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TMI Blog2022 (7) TMI 205X X X X Extracts X X X X X X X X Extracts X X X X ..... under Section 66 of the I B Code before the Adjudicating Authority being CA No. 190 of 2022 dated 06.04.2022. It is for the Adjudicating Authority to consider the Section 66 application and pass appropriate order. However, the fact that Section 66 application is filed and pending consideration, on the basis of certain adverse observations against the Capex Creditors/ Operational Creditors, the outstanding amount which is admitted by the Claim Management Advisor cannot be withheld to be paid relying on any observation in the Forensic Audit Report or Transaction Review Report. Section 17 provides for scheme for search and seizure. Sub-section (4) of Section 17 requires that authority seizing any record or property or freezing any record or property shall, within a period of thirty days from such seizure or freezing, file an application, requesting for retention of such record or property seized under sub-section (1) or for continuation of the order of freezing, before the Adjudicating Authority. The present is the case where there is no material to indicate that any application under Section 17(4) was filed after the email dated 22.09.2020. In the application which has been filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble resolution of the claims. The claim of Operational Creditors/ Capex Creditors has to be appropriately considered in a fair and reasonable Resolution Plan. The effect and consequence of contract entered by it with Operational Creditors/ Capex Creditors cannot be done away with - Application disposed off. - I.A. No. 59 of 2021 with I.A. No. 516, 517, 543 & 795 of 2022 in Company Appeal (AT) No. 346 of 2018 - - - Dated:- 4-7-2022 - [Justice Ashok Bhushan] Chairperson, [Dr. Alok Srivastava] Member (Technical) And [Shreesha Merla] Member (Technical) Mr. Ramji Srinivasan, Sr. Advocate with Mr. Raunak Dhillon, Mr. Abhijeet Das, Mr. Adarsh Saxena, Mr. Vikash Kumar Jha, Mr. Shubhankar Jain, Ms. Isha Malik, Mr. Nihaad Dewan, Mr. Ritu Vishwakarma, Ms. Drishti Das, Ms. Ananya Choudhury, Advocates for ILFS/ ITPCL. Ms. Meenakshi Arora, Sr. Advocate with Mr. Divyansh Khurana, Advocate for SEPCO and Shandong. Mr. Amit Anand Tiwari, Mr. Ranjit Prakash, Ms. Vishalakshi Singh Ms. Devyani Gupta, Advocates for SEPCO. Mr. Atul Sharma, Mr. Abhishek Sharma, Ms. Ashly Cherian and Ms. Harshita Agarwal, Advocates for CDTE and DTEI. Mr. Sanjay Bajaj, Advocate for Pun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lenders of ITPCL undertook the task of formulating restructuring proposal in accordance with Circular dated 07.06.2019 issued by the RBI. In the restricting proposal outstanding amounts of all creditors were considered as per the books of ITPCL as on 15.10.2018 (Cut-off date). The total debt of ITPCL was divided into Sustainable and Unsustainable Debt. Restructuring Plan also provided details of distribution/ apportionment of Sustainable and Unsustainable Debt. In the Application I.A. No. 59 of 2021 following prayers have been made:- a) Permit and approve the restructuring proposal of Respondent No.2 (ITPCL Restructuring Plan) sought to be implemented to restructure the debt of Respondent No.2 on the terms set out above and as set out in the respective term sheets by the Consortium of Banks: b) Permit the Applicant and IL FS Energy Development Corporate Limited to implement the Term Sheets dated October 16, 2020, December 12, 2020, December 16, 2020 (3 term sheets), December 21, 2020, December 29, 2020 with Punjab National Bank, Bank of Baroda, LIC, SBM Bank, SBI, Union Bank of India, PFC Limited respectively, and such other banks which form part of the consortium on si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 22 has filed the reply to the objections received vide its Reply dated 23.03.2022. I.A. No. 516 of 2022 has been filed by SEPCO III Electric Power Construction Co. Ltd. and I.A. No. 517 of 2022 has been filed by Shandong Tiejun Electric Power Engineering Company Limited , details of which we shall notice hereinafter. I.A. No. 543 of 2022 was also filed by two Capex Creditors seeking impleadment. The prayer in I.A. 59 of 2021 is now confined to prayers (c) and (d) which prayers have been pressed by learned senior counsel for ILFS. I.A. No. 516 of 2022 4. I.A. No. 516 of 2022 has been filed by SEPCO III Electric Power Construction Co. Ltd. (hereinafter referred to as SEPCO ). The case of SEPCO is that SEPCO was engaged as EPC Contractor by the ITPCL and contract dated 22.12.2010 namely Offshore Equipment Supply Contract was executed. SEPCO states that it has completed 100% supply under the Offshore Equipment Supply Contract . Under the contract SEPCO completed the works and ITPCL being satisfied has issued Provisional Acceptance Certificate for Unit-1 on 25.12.2016 and for Unit-2 on 21.05.2016 and Final Acceptance Certificate for both units was issued on 31.05.201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entered to extend the commencement dates of both the Units. The Shandong has discharged its part of the contractual obligation and Provisional Acceptance Certificate towards both Unit-1 and Unit-2 were issued on 25.12.2015 and 31.05.2016, respectively. Both the units have been generating power since 25.12.2015 and 31.12.2016, respectively. There have been deliberations between the parties regarding payments of the outstanding amount. The ITPCL agreed for payment of admitted outstanding amount but only part payment was made. In pursuance of public notice by Claim Management Advisor, Shandong has filed its claim where the claim of Shandong for INR 2,69,34,55,673/- has been admitted. The admitted claim of Shandong has not been paid and now ILFS by I.A. No. 59 of 2021 wants to extinguish the claim of Shandong. In the Application I.A. 517 of 2022 following prayers have been made:- a) Allow the Application and permit the Applicant to be impleaded in the present interlocutory application bearing I.A. No. 59 of 2021 read with Company Appeal (AT) No. 346/2018 pending before this Hon ble Tribunal; b) Direct the Respondent to disclose/ produce the documents referred to and mention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the Claim Management Advisor Grant Thornton. The Claim Management Advisor admitted following claims:- CDTE: INR 1,58,76,33,494/- DTEI: INR 62,88,55,934/- 7. It is the case of CDTE and DTEI that delayed payment is causing considerable financial losses. The ITPCL directed the CDTE to extend the PBG under the contract. The CDTE addressed various representations to Hon ble Justice D. K. Jain (Retd.) seeking his intervention last being 14.05.2021 praying for closure of the contract and issuing Provisional Acceptance Certificate and Final Acceptance Certificate and further to release the PBG furnished by the CDTE. Application further state ITPCL is attempting to restructure the debt of ITPCL in terms of RBI Circular dated 07.06.2019. There is no Resolution Plan in the instant case and terms of proposed payment to all creditors by ITPCL in the Restructuring Plan could not have been dealt with. The admitted claim has been divided into Sustainable and Unsustainable Debt without any rationale. By I.A. 59 of 2021, the claim of CDTE and DTEI is sought to be extinguished without any basis. I.A. No. 795 of 2022 8. I.A. No. 795 of 2022 has been filed by Punjab Nation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o AS Coal to invest in ITPCL, to repay which fund, value of EPC Contract was potentially increased/ inflated by ITPCL. An email dated 22.09.2020 has been received from Investigating Officer, Enforcement Directorate informing ITPCL that the transactions between ITPCL and SEPCO are under investigation. ITPCL was directed to not release any money to SEPCO or Shandong. The Provisional Attachment Order dated 05.01.2021 has also been passed under Prevention of Money Laundering Act, 2002 (hereinafter referred to as PMLA Act ). In the Provisional Attachment Order shares of AS Coal has been attached. Subsequently, the Provisional Attachment Order was confirmed by order dated 24.08.2021. It is submitted that due to above Under Scrutiny Transactions, the dues has to be kept in abeyance to the SEPCO and Shandong. It is further submitted that Section 66 Application has been filed before the Adjudicating Authority, which is wholly independent proceeding. 12. Shri Srinivasan replying to the objections raised by CDTE and DTEI submitted that all Operational Creditors are being similarly treated in the Restructuring Plan. The debt has been divided into Sustainable and Unsustainable Debt on the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eding taken in accordance with PMLA Act. The email dated 22.09.2020 cannot continue indefinitely and the Freezing Order shall be treated to be come to an end after a month. It is submitted that no application was filed by the Investigating Officer, Enforcement Directorate within one month from 22.09.2020 as required under Section 17 of PMLA Act. Learned Senior Counsel for the Applicants in I.A. 516 and 517 of 2022 also relied on judgment of Hon ble Supreme Court in the matter of OPTO Circuit India Ltd. Vs. Axis Bank Ors , (2021) 6 SCC 707. 14. Shri Atul Sharma, learned counsel appearing for CDTE and DTEI submits that both the entities were awarded contract in the year 2013 and they have completed their part of contract. It is submitted that both the units started commercially operating more than four years ago but Provisional Acceptance Certificate and Final Acceptance Certificate has not been issued inspite of letter dated 16.06.2017 that supplies are satisfactory. It is submitted that Claim Management Advisor has admitted the claim of both the entities. Both the entities filed I.A. 1958 of 2021 seeking prayer for decision by Hon ble Justice Shri D. K. Jain (Retd.) in repres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 07.06.2019, which has support of 100% lenders. The restructuring of the debt as contemplated by Circular dated 07.06.2019 as per Para 3 of the Circular extracted above is to apply principally on entities mentioned therein. The restructuring proposal is basically a settlement between the Lenders and Debtor i.e. ITPCL. Now, the debt that will be restructured with the period and amount are all part of the Restructuring Plan. In the Restructuring Plan the ITPCL and the Lenders have also included the payment to Operational Creditors/ Capex Creditors. The payments to Operational Creditors/ Capex Creditors is the matter of Resolution Plan which needs to be framed and approved as per Revised Resolution Framework approved by this Tribunal dated 12.03.2020. 20. It is also to be noted that in the I.A. No. 59 of 2021, the Operational Creditors/ Capex Creditors were not made parties and prayers (c) and (d) were made in the application seeking extinguishment of their claim and termination of their contracts and claim entitlement. This Tribunal granted opportunity to the Operational Creditors/ Capex Creditors to file objections. Consequently, objections/ I.As. have been filed by following:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the relevant clause:- Note: (i) Outstanding amounts are as per the books of ITPCL; (ii) The amounts are based on the last audited balance sheet date of March 31, 2019 CAPEX Creditors in INR Crore Name of the Vendor Outstanding China Datang Technologies 149.11 Coastal Marine Construction 44.24 Datang Technologies Engg. 64.69 Sepco III Electric Power 115.09 Shandong Tiejun Electric 235.05 Total 608.18 Outstanding amounts are as per the books of ITPCL Note- The liabilities of Operational and Capex Creditors denominated in foreign currency have been converted at the exchange rate (US$ to INR) as at the last audited balance sheet date of 31st March 2019. 23. It has been explained in the Reply filed by the ILFS that the difference is only on account of conversion at the exchange rate as prevailing at the last audited balance sheet dated 31.03.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate is conducting investigation under the Prevention of Money Laundering Act, 2002 against IL FS and its other Group Companies. IL FS Tamil Nadu Power Company Ltd. (ITPCL) is also in the purview of the said investigation being conducted by this Directorate. During the course of investigation it has appeared that SEPCO Ill and Shandong Tiejun Electric Power Engineering Co. Ltd. had been the EPC contractors for Phase I and Phase II for IL FS Tamil Nadu Power Company Ltd. Awarding of the said contract and other associated financial transactions are under the scope of our investigation and have drawn adverse remark. In view of the above, it is directed by this office of Directorate of Enforcement to ITPCL, not to make any kind of further payment to SEPCO Ill and Shandong Tiejun Electric Power Engineering Co. Ltd. towards their dues against the work done in the IL FS Tamil Nadu Power project. without prior permission of this Directorate or till further Order of this Directorate. whichever is earlier. During the course of investigation it has appeared that INR 352 Cr (approximately, as per present foreign exchange rate) is payable to EPC Contractors by ITPCL and hence it is direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in any manner whatsoever until or unless specifically permitted to do so by the undersigned. 26. The above Provisional Order indicates that what have been provisionally attached are shares of ITPCL held by M/s A. S. Coal Pte. Ltd. There is no attachment of any of the assets of SEPCO or Shandong. The Provisional Order was subsequently also confirmed by order dated 24.08.2021 passed by the Adjudicating Authority. The copy of the order dated 24.08.2021 has also been brought on record as Annexure 6 to the Reply. Conclusion of order contained in Para 18, is to the following effect:- 18. CONCLUSIONS: I have carefully considered the written replies filed by the Defendants to the Notice to show cause. I have also considered the rejoinders filed by the Complainant to the written replies. I have heard the Counsel for the Defendant at length. I have also heard the Counsel for the Complainant. I have taken into account all the relevant materials placed on record before me. Considering the material in O.C., the written replies and rejoinders and the arguments above referred, I find that the immovable properties provisionally attached by PAO No. 01/2021 dated 05.01. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titutes moneylaundering, or (ii) (ii) is in possession of any proceeds of crime involved in money-laundering, or (iii) is in possession of any records relating to moneylaundering, or (iv) is in possession of any property related to crime then, subject to the rules made in this behalf, he may authorise any officer subordinate to him to (a) Enter and search any building, place, vessel, vehicle or aircraft where he has reason to suspect that such records or proceeds of crime are kept; (b) Break open the lock of any door, box, locker, safe, almirah or other receptacle for exercising the powers conferred by clause (a) where the keys thereof are not available; (c) seize any record or property found as a result of such search; (d) place marks of identification on such record of property, if required or make or cause to be made extracts or copies therefrom; (e) make a note or an inventory of such record or property; (f) examine on oath any person, who is found to be in possession or control of any record or property, in respect of all matters relevant for the purposes of any investigation under this Act: (1A) Where it is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is the case where there is no material to indicate that any application under Section 17(4) was filed after the email dated 22.09.2020. In the application which has been filed by ILFS i.e. I.A. No. 59 of 2021 there is no mention of filing of any application under Section 17(4). More so, in the present case, consequent to the investigation Provisional Order has been passed on 05.01.2021 and final confirming order was passed on 24.08.2021, which we have already notice. There is no order of the Adjudicating Authority confirming or continuing the Freezing Order. Thus, directions issued by the Investigating Officer by email dated 22.09.2020 cannot be said to be still continuing so as to inhibit the ITPCL to make payment to Operational Creditors/ Capex Creditors. The Hon ble Supreme Court in OPTO Circuit India Ltd. Vs. Axis Bank Ors , (2021) 6 SCC 707 had occasion to consider Section 17 of the PMLA Act. In Para 9, 10 and 14 following has been observed:- 9. A perusal of the above provision would indicate that the prerequisite is that the Director or such other Authorised Officer in order to exercise the power under Section 17 of PMLA, should on the basis of information in his poss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 88. Since the said offences are also schedule offences under Section 2(1)(x) and (y) of PMLA, the case in ECIR BGZO/01/2020 was recorded by the Directorate on 02.01.2020 and action is taken to safeguard the alleged proceeds of crime. On that aspect we have already indicated that the High Court was justified in upholding the action initiated under the PMLA but the consideration herein was only with regard to freezing of the bank account and as to whether while doing so the due process had been complied by adhering to the procedure prescribed under Section 17 of PMLA. 31. There being no material on record to indicate that the provisions of Section 17 (1A) have been followed after issuance of email dated 22.09.2020, the Freezing Order issued by the Investigating Officer shall not continue, more so, when Provisional Attachment Order has been passed on 05.01.2021 where there is no reference of the Freezing Order or continuation of the Freezing Order. We, thus, are satisfied that the arguments raised by Shri Ramji Srinivasan on the basis of PMLA proceeding cannot be ground for depriving the payments of the dues of SEPCO and Shandong. It is always open for the authority which is mak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the lenders and the borrower i.e. ITPCL. The ITPCL, who was bound to consider the admitted claim of the Operational Creditors/ Capex Creditors, has to consider the claims appropriately and arrive at a fair and reasonable resolution of the claims. The claims of Capex Creditors/ Operational Creditors are being tried to dealt with a side wind without properly appreciating their claim. There are adverse observations in Transaction Review Report and Forensic Audit Report against ITPCL. The borrower, who has been charged with collusive and unfair dealings in awarding the contracts and conducting other affairs, could not be allowed to defeat the claim of Operational Creditors/ Capex Creditors citing its own shortcomings and misdeeds. 35. We are of the view that the claim of Operational Creditors/ Capex Creditors has to be appropriately considered in a fair and reasonable Resolution Plan. The effect and consequence of contract entered by it with Operational Creditors/ Capex Creditors cannot be done away with as now sought to be prayed by ILFS in prayers (c) and (d) in I.A. No. 59 of 2021. 36. We, thus, are not persuaded to accept prayers (c) and (d) of I.A. No. 59 of 2021. We, thus ..... 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