2024 (12) TMI 410 - AT - IBC

Admission of Section 7 Application by commencing Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor - relevancy of direction issued by the Reserve Bank of India dated 14.08.2018 to ICICI Bank to initiate CIRP process against the Corporate Debtor for determining default by Corporate Debtor within meaning of Section 3(12) of the IBC - scheme of arrangement was framed to transfer the debt or not - default on part of the Corporate Debtor with regard to debt under Bucket 2B or not - sufficient material brought on record by Financial Creditor to prove debt and default on the part of the Corporate Debtor or not. Whether the direction issued by the Reserve Bank of India dated 14.08.2018 to ICICI Bank to initiate CIRP process against the Corporate Debtor is not relevant for determining default by Corporate Debtor within meaning of Section 3(12) of the IBC? - HELD THAT - Application by Financial Creditor has to be filed in Form-1. Part V of Form-1 refers to financial debt documents records and evidence of default. Thus Financial Creditor is fully entitled to file documents records and evidence of default. When direction has been issued by the RBI which is a regulator of banking companies directing for initiation of the CIRP against the Corporate Debtor the said direction cannot be disregarded or ignored while determining application under Section 7 filed by the Financial Creditor against the Corporate Debtor. The direction issued under Section 33AA of the Banking Regulations Act by the RBI are relevant for determining default by Corporate Debtor within the meaning of Section 3(12). Whether under the Resolution approved in JLF meeting held on 22.06.2017 for debt of Rs.11833.55 Crore (including interest) a scheme of arrangement was framed to transfer the above debt along with land parcel of equivalent value to an SPV namely Jaypee Infrastructure Development Ltd. which debt was referable to Bucket 2B and the Section 7 application filed by the ICICI Bank related to debt of Bucket 2B only? - Whether Master Restructuring Agreement entered on 31.10.2017 between JAL and lenders also covered the facilities default of which was claimed by the ICICI Bank in application under Section 7 filed against the Corporate Debtor on 06.09.2018? - HELD THAT - Under the Restructuring Plan approved in JLF meeting held on 22.06.2017 for debt of Rs.11833.55 Crore (including interest) a scheme of arrangement was framed to transfer the above debt along with land parcel of equivalent value to an SPV namely Jaypee Infrastructure Development Ltd. which debt was referable to Bucket 2B and the Section 7 application filed by the ICICI Bank related to debt of Bucket 2B only - Master Restructuring Agreement entered on 31.10.2017 between JAL and lenders did not cover the facilities default of which was claimed by the ICICI Bank in application under Section 7 filed against the Corporate Debtor on 06.09.2018. Whether the Scheme of Arrangement which was to come into effect w.e.f. 01.07.2017 having not been approved there is default on part of the Corporate Debtor regarding not servicing the debt of Bucket 2B? - Whether the fact that 1st motion petition CP (CAA) No.174/ALD/2017 was approved vide order dated 08.12.2017 by NCLT and Second motion petition CP (CAA) No.19(ALD)2018 filed on 23.01.2018 being pending there shall be no default on part of the Corporate Debtor with regard to debt under Bucket 2B and Section 7 application filed by the ICICI Bank on 06.09.2018 deserved to be rejected? - HELD THAT - The Scheme of Arrangement which was filed before the NCLT for approval having not been approved there is default on part of the Corporate Debtor regarding not servicing the debt of Bucket 2B - The fact that 1st motion petition was approved by the NCLT on 08.12.2017 and Second motion petition was filed on 23.01.2018 which remain pending cannot be a ground to hold that there shall be no default on part of the Corporate Debtor with regard to debt under Bucket 2B and Section 7 application filed by the ICICI Bank on 06.09.2018 did not deserve to be rejected on the above ground. Whether the Corporate Debtor before Adjudicating Authority by filing reply to Section 7 application and other materials had proved that there was no default on part of Corporate Debtor hence the application under Section 7 did not merit admission? - Whether there were sufficient material brought on record by Financial Creditor to prove debt and default on the part of the Corporate Debtor? - HELD THAT - MRA dated 31.10.2017 did not cover the facilities for which Section 7 application was filed. Clause 2.2 of the MRA has no applicability and the default for which Section 7 application was filed cannot be treated to be waived by the lenders - The OTS having been submitted by the Corporate Debtor offering upfront amount and the total amount it does not lie in the mouth of the Corporate Debtor to contend that no default has been committed by the Corporate Debtor. In the OTS proposal submitted on 23.06.2024 to the ICICI Bank lenders have offered to give upfront payment of Rs.500 Crores (200 300) and total amount of Rs.16, 016 Crores. The copy of the OTS proposal dated 23.06.2024 submitted on behalf of the Corporate Debtor has been filed as Annexure R- 18 to the Reply of the Respondent No.1. The OTS proposal submitted both before the Adjudicating Authority as well as before this Tribunal on behalf of the Corporate Debtor contains the clear acknowledgment of debt and default - the findings returned by the Adjudicating Authority on the debt and default are based on materials on record and are affirmed. Thus no ground has been made out in this Appeal to interfere with the impugned order - appeal dismissed.

Summary

Issues Involved:
1. Relevance of RBI's direction for determining default under IBC.
2. Debt restructuring and its impact on Section 7 application.
3. Applicability of Master Restructuring Agreement to the debts in question.
4. Effect of pending scheme of arrangement on default determination.
5. Evidence of debt and default by the Corporate Debtor.
6. Grounds for interfering with the impugned order.

Detailed Analysis:

I. Relevance of RBI's Direction for Determining Default:
The RBI's direction dated 14.08.2018 to ICICI Bank to initiate CIRP against the Corporate Debtor is relevant for determining default under Section 3(12) of the IBC. The statutory provision under Section 35AA of the Banking Regulation Act, 1949, authorizes the RBI to issue such directions based on a default within the meaning of IBC. The direction presupposes a default and is a relevant material while determining the application under Section 7.

II. Debt Restructuring and Its Impact on Section 7 Application:
The restructuring plan approved in the JLF meeting on 22.06.2017 involved transferring the debt of Rs.11,833.55 Crores to an SPV, Jaypee Infrastructure Development Ltd., under Bucket 2B. The Section 7 application filed by ICICI Bank pertained to this debt. The Master Restructuring Agreement (MRA) dated 31.10.2017 did not cover the facilities for which the Section 7 application was filed. Therefore, the restructuring did not preclude the filing of the Section 7 application.

III. Applicability of Master Restructuring Agreement:
The MRA covered specific facilities, which did not include the six facilities mentioned in the Section 7 application. The MRA's waiver of existing defaults did not apply to the debts in question, as they were not part of the MRA.

IV. Effect of Pending Scheme of Arrangement:
The scheme of arrangement for transferring debt to an SPV, effective from 01.07.2017, was not approved by the NCLT. The pending scheme does not negate the default on the part of the Corporate Debtor. Proceedings under Section 7 of the IBC are independent and take precedence over pending schemes under the Companies Act.

V. Evidence of Debt and Default:
The Financial Creditor provided sufficient evidence of debt and default, including credit information and NeSL records. The Corporate Debtor's submission of an OTS proposal also indicated acknowledgment of debt and default. The Adjudicating Authority's findings on debt and default are supported by the evidence on record.

VI. Grounds for Interfering with the Impugned Order:
No sufficient grounds were found to interfere with the impugned order dated 03.06.2024. The Adjudicating Authority's decision to admit the Section 7 application is upheld, as the conditions for admission, including debt and default, were satisfied.

The appeal was dismissed, and the intervention application by the State Bank of India was allowed.