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TMI Blog2022 (5) TMI 14X X X X Extracts X X X X X X X X Extracts X X X X ..... n denied by the corporate debtor. On the contrary corporate debtor, promoters and strategic investors are shouting loud that money was disbursed after due diligence and on GOMP standing as guarantors along with recommendation from Ministry of Power and Finance. The only objection is that debt is not due, because of the conduct of the applicant while sitting in management of corporate debtor, causing such default which does not hold any water. In the present matter the applicant has succeeded in demonstrating that the debt is payable and default is committed by the respondent time and again. The default of financial facilities of various other financial creditors are also committed by corporate debtor who also have filed various applications under section 7 of the Code pending before this Bench. The main objection of the respondent is that the default is committed by applicant itself, while sitting in management of the corporate debtor since, applicant had major equity in the corporate debtor - Admittedly, as in reply, the respondent never denied the fact of debt and default, but has also admitted debt and default stating default is time barred in view of all of Corporate debtor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r project at Mandaleshwar, Madhya Pradesh, to one M/s. Entegra Limited earlier known as S.K.G Power Ventures Limited) (for brevity 'Entegra') on Build Own Operate and Maintain basis, which in turn floated a Special Purpose Vehicle named M/s. Shree Maheshwar Hydel Power Company Limited (for brevity corporate debtor/SMHPCL) as to implement the said project. 5. It is submitted on 11th November, 1994, Power Purchase Agreement was signed between the corporate debtor and Madhya Pradesh State Electricity Board for purchase of 100% power from the project. In the year 1997, at the request of the corporate debtor, the applicant sanctioned a term loan of Rs. 1 crore and foreign currency loan of USD 34,000,000/- on 10th October, 1997 for meeting part of project cost. Subsequently, at the request of the corporate debtor to sanction financial assistance of USD 18,900,000/- to substitute for delayed tie-up of loan from SBI-Frankfurt, the applicant sanctioned additional standby loan of USD 18,900,000/- on 24th November, 1998. Thereafter, on 4th December, 1998, loan agreements for various types of financial assistance RTLI, FCLI and FCL2 were executed between the applicant and the corp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he corporate debtor approached applicant to take over as the Lead Institution from IFCI Limited and also to revalidate its financial assistance for the Project and after further discussion with the Corporate Debtor, the applicant revalidated its support of Term Loan of Rs. 325,00,00,000/-. 9. It is further stated by applicant that, in terms of the sanction letter dated 2nd March, 2005 for revalidation of loan, it was agreed between the parties that the applicant, in consultation with other consortium lenders, will approve the appointments of Chairman, Managing Director and Director (Finance) on the Board of the corporate debtor. Accordingly, the Article of Association of the corporate debtor were amended with the consent and approval of its members. 10. It is further stated by applicant that on 16th September, 2005, Amendatory and Restated Agreement (A RA) was signed amongst the Government of Madhya Pradesh (for brevity 'GOMP'), Madhya Pradesh State Electricity Board (for brevity MPSEB), applicant, corporate debtor(SMHPCL) and promoters of Corporate Debtor. As per the A RA, the commercial operation date was defined in PPA for 4 years from the effective date of GoM ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r brevity CLA) and Subordinate Loan Agreement (for brevity SLA) and as per the agreed terms of the Subordinate Loan Agreement, the applicant had the right to convert at its option a part or full of subordinate loan into fully paid up equity shares of the corporate debtor at par. It is pertinent to mention that without the sanction of the Subordinate Loan Agreement by the applicant, the Project would have been adversely impacted as submitted in the proceeding paras and all works at the Project site would have come to a standstill. 15. It is further submitted that in accordance with the requirement of the CLA dated 29th September, 2006, a Deed of Pledge dated 30th November 2006 was also executed in favour of applicant acting as Security Agent with further addendums thereto in the year 2010 and 2011, whereby the Promoters pledged its total 29,17,20,330 fully paid up equity shares of aggregate face value of Rs. 291,72,03,300/- held in the corporate debtor, for the benefit of the lenders with a second charge on the said shares in favour of GoMP. 16. It is further submitted that the corporate debtor failed to maintain the financial discipline in terms of the financing agreements an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nuary 2016 to the corporate debtor for payment of all outstanding dues. However, no repayment of the outstanding amounts was received by the lenders. 20. It is submitted that by virtue of the transfer of 6,57,46,779 number of equity shares of Rs. 10/- and conversion of subordinate loan of Rs. 66,10,00,000/- into 6,61,00,000 equity shares of Rs. 10/- each, the applicant became a shareholder of the corporate debtor w.e.f from 1st June, 2016 holding 13,18,46,779 equity shares of Rs. 10/- constituting 23.32% of the entire shareholding of the corporate debtor. It is also pertinent to mention that all the lenders have cumulatively acquired 51% shareholding of the corporate debtor, pursuant to the invocation of the pledged shares and conversion of sub-ordinate loan into equity to respective lenders. 21. It is submitted that in order to meet the immediate fund requirement as part of revival measure of the Project, the applicant in principal agreed to the increase, in the Project cost from Rs. 2760,00,00,000/- to Rs. 8121,00,00,000/- and requirement of additional debt of Rs. 3022,00,00,000/- for the project. Subsequently, at the request of corporate debtor, a Loan Agreement dated 27th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urther acknowledged in the Balance Sheet of the corporate debtor for F.Y. 2016-17 signed on 28.08.2017. Therefore fresh period of limitation starts from 28.08.2017 and expires on 28.08.2020. Section 7 of the application filed on 16.02.2018 qua the said debt is thus within limitation. Further, there is acknowledgment of liability also in the meeting of the Board of Directors of the Corporate Debtor held on 29.09.2015 duly attended by Sh. Mukul Kasliwal, one of the promoters. 26. The applicant's claim is based upon following documents: Loan agreement dated 04.12.1998 Common Loan Agreement dated 29.09.2006 Subordinate Loan Agreement dated 29.09.2006 Master restructuring and loan agreement dated 22.96.2010 Declaration of Corporate Debtor all as NPA 31.03.2012 A RA dated 16.09.2015 Loan Agreement dated 27.04.2017. Recall Notice dated 17.01.2018 27. As per part IV of the application in form I, total amount of debt granted is Rs. 1440,85,00,000/- alongwith interest and other charges. The applicant has placed CIBIL and CRIF High Mark reports in order to show the default of the respondent company in which the applicant is s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Respondent only on 29.91.2018, i.e. 11 days after the receipt of the said notice. f. Considering the sensitivity of the issue, though the respondent should have immediately scheduled a Board Meeting on a urgent basis to discuss the said Recall Notice dated 17.01.2018. however, for reasons best known to the respondent, the respondent unilaterally decided that the Recall Notice would be placed before Board of Respondent for consideration in an meeting scheduled to take place on 07.02.2018, i.e. much after the expiry of the 15 days period granted to the respondent in terms of the Recall Notice Dated 17.01.2018. The same is evident from the respondent's email dated 29.01.2018. g. Thereafter, on 19.02.2018 at 7.14 pm in the evening i.e. almost a month after receipt of the Recall Notice dated 17.01.2018, an email was addressed to the Board of Respondent and a draft of reply on behalf of the respondent to the Recall notice was circulated for comments. As per the said draft reply, the respondent, amongst other things, categorically denied breach of conditions with respect to the loan agreements. However, to the utter shock of the applicant, this draft reply version of the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal and same was served upon the respondent on or about 19.02.2018. l. It is submitted that the management of the respondent deliberately delayed sending its reply to the Recall Notice and first draft of the same was in fact circulated to the Board of the Respondent for comments only after receipt of the petition. Further, the respondent's reply dated 21.03.2018 to the Recall Notice dated 17.01.2018 was only sent after a period of more than 2 months, without approval from the Board of the respondent and after the management of the respondent had already admitted that they were supporting the application. 29. IA No. 53 of 2018 and I.A. No. 54 of 2018 were filed by the interveners being the promoters Entegra Limited and strategic investors M/s. Power Infrastructure India for impleadment as parties in the present proceedings to raise objections against the claim of the applicant. The IA-60 of 2020 was filed by promoters Entegra Limited under section 65 of the Code again praying for rejection of the application filed under section 7 of the Code. 30. The promoters namely, Entegra Limited, of the corporate debtor filed an application IA-53 of 2018 and raised objecti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d been executed by applicant in violation to Proviso of Section 63(3) of Companies Act and the Respondent Company was completely under the control of applicant at the relevant time. a.6 The entire basis of the Additional Loan Agreement Dated 27.04.2017 is that the said Loan Agreement is being entered into on the strength of the invocation of pledge and conversion of sub-debt into equity and supposedly in exercise of Scenario II of the High Level Committee Report. The Additional Loan Agreement also as a Condition precedent at Clause 4.1(ii)(a) @ Pg. 707 of the application clearly stated that the validity of the Additional Facility as well as its terms and conditions shall be subject to Government Companies/Lenders holding majority equity in the Project. Prior to execution of this Additional Loan Agreement, the RoC vide its report dated 23.09.2016 had already held that the transfer of the Promoter's Shareholding by PFC was in contravention to Section 56 of the Companies Act, 2013. Thereafter, the NCLT vide its judgment dated 15.06.2017 also held at Para 154 @ Pg. 686 of Vol III of the Affidavit-in-Reply that There is no valid invocation of pledge of shares and transfer of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o comments on IBC application. Thus, resolution being sought via present proceeding is wholly in consonance with the Hon'ble NCLAT directions in Para 51 of the Order dated 12.03.2018. The Hon'ble NCLAT has observed that The Project has been delayed endlessly. Notably, more than three more years have elapsed from the date of the said Order. Thus, the only way forward is resolution of Corporate Debtor under the framework of IBC. b.2 It is further submitted that MoU dated 22.07.2019 between Applicant, the respondent company and Promoter (Entegra Limited) is not relevant for the present proceeding as the scope of the present proceeding is narrow this Tribunal is not a civil court where disputes relating to MoU can be agitated or specific performance thereof can be sought. Without prejudice, it is submitted that MoU was executed in order to give an opportunity to Entegra/CD to settle the dues of the creditors (debt and default having been admitted). However, Entegra Limited one of the intervener and shareholder of Corporate debtor failed even to come up with a concrete proposal for settlement of the dues of the lenders, much less paying/settling the same. Pertinently, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble Supreme Court in M/S. Innoventive Industries Ltd. V. ICICI Bank Anr., (2018) 1 SCC 407. 32. IA-54 of 2018 is filed by one strategic foreign investor Power Infrastructure India being company incorporated under laws of Republic of Mauritius for intervening in the main Insolvency application. The applicant has pleaded to intervene in the present application filed by one of the financial creditors under Section 7 of the IB Code against the Corporate Debtor on following grounds and praying to keep the main IB application in abeyance till the appeal filed before the Hon'ble NCLAT being Company Appeal (AT) No. 237 of 2017 and further seeking permission to object to grant of any order in the main IB application. That the IB application is motivated malafide endeavour to avert accountability of lenders , through securing declaration of moratorium against the Corporate debtor. The notice of loan recall dated 17/01/2018 if declared non est, null and void, will strike at the route of maintainability of the present petition. The applicant PFCL is guilty of suppressio veri and suggestio falsi, of material facts including that the applicant having managem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 02.03.2005 records the control of applicant/creditors as a pre-condition for revalidating the earlier loan assuring that funds will be used primarily for the project. d.1 It is also stated that despite being under no obligation to do so and despite the restrictive amended Articles of Associations (AoA) which inhibited infusion of fresh equity, the Promoters/Intervenor herein to enable the continuance of project, kept infusing funds into the TRA account and infusing equity. Total funds infused by the Promoters and Strategic Investor stood more than 710 crores. The various documents on record before the Hon'ble NCLAT which have also been filed by the Promoters/Inventor in its Petition bearing No. CP 175/2017 filed against the applicant and other Lenders for oppression and mismanagement of the affairs of the respondent company before this Tribunal, clearly shows that the PFCL diverted more than 42% of the funds infused into the TRA Account towards themselves and kept delaying release of funds from the TRA Accounts resulting into the project cost kept escalating. d.2 The Promoters vide letter dated 03.08.2018 and 19.10.2018 issued to applicant presented a concrete offer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant/promoters in IA-60 of 2020 under Section 65 of the Code. Perused records and written submissions filed by the respective parties. 35. The main objections raised by the proposed interveners and loan recall notice dated 17.01.2018 is baseless, illegal and hence, there is no default committed by the respondent corporate debtor. There is also an issue raised of limitation in respect of financial debt which according to Corporate debtor is time barred since corporate debtor was declared NPA on 31.03.2012 and this application is filed in 2018 much later after expiry of the limitation. Further, the respondent/interveners have raised objection regarding legality of the loan agreement dated 27.04.2017. 36. Firstly, though inventors were given liberty to argue, but as per the judgment of Hon'ble NCLAT in Shobhnath ors. Vs. Prism Industrial Complex Ltd., in Appeal (AT) (Insolvency) No. 557 of 2018 held at following paras it is laid down that in application filed under Section 7 of the Code no other party than the Applicant Corporate Debtor can be entertained and intervention by any party cannot be considered for: Para No. 5 : From the impugned order, we find that the Ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te Debtor' to settle the claim. No intervention application can be entertained by the Adjudicating Authority before admission of the application . Thus in view of above IA No. 53 of 2018 and IA No. 54 of 2018 filed by proposed interveners are rejected and disposed of. 37. Further, to note that the interveners/respondent corporate debtor never disputed that the loan amounts were disbursed by the applicant financial creditor, even the loan disbursal after the execution of additional loan agreement dated 27.04.2017 have never been denied by the corporate debtor. On the contrary corporate debtor, promoters and strategic investors are shouting loud that money was disbursed after due diligence and on GOMP standing as guarantors along with recommendation from Ministry of Power and Finance. The only objection is that debt is not due, because of the conduct of the applicant while sitting in management of corporate debtor, causing such default which does not hold any water. 38. Hon'ble Supreme Court in the matter of M/S. Innoventive Industries Ltd. V. ICICI Bank Anr., (2018) 1 SCC 407, has held that: 30. On the other hand, as we have seen, in the case of a corporate d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is thus within limitation. Now it is settled by the Hon'ble Supreme Court that even after NPA status, if the default continues and the debt is admitted in Balance Sheet, fresh lease of limitation gets triggered and a consequence the application can be admitted as held in Asset Reconstruction Company (India Limited) Vs. Bishal Jaiswal Anr. 41. Further, there is acknowledgment of liability also in the meeting of the Board of Directors of the Corporate Debtor held on 29.09.2015 duly attended by Sh. Mukul Kasliwal. Further the additional loan agreement was signed on 27.04.2017 and default of which occurred on 15.01.2018 and the present application is filed on 16.02.2108. Hence, in view of the above discussions it can be concluded that the application is filed within time and is not barred by limitation. 42. The application filed under Section 65 of the Code by Entegra Limited that fraud has been committed by the applicant and this is an instance of malicious initiation of insolvency preceding and therefore, the present application deserves to be dismissed on this ground alone. The only mention of fraud by applicant herein is by an act of servicing its own debt/interest of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by present applicant. The order dated 12.03.2018 para 51 and 52 relevant directions given to parties are reproduced herein:- Para 51 The project appear to have made some progress but remain incomplete. The completion of the Project is necessary in the national interest. It will benefit the farmers in the State of Madhya Pradesh. The Project has been delayed endlessly. The voluminous records put up before us show facts are interwined with various complications. The learned NCLT has not been able to find workable solution by way of orders/directions except to the extent of all stakeholders. The learned NCLT expressed opinion that all the stakeholders should evolve a scheme which include promoters so as to help in speedy completion of Project. With such expectations, the NCLT dismissed the petition. We have also deliberated between us as to what is the way out in the present scenario. The Registrar of Companies, it is stated, has already held inquiry and submitted report under Section 206 of the New Act to the Central Government. We hope and expect Central Government to take early decision and action. No doubt, the Respondents have filed a copy of the Report with Volume IV at P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Corporate debtor have totally failed to protect the prevalent project as for seen, only on technical issues like who was in control of project/corporate debtor and who is responsible for the disastrous situation reached today. The prime purpose of the project floating for betterment of rural farmers of Madhya Pradesh as well as development in infrastructure by installing hydroelectric power project is nowhere in nearby site. 46. The registered office of the Corporate Debtor is situated at Madhya Pradesh and therefore this tribunal has jurisdiction to entertain and try this application. 47. The date of default as per Form 1 part IV is 15/01/2018 and application is filed in February, 2018 hence is within limitation and not barred by limitation as discussed above. 48. It is evident from the record that the application has been filed on the proforma prescribed under Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 read with Section 7 of IBC and is complete. Evidently, a default has occurred and the application under Section 7 is complete. 49. As a sequel to the above discussion, this application is admitted and Mr. Rishi Par ..... X X X X Extracts X X X X X X X X Extracts X X X X
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