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2022 (7) TMI 205 - AT - Companies LawSeeking approval of restructuring proposal of Respondent No.2 sought to be implemented to restructure the debt of Respondent No.2 - binding of Restructuring Plan on all stakeholders of Respondent No.2 - termination of the Terminated Contracts and direct that any claim, entitlement, or contingent liability - whether objection can be raised to the Restructuring Plan when the Restructuring Plan is in accordance with the Circular dated 07.06.2019, which has support of 100% lenders? - HELD THAT - The basis given by ILFS to exclude the transactions is the Forensic Audit Report through Grant Thornton India LLP and 'Report on Forensic Audit of IL FS Tamil Nadu Power Company Limited (ITPCL)' on June 30, 2020 (in short Transaction Review Report ) submitted by Transaction Review Auditor. The case of the ILFS is that in the above reports adverse findings have been given with regard to SEPCO and Shandong. It is also on record that in pursuance of the aforesaid reports, the ITPCL has also filed application under Section 66 of the I B Code before the Adjudicating Authority being CA No. 190 of 2022 dated 06.04.2022. It is for the Adjudicating Authority to consider the Section 66 application and pass appropriate order. However, the fact that Section 66 application is filed and pending consideration, on the basis of certain adverse observations against the Capex Creditors/ Operational Creditors, the outstanding amount which is admitted by the Claim Management Advisor cannot be withheld to be paid relying on any observation in the Forensic Audit Report or Transaction Review Report. Section 17 provides for scheme for search and seizure. Sub-section (4) of Section 17 requires that authority seizing any record or property or freezing any record or property shall, within a period of thirty days from such seizure or freezing, file an application, requesting for retention of such record or property seized under sub-section (1) or for continuation of the order of freezing, before the Adjudicating Authority. The present is the case where there is no material to indicate that any application under Section 17(4) was filed after the email dated 22.09.2020. In the application which has been filed by ILFS i.e. I.A. No. 59 of 2021 there is no mention of filing of any application under Section 17(4). More so, in the present case, consequent to the investigation Provisional Order has been passed on 05.01.2021 and final confirming order was passed on 24.08.2021, which we have already notice. There is no order of the Adjudicating Authority confirming or continuing the Freezing Order. Thus, directions issued by the Investigating Officer by email dated 22.09.2020 cannot be said to be still continuing so as to inhibit the ITPCL to make payment to Operational Creditors/ Capex Creditors. There being no material on record to indicate that the provisions of Section 17 (1A) have been followed after issuance of email dated 22.09.2020, the Freezing Order issued by the Investigating Officer shall not continue, more so, when Provisional Attachment Order has been passed on 05.01.2021 where there is no reference of the Freezing Order or continuation of the Freezing Order - It is satisfying that the arguments raised by Shri Ramji Srinivasan on the basis of PMLA proceeding cannot be ground for depriving the payments of the dues of SEPCO and Shandong. It is always open for the authority which is making payment to the Operational Creditors to obtain appropriate security before payment, to safeguard the interest on account of any pending proceedings which may have adverse effect on any payments made. When the claims of Capex Creditors/ Operational Creditors has been admitted by the Claim Management Advisor, which is also admitted fact, the prayer of the ILFS for extinguishing the claim of the Capex Creditors and the Operational Creditors, is not acceptable. The admitted claim of Capex Creditors/ Operational Creditors has to be dealt with in the Resolution Plan when it will be drawn. As noted above, the claim of Operational Creditors/ Capex Creditors are sought to be dealt with in a plan of restructuring debt under Reserve Bank of India Circular dated 07.06.2019. For dealing with admitted debts of Operational Creditors/ Capex Creditors, an appropriate Resolution Plan has to be made for addressing the claims. The Restructuring Plan has been arrived between the lenders and the borrower i.e. ITPCL. The ITPCL, who was bound to consider the admitted claim of the Operational Creditors/ Capex Creditors, has to consider the claims appropriately and arrive at a fair and reasonable resolution of the claims. The claim of Operational Creditors/ Capex Creditors has to be appropriately considered in a fair and reasonable Resolution Plan. The effect and consequence of contract entered by it with Operational Creditors/ Capex Creditors cannot be done away with - Application disposed off.
Issues Involved:
1. Approval of ITPCL Restructuring Plan. 2. Objections by Operational Creditors/Capex Creditors regarding extinguishment of claims. 3. SEPCO III Electric Power Construction Co. Ltd. and Shandong Tiejun Electric Power Engineering Company Limited's claims. 4. China Datang Technologies and Engineering Co. Ltd. and Datang Technologies & Engineering India Pvt Ltd.'s claims. 5. Involvement of Punjab National Bank and other lenders. 6. Legal implications of Forensic Audit and PMLA proceedings. Detailed Analysis: 1. Approval of ITPCL Restructuring Plan: ILFS Ltd. filed I.A. No. 59 of 2021 seeking approval for the restructuring proposal of IL&FS Tamil Nadu Power Company Ltd. (ITPCL) as per the term sheet from the Consortium of Banks, aiming to convert ITPCL from 'Amber' to 'Green'. The restructuring plan was prepared in accordance with the RBI Circular dated 07.06.2019 titled ‘Prudential Framework for Resolution of Stressed Assets'. The application detailed the financial history of ITPCL and the need for restructuring due to the lack of binding bids in a public sale process. The Tribunal had previously allowed prayers (a) and (b) of the application, approving the restructuring proposal and implementation of term sheets with various banks. 2. Objections by Operational Creditors/Capex Creditors: The Tribunal granted time to Operational Creditors affected by prayers (c) and (d) to file objections. SEPCO III Electric Power Construction Co. Ltd., Shandong Tiejun Electric Power Engineering Company Limited, China Datang Technologies and Engineering Co. Ltd., and Datang Technologies & Engineering India Pvt Ltd. filed objections and impleadment applications. The objections centered around the extinguishment of their claims and termination of contracts as proposed in the restructuring plan. The Tribunal noted that these creditors were not initially made parties to the application, and their claims had been admitted by the Claim Management Advisor. 3. SEPCO III Electric Power Construction Co. Ltd. and Shandong Tiejun Electric Power Engineering Company Limited's claims: SEPCO and Shandong were engaged as EPC Contractors by ITPCL and had completed their contractual obligations, with ITPCL issuing Provisional Acceptance Certificates. Despite admitted claims by the Claim Management Advisor, ILFS sought to extinguish their claims citing restructuring. The Tribunal noted that adverse findings against SEPCO and Shandong in the Forensic Audit Report and Transaction Review Report were under investigation by the Enforcement Directorate, with a Provisional Attachment Order under PMLA against shares of A S Coal. However, no assets of SEPCO or Shandong were attached, and the Freezing Order issued by the Investigating Officer was not confirmed by the Adjudicating Authority. 4. China Datang Technologies and Engineering Co. Ltd. and Datang Technologies & Engineering India Pvt Ltd.'s claims: CDTE and DTEI, engaged for developing a wet limestone-based FGD plant, had their claims admitted by the Claim Management Advisor. They objected to the extinguishment of their claims and termination of contracts proposed in the restructuring plan. The Tribunal noted that no adverse findings were reported against CDTE and DTEI, and their admitted claims were to be dealt with appropriately in a Resolution Plan. 5. Involvement of Punjab National Bank and other lenders: Punjab National Bank, as the lead bank for the lenders of ITPCL, supported the restructuring plan and sought impleadment. The restructuring plan, approved by the Consortium of Lenders, was found to be in accordance with the RBI Circular dated 07.06.2019, and no objections were raised against it. 6. Legal implications of Forensic Audit and PMLA proceedings: The Forensic Audit and Transaction Review Report indicated adverse findings against SEPCO and Shandong, leading to an application under Section 66 of the I&B Code. However, the Tribunal noted that the Freezing Order under PMLA was not confirmed by the Adjudicating Authority, and the Provisional Attachment Order only attached shares of A S Coal. The Tribunal emphasized that pending proceedings under PMLA could not be a ground for withholding payments to Operational Creditors/Capex Creditors. Conclusion: The Tribunal refused to grant prayers (c) and (d) of I.A. No. 59 of 2021, which sought the extinguishment of claims and termination of contracts of Operational Creditors/Capex Creditors. It directed the Board of ITPCL to consider a supplementary Resolution Plan addressing the claims of these creditors, which needs approval by the New Board and the Adjudicating Authority. The Tribunal emphasized the need for a fair and reasonable resolution of the admitted claims of Operational Creditors/Capex Creditors.
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