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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 ..... short "Companies Act") aggrieved by the judgment and order dated 24.2.2021 (in short "Impugned Order") of the National Company Law Tribunal, Mumbai Bench (in short "NCLT") in CA No. 03 of 2021 filed under CP No. 3638/MB/2018. 2. The Impugned Order has been passed by NCLT, Mumbai by exercising jurisdiction under sections 241-242 of the Companies Act, 2013 (in short "Companies Act") whereby a proposed settlement between the National Highways Authority of India (in short "NHAI") and Kiratpur Ner Chowk Expressway Limited (in short "KNCEL") has been approved resulting in foreclosure of the Concession Agreement regarding construction of Kiratpur - Ner Chowk section of National Highway. 3. In brief, the conspectus of the case is that a Concession Agreement was signed between the NHAI (the Concessioning Party) and KNCEL (the Concessionaire) for constructing the Kiratpur-Ner Chowk section of the National Highway in 2012 on Design, Build, Finance, Operate and Transfer (DBFOT) basis. This project was taken up by NHAI through a Special Purpose Vehicle ("SPV") KNCEL which is a subsidiary of IL&FS Transportation Network Limited ("ITNL"), which in turn is a subsidiary of Infrastructure Leasing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount of the (a) value of work done; or (b) 90% of the debt due, and the calculation of 'Debt Due' will be as per the definition provided in the Concession Agreement. 5. The Appellants have further stated that due to disputes that arose between the two parties, termination notices were issued by both the parties, and KNCEL terminated the Concession Agreement vide its notice dated 24.1.2019 and NHAI communicated its notice of termination on 22.10.2019. During the course of negotiations between the parties, the value of work done in the project was assessed at Rs.1027.79 crores by Independent Engineers (IE). The Appellants have further stated that the amount of "Debt Due" was assessed to be Rs. 787.11 crores by NHAI. The Appellants have added that KNCEL proposed foreclosure of Concession Agreement on payment of compensation of Rs.735.56 crores, which was recalculated by NHAI and it proposed a compensation amount of Rs.708.40 crores to KNCEL and after recoveries of Rs.35.78 crores, a net compensation amount payable to KNCEL was arrived at Rs.672.62 crores as 'full and final settlement' by NHAI. The Appellants have stated that as per calculation which should have been done in accord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not covered under the definition of "debt due", the payment made be restricted to the value of work done. 10. The Learned Counsel for Appellants has claimed that after serving the termination notice, the KNCEL vide its letter dated 26.3.2019 requested for foreclosure of the Concession Agreement and further requested NHAI to pay the settlement amount in accordance with MoRTH Guidelines after foreclosing the Concession Agreement. He has further claimed that in terms of the MoRTH Guidelines, the minimum amount payable to concessionaire is Rs.1025.56 crores and not the amount of Rs.672.62 crores which is included in the Supplementary Agreement. 11. The Learned Counsel for Appellants has clarified that the Appellants are not aggrieved by the fact the settlement has been entered into between NHAI and KNCEL, but they are dissatisfied by the wrong calculation of "Debt Due" which has resulted in a loss of the amount of recovery to the Appellants which should have been in accordance with MoRTH Guidelines dated 9.3.2019. He has submitted that, in addition, the Appellants are also aggrieved by the extinguishment of their claims. The Learned Counsel has submitted that the senior lenders wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estoppel operates in filing the appeal as has been contended by the Respondent since there was no opportunity for representation on the part of the senior lenders before NCLT. Moreover, an estoppel cannot be used in the case of an ultra vires act. 15. The Learned Counsel for Appellants has cited the judgment of Hon'ble High Court of Delhi in the matter of Jetpur Somnath Tollways Limited & Ors. vs. National Highways Authority of India and 7 Ors. [MANU/DE/2171/2017] in which by judgment dated 31.7.2017, it was held that the "Debt Due" amount upon termination on account of concessionaire's default during the operation period made it incumbent on Concessioning Party NHAI to pay Jetpur Somnath Tollyways by way of termination payment, an amount equal to 90% of the "Debt Due" less insurance cover, and upon termination on account of NHAI's default, NHAI has to pay to the Concessionaire by way of termination payment, an amount equal to the "Debt Due" plus 150% of the Adjusted Equity. He has claimed that the judgment further holds that the termination payment would be in accordance with the definition in the Concession Agreement. The Learned Counsel for Appellant has also contended that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted the New Board of IL&FS appointed by NCLT vide orders dated 3.10.2021 and 21.12.2018 to proceed with the resolution of IL&FS group entities in accordance with the procedure suggested by Union of India vide its Affidavit dated February 17, 2020. He has thus argued that in view of the validity of the Resolution Framework, once the settlement was arrived at between the NHAI and KNCEL, the extinguishment of all claims and liabilities of the stake holders and third parties would happen. He has also argued that since the order dated 12.3.2020 of NCLAT has attained finality, Hon'ble NCLT has full jurisdiction and power to grant relief in terms of the Impugned Order because it is now settled that the jurisdiction conferred upon NCLT under sections 241-242 is an equitable distribution and NCLT is empowered to pass such orders as it deems fit to be just and equitable in the facts of the given case. 18. The Learned Counsel for R-1 and R-2 has further argued that the Appellants had, without reservation, accepted the proceeds of the settlement amount received in pursuance of the resolution carried out for KNCEL. He has clarified that KNCEL has received a sum of Rs.662.53 crores from NHAI Es ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "Debt Due" has been stipulated in para 39 of the Affidavit dated 7.2.2020 of Union of India, and this Affidavit was approved by this Tribunal vide March 12, 2020 order, and in view of the fact that the process used for computation of "Debt Due" has been earlier approved in an appeal by this Tribunal, the Appellant's grievance on the same is without merit. 21. The Learned Counsel for R-1 and R-2 has further submitted that 'Debt Due' was computed in a fair and transparent manner by an Independent Valuer appointed by NHAI as Rs. 787.11 crores, which was done with a view to arrive at an expeditious settlement. He has further submitted that MoRTH Guidelines stipulate that compensation payable in a case of "stuck project" is equal to the lower of the value of the work done or 90% of the debt due, and the settlement amount computed as Rs.708.40 crores being 90% of the 'Debt Due' was approved by the Conciliation Committee of Independent Experts-II ("CCIE-II") on 21.8.2020, which is the forum under whose aegis KNCEL and NHAI were settling their dispute amicably. He has submitted that an amount of Rs.1030 crores as 'Debt Due' computed by the Appellants is overvalued, since it is erroneousl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the Appellants who by virtue of being financial creditors of KNCEL were interested parties in the said settlement between KNCEL and NHAI. The Learned Counsel for Appellants has also raised the issue that the Respondents have not followed procedure and modality given in the the Resolution Framework as approved by this Tribunal. 25. In this connection, we note that Hon'ble NCLAT, in its order dated 15.10.2018 in CA (AT) No. 346/2018, has held the NCLT has much wider powers under sections 241-242 of the Companies Act than the powers vested under provisions of IBC and therefore, it is fully empowered to pass orders for resolution under sections 241-242 of the Companies Act. On the same premise NCLAT decided to impose a 'stay' regarding various actions which are akin to 'moratorium' under section 14 of the IBC and hear cases relating to resolution of IL&FS and its group companies. The relevant part of NCLAT's order is reproduced below:- "3. The questions that arise for consideration in these appeals are: (i) Whether the Tribunal can pass appropriate order under Section 241 read with Section 242 of the Companies Act, 2013 for resolution of the problems faced by the Company in a ti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... group companies by any party or person or Bank or Company, etc. as of the date of first default. (v) Any and all banks, financial institutions from exercising the right to set off or lien against any amounts lying with any creditor against any dues whether principal or interest or otherwise against the balance lying in any bank accounts and deposits, whether current or savings or otherwise of the 'IL&FS' and its 348 group companies." 26. On the issue whether the settlement agreement between KNCEL and NHAI is in accordance with the proposed Resolution Framework for IL&FS and its group companies, we note 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sputes on payment of Rs.672.62 crore net of recoveries amounting to Rs.35.78 crore along with request to add accrued interest on the senior debt and sub debt as part of debt due as defined in the Concession Agreement. Concessionaire vide said letter also requested to pay interest on amount arrived as above for delay in release of payment from date of termination of the Project till date of actual transfer." 29. Admittedly, the Concessionaire and Concessioning Party had signed the original Concession Agreement. Therefore, in our view they are the necessary parties to enter into a settlement agreement. We have noted earlier in this judgment that the settlement agreement has been worked out under the supervision of CCIE-II, which in para 2.1 notes the gross settlement amount of Rs.708.40 crores and the net due amount, after taking into account Rs.35.78 crores towards recoveries, is Rs. 672.42 crores. This amount is cleared by CCIE-II as being fair, reasonable and arrived at in a transparent manner with regard to the facts and circumstances of the case and the intention of the two parties to arrive at an early settlement. On this basis we are of the view that the Settlement Agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... termination through separate termination notices. In such a situation, and since both the parties were keen for foreclosure of the Concession Agreement, a settlement was worked out based on MoRTH Guidelines under the guidance of CCIE-II, and further the amount of full and final settlement was worked out again as mutually agreed between the two parties. Therefore, Termination Payment in accordance with Concession Agreement is not applicable in the present case. 36. The procedure set out in the MoRTH Guidelines stipulates that Concession Agreement may be foreclosed vide a Supplementary Agreement, mutually agreed and executed between the parties. Annexure I of these guidelines refers to 90% of 'Debt Due" amount, which is calculated in accordance with the formula which is discussed and then accepted by both the parties. Since the two original parties in the Concession Agreement were entering into a Supplementary Settlement Agreement, there does not appear to be any requirement to consult all stakeholders including financial creditors at the stage when the two parties to the Concession Agreement are settling their dispute. The amount of "Debt Due" which has been calculated by the Appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 020, has recommended that the settlement is in line with the Approved resolution Framework; the distribution of the KNCEL Settlement Amount to the creditors of KNCEL is in accordance with the Revised Distribution Framework, and will be subject to the orders of the Hon'ble NCLT, and that there are no complaints/representations filed by any party in relation to the Proposal." 40. Finally in para 57, approval is accorded by Hon'ble Justice D.K. Jain, which is reproduced below:- "57. I have examined the proposal, which is stated to be in syne with the Resolution Framework placed before the Hon'ble NCLT by the MCA. Further, it is also asserted that the distribution of the KNCEL Settlement Amount along with the additional amounts lying in the KNCEL Escrow account is in accordance with the Revised Distribution Framework approved by the Hon'ble NCLAT. This, coupled with the assertion in the Memorandum that the Project being incomplete and yet to achieve commercial operations/ final operations, settlement of foreclosure of claims is the only solution mechanism possible for KNCEL, and failure to recover an amount of 3672.62 crores from NHAl will result in almost negligible recover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther agreed that in the event such disaggregation is not notified to the Authority, Equity shall be deemed to be the amount arrived at by subtracting Debt Due from Total Project Cost. 59. "Debt Due" has been defined to mean the aggregate of inter alia the sum expressed in Indian Rupees outstanding, on the Transfer Date, of the principal amount of the debt provided by the Senior Lenders under the Financing Agreements for financing the Total Project Cost but excluding any part of the principal that had fallen due for repayment two years prior to the Transfer Date; 60. The "Total Project Cost" has been defined to mean the lowest of: (a) the capital cost of the Project, less Equity Support as set forth in the Financial Package; (b) the actual capital cost of the Project upon completion of Four-Laning of the Project Highway less Equity Support; and (c) a sum of Rs. 828.00 crore (Rupees Eight Hundred and Twenty Eight crore), less Equity Support; provided that in the event of Termination, the Total Project Cost shall be deemed to be modified to the extent of variation in WPI or Reference Exchange Rate occurring in respect of Adjusted Equity and Debt Due, as the case may be, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without prejudice of course to any proceedings that any investigative or any other authorities may take against the erstwhile directors of the companies that are subject matter of this application." 45. We consider the contention of the Appellant that the principle for calculation of "Debt Due" should be the same as accepted in the judgment in Jetpur Somnath Tollways Limited & Ors.(supra). We note that this case was filed under section 9 of Arbitration and Conciliation Act, 1996, which has been mentioned in para 1 of the said judgment. Therefore, the Jetpur Somnath Tollways Limited & Ors. case relates to arbitration proceedings under the Concession Agreement. It is in this light that clause 37.3 of the Concession Agreement has been considered in para 15 of the judgment for calculation of "Debt Due" and "Termination Payment". As against this, we note that in the present case, a settlement has been entered into between KNCEL and NHAI and a Supplementary Agreement was signed non mutually agreed terms between the two parties. Therefore, any reference to the clauses of the Concession Agreement for calculation of 'Termination Payment' is not justified and the full and final settlement a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a prayer was made for directing the Respondent (NHAI) to release the amount of at least the 90% of the total "Debt Due" and to pay the said amount to the lenders of the Concessionaire. In this matter, Hon'ble High Court held that it would serve the requirement of justice if the money that is available as assets of the Concessionaire is distributed in terms of the Revised Distribution Framework approved by the NCLT vide order dated 12.3.2022. On this ground and since the proposal for settlement and payment to creditors was approved by Hon'ble Shri Justice D.K. Jain (Retired) to oversee the resolution process, the proposal to wind up the Concessionaire was allowed and no extra amount was ordered to be paid to the creditors as was prayed in the said OMP. This judgment is also distinguishable since it relates to winding up of the concessionaire after settlement between the parties. 48. In view of the detailed foregoing discussion, we are of the clear view that 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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