2024 (1) TMI 1217 - AT - Insolvency and Bankruptcy

Initiation of CIRP - Date of default - Existence of restructuring proposals - NCLT admitted the application u/s 7 - pre-implementation conditions as stipulated in the restructuring proposals were mandatory or not - failure in its compliance tantamounted to non-execution of the restructuring approvals automatically or not - date of default was covered under Period stipulated under Section 10A of the Code or not - payments of Rs. 50 Crores made by the Corporate Debtor to the financial creditors i.e., the Respondent No. 2 and PFC resulted in automatic extension of restructuring approvals or not - financial viability of the Corporate Debtor as claimed by the Appellant would have impacted the impugned order in deciding the application filed under Section 7 of the code by the Respondent No. 2 or not. Existence of restructuring proposals - pre-implementation conditions as stipulated in the restructuring proposals were mandatory or not - failure in its compliance tantamounted to non-execution of the restructuring approvals automatically or not - HELD THAT - The period from the date 25.03.2020 to 24.03.2021, is the period which is required to be excluded for the purpose of initiation of CIRP under Section 7, 9 and 10. Section 10A of the Code also clearly mandates that no application shall ever be filed for initiation of CIRP of a Corporate Debtor for the said default occurring during the said period. It is significant to note that the explanation provided under Section 10A of the Code stipulate that provision of Section 10A shall not apply to any default committed under the said Sections before 25.03.2020. Hence, date of default become critical. On the failure of the Corporate Debtor to fulfil its obligation to the original common loan agreement and subsequently, further failure to comply with the first restructuring proposal dated 21.02.2020 and further failure to comply with the second restructuring approval dated 29.09.2020, the Appellant, at this stage, cannot take the plea of continuation of all agreements/proposals. Normally, when the restructuring proposal is agreed upon, the same is in supersession to the previous loan agreement/restructuring proposal. Here, it is critical to understand that pre-implementation condition are conditions precedent, which are meant to be followed and it cannot be the case of the borrower that despite his failure to fulfil the conditions precedent, the restructuring proposal should be deemed to be valid, continuing and further deemed to be converted into agreement - In the present case, undisputedly the Corporate Debtor could not make the required payments to the lenders i.e. the Respondent No. 2 as well as PFC and also could not meet with pre-implementation conditions and therefore, the restructuring approval ceased to remain alive and the only valid agreement which survived was the common loan agreement dated 19.06.2013. Default period falling within period specified under Section 10A of the Code or otherwise? - HELD THAT - It is evident that the Respondent No. 2 clearly indicated date of default to be 31.03.2018, which is not covered under Section 10A of the Code. Incidentally, the Respondent No. 2 also gave date of NPA of Corporate Debtor i.e., 30.06.2018, which is also out of purview of Section 10A of the Code - the date of default as indicated in Part IV by the Appellant is 31.03.2018 based on first default as per original common loan agreement. The Adjudicating Authority has considered 31.03.2021 as a date of default based on the second restructuring approval dated 29.09.2020. We have already noted that as per Section 10A of the Code, the period is specified is from 25.03.2020 to 24.03.2021. Thus, either of the dates i.e., 31.03.2018 or 31.03.2021 are clearly out of purview of Section 10A of the Code. Payments of Rs. 50 Crores made by the Corporate Debtor to the financial creditors i.e., the Respondent No. 2 and PFC resulted in automatic extension of restructuring approvals or not - HELD THAT - The plea of the Appellant regarding existence and continuation of default under first restructuring proposal is wrong as the Corporate Debtor itself has submitted in I.A. No. 1020/KB/2020 filed by the them before the Adjudicating Authority in which the Corporate Debtor sought reliance solely on the Second Restructuring Proposal submitting that the Corporate debtor was required to make payment from 31.03.2021, without contending that there was any payment obligations or default continuing from first restructuring proposal - there are no force in the pleading of the Appellant on this issue. Financial viability of the Corporate Debtor as claimed by the Appellant would have impacted the impugned order in deciding the application filed under Section 7 of the code by the Respondent No. 2 or not - HELD THAT - It is recaptured from pleadings of the appellant that the Corporate Debtor has raised bills of Rs. 916.95 Crores from WBSEDCL and during Financial Year 2022-23, the Corporate Debtor earned EBITDA of Rs. 308 Crores and therefore, the company was solvent. During averments, the Appellant also agreed to pay outstanding amounts as per restructuring approvals around Rs. 103 Crores lying in the credit of TRA account - there has been continuous and repeated failure on the part of the Corporate Debtor to meet its obligation in making payment of principals and interest as per original common loan agreement and also failure to meet obligations as per first and second revised Restructuring Approvals. In backdrop of all these information, it is not found that so-called claim made by the Appellant about viability of the Corporate Debtor has any legal or factual force to impact the outcome of Section 7 application as contained in the Impugned Order. Appeal dismissed.

Summary

Issues:
1. Existence and binding nature of restructuring proposals dated 21.02.2020 and 29.09.2020.
2. Mandatory nature of pre-implementation conditions and their impact on restructuring approvals.
3. Coverage of the default period under Section 10A of the Insolvency & Bankruptcy Code, 2016.
4. Impact of payments made by the Corporate Debtor on restructuring approvals.
5. Financial viability of the Corporate Debtor and its impact on the Section 7 application.

Summary:

Issue 1: Existence and Binding Nature of Restructuring Proposals
The Tribunal examined the restructuring proposals dated 21.02.2020 and 29.09.2020. It was noted that these were merely proposals subject to pre-implementation conditions, which were not fulfilled by the Corporate Debtor. Consequently, these proposals did not fructify into binding agreements, and the original common loan agreement dated 19.06.2013 remained valid.

Issue 2: Pre-Implementation Conditions
The Tribunal emphasized that pre-implementation conditions are akin to conditions precedent, which must be met before a restructuring proposal becomes effective. The Corporate Debtor's failure to meet these conditions resulted in the non-execution of the restructuring approvals.

Issue 3: Coverage Under Section 10A
Section 10A of the Code excludes defaults occurring between 25.03.2020 and 24.03.2021 from CIRP initiation. The Tribunal noted that the default dates provided by the Respondent No. 2 (31.03.2018 and 30.06.2018) and the Adjudicating Authority (31.03.2021) were outside the Section 10A period, thus making the Section 7 application valid.

Issue 4: Impact of Payments on Restructuring Approvals
The Tribunal rejected the Appellant's argument that payments made by the Corporate Debtor resulted in the automatic extension of restructuring approvals. It was held that unilateral conditions imposed by the Corporate Debtor while making payments could not bind the Respondent No. 2 and PFC.

Issue 5: Financial Viability
The Tribunal found that despite the Corporate Debtor's claims of financial viability, the continuous failure to meet payment obligations under the original loan agreement and restructuring approvals justified the initiation of CIRP. The outstanding dues amounted to Rs. 3103.31 Crores, far exceeding the amounts claimed to be viable by the Corporate Debtor.

Conclusion:
The Tribunal dismissed the appeal, finding no error in the Adjudicating Authority's order to initiate CIRP against the Corporate Debtor. The appeal was deemed devoid of substance, and the impugned order was upheld.