2025 (1) TMI 834 - AT - IBC

Recovery of dues - Approval of decision of New Board to collapse/ unwind the transactions whereby IL FS Financial Services Ltd. (IFIN) has provided loans to third parties - rejection of IFIN's claim by the Interim Resolution Professional (IRP) of Attivo Economic Zone (Mumbai) Pvt. Ltd. in the Corporate Insolvency Resolution Process (CIRP) - HELD THAT - One of the steps, which has been contemplated is an Agreement between IL FS and third party borrowers for collapsing the Agreement and the orders were sought only with respect to collapsing the Agreement, when Agreement is entered. Admittedly, there is no Agreement, which claimed to have been admitted / entered with regard to Respondent Nos.8 to 12 of IA No.3169 of 2023 and objections having been raised with regard to Respondent Nos.8 to 12 by SIFL , claiming that amount advanced to IL FS entities by third party borrowers, like Respondent Nos.8 to 12 was the amount given by the SIFL and not by third party borrowers. Hence, the said transactions with IL FS entities, cannot be collapsed. For issuing any directions as prayed by the Applicant with regard to Respondent Nos.8 to 12, a deeper and thorough consideration is required with regard to transactions with third party borrowers as well as lending money to IL FS entities. Present Applications, are not the appropriate proceedings to grant declaration as prayed by the Applicant and direct for collapsing the third party Agreements and transactions entered with Respondent Nos.3 to 12. It is made clear that the said issues can be gone into and examined by NCLT in the pending proceedings and appropriate decisions can be taken with regard to borrowing with respect to Respondent Nos.8 to 12. Conclusion - The proposal to unwind transactions allowed with the exception of certain respondents - the IRP's rejection of IFIN's claim set aside, restoring its status in the CIRP. Application allowed in part.

1. ISSUES PRESENTED and CONSIDERED

The judgment primarily revolves around two core legal issues:

Whether the National Company Law Appellate Tribunal (NCLAT) should approve the proposal by Infrastructure Leasing & Financial Services Ltd. (IL&FS) to collapse/unwind transactions involving loans provided by IL&FS Financial Services Ltd. (IFIN) to third-party borrowers, which were subsequently lent to IL&FS group entities.
Whether the rejection of IFIN's claim by the Interim Resolution Professional (IRP) of Attivo Economic Zone (Mumbai) Pvt. Ltd. in the Corporate Insolvency Resolution Process (CIRP) was justified.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Approval of Proposal to Unwind Transactions

Relevant legal framework and precedents: The Tribunal considered the Resolution Framework approved in Company Appeal (AT) No.346 of 2018, which aimed to address financial mismanagement within the IL&FS group.
Court's interpretation and reasoning: The Tribunal evaluated the New Board's decision to unwind transactions, noting the intra-group borrowings and circuitous transactions that circumvented regulatory prescriptions.
Key evidence and findings: The Tribunal examined the SFIO Report and Grant Thornton audit, highlighting loan evergreening and non-compliance with norms by IFIN.
Application of law to facts: The Tribunal considered the steps proposed by IFIN to unwind transactions, including accounting entries, mutual discharge of claims, and intimation to regulatory authorities.
Treatment of competing arguments: Objections were raised by Srei Infrastructure Finance Limited (SIFL), claiming that the funds were routed through them and not the third-party borrowers.
Conclusions: The Tribunal allowed the proposal to unwind transactions except for those involving Respondent Nos.8 to 12, where deeper consideration was required.

Issue 2: Rejection of IFIN's Claim by IRP

Relevant legal framework and precedents: The Tribunal referred to the CIRP regulations and the role of the IRP in admitting claims.
Court's interpretation and reasoning: The Tribunal noted that the IRP's rejection of the claim was based on the pending application to collapse transactions, which questioned the genuineness of the transactions.
Key evidence and findings: The IRP's letter cited the circuitous nature of transactions as the basis for rejecting IFIN's claim.
Application of law to facts: The Tribunal found that the basis for rejecting the claim was invalidated by its decision not to permit the collapse of the agreement with Attivo.
Treatment of competing arguments: The Tribunal considered the arguments from both IFIN and the IRP, focusing on the procedural fairness and the impact of pending applications.
Conclusions: The Tribunal set aside the IRP's rejection of IFIN's claim and restored its voting share in the CIRP of Attivo.

3. SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: "The Tribunal by order, where on the basis of document entered between parties for mutual discharge/release of the obligation, orders have been passed with regard to different third party borrowers accepting the settlement agreed and necessary directions have been issued with respect to three of the third party borrowers for recognizing IFIN as the Lender."
Core principles established: The Tribunal emphasized the necessity of mutual agreements for collapsing transactions and the importance of thorough examination of the nature of transactions before permitting any unwinding.
Final determinations on each issue: The Tribunal allowed the proposal to unwind transactions with the exception of certain respondents, and it set aside the IRP's rejection of IFIN's claim, restoring its status in the CIRP.

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