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TMI Blog2023 (8) TMI 131X X X X Extracts X X X X X X X X Extracts X X X X ..... er the settlement agreement between KNCEL and NHAI is in accordance with the proposed Resolution Framework for IL FS and its group companies? - HELD THAT:- It is noted that the procedure suggested by Union of India through its Affidavit dated 17.2.2020, which has been approved by NCLT and NCLAT dated 17.2.2020, gives various options for final resolution. These options include modalities for Group Level Resolution, Vertical Level Resolution and Asset Level Resolution. The Resolution Framework considers Asset Level Resolution as the most feasible option and includes sale of entity as Asset Level Resolution. This sale of entity can take place wherever feasible. The Resolution Framework also stipulates that Asset Level Resolution is to be undertaken in a fair and transparent manner to determine the best possible price to effect a change in the ownership and the relevant company in accordance with process supervised by the New Board and approved under section 242 of the Companies Act. In the present case, it is seen that the resolution of KNCEL is proposed under the Guidelines of MoRTH for resolution of stuck projects . These Guidelines provide for settlement between the Concession ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... calculation of Termination Payment is not justified and the full and final settlement amount in the present case is as per the settlement agreement. The settlement entered into by KNCEL and NHAI for foreclosure of the Concession Agreement relating to Kiratpur - Ner Chowk Project under the MoRTH Guidelines is in accordance with the approved Resolution Framework in relation to the ILF S and its group entities which are correctly approved by the NCLT by the Impugned Order. The Appeal is, therefore, devoid of merit and is accordingly dismissed. - Company Appeal ( AT ) No. 120 of 2021 - - - Dated:- 1-8-2023 - [ Justice Ashok Bhushan ] Chairperson And [ Dr. Alok Srivastava ] Member ( Technical ) For the Appellants : Mr. Brijesh Kumar Tamber, Mr. Prateek Kushwaha, Mr. Vinay Singh Bist, Advocates For the Respondents : Mr. Raunak Dhillon, Mr. Vikash Kumar Jha, Ms. Isha Malik, Mr. Nihaad Dewan, Advocates for R-1 R-2. Ms. Shivangi Khanna, Ms. Madhu Sweta, Advocates for R-3 (NHAI) JUDGMENT [ Per. Dr. Alok Srivastava , Member ( Technical ) ] This appeal is filed by the Appellants under section 421 of the Companies Act, 2013 (in short Companies Act ) aggr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NCLT, Mumbai and moratorium was declared in IL FS and its group companies. This order of NCLT was assailed before NCLAT, which by order dated 15.10.2018 granted interim stay against any coercive action by the creditors against IL FS and its group entities. By order dated 11.1.2019, the NCLT observed that the process required to be followed in the resolution of IL FS and its group companies through a resolution framework was akin to Corporate Insolvency Resolution Process ( CIRP ). The Appellants have further stated that the proposed Resolution Framework does not envisage settlement in terms of the MORTH Guidelines. The Appellants have claimed that the Concession Agreement dated 16.3.2012 executed between NHAI and KNCEL was for a term of 28 years, which included three years construction period and the MoRTH Guidelines provide that the parties to the Concession Agreement may foreclose the Concession Agreement through mutually agreed terms by executing a Supplementary Settlement Agreement . The Appellants have further stated that the MoRTH Guidelines stipulate that payment to the concessionaire as full and final settlement would be an amount which is the lower amount of the (a) va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... EL on 24.1.2019. He has further argued that status quo was directed to be maintained on account of NCLT s order dated 15.10.2018 regarding IL FS and its group entities and in the event of termination of contract by KNCEL, the applicable clause for calculation of termination payment is clause 37.3.2 of the Concession Agreement. 9. The Learned Counsel for Appellants has referred to the circular dated 9.3.2019 issued by MoRTH titled Guiding Principles of Resolution of Stuck National Highway Projects (MoRTH Guidelines) , wherein it is laid down that if there is inability of concessionaire to continue with the project on account of proceedings initiated under IBC or sections 241(2) of the Companies Act, then a Build, Operate, Transfer BOT), or a Design, Build, Finance, Operate and Transfer (DBFOT) project, which qualifies as stuck project, may be foreclosed through mutually agreed Supplementary Agreement executed between the parties and the Concessioning Party would pay as full and final settlement an amount which is lower of the (a) the value of the work done; and (b) 90% of the debt due , and further in case of the investment in the project by the concessionaire is not cover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Learned Counsel for Appellants has further argued that the value of work done has been assessed at Rs.1027.79 crores by Independent Engineers( IE ) and further the calculation of the term Debt Due has to be done as clearly defined in the Concession Agreement which would include the principal amount, all accrued interest and other charges payable thereon. Further, he has argued that the Appellants/Lenders claims amounting to Rs.1144.74 crores have been admitted by the Claims Management Consultant appointed under the Resolution Framework. He has pointed out that even as per NHAI, the amount of senior debt is Rs.1240.77 crores, and when the sub debt is added to the senior debt amount, the total debt amount comes to Rs.1421.53 crores. He has claimed that rather than applying the definition of the term Debt Due as included in the Concession Agreement, the formula used by NHAI for calculating the Debt Due , which is by multiplying the Value of Total Project Cost ( TPC ) for work done and senior debt and dividing the same by (Equity + Actual Debt + Sub Debt), is not the correct way of calculation of Debt Due . 14. The Learned Counsel for Appellants has also claimed that no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 020 of the Appellate Tribunal, wherein the Appellate Tribunal has allowed the resolution of IL FS Group Companies including KNCEL as per the procedure suggested by Union of India, which, inter alia also, includes (a) Resolution of Stuck Projects under MoRTH Guidelines, (b) Distribution of settlement amounts to creditors as per a settlement formula and on the basis of claims admitted pursuant to an independent claims management process; and (c) Extinguishment of such claims against the relevant entity upon disbursal of such settlement/ foreclosure amount, subject inter-alia to the approval of Hon ble NCLT. 17. The Learned Counsel for R-1 and R-2 has further argued that while passing the March 12, 2020 order, the Appellate Tribunal considered the issue whether it could pass appropriate order under section 241 read with section 242 of the Companies Act for resolution of the problems faced by IL FS and its group companies in a time bound manner for maximization of value of assets of the company while promoting entrepreneurship, availability of credit and balancing the interests of all the stakeholders and decided in the positive. He has argued that the Hon ble Appellate Tribunal p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns and principles enumerated in the Resolution Framework and Union of India s Affidavit dated 7.2.2020 filed before Hon ble NCLT. 20. The Learned Counsel for R-1 and R-2 has also clarified that the Debt Due amount has been correctly computed following principles of fairness and transparency and value maximization and the Appellants contention that the computation of Debt Due should have been done on the basis of relevant definition in the Concession Agreement is completely baseless and unfounded. He has submitted that in view of the project not having achieved Commercial Operations , KNCEL was not entitled to receive any compensation under the Concession Agreement unless it could have proved that the project has stopped due to the sole default of NHAI. He has added that rather than engaging in any time consuming and protracted litigation with NHAI to determine whether default was due to NHAI or KNCEL, KNCEL decided to enter into a settlement by foreclosing the project under MoRTH Guidelines which is a legal way of resolving dispute, and this has resulted in KNCEL receiving a significant settlement/foreclosure amount of Rs.672.62 crores. He has clarified that the NHAI s com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s as approved by NCLT and further the approval given by CCIE-II of the Settlement Agreement was approved by Hon ble Justice D.K Jain (Retired), who is appointed to look into such resolutions including resolution by settlement of IL FS and its Group Companies. It is only after the approval of CCIE-II and Hon ble Justice D.K Jain Committee that the said settlement including the settlement amount was placed for approval before the NCLT, which has approved it by the Impugned Order. 23. The issues that arise in the adjudication of this appeal are as follows:- (i) Whether NCLT was empowered to approve the Settlement Agreement between KNCEL and NHAI and whether the senior creditors were required to be heard before according such approval, and (ii) Whether the calculation of Debt Due and the Full and Final Settlement amount has been done correctly and whether any estoppel would operate in view of the fact that the creditors/Appellants had accepted the distributed share of the settlement amount? 24. The first issue raised by the Learned Counsel for Appellants is that the Impugned Order passed by the Hon ble NCLT was not legally tenable, which was done without giving an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Company and 348 group companies, there shall be stay of (i) The institution or continuation of suits or any other proceedings by any party or person or Bank or Company, etc. against IL FS and its 348 group companies in any Court of Law/Tribunal/Arbitration Panel or Arbitration Authority; and (ii) Any action by any party or person or Bank or Company, etc. to foreclose, recover or enforce any security interest created over the assets of IL FS and its 348 group companies including any action under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002; (iii) The acceleration, premature withdrawal or other withdrawal, invocation of any term loan, corporate loan, bridge loan, commercial paper, debentures, fixed deposits, guarantees, letter of support, commitment or comfort and other financial facilities or obligations vailed by IL FS and its 348 group companies whether in respect of the principal or interest or hedge liability or any other amount contained therein. (iv) Suspension of temporarily the acceleration of any term loan, corporate loan, bridge loan, commercial paper, debentures, fixed deposits a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... understanding instead of getting involved in protracted and long-drawn litigation. It then considers the settlement terms for its fairness, transparency and reasonability and after the parties submit their free consent to settle the dispute it puts its stamp on the Settlement Agreement. . 28. In this regard, clauses (K) and (P) of the Settlement Agreement dated 30.3.2021 is worth reproducing, which inter alia records the process undergone in arriving at the settlement:- K. As agreed by Executive Committee of NHAI in its meeting held non 08.01.2020 during Conciliation Committee meeting held on 14.01.2020, NHAI appraised CCIE-2 about debt due amount as Rs.787.11 Crore, 90% of debt due as Rs.708.40 crore and full and final settlement amount for foreclosure of Concession Agreement as Rs. 672.62 Crore after recovery of Rs.35.78 crore subject to submission of UDIN based Certification of statutory Auditor w.r.t. the outstanding amount of principal and interest of the Sr. lenders, Subordinate Debt, Equity, and grant released. Further the certification of Sr. Lenders w.r.t. the outstanding amount of principal and interest is also required. xx xx xx xx P. Concessionaire vid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transparent manner. 32. The Learned Counsels for IL FS and NHAI have both stated that the amount of full and final settlement has been decided and agreed upon through mutual consultation between KNCEL and NHAI with regard to facts and circumstances of the case, and the interest of both the parties for an early and amicable settlement. 33. We also examine whether the Termination Payment in accordance with Article 37.3.1 of the Concession Agreement as claimed by the Appellant will be applicable in the present case. 34. We note that article 37.3.1 of the Concession Agreement provides for payment of termination amount on account concessionaire default during the operation period . Quite clearly, and as admitted by the Appellants, the work on the proposed project was only about 60% complete and work had stalled and the project which could not, therefore, come into operation period . We, therefore, see no reason why the Termination Payment should be made in accordance with article 37.3 of the Concession Agreement to the concessionaire when the project had not come into operation period . 35. In this connection, it is also noted that there was dispute between KNCEL and NH ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of KNCEL will be required to forego certain outstanding in respect of the admitted claims. 38. The calculation of the settlement amount, which includes the calculation of Debt Due through a specific formula, which has been used in similar cases, where foreclosure of concession agreements have been done through a mutually agreed settlement between the concessionaire and concessioning party is found reasonable and taking into account the interests of all the stakeholders. 39. In para 48 of the order of Hon ble Shri Justice D.K. Jain, there is mention of two valuers, namely RNC Valuecon LLP and Adroit Valuation Services Private Limited who have assessed the liquidation value of KNCEL which are Rs.658.08 crore and Rs. 501.13 crore respectively and average liquidation value as of 15.10.2018 is Rs.574.61 crore. The said order also note that the settlement is in line with the approved Resolution Framework, which is recorded in para 54 of the said order. Para 54 of the said order is reproduced herein below:- 54. As regards the compliance with the guidelines for submitting Resolution Proposals for approval of the undersigned, it nis stated that the same are not entirely app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat upon Termination on account of JETPUR'S Default during the Operation Period, NHAI has to pay to JETPUR by way of Termination Payment, an amount equal to 90% (ninety per cent) of the Debt Due less Insurance Cover and upon Termination on account of NHAI's default, NHAI has to pay to JETPUR, by way of Termination Payment, an amount equal to the Debt Due plus 150% of the Adjusted Equity. 58. Termination Payment has been defined by the Concession Agreement to mean the amount payable by the Authority to the Concessionaire upon Termination and may consist of payments on account of and restricted to the Debt Due and Adjusted Equity, as the case may be, which form part of the Total Project Cost in accordance with the provisions of this Agreement; provided that the amount payable in respect of any Debt Due expressed in foreign currency shall be computed at the Reference Exchange Rate for conversion into the relevant foreign currency as on the date of Termination Payment. For the avoidance of doubt, it is agreed that within a period of 60 (sixty) days from COD, the Concessionaire shall notify to the Authority, the Total Project Cost as on COD and its disaggregation between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lication was approved by the Hon ble NCLT vide order dated 14.10.2022, wherein it is recorded that in the event any subsequent recoveries is made by KNCEL in the form of tax refund etc., the same will be distributed to the remaining creditors of KNCEL in accordance with the Revised Distribution Framework. The relevant portion of the NCLT order in CA No. 290/2021 in CP (IB) No. 3638/MB/2018 dated 14.10.2022 is reproduced below:- 52. Accordingly, the Applicant is before us praying for reliefs as follows: Xx xx xx (iii) To direct that the Applicant be permitted to utilize and/or pay from residual FSEL Settlement Amount: Xx xx xx h. To direct the liquidator appointed pursuant to the initiation of winding up of Kiratpur Ner Chowk Expressway Limited in terms of prayer D above, shall distribute any subsequent recoveries made on behalf of Kiratpur Ner Chowk Expressway Limited to the Residual Creditors of Kiratpur Ner Chowk Expressway Limited in the same proportion that the Net KNCEL Settlement amount was distributed to such creditors as per the revised distribution Framework pursuant to the orders of this Tribunal dated February 4, 2021 in Company Application No. 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stake, have been resolved by being disposed of fully or substantially either through divestment, closure or liquidation; (ii) Further, recovery of loans provided to subsidiaries is doubtful as most of the subsidiaries are under insolvency or have been closed; (iv) the monies available with IIPL is sufficient to meet all external borrowings but it is not sufficient to meet all liabilities including the related party payables and loans. Thus, IIPL would not be able to meet all its liabilities and would accordingly be considered insolvent under Singapore Laws; and (iv) Given the considerable amount of liabilities on the books of IIPL, it is evident that IIPL is insolvent and would not be able to repay its liabilities since most of its investments and loans/ advances have yielded little returns and may have to be written off. Therefore, the resolution of IIPL by the aforesaid modes will directly result in reduction of liabilities, which would enable an effective resolution of the larger Applicant Group. Thus, we take on record and approve the proposed closure in the interest of justice. 47. The Learned Counsel for R-1 and R-2 has cited the judgment of Hon ble High Court of Delhi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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