it is evident and may be seen that the GDA issued demand letter dated 01.10.2019, inter alia, for creation of ad hoc security and have also been apprised that GDA has issued notices dated 16.12.2020 calling upon the applicants to accomplish the mandatory requirements including creation of ad hoc security, in default of which the project shall stand disapproved. The representations made by the applicants span over a period of 16 months and even today they are facing hard ship - any further delay would irretrievably prejudice the project which is time bound in nature and under the supervision of the State Government and Central Government. Application disposed off by declaring that the applicants are entitled to create ad hoc security in favour of GDA in terms of Clause 4.7 of PMAY and they are eligible to raise additional loans from other banks and financial institutions by creating additional securities on the project land - the Administrator is directed to consider the grant of NOC in consultation with the CoC by retaining adequate and sufficient security as per their norms and to release encumbrances on security in surplus found against the outstanding amount of loan disbursed by the DHFL to the applicants and to grant the same by four weeks from the date of receipt of the copy of this order. Application is partly allowed and stands disposed off.

Summary

Issues Involved:

1. Issuance of No Objection Certificate (NOC) for creating temporary security.
2. Release of surplus value of security.
3. Waiver of interest from the date of loan sanction till issuance of NOC.
4. Reduction of interest rate to 11% per annum.
5. Reduction of interest rate to 12.50% per annum for loans sanctioned to Applicant No. 2.
6. Maintainability of the application under Section 60(5) of the Insolvency and Bankruptcy Code (IBC).

Detailed Analysis:

1. Issuance of No Objection Certificate (NOC) for creating temporary security:

The applicants, SGS Construction & Developers Pvt. Ltd. and SGS Infratech Ltd., sought directions for the issuance of an NOC from the Respondent Administrator of DHFL to create temporary security of 20% of the project land (approximately 10 acres) for 24 months in favor of Ghaziabad Development Authority (GDA) as per Clause 4.7 of the Pradhan Mantri Awas Yojana (PMAY) policy. The Tribunal noted that the GDA's demand for ad hoc security was a condition precedent for the release of sanctioned plans/drawings necessary for project implementation. The creation of such security would be temporary and released by GDA upon completion of the EWS houses. The Tribunal directed the Administrator to consider granting the NOC in consultation with the CoC, retaining adequate security, and releasing surplus encumbrances within four weeks.

2. Release of surplus value of security:

The applicants requested the release of surplus value of security created in favor of DHFL to raise further loans from other financial institutions for project construction under PMAY. The Tribunal acknowledged the necessity for additional loans to complete the project and directed the Administrator to consider releasing surplus security after retaining sufficient security as per norms.

3. Waiver of interest from the date of loan sanction till issuance of NOC:

The applicants sought a waiver of interest from the date of loan sanction until the issuance of the NOC. The Tribunal rejected this prayer, stating that parties under a contract are bound by the agreed terms and conditions, and the rate of interest shall flow from the Sanction Letter(s) and Loan and Security Documents. The Tribunal emphasized that the rate of interest was floating and could not remain static, and the lender is entitled to charge interest as agreed upon from the date of disbursement.

4. Reduction of interest rate to 11% per annum:

The applicants requested a reduction of the interest rate to 11% per annum as per the sanction letter dated 23.05.2018, citing the project's categorization under the PMAY infrastructure category. The Tribunal found this request legally untenable, reiterating that the contractual terms must be fulfilled, and the agreed rate of interest cannot be altered.

5. Reduction of interest rate to 12.50% per annum for loans sanctioned to Applicant No. 2:

Similarly, the request to reduce the interest rate to 12.50% per annum for loans sanctioned to Applicant No. 2 was rejected. The Tribunal maintained that the rate of interest applicable at the time of loan sanction would continue throughout the loan's currency, and any alteration would amount to rewriting contractual terms, which is not permissible under Section 60(5) of the IBC.

6. Maintainability of the application under Section 60(5) of the Insolvency and Bankruptcy Code (IBC):

The Respondent contested the maintainability of the application, arguing that the dispute did not relate to the insolvency resolution of DHFL and should be addressed in a Civil Court or other legal forum. The Tribunal, referencing the Supreme Court decision in Gujrat Urja Vikas Nigam V/s Solar Semiconductor Power Company Pvt. Ltd., held that it possessed the necessary jurisdiction under Sections 60(5) and 231 of the IBC to deal with issues intrinsically connected with the Corporate Insolvency Resolution Process (CIRP) and the continuance of the Corporate Debtor's affairs as a going concern. Thus, the application was deemed maintainable.

Conclusion:

The Tribunal partially allowed the application, granting the request for the issuance of an NOC and the release of surplus security while rejecting the prayers for waiver and reduction of interest rates. The Administrator was directed to consider the issuance of the NOC and release of surplus security within four weeks, ensuring the smooth continuation of the Corporate Debtor's business activities.