2019 (3) TMI 981 - AT - Insolvency and Bankruptcy

Corporate Insolvency Resolution Process - arbitration proceeding is pending and some order has been passed by the Hon ble Supreme Court - HELD THAT - The payment of dues of ₹ 550 Crores to Ericsson India Private Limited - ( Operational Creditor ) by three Reliance Companies has not been linked with the assets of the State Bank of India / Joint Lenders Forum or any other Bank, who are third party to the settlement between the three Reliance Companies and the Ericsson India Private Limited . By interim order dated 30th May, 2018, this Appellate Tribunal noticed the terms of the agreement/ settlement between the parties. One of the terms of the settlement is with the RCom Group and the State Bank of India / Joint Lenders Forum . The other part of the settlement/ agreement is between three Reliance Companies and Ericsson India Private Limited - ( Operational Creditor ). Once such settlement is reached, it is for the parties to comply with the terms of settlement without any interference by this Appellate Tribunal. This Appellate Tribunal is only to find out whether the parties have settled the matter in terms of the order dated 30th May, 2018 or have failed to settle. On failure, it is open to this Appellate Tribunal to vacate the interim order of stay dated 30th May, 2018 and in absence of any merit, the appeal can be dismissed. As per the interim order, the Financial Creditors / Joint Lenders Forum with whom the assets of the Corporate Debtors have been mortgaged have been allowed to sell the assets of the Corporate Debtors and to deposit the total amount in the Joint Lenders Forum subject to the decision of these appeals. It was made clear that if the appeals are rejected, 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 . Admittedly, the Financial Creditors / Joint Lenders Forum and other Banks have failed to recover any amount by selling the mortgaged properties of the Corporate Debtors in spite of the interim order of stay passed on 30th May, 2018. We have also noticed that the Corporate Debtors - Reliance Infratel Ltd. ; Reliance Telecom Ltd. and Reliance Communications Ltd. have failed to pay the total amount of ₹ 550 Crores (jointly) till today. As per the interim order, in case of non-payment of the amount and part of the same, the concerned appeal(s) may be dismissed and this Appellate Tribunal may direct to complete the Corporate Insolvency Resolution Process and may pass appropriate order. The payment of ₹ 550 Crores in favour of Ericsson India Private Limited is also subject to the decision of the appeals. In an appeal filed under Section 61 of the I&B Code , no direction can be given to any party to the settlement (particularly the third party) to perform certain duties to ensure settlement between other parties. This order will not come in the way of the Appellants to ask for relief as sought for in this interim application from the Hon ble Supreme Court, which has the jurisdiction to pass appropriate order under Article 142 of the Constitution of India (Enforcement of decrees and orders of Supreme Court and orders as to discovery, etc.). For the reasons aforesaid, no interim order is passed in these Interlocutory Applications in question and they stand disposed of.

Summary

Issues Involved:

1. Initiation of Corporate Insolvency Resolution Process (CIRP)
2. Interim Order and Sale of Assets
3. Supreme Court's Involvement and Contempt Proceedings
4. Payment Obligations and Compliance
5. Role of Joint Lenders Forum (JLF) and State Bank of India (SBI)
6. Non-JLF Lenders' Position
7. Preferential Payments and Legal Precedents

Comprehensive, Issue-Wise Detailed Analysis:

1. Initiation of Corporate Insolvency Resolution Process (CIRP):
The National Company Law Tribunal (NCLT), Mumbai Bench, initiated the CIRP against three companies following an application under Section 9 of the Insolvency and Bankruptcy Code, 2016, filed by an operational creditor. Orders of moratorium were passed, and Interim Resolution Professionals (IRPs) were appointed. Appeals were filed against these orders on the grounds of pending arbitration proceedings and a Supreme Court order.

2. Interim Order and Sale of Assets:
The Appellate Tribunal allowed the Financial Creditors/Joint Lenders Forum (JLF) to sell the assets of the Corporate Debtors and deposit the proceeds in the account of the lead bank, State Bank of India (SBI). The Corporate Debtors were directed to pay ?550 Crores to the operational creditor within 120 days. This interim order was affirmed by the Supreme Court, which also allowed the undertaking given by the Chairmen of the companies concerned.

3. Supreme Court's Involvement and Contempt Proceedings:
The Supreme Court extended the period for payment to the operational creditor and allowed the revival of the contempt petition if the payment was not made. The Supreme Court held the three companies guilty of contempt for failing to make the payment and allowed them to purge the contempt by paying ?453 Crores within four weeks, failing which the Chairmen would face imprisonment. Additionally, a fine of ?1 Crore per company was imposed.

4. Payment Obligations and Compliance:
The RCom Group received ?259.22 Crores from Income Tax Refunds, which was lying in the Trust and Retention Accounts (TRAs) with SBI. The RCom Group sought a direction for the release of this amount to comply with the Supreme Court's judgment. The Appellate Tribunal noted that the payment of ?550 Crores to the operational creditor was not linked to the sale of assets by the JLF and that the RCom Group must comply with the Supreme Court's order independently.

5. Role of Joint Lenders Forum (JLF) and State Bank of India (SBI):
The SBI, as the lead bank of the JLF, argued that the agreement between the operational creditor and the Corporate Debtors was not interlinked with the agreement between the lenders and the Corporate Debtors. The SBI submitted that the funds in the TRAs could not be withdrawn by the Corporate Debtors and that the operational creditor's payment should not be linked to the sale of assets by the JLF.

6. Non-JLF Lenders' Position:
Non-JLF lenders, including several international banks, argued that they were not bound by the terms of the settlement agreement and that their rights over the accounts should not be encumbered. They referenced legal precedents to support their position that their rights as secured creditors should take precedence over other claims.

7. Preferential Payments and Legal Precedents:
The Appellate Tribunal considered the argument that no preferential payments are permissible under Section 43 of the I&B Code. Legal precedents were cited to support the position that directing disbursement to a specific creditor class would be improper and cause injustice to secured creditors. The Tribunal emphasized that the settlement between the parties should be honored independently and that the appeals could be dismissed if the terms were not complied with.

Conclusion:
The Appellate Tribunal did not pass any interim order in the interlocutory applications and noted that the parties should seek relief from the Supreme Court. The appeals were listed for further orders, and the parties were directed to inform the Tribunal of any developments to consider whether the interim order should be vacated.