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TMI Blog2023 (1) TMI 811X X X X Extracts X X X X X X X X Extracts X X X X ..... t at all arise. The conclusions drawn by the Adjudicating Authority leading to rejection of the application under Section 7 of the I B Code cannot be termed erroneous. On consideration of the material on record we find no sufficient reasons to adopt a view different than the one taken by the Adjudicating Authority as such view and finding based on appreciation of the relevant material placed before it is the only probable view warranted in the circumstances of the case. Since, I agree with reason assigned by Hon ble Justice Bansi Lal Bhat, Member (Judicial) in his opinion dated 25th September, 2019 at paragraphs 10, 11 and 12 which are quoted above, no fresh reason is required to be assigned by me. The instant Appeal is devoid of merit - Appeal dismissed. - Company Appeal (AT) (Insolvency) No. 179 of 2019 - - - Dated:- 18-1-2023 - [ Justice Anant Bijay Singh ] Member (Judicial) For the Appellant: Mr. Ramji Srinivasan, Sr. Advocate with Mr. P. B. A Srinivasan, Mr. Parth Tandon, Ms. Shruti Pandey, Ms. Megha Dugar and Mr. Sumit Swami, Advocates. For the Respondent:- Mr. Sabyasachi Chaudhary and Mr. Tridib Bose, Advocates. JUDGMENT Justice Anant Bijay Si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... well as aforesaid Lenders and granted different credit facilities to the Borrower Company from to time. iii) Further case is that due to financial dearth in the Borrower Company, in the year 2012 the Borrower Company was referred to the Corporate Debtor / Restructuring Forum (CDR) for efficient restructuring of corporate debt pursing to the sanction of the CDR Package. The existing financial assistance/debt was restructured and certain additional financial assistance were granted to the Borrower Company as set out in the Letter of Approval dated 27.09.2012 issued by the Corporate Debt Restructuring Cell. In pursuance to the said sanctioned of the CDR Package one of the conditions of the Package was that the promoters of the Borrower Company were to contribute as a Promoter s contribution of Rs. 325 Crores and in addition to the said contribution the Promoters were required to bring additional equity of Rs. 125 Crores over and above the contribution of Rs. 325 Crores. The Borrower Company accepted the terms of the CDR Package and executed various loan documents which includes master Restructuring Agreement dated 19.12.2012, Working Capital Consortium Agreement dated 19.12.2012, S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. Visa Special Steel Limited ( VSSL ) a through a scheme of arrangement. Thereafter, one of the subsidiaries of the Borrower Company, Visa Bao Limited ( VBL ) which is a JV Company, was to be merged with the Borrower Company. The Promotors of the Borrower Company has, as per the CDR Package of 2012, infused Rs. 325 Crores in the form of equity as well as slump sale. vi) Further case is that the Respondent Company passed a Board Resolution dated 23rd March, 2015 (Annexure A/4 Colly at page 118 to 136 of the Appeal) thereby agreeing to execute a corporate guarantee in favour of the lenders and also create negative lien on the Respondent s property situated at Visa House Kolkata-700027 to secure the debts of the Borrower Company emanated from the said approval of the CDR EG with regard to business reorganisation. In pursuance to the Board Resolution dated 23rd March, 2015, the Respondent Company has executed Deed of Corporate Guarantee dated 28th March, 2015 in favour of the lenders. As per the said guarantee executed by the Respondent Company, the guarantee shall be a continuing guarantee and shall remain in full force till the Borrower Company repays the full restructuring fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The objective of Transfer of Special Steel business undertaking comprising of Blast Furnace including Boiler DRI Including Boilers, Steel Melting Shop, Rolling Mill associated Road, Drain, Factory Buildings etc. into a separate SPV (VSSL) through Scheme of arrangement was to create a separate company engaged in Special Steel business which will facilitate in inducting foreign and/or Indian Joint Venture partner/strategic partners/investors as also entitled under MOU with the Govt. of Odisha and bring focus to the operation of Special Steel Business. g. The objective of approval of merger of the VISA Steel Limited with VISA Bao Limited by CDR EG was to facilitate infusion of funds by Strategic Investor in Ferro Chrome Business, to consolidate the Ferro Chrome business of VISA Steel Limited (VSL) and VISA Bao limited (VBL) by merging VBL into VSL based on the company s request vide letter dated 13.09.2013. The company also requested for merger based on the ground that consequent to this merger, VSL shall become a leading producer of Ferro Chrome with Bao Steel as a shareholder and can explore further fund raising opportunities from Bao steel and other Chinese, Japanese and oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. x) A petition under Section 7 of the IBC has also been filed against one of the Corporate Guarantor for the same default of the Borrower Company, other than the Respondent Company, namely Ghotaringa Minerals Ltd. The said petition bearing No. CP (IB) No. 758/KB/2017 against the said Corporate Guarantor had been admitted by same NCLT Kolkata vide order dated 22nd February, 2018. However, as there is no Resolution Plan came forward for the CIRP against the said Corporate Guarantor, it has been ordered to be liquidated vide order dated 31st August, 2018. xi) Upon failure of the Respondent Company to make the payment as per the Demand Letter dated 13.12.2017, the Appellant preferred a Petition under Section 7 of the IBC against the Respondent Company before the NCLT, Kolkata Bench and after hearing the parties, the Adjudicating Authority dismissed the petition vide order dated 11.01.2019 (Impugned Order) holding that the Respondent Company discharged the obligation as per the terms of the guarantee and therefore there is no debt due as claimed by the Appellant from the Respondent Company. Hence this Appeal. 3. This Appeal bearing Company Appeal (AT) (Insolvency) No. 179 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... infusion of funds by inviting Strategic Investor in the Ferro Chrome business, it is necessary to consolidate the Ferro Chrome Business of VISA Steel Limited (VSL) and VISA Bao Limited (VBL) by merging VBL into VSL. The aforesaid merger cannot be carried out without being preceded by a demerger of VSL. Further, vide the same letter the Appellant was requested for obtaining necessary approval from CDR EG for merger of VBL into VSL for the purpose of inviting the Strategic Investors. The letters of undertaking were also executed by the promoters and guarantors of the Visa Steel Ltd. on 23.03.2013 wherein they agreed that I/We shall infuse further funds in the Borrower in the form of unsecured loan / Preference shares or by issuing fresh shares through QIP/FPO/PE/Strategic Investment etc. or by merging/demerging some business division of the borrower into separate Companies / SPV s through scheme/slump sale and inviting strategic investor for meeting any cash flow shortage to meet the repayment obligations of the Borrower to the Lenders and/or to meet interest payment due by the Borrower to the Lenders, if required by CDR EG . The terms equity and funds have been used interchang ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assuming without admitting the argument made by the Ld. Counsel for Respondent, the definition of equity , the said equity, in the instant case was limited only to the sum of Rs. 31.593 Crores. The Annual Financial Statement 2016-17 of Visa Steel Ltd. the Net Asset Value of Visa Bao Ltd. has been highly exaggerated by Visa Steel Ltd. Thus, on the basis of the facts and figures mentioned herein above it is clear that there was no infusion of funds amounting to Rs. 125 Crores by the merger of Visa Steel Ltd. with Visa Bao Ltd. and this was on of the important condition of the CDR approval dated 27.09.2012. 8. It is further submitted that the Appellant relied on Order passed by this Appellate Tribunal in the case of ICICI Bank Ltd. Vs. Vista Steel Pvt. Ltd., (2018) 145 CLA 26 held as under: 2. This Appellate Tribunal subsequently by its judgment in State Bank of India V/s. D.S. Rajendra Kumar, etc. in Company Appeal (AT) (Insolvency) No. 87-91 of 2018 having noticed the aforesaid decision in State Bank of India V/s. V. Ramakrishnan Ors. while reiterated the decision by judgment dated 18th April, 2018, further observed and held as follows: 5. The case of the Appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the issue in respect to Corporate Insolvency Resolution Process against principal borrower in the present appeal particularly when no order of initiating the corporate insolvency resolution proceedings against the principal borrower has been brought to our notice nor is under challenge. Further, the Appellant relied on judgment passed by Hon ble Supreme Court in the case of State Bank of India Vs. Ramakrishnan Ors., AIR 2018 SC 3876 , when the Apex Court relied that Insolvency Law Committee Report dated 26.03.2018 wherein it was observed as under: 5.10 The Committee further noted that a literal interpretation of Section 14 is prudent, and a broader interpretation may not be necessary in the above context. The assets of the surety are separate from those of the corporate debtor, and proceedings against the corporate debtor may not be seriously impacted by the actions against assets of third parties like sureties. Additionally, enforcement of guarantee may not have a significant impact on the debt of the corporate debtor as the right of the creditor against the principal debtor is merely shifted to the surety, to the extent of payment by the surety. Thus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onvenience Compilation and in particular, has no requirement of inviting Strategic Investor after the merger/demerger. ii. Letter of Undertaking 5to infuse further funds for cash flow by Promoters relied upon by the Appellant does not help the Appellant at all. The Letters of Undertaking have been executed by the Promoters and not in the capacity as a corporate guarantor. These letters of undertaking are in terms of clause 5 of additional conditions of CDR letter. This is also borne out by clause 3 of the Letter of Undertaking executed by the Promoters. They provide for a situation when if required by CDR EG further funds may need to be infused and do not relate to infusion of additional equity which is already provided for in the CDR document. iii. The Deed of Guarantee dated 19.12.2012 refer to only additional equity . There is no reference to funds or cash infusion. iv. Letter dated 13.09.2013 issued by VISA Steel, the principal debtor to SBI for merger of VISA Bao into VISA Steel wherein does not refer to infusion of the additional equity of Rs. 125 crores. It only highlights that the consolidation of Ferro Chrome Business of VISA Bao and VISA Steel will make BAO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... post-merger has increased by Rs. 460 crores and therefore, the condition of additional equity of Rs. 125 crores have been fulfilled. This is apparent from the Financial Statement of Visa Steel for the Financial Year 2016-17 (at page 50 to 52 of the reply affidavit) and which was handed over during the course of hearing on 29th August, 2019. The fact that this amounts to infusion of additional equity is admitted where only grievance made is that this infusion has to be by way of cash (at page 212 to 215 of Convenience Compilation). 12. It is further submitted that the Scheme of Amalgamation sanctioned by NCLT by its order dated 12.10.2017 provides as follows: The business value of VISA Bao Limited as included in the books of account of the Transferee Company shall be treated as infusion by way of additional equity by reason on the merger in terms of the restructuring package approved by the CDREG vide letter dated 27 September 2012 . This Scheme, therefore, by itself provides that merger will amount to fulfilment of the obligation of additional equity of Rs. 125 cores. This is binding on the Appellant as an order sanctioning the Scheme/Scheme sanction by an order of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... does not talk of additional equity funds but only additional equity (para 11 of the order). iv. It is amply clear that the Appellant has not been able to establish that additional equity of 125 crores was to be by way of cash infusion only (para 11 of the order) v. The Deed of Guarantee has to be interpretated independently and has to be understood in the context of the legislative intent manifested in Schedule III of Companies Act, 2013 wherein the Balance Sheet format under the heading Equity and Liabilities - Shareholders Funds include Share Capital, Reserves and Surplus and Monies received against share warrant. Reserves and Surplus includes Capital Reserves. vi. The Respondent has been able to demonstrate that post-merger, the capital has increased by Rs. 460 crores, thereby satisfying the condition of infusion of additional equity of Rs. 125 crores.. vii. The letter dated 30th November, 2017 of the Appellant in response to letter dated 24th November, 2017 of the Respondent has been referred in which infusion of additional equity is admitted. viii. The letter dated 30th November 2017 of the Appellant in response to the letter of Respondent dated 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orrower Company and Corporate Debtor vide their letters dated 23.03.2013 addressed to the Appellant have agreed and undertook to infuse further funds in the Borrower company in the form of: a. Unsecured loan b. Preference Shares or by issuing fresh shares through QIP/FPO/PE/Strategic Investment etc; or c. By merging/demerging some business division of borrower into separate Companies d. SPV's through scheme/slump sale; and e. Inviting strategic investor for meeting any cash flow shortage to meet the repayment obligation. iv. It is clear that almost all above possible methods that can be adopted for meeting out the obligation for infusion of funds aggregating to Rs. 125 crores. v. Visa Bao has been merged with the Borrower whose net assets as on 31.03.2015 is Rs. 31.593 crores. Only 35% share of net assets of Visa Bao Limited has been merged in the Borrower company amounting to Rs. 11.052 crores which is less than additional equity of Rs. 125 crores. vi. The Borrower has claimed that in keeping with the Scheme of Amalgamation the Borrower company has accounted for the difference between the fair value of net assets of Visa Bao Limited (so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch, 2013. iv. The CDREG, therefore, approved the merger being one of the five possible ways for infusion of Rs. 125 crores. v. This finding is completely erroneous as the net asset value of Rs. 31.593 of Visa Bao Limited is not the consideration that is to be taken for the purpose of determining infusion of equity and is contrary to the Scheme itself. The Scheme as sanctioned by NCLT by its Order dated 12th October, 2017 provides that the business value of Visa Bao Limited in the books of account of the transferee company shall be treated as infusion by way of infusion of additional security by reason of the merger in terms of restructuring package approved by CDREG vide letter dated 27th September, 2012 . The same has been noted in the judgment of the Hon'ble Justice Bansi Lal Bhat, Member (Judicial) at page 22 of his order. Furthermore, the letter dated 30th November, 2017 by SBI (the Appellant) admits infusion of additional equity and consequent accounting entry reflected in the Balance Sheet, though restricting their objection that such infusion was to be by way of cash only, it is evident at page 215 of Convenience Compilation and also the finding of Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tly upheld in the order of Hon'ble Member (Judicial) who has taken note of Schedule-III, Part-I of the Companies Act, 2013 as stated above. The finding by the Hon'ble Member (Technical) has failed to consider the scope, effect and purport of the letters dated 24th November, 2017 and 30th November 2017(at page 212 to 214 of Convenience Compilation) where the only grievance raise is that the infusion has to be by way of cash. Based on above submissions, the findings of Hon'ble Member (Technical), therefore, cannot be agreed upon and the finding of Hon'ble Member (Judicial) should be agreed upon and accepted, therefore, the instant Appeal is liable to be dismissed. 16. After hearing the parties and going through the pleadings made on behalf of the parties and perusing the valuable opinions of Hon ble Justice Bansi Lal Bhat, Member (Judicial) and Hon ble Mr. Balvinder Singh, Member (Technical) dated 25th September, 2019, I respectfully agree with the reason given by Hon ble Justice Bansi Lal Bhat, Member (Judicial) in his opinion at paragraphs 10, 11 and 12 which are hereunder: 10. After wading through record, we find that the factum of Appellant Financial Cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8th March, 2015 in favour of the lenders which was to be a continuing guarantee subsisting till the Borrower Company repays the full restructured facilities alongwith interest and costs etc. Respondent Corporate Guarantor accepted the liability to the tune of Rs. 3405.31 Crores plus interest. Admittedly, demerger of Steel Business Division of the Borrower Company did not take off in terms of the CDR Package though the Borrower Company merged its subsidiary VBL with VSL. The question arising for consideration is whether the liability under the Deed of Corporate Guarantee stands discharged in view of the merger of VBL and VSL as according to Respondent upon the merger of assets and liabilities of VBL with VSL s assets an amount of Rs. 5705 Crores was infused as per the fair value of assets of VBL in terms of the Assets Valuation Report prepared by SLI Financial Services Limited thereby satisfying the condition of bringing in of additional equity of Rs.125 Crores in the form of assets valuation. 11. Learned counsel for the Appellant vehemently stressed that the Guarantee did not stand discharged as the additional equity to be infused had to be in the form of cash infusion . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rategic investor will be the way with which the obligation of the Guarantor will be fulfilled or that the obligation to provide additional equity of Rs. 125 Crores would be only in the form of cash infusion . Even otherwise post-merger fair value of the assets of VSL shown to be in excess of Rs. 125 Crore in pursuance of merger/ demerger when Bao Steel came in as a strategic investor, satisfies the condition as regards infusion of additional equity of Rs. 125 Crores. So far as the Appellant s contention as regards infusion of additional equity in the form of valuation of assets from Visa Bao worth only Rs. 31.95 Crores is concerned, such valuation being only determinative of the share exchange ratio has no bearing on infusion of additional equity which depends on financial statements as per the sanctioned scheme which admittedly exceeds Rs.125 Crores (pages 111, 121, 122 142 of the CC). It is amply clear that the Appellant has not been able to establish that additional equity of Rs.125 Crore in addition to initial contribution of Rs. 325 Crores by the Promoters was to be by way of cash infusion only and that the Guarantor had failed to discharge its obligation, its liability ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot in dispute that the Respondent had brought to the notice of the Appellant that the merger of VBL would result in discharge of the obligation of bringing in additional equity of Rs.125 Crores as reflected in Letter dated 8th December, 2017 (page No. 2247 of the paper book). Viewed in this background, it can be safely stated that the Respondent Corporate Guarantor, in the face of provision in the approved scheme of amalgamation and consequent merger, justifiably pleaded that there was no debt payable in law or in fact as the condition of additional equity of Rs. 125 Crores had been fulfilled and the obligation stood discharged. There being no debt payable in law or in fact, question of default does not at all arise. The conclusions drawn by the Adjudicating Authority leading to rejection of the application under Section 7 of the I B Code cannot be termed erroneous. On consideration of the material on record we find no sufficient reasons to adopt a view different than the one taken by the Adjudicating Authority as such view and finding based on appreciation of the relevant material placed before it is the only probable view warranted in the circumstances of the case. We are accor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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