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TMI Blog2025 (1) TMI 834X X X X Extracts X X X X X X X X Extracts X X X X ..... collapsing the Agreement, when Agreement is entered. Admittedly, there is no Agreement, which claimed to have been admitted / entered with regard to Respondent Nos.8 to 12 of IA No.3169 of 2023 and objections having been raised with regard to Respondent Nos.8 to 12 by SIFL , claiming that amount advanced to IL FS entities by third party borrowers, like Respondent Nos.8 to 12 was the amount given by the SIFL and not by third party borrowers. Hence, the said transactions with IL FS entities, cannot be collapsed. For issuing any directions as prayed by the Applicant with regard to Respondent Nos.8 to 12, a deeper and thorough consideration is required with regard to transactions with third party borrowers as well as lending money to IL FS entities. Present Applications, are not the appropriate proceedings to grant declaration as prayed by the Applicant and direct for collapsing the third party Agreements and transactions entered with Respondent Nos.3 to 12. It is made clear that the said issues can be gone into and examined by NCLT in the pending proceedings and appropriate decisions can be taken with regard to borrowing with respect to Respondent Nos.8 to 12. Conclusion - The proposa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being recognized by the CMA as the claimant/direct lender qua the concerned IL FS Group entities with regard to their respective transactions, thereby ultimately collapsing/unwinding the transactions undertaken with such Third Party Borrowers. 3. In pursuance of the Resolution Framework as approved by this Tribunal in Company Appeal (AT) No.346 of 2018, the New Board has taken steps to unravel the issues resulting in the financial mismanagement within the IL FS group. It is useful to notice the pleading in paragraphs 6 and 7 of the Application, which are as follows: 6. The New Board as part of its efforts to unravel the issues resulting in the financial mismanagement within the IL FS Group, discovered that one of the primary challenges that plagued the IL FS Group were the significant intra group borrowings. From the records available it was also discovered that loans to some IL FS Group entities were lent by routing the loans through other IL FS Group entities/ third parties, reflecting adoption of circuitous transactions to circumvent regulatory prescriptions. In view thereof, the New Board by way of affidavit dated October 30, 2018 filed before the Hon ble NCLT also informed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essions Judge cum special judge (companies act), at Mumbai, being Criminal Complaint No. 20 of 2019 ( Criminal Complaint ), has red flagged instances of loan evergreening, non compliance with various norms including inter alia instances where accounts of borrowers of IFIN and/or third parties were used by IFIN for onward lending to ITNL and/or its subsidiaries. (b) the audit report prepared by Grant Thornton LLP, an external audit firm engaged by the New Board ( Grant Thornton ), records that the loans disbursed by IFIN to a few third party borrowers were identified as circuitous transactions. 4. Paragraph-8 of the Application gives the detail of loans given by IFIN to IL FS group entities and its subsidiaries through external/ third parties. Paragraph 8 gives instances of 16 such borrowings by IFIN. Paragraph 8 of the Application is as follows: 8. After November 2017, IFIN began providing loans to IL FS Group entities including inter alia IL FS Transport Network Limited ( ITNL ) and its subsidiaries through external/third parties i.e. the Third Party Borrowers. Accordingly, in the books of accounts of IFIN, IFIN was the primary lender and the Third Party Borrowers were the borrowi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty borrowers. A decision was taken in the meeting dated 30.05.2023, Minutes of which have been brought on record as Annexure-1 to the Application. In paragraph 14 of the IA, the Applicant has mentioned about the modalities for unwinding/ collapse the transactions. Paragraph 14 of the Application is as follows: 14. The said proposal envisages IFIN taking the necessary steps/ approvals that would enable IFIN to become the lender to and/or claimant against the Final Borrower, thus effectively collapsing/unwinding the transaction between IFIN/the Final Borrower with the Third Party Borrower. The modality that has been proposed for the same is as follows: STEP 1: MAKING THE NECESSARY ACCOUNTING ENTRIES (a) IFIN will make the necessary entries in its books of accounts to change the name of the borrower from the existing Third Party Borrower and will move the exposure in the name of respective IL FS Group entity. (b) IFIN has been charging interest to all the Third Party Borrowers up to date i.e. even post the cut off date of October 15, 2018, however, since the transactions with Third Party Borrowers will be now treated as an exposure to the relevant Final Borrower, the accrual of intere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . IFIN Sikar Bikaner Highway Limited 29.91 11. IFIN Srinagar Sonamarg Tunnelway Limited 147.06 12. IFIN Srinagar Sonamarg Tunnelway Limited 157.48 13. IFIN ITNL 216.98 14. IFIN ITNL 282.80 7. In the background of the aforesaid pleadings, following reliefs have been prayed for in the Application: (a) approve the Proposal to Unwind/Collapse the Subject Transactions with Third Party Borrowers and permit IFIN to enter into and give effect to the said Proposal, by following the modality/steps broadly delineated in Para 14 hereinabove, including to make the necessary accounting entries enabling IFIN to become the direct lender/claimant to for the Final Borrower; (b) direct Grant Thornton LLP to recognise IFIN as the lender in place of the concerned Third Party Borrower against the Final Borrower i.e. relevant IL FS Group entity in respect of the Subject Transactions for the purpose of interim/final distribution, and 8. In the Application, 13 Respondents were impleaded, who were third party borrowers, to whom loan was extended by IFIN. Notices were issued in the Application. An Application IA No.4953 of 2023 was filed by Srei Infrastructure Finance Limited ( SIFL ) pleading that it has ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inal disposal of the present Application, staying the effect and operation of the letter dated September 12, 2023 sent by the Respondent to IFIN,; (c) Directing that further meetings of the CoC of Attivo be kept in abeyance till such time the Collapsing Application is adjudicated upon and finally decided; (d) Declaring that the filing of the Collapsing Application (being I.A. No. 3169 of 2023 in CA(AT) No. 346 of 2018) before this Hon ble Appellate Tribunal) may not be treated as an admission in any other proceedings and/or precipitative steps be taken against the Applicant basis the said application; (e) Pass such other order(s) as this Hon'ble Court may deem fit and proper in the facts and circumstances of the case. 11. In IA No.5300 of 2023, a reply has been filed by Bimal Kanti Choudhury, IRP, pleading that Applicant claim has been rejected by IRP on account of the pleadings made by the IL FS itself in IA No.3169 of 2023, where the IL FS itself has pleaded that transaction with Corporate Debtor was circuitous. In the reply, various pleadings and averments made in IA No.3169 of 2023 have been relied. 12. We have heard Shri Ramji Srinivasan, learned Senior Counsel appearing f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve been pleaded: 15. It would be pertinent to mention here that SIFL is also a creditor/lender of the entities to which IFIN (except Vistar Financers Private Limited) has lent money. The amounts advanced (as loan) by SIFL to the entities mentioned in paragraph 10 above are as below: Sl. No. From SREI to different entities Loan Sanctioned (Rs. Cr.) Sanction Date 1 BRNL 270 06.12.2017 2. Sahaj e-Village Ltd. (now Known as E-Village Kendra Ltd.) (in CIRP) 350 27.06.2017 3. Attivo Economic Zone (Mumbai) Pvt. Ltd. (in CIRP) 350 20.12.2017 4. Giridhan Projects Pvt. Ltd. (in liquidation) 260 29.03.2018 16. The contention of IL FS that the amounts advanced by IFIN to various Third-Party Borrowers has been re-lent to the IL FS Group entities is not applicable to the amounts advanced by SIFL to IL FS Group entities in as much as SIFL is itself also a lender to the same Third-Party Borrowers. The question of any circuitous transaction in respect of the amounts advanced by SIFL to IL FS entities therefore cannot and does not arise. 17. Further as admitted by IL FS, the Third-Party Borrowers had not lent any funds to the IL FS entities and such funds were in fact advanced by SIFL. The same woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is further submitted that SIFL is not a party to dispute between IFIN and Attivo. 16. We have already noticed from the pleadings in IA No.3169 of 2023 that one of the steps, which has been contemplated is an Agreement between IL FS and third party borrowers for collapsing the Agreement and the orders were sought only with respect to collapsing the Agreement, when Agreement is entered. Admittedly, there is no Agreement, which claimed to have been admitted / entered with regard to Respondent Nos.8 to 12 of IA No.3169 of 2023 and objections having been raised with regard to Respondent Nos.8 to 12 by SIFL , claiming that amount advanced to IL FS entities by third party borrowers, like Respondent Nos.8 to 12 was the amount given by the SIFL and not by third party borrowers. Hence, the said transactions with IL FS entities, cannot be collapsed. It is also relevant to notice that in the Application, which was filed by IL FS, in paragraph 19, following was pleaded: 19. It is clarified that the present application shall in no manner have a bearing on any investigations/proceedings that are being carried out with regard to whether the Subject Transactions were indeed fraudulent in nature or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udice by the submissions made by the IFIN in IA No.3169 of 2023. IA No.3169 of 2023 is disposed of accordingly. 20. In result, we allow IA No.3169 of 2023 and prayers made therein. This, however, shall not have any consequence on any pending proceedings against third party borrowers, including Respondent Nos.8 to 12 and that can be gone into and examined in accordance with law. 21. Now, coming to IA No.5300 of 2023, from the facts noticed above, it is clear that in the CIRP of Attivo Economic Zone (Mumbai) Pvt. Ltd., the claim filed by IFIN was admitted and IRP has allowed voting share of 39.14% and after filing if IA No.3169 of 2023, the IFIN informed the RP about filing of the Application. After receipt of the said Application from IL FS, the IRP in response to letter dated 17.08.2023 of the IFIN, issued a letter on 12.09.2023, rejecting the claim of IFIN. The letter dated 17.08.2023 is filed as Annexure-7 to the IA, which is as follows: To, August 17 2023 The Interim Resolution Professional/ Resolution Professional Mr. Bimal Kanti Chaudhary 77N50, Raja S.C.Mallick Road, 8 S.P.B Block Kolkata- 700092 Subject:_IL FS Financial Services Ltd. v Attivo Economic Zone (Mumbai) Pvt. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut prejudice to the rights and remedies available to IFIN. For IL FS Financial Service Limited Sd/- Authorised signatory 22. After receiving the letter dated 17.08.2023, the IRP on 12.09.2023 issued a letter, which is prayed to be quashed by the Applicant. The letter dated 12.09.2023 by IRP is as follows: Bimal Kanti Choudhury IRP of Attivo Economic Zone (Mumbai) Pvt. Ltd. 77 A/50 Raja S.C.Mallick Road 8 S.P.B.Block Kolkata 700092 Email:[email protected] Phone No. 9831522717 Date: 12.09.2023 IL FS Financial Services Limited The IL FS Financial Centre Plot No.C-22, G Block Bandra Kurla Complex, Bandra East Mumbai-400051 Dear Sirs, I refer to the application to the Hon'ble NCLAT, New Delhi, being LA 3169 of 2023 filed by Infrastructure Leasing and Financial Services Limited (IL FS) in Company Appeal (AT) No. 346 of 2018 in the matter of Union of India V s. Infrastructure Leasing and Financial Services Limited and Ors. seeking a relief to, inter alia, collapse certain transactions whereby IL FS Financial Services Limited (IFIN) has provided loans to certain third parties, which include the transaction with Attivo Economic Zone (Mumbai) Private Limited (Attivo ). From your applic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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