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TMI Blog2021 (2) TMI 468X X X X Extracts X X X X X X X X Extracts X X X X ..... f dues would merge with the relevant prayers made in CA No. 1156 of 2020 concerning the Applicant-Intervenor. Besides, Hon ble Justice Mr. D. K. Jain (Retd.) has approved the claim and the proposed Settlement Agreement between the NHAI and FSEL. Provision in the proposed Settlement Agreement has also been made for payment of financial dues to FSEL subcontractors. The proposal for settlement of the claims of FSEL against NHAI and for implementation of Settlement Agreement and other consequential terms as approved by Hon ble Justice Mr. D. K. Jain (Retd.) needs to be ratified and recorded. Application allowed. - CA No. 1156 of 2020 & CA No. 1166 of 2020 in CP No. 3638/MB/2018 - - - Dated:- 9-2-2021 - Janab Mohammed Ajmal, Hon ble Member Judicial And Shri V. Nallasenapathy, Hon ble Member Technical For the Applicant : (CA 1166 of 2020): Mr. Ravi Kadam, Sr. Advocate (CA 1156 of 2020): Mr Ashish Kamat with Mr Aditya Sikka and Ms Drishti Das, Advocates i/b Cyril Amarchand Mangaldas For the Respondent : Mr Rakesh Tiwari, Joint Director (Office of Regional Director), MCA (WR), Mumbai ORDER Per: V. Nallasenapathy (Member Technical) 1. The factual backdrop th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k inter alia sets forth that with regard to companies/entities of the IL FS Group where: i) there are no operations or the cashflows are insufficient to meet the current operating liabilities and statutory liabilities; and/or ii) No bids/ EoIs are received from any bidder, the New Board may take steps for these companies to be wound up. 6. The Hon ble NCLAT by an order dated 11/01/2019 observed that the process required to be followed was similar to that of Corporate Insolvency Resolution Process for the purpose of proper Resolution of IL FS and its group companies. The Hon ble Appellate Authority further observed that in such cases the Committee of Creditors (CoC) may be required to be constituted for determining the viability, feasibility and financial matrix of the plan or offer, if any, given by one or other party for acquisition of one or other group companies or its assets and in the absence of any other knowledgeable person such as the Resolution Professional , (if) such Committee of Creditors cannot be constituted, in the meantime the IL FS and its board may be allowed to proceed with the matter. 7. The Hon ble NCLAT by an order dated 04/02/2019 permitted the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... j Border section of National Highway No. 6 in the States of Gujarat and Maharashtra by four laning on Design, Build, Finance, Operate and Transfer (DBFOT) basis (the Project). (ii) NHAI accepted the bids submitted by IL FS Transportation Networks Limited (ITNL), a fully owned subsidiary of IL FS in respect of the Project and issued Letter of Award (LOA) on 25.07.2015 in favour of ITNL for execution of Concession Agreement. (iii) ITNL for implementation of the Project incorporated Fagne Songarh Expressway Limited (FSEL) as a wholly owned Limited Liability Company under the Companies Act, 2013, as a Special Purpose Vehicle (SPV) and requested NHAI to accept FSEL as the entity which will perform and exercise rights of the ITNL under the LOA including the obligation to enter into a Concession Agreement for the purpose of executing the Project. (iv) On 08.09.2015 NHAI (Concession Authority) entered into Concession Agreement with FSEL (Concessionaire) for execution of the Project over a period of 19 years including 910 days of construction period. (v) ITNL as a business model for road project SPVs acted as a single point contractor for all project related works to the SPV con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to 65% by the end of July 2018. As set out above, in absence of financial closure and tie up of funds through senior lenders, financing for the work done on the Project was provided (or arranged) by ITNL. (xii) The following are the key aspects relating to the Project. Sr. No. Particulars 1. Total Project length 140.794 Km 2. Total Project Cost as per the Concession Agreement INR 1885.74 Crores 3. Total Project cost as per ITNL as of 08.05.2019 INR 2173.00 Crores 4. Date of Signing of Concession Agreement September 8, 2015 5. Grant Article 25 of Concession Agreement INR 245.14 crores 6. Period of Concession 19 Years 7. Construction Period 910 days 8. Appointed D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... FSEL as the amount invested by ITNL is not covered by the definition of Debt Due under the Concession Agreement. (xix) Article 37.3.1 of the Concession Agreement provides as below: 37.3.1 Upon Termination on account of a Concessionaire Default during the Operation Period, the Authority shall pay to the Concessionaire, by way of Termination Payment, an amount equal to 90% (ninety per cent) of the Debt Due less Insurance Cover; provided that if any insurance claims forming part of the Insurance Cover are not admitted and paid, then 80% (eighty per cent) of such unpaid claims shall be included in the computation of Debt Due. For the avoidance of doubt, the Concessionaire hereby acknowledges that no termination payment shall be due or payable on account of a Concessionaire Default occurring prior to COD. (xx) As per the above Article, due to the failure of FSEL to achieve commercial operations in respect of the Project, no payment for termination of the Concession Agreement would otherwise be due or payable to FSEL. However, under the provisions of the MoRTH Guidelines and amicable foreclosure of the Concession Agreement as a stuck project , FSEL would recover a part of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e following conditions: (i) NHAI would not take any responsibility for settlement of any claims from FSEL Sub-Contractors; and (ii) ITNL and FSEL would need to discharge the claims of the FSEL Sub-Contractors and hand over the Project site to NHAI free and clear of encumbrances. (xxviii) On the issue of payment of subcontractors due, a meeting was held between Chairman, NHAI and the Managing Director of the Applicant on 22.04.2019 and NHAI issued a clarification on 09.05.2019, stipulating that NHAI / National Highways Infrastructure Development Corporation Limited had clarified that that the onus of settling the claims of its operational creditor (i.e. contractors, sub-contractors, suppliers consultants etc.) solely vests with IL FS arms/entities . (xxix) Based on the discussion between NHAI officials and representative of FSEL, FSEL sent the proposal to foreclose the Concession Agreement on payment of compensation of INR 810 Crores by its letter dated 26th November, 2019, for which NHAI is not agreeable. (xxx) Based on the internal discussions of NHAI with the officials of MoRTH, NHAI offered to pay a sum of ₹ 707.709 crores after taking into account the gran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... greed to such settlement of payments with these third party vendors. It was considered prudent and in line with the spirit of the directions issued by the Hon ble High Court that payments to the third party vendors (operational creditors) based on the list provided by the M/s Fagne Songadh Expressway Limited be paid by the NHAI directly. The balance amount would be released to the ESCROW Account and disbursed as per the prescribed water fall mechanism The Standing Committee constituted by the New Board approved the offer of NHAI. (xxxiii) In view of the above development, the Petitioner filed an affidavit dated 09.01.2020 inter alia setting out the brief details of the various settlement discussions being held with the Concession Authorities (including in connection with FSEL) and that: (a) The Applicant Group would approach the Hon ble NCLAT with respect to the distribution of the settlement amounts in accordance with terms of settlement conveyed by the relevant Concession Authority; (b) Conditions, if any, are communicated by relevant Concession Authority, the respective Applicant Group Entity, after seeking requisite approvals {including approval of Hon ble Justic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lement amount received from Concession Authority be allocated among all the obligations of the SPV (Financial as well as Operational Creditor) on a proportionate basis; ii. The amounts payable to sub-contractors of ITNL be equal to amounts allocated towards operational claims of ITNL in the SPVs following the proportionate allocation as described in (i) above; iii. Inclusion of financial debt of one sub-contractor (which arose due to conversion of operational dues of that sub-contractor, in respect of the work done in the Project), in the above settlements be clearly disclosed in the application to be filed before Hon ble Justice Mr. D.K. Jain (Retd.). (xxxviii) The Settlement Formula was approved by the ITNL Board in its meeting held on June 4, 2020, and by the New Board in its meeting held on June 12, 2020. The New Board also authorized the ITNL Board to finalise the settlement amounts relating to certain SPVs including inter alia FSEL with the relevant Concession Authority including the amount payable to the relevant third party sub- contractors relating to the relevant project in accordance with the Settlement Formula. (xxxix) It is submitted that amounts receivable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment amount agreed with NHAI Amount allocated to ITNL as operational creditor Total dues of the FSEL Sub- Contractors* Amount payable to FSEL Sub-Contractors (to be paid by NHAI directly) Residual amount to be received in the FSEL Escrow Account FSEL 707.709 194.26 243.32 194.26 513.449 *Dues of FSEL Sub-Contractors stated in above table, include the financial debt of GHV for a sum of INR 236.45 Crores as set out above. (xliv) Upon payment of amounts to FSEL Sub-Contractor in accordance with the Settlement Formula, all claims of the FSEL Sub-Contractor against ITNL in connection with the Project, shall stand extinguished. (xlv) As on 31.07.2018, a sum of INR 336.05 Crores is payable by ITNL to GHV in connection with sub-contracted work undertaken by GHV for the Project and for the project developed by Khed Sinnar Expressway Limited (KSEL) another SPV of ITNL were converted into financial debt of ITNL (GHV construction dues) and secured by way of inter alia pledge over 51% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all claims and counterclaims with respect to the Project (Agreed Form Settlement Agreement) which was submitted to CCIE-III at the meeting held on 16.09.2020, Accordingly, the CCIE-III by an order dated 16.09.2020 gave its in-principle approval to the Agreed Form Settlement Agreement and directed that the requisite procedures be completed by FSEL and informed to the CCIE-III for authentication. (li) While the Settlement Proposal was being finalised, GHV had, in respect of, certain SPVs of ITNL including FSEL initiated proceedings before certain forums, including the Hon ble NCLAT and the Hon ble Supreme Court. No orders have been passed by the Hon ble Supreme Court or the Hon ble NCLAT granting any of the aforesaid reliefs to GHV other than a stay by the Hon ble Supreme Court on the proceedings initiated by the IL FS Infra Debt Fund (IIDF) against GHV Hospitality under Section 7 of the Insolvency and Bankruptcy Code, 2016. (lii) Consequent to the discussion of the Applicant, ITNL and FSEL with GHV in relation to the proceedings initiated by/against GHV in various forums, GHV filed an affidavit before the Hon ble Supreme Court on 16.09.2020 stating that they will withdraw the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 37.3.1 of the Concession Agreement. Therefore, proposed termination of the Concession Agreement and the consequent receipt of the FSEL Settlement Amount will enable the resolution of significant portion of the debt of FSEL. 11. In the background of above said facts, the applicant is before us with the following prayers: A. To approve the proposal for settlement of the claims of Fagne Sonagarh Expressway Limited (FSEL) against the National Highways Authority of India (NHAI) and permit Fagne Sonagarh Expressway Limited and National Highways Authority Limited to execute a Settlement Agreement to record the proposal for termination and settlement of claims by Fagne Sonagarh Expressway Limited against National Highways Authority of India; B. To permit Fagne Sonagarh Expressway Limited, IL FS Transportation Networks Limited and National Highways Authority Limited to implement and give effect to the terms of the settlement agreement to be executed by and between parties in terms of prayer (A) above; C. To allow Fagne Sonagarh Expressway Limited to receive the FSEL Settlement Amount of INR 707.709 crores (subject to any deduction of tax as applicable and any further withholdi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll directly have an impact on the Applicant-Intervenor s rights. Hence the Applicant seeks for intervention in CA No. 1156 of 2020. 13. The Applicant s submissions are as below: (i) The Applicant is not in a position to carry out its ordinary business and continue service its debt viable to public sector banks because of huge outstanding dues payable by ITNL and FSEL. The account of intervenor is classified SMA by Bank of Baroda and it is stated that the applicant intervenor faces the risk of liquidation and other coercive action by its lenders. (ii) Since FSEL could not finance the project, ITNL being the promoter of FSEL continued to finance the project. (iii) Due to financial crunch ITNL could not fund the money to complete the Project. Hence the Applicant executed the construction work by mobilizing all its resources until July, 2018, the applicant by mobilizing its resources undertaken the construction work in most efficient manner. (iv) On 02.07.2018, when ITNL wrote to the Applicant stating that the Project has been delayed on account of a delay in financial closure, ITNL advised the applicant to immediately suspend the work for three months. (v) On 27.07.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... EL on 31.08.2018. Since July, 2018, work on the Project has been suspended at the site due to shortage of fund with the promoter, i.e. ITNL. The project had achieved 65% completion. (b) The reply further dealt with the procedure followed in settling the project dues and the release of the project in favour of NHAI and supported the applicant s due process by following the established norms enunciated by Hon ble NCLAT and in short supported the application and submitted that the Application may be disposed on the basis of the recommendation of Hon ble Justice Mr. D. K. Jain (Retd.) vide his letter dated 07.10.2020 and further in view of the order dated 12.03.2020 passed by the Hon ble NCLAT. 15. We have heard the Learned Counsels for the Applicants as well as the representative of the UoI on the Applications and have perused the pleadings and documents attached thereto including the approval of Hon ble Justice Mr. D. K. Jain (Retd.). We are satisfied that the Applicant in CA No. 1166 of 2020 was a subcontractor of the FSEL. The FSEL or its holding company ITNL owes certain amount to the Applicant for the civil works it had executed in the Project which has been classified as f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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